Company Name Loan Origination Module

Table of Contents – page i

Table of Contents Table of Contents................................................................................................... i Introduction - The Loan Originator ........................................................................1

The Role of the Loan Officer........................................................................................ 1 Section 1 - Position Description ............................................................................2

Licensing and Professional Education Requirements (SAFE Act).......................................... 3 Compensation .............................................................................................................. 5 Creditor vs. Originator .................................................................................................. 5 Base Commission Schedule ........................................................................................ 5 Dual Compensation...................................................................................................... 5 Avoiding “Steering”....................................................................................................... 6

Compensation Policy and Procedure....................................................................7 Compensation Policy – Consumer Paid Fees......................................................................... 8

Process - Consumer Paid or Lender Paid ................................................................... 8 Consumer May NOT Pay Employee Directly............................................................... 8

Compensation Plans ............................................................................................................... 9 Consumer/Creditor Paid Compensation Plan – Brokers or Creditors ......................... 9 Investor/Wholesaler (Creditor) Paid Compensation – for Brokers............................. 10 Table of Creditors....................................................................................................... 10 Exception to Compensation Grid (Safe Harbor) ........................................................ 10

Safe Harbor – Consumer Chooses Product which results in Higher Compensation............ 11 Customer’s Best Interest Worksheet (Anti-Steering Safe Harbor) ............................ 12 Commission Schedules and Permissible Payments.................................................. 13 Performance Reviews................................................................................................ 14 Company Name’s Policy on Loan Size Price Adjustments – Tiered Pricing ............. 14 Individual and Spousal Loans .................................................................................... 14 Time Keeping Policy .................................................................................................. 15

Employment Status Policy..................................................................................................... 16 Section 2 - Secondary Marketing and Lock-in Policy ..........................................18

Lock-in Policy ........................................................................................................................ 19 Lock Term Policy ................................................................................................................... 20

Exceptions to Lock-in Policies ................................................................................... 20 Lock-In of Pre- Qualifications..................................................................................... 20 Additional Pipeline Management Time Frames ......................................................... 21 Pipeline Management Reports................................................................................... 21

Expired Lock-ins .................................................................................................................... 22 Re-Locking Expired Lock-ins ..................................................................................... 22 Lock-ins On Denied Loans......................................................................................... 22 “Playing the Market” is Prohibited .............................................................................. 22 Lock-In Process ......................................................................................................... 23 Secondary Marketing – Confirmation of Lock-in........................................................ 23 Monitoring Final Pricing ............................................................................................. 24 E-Mailing Secondary Marketing ................................................................................. 24 Lock-ins With CRA Credit .......................................................................................... 24

Lock-in Changes.................................................................................................................... 25 Change Request Form............................................................................................... 25 Reconciling Price Discrepancies................................................................................ 25 Revised Lock-in Confirmation .................................................................................... 25 Change Matrix............................................................................................................ 25 Changes Requiring Secondary Approval................................................................... 25 Substitutions Not Allowed .......................................................................................... 26

Pricing - Loan Eligibility ......................................................................................................... 27

Company Name Loan Origination Module

Table of Contents – page ii

Use of Automated Underwriting and Pricing Engines................................................ 27 Unsalable Loan Deficiency ........................................................................................ 27 Rate Sheet Distribution .............................................................................................. 28

Lock-in window...................................................................................................................... 28 Lock-in Cut-Off ........................................................................................................... 28 Market Updates.......................................................................................................... 28 Floating Pipeline Monitoring....................................................................................... 28

Outside Investors................................................................................................................... 29 Investor Overlays................................................................................................................... 29

Tax Return Verification Transcripts............................................................................ 29 Approved Appraiser List............................................................................................. 29 Maximum DTI............................................................................................................. 29 Income Documentation .............................................................................................. 29 Chain of Title on Title Commitment............................................................................ 30

Company Name Fees............................................................................................................ 31 Completing the Lock-In Agreement ........................................................................... 32 Secondary Forms and Reports .................................................................................. 33

Section 3 - Loan Officer Initiation........................................................................34 Basic Training ............................................................................................................ 34

Loan Officer Initiation............................................................................................................. 35 Building an Originator Business Plan......................................................................... 36 Preparation of an Introductory Package .................................................................... 37 Assembly of A Marketing and Follow-up Plan ........................................................... 38

Marketing Materials Policy .................................................................................................... 40 Addresses and Contact Information........................................................................... 40

Section 4 – Computer Loan Origination System (LOS).......................................41 Section 5 – Pre-Qualification, Pre-Approval and Application ..............................43

Privacy Policy ........................................................................................................................ 43 Application Paths and Requirements .................................................................................... 44 Pre Qualification Process ...................................................................................................... 45

Pre-Qualification Worksheet ...................................................................................... 45 Pre-Qualification with Credit Review..................................................................................... 46

Sample Pre-Qualification Letter ................................................................................. 47 Pre-Qualification Disclosure Policy ............................................................................ 48 Loan Type Disclosure - PreQualification.................................................................... 48

Pre-Qualification and Property Valuation .............................................................................. 50 Valuation and Pre-Qualification ................................................................................. 50 Prohibited Practices for Production Staff ................................................................... 51 Pre-Approval Policy.................................................................................................... 52 Inadvertent Pre-Commitment..................................................................................... 52 Adverse Action ........................................................................................................... 53 Other General Requirements..................................................................................... 55

Section 5 - The Loan Application Process ..........................................................56 Minimum Documentation Required for Loan Application........................................... 57 Obtaining A Credit Report.......................................................................................... 58

Credit Information Disclosure Policy ..................................................................................... 59 Section 6 – The Application Process ..................................................................60

Notice of Incomplete Application................................................................................ 60 Computer Applications............................................................................................... 61 Complete Application Checklist Form........................................................................ 62 Loan Application Process Flow.................................................................................. 63 Loan Application Packages and Forms ..................................................................... 64 The Fundamentals of Complete Loan Applications ................................................... 65 Sections 1 & 2 of Application ..................................................................................... 66 Section 3 – Personal Information............................................................................... 68

Company Name Loan Origination Module

Table of Contents – page iii

Section 4 – Employment Data ................................................................................... 69 Section 5 - Income & Housing Expense .................................................................... 70 Tax Return Authenticity Process................................................................................ 73 Section 6 - Assets & Liabilities................................................................................... 74 Real Estate Schedule ................................................................................................ 77 Cash Requirements and The Good Faith Estimate ................................................... 78

The “Pre-Application Kit Process” ......................................................................................... 79 Generating Letters and Forms .............................................................................................. 85 Preparing a Closing Cost Estimate (NOT GFE).................................................................... 86

Good Faith Estimate or Cost Estimate....................................................................... 86 Estimating Costs - Points........................................................................................... 87 Estimating Costs - Lender Fees and Closing Costs ................................................. 88 Fees Accepted Prior to Closing ................................................................................. 88 Title Fees and Charges.............................................................................................. 89

Procedure for Obtaining Third Party Closing Cost Estimates ............................................... 90 Completing the HUD Required Good Faith Estimate............................................................ 91

Disclosing Originator Compensation and Closing Costs ........................................... 94 The Good Faith Estimate Process ............................................................................. 95

GFE Application Process ...................................................................................................... 96 Issuing Initial GFE Forms........................................................................................... 97 Changed Circumstances............................................................................................ 98 Changed Circumstances Process.............................................................................. 98 Estimating Prepaid Items ......................................................................................... 100 Determining The Number of Months to Collect in Escrow....................................... 101 Government Charges............................................................................................... 103 Insert Local Tax Tables Here................................................................................... 104 Disclosures - at Closing ........................................................................................... 105 HUD-1 Settlement Statement .................................................................................. 105

Section 7 - Loan Officer File Set Up..................................................................106 Standard File Order ............................................................................................................. 106

Section 8 - How to Process a Loan...................................................................107 Processing ............................................................................................................... 107

Loan Process Overview ...................................................................................................... 108 Processing Flow....................................................................................................... 108 Processing Flow....................................................................................................... 109 The Approval Process.............................................................................................. 110 Investor Contact Policy ............................................................................................ 110 Appraiser Ordering/Contact Policy........................................................................... 111

Section 9 - The Closing and Requirements ......................................................112 Property Titling Issues.............................................................................................. 114 At Closing................................................................................................................. 114

Section 10 – Compliance ..................................................................................117 Policy for Handling Complaints ................................................................................ 117

Section 11 - Marketing Policy – Non-Traditional Loans and Predatory Lending120 Hybrid and Non-Traditional Loan Guidance ............................................................ 121 Predatory Lending Policy ......................................................................................... 122 Characteristics of Predatory Lending....................................................................... 122 Loan Flipping- No Financial Benefit – Equity Stripping............................................ 123 Excessive Fees – Fee Packing................................................................................ 125 Lending Without Regard for the Borrower’s Ability to Pay....................................... 125 Fraud........................................................................................................................ 126 Negative Amortization.............................................................................................. 127 Payments in Advance .............................................................................................. 127 Prepayment Penalties.............................................................................................. 127 Payments to Contractors ......................................................................................... 128

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Mandatory Arbitration Agreements .......................................................................... 128 Due on Demand Clauses - Acceleration.................................................................. 129 Balloon Payments .................................................................................................... 129 Predatory Servicing Practices.................................................................................. 129 Deceptive Practices ................................................................................................. 131 Encouraging Default................................................................................................. 131

State Predatory Lending Laws ............................................................................................ 132 National Bank Exemption......................................................................................... 132

Ethics Policy .....................................................................................................133 Introduction.......................................................................................................................... 133 Pressure .............................................................................................................................. 133 Our Ethics Policy – A Code of Ethics .................................................................................. 133 Other Ethical Behaviors....................................................................................................... 135

Harassment/Sexual Harassment ............................................................................. 135 Business Courtesies ................................................................................................ 135

Compliance with the Letter, Not the Spirit ........................................................................... 135 Truth-in-Lending....................................................................................................... 135 Unethical Treatment of the APR Disclosure ............................................................ 135 The Real Estate Settlement Procedures Act ........................................................... 135 Unethical Treatment of RESPA Rules ..................................................................... 136 The Equal Credit Opportunity Act and the Fair Housing Act ................................... 136 Unethical Treatment of the ECOA/FHA ................................................................... 136

Whistleblower Policy............................................................................................................ 138 General .................................................................................................................... 138 Reporting Responsibility .......................................................................................... 138 Authority of Audit Committee ................................................................................... 138 No Retaliation........................................................................................................... 138 Reporting Concerns ................................................................................................. 138 Handling of Reported Violations .............................................................................. 139 Acting in Good Faith ................................................................................................ 139 Confidentiality........................................................................................................... 139

Company Name Processing Module

Page i

Table of Contents Table of Contents................................................................................................... i Introduction ...........................................................................................................3

The Processing Position .............................................................................................. 3 Section 1 – The Processors Duties & Responsibilities..........................................5

Job Description - Mortgage Loan Processor........................................................................... 5 General Description ..................................................................................................... 5 Specific Duties ............................................................................................................. 5 General Description of Duties ...................................................................................... 6 Process Flow................................................................................................................ 7 Contract Processing..................................................................................................... 8

Section 2 – Software.............................................................................................9 Building an Export "Template" ................................................................................... 11 Using the Exported Data............................................................................................ 12 Preparing to Merge .................................................................................................... 12

Section 3 - New Loan Setup ...............................................................................15 Sources of Applications and Treatment ................................................................................ 15

Assigned/Transferred Applications ............................................................................ 16 Assigned and Brokered Loan Referral Fee Policy..................................................... 17 Brokering loans out for referral fees........................................................................... 17

Loan File Set-Up Procedures ................................................................................................ 18 Set Up Checklist......................................................................................................... 18

Ordering the Credit Report .................................................................................................... 19 In-File, Pre-Qual or Tri-Merge v.s. Full RMCR .......................................................... 19 Credit Report Order Methodology.............................................................................. 20

Assigned Files ....................................................................................................................... 20 Approved Credit Report Vendors .......................................................................................... 22 Reviewing the Credit Report ................................................................................................. 23

Derogatory Credit References and Potential Solutions ............................................. 26 Missing Documentation ......................................................................................................... 28

Complete Application Checklist ................................................................................. 30 Preparing the Truth-In-Lending ............................................................................................. 31 The Welcome Package - Borrower Introduction ................................................................... 35

Welcome Package Checklist ..................................................................................... 35 Appraisal Ordering – Random Appraiser Selection .............................................................. 36

Appraisal Checklist..................................................................................................... 36 Approved Appraiser Vendor List ................................................................................ 37 Random Appraisal Order Process ............................................................................. 38 Appraisal Order Form – Conventional Loans ............................................................ 40

Ordering FHA Case Numbers and Appraisals ...................................................................... 41 Case Number Assignments/Changes........................................................................ 41

VA Online Ordering ............................................................................................................... 42 Condominium/PUD Questionnaire ........................................................................................ 43

Condominium/PUD Checklist..................................................................................... 43 Condominiums and Government Insured Loans................................................................... 44 Direct Verifications................................................................................................................. 45 File Order............................................................................................................................... 46 Detailed Credit Package Order ............................................................................................. 47

CONVENTIONAL LOANS – Stack Order from Top to Bottom .................................. 47 GOVERNMENT LOANS – Stack Order – Top to Bottom.......................................... 49

Section 4 - Processing and Submitting ...............................................................51 Loan Status Benchmarks........................................................................................... 51

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Loan Tracking Reports .......................................................................................................... 52 Processing Status Benchmarks ................................................................................. 52

Processing Reports ............................................................................................................... 53 Pipeline Review Procedure ................................................................................................... 56

Pipeline Review Process ........................................................................................... 56 General Division of Duties between Originator and Processor ................................. 57

Status Reports....................................................................................................................... 58 Underwriting Submission....................................................................................................... 60

Appraisal Copy to Borrower Certification................................................................... 60 Borrower Appraisal Copy Notice Form ...................................................................... 61

Basic Underwriting Submission Process............................................................................... 62 Pre-Underwriting Review Checklist ....................................................................................... 63

Forms – Verbal Verification of Employment .............................................................. 68 Section 5 - The Approval Process.......................................................................69

Submitting to Different Underwriters/Investors...................................................................... 69 Basic Underwriting Preparations ........................................................................................... 70 Income Computation ............................................................................................................. 71

Overtime, Bonus, & Commissions ............................................................................. 72 Bonus, Tips and Commission .................................................................................... 73 Future Raises............................................................................................................. 73 Dividends & Interest ................................................................................................... 74

Tax Return Authenticity Process (4506T) ............................................................................. 75 Self-Employment ................................................................................................................... 76

2 Years Self Employment is Absolute........................................................................ 76 Self-Employment Types............................................................................................. 77 Treatment of Self-Employment Income ..................................................................... 77 Personal Tax Return Analysis.................................................................................... 79

Self Employment Analysis Tools ........................................................................................... 83 Simple Analysis.......................................................................................................... 83 Self-Employed Income Analysis - Adjusted Gross Income Method .......................... 84 Self-Employed Income Analysis - Schedule Analysis................................................ 85

Loan Approval Notification .................................................................................................... 86 Section 6 - The Closing and Requirements ........................................................87

Brokered Transactions .......................................................................................................... 87 Settlement Agent........................................................................................................ 94 Titling of Properties at Closing ................................................................................... 97

Section 7 - Forms..............................................................................................102

Closing Module Company Name

Table of Contents and Introduction Page i

Table of Contents Table of Contents................................................................................................... i Introduction ...........................................................................................................v Section 1 - General Position Description – Closer/Settlement Coordinator...........1

Basic Functions ............................................................................................................1 Specific Responsibilities ...............................................................................................1 Desired Education and Experience ..............................................................................1

Detailed Duties and Descriptions.............................................................................................2 Settlement Coordinator ............................................................................................................2

Pre-Settlement Audit.....................................................................................................2 Procedure .....................................................................................................................2

Tracking....................................................................................................................................3 Reports/Notification ......................................................................................................3 Loan Closing Checklist .................................................................................................3 Settlement Status Tickler Report ..................................................................................3 Closed Loan Report......................................................................................................3 Closings Pending Report ..............................................................................................3 Closed Loans by Loan Officer ......................................................................................4 Master Settlement Log..................................................................................................4 Exception Card File System .........................................................................................4

Quality Control .........................................................................................................................5 Ongoing Settlement - Crisis Management....................................................................5 Post-Settlement Audit ...................................................................................................5 Delivery/Investor Guaranty: ..........................................................................................5

Policy Enforcement ..................................................................................................................6 Regulatory Compliance ................................................................................................6

Training ....................................................................................................................................7 Processors and Loan Officers ......................................................................................7 Settlement Personnel ...................................................................................................7 Initiation Training ..........................................................................................................7

Updating Procedures ...............................................................................................................7 Condominium/PUD Documents....................................................................................8 Procedure for Condominiums and PUDs .....................................................................8 VA/FHA/Conventional Condominium File Document Checklist ...................................9 County/Jurisdiction Maps............................................................................................10 Flood Insurance ..........................................................................................................10 Insurance Rating Guide ..............................................................................................10

Scheduling Closings...............................................................................................................11 Closing Checklist/Initial Warehousing Package.....................................................................12

Initial Warehousing Package ......................................................................................12 Loan Closing Checklist ...............................................................................................12

Tracking..................................................................................................................................13 Maintain Master Settlement Log.................................................................................13

Final Warehouse Package.....................................................................................................14 Final Audit/Delivery ................................................................................................................15

Section 2 - General Closing Documentation Requirements ................................16 Title Insurance Requirements ................................................................................................17

Coverage Amount.......................................................................................................17 Form............................................................................................................................17 Grantors ......................................................................................................................17 Acceptable Title Exceptions........................................................................................18 Unacceptable Exceptions ...........................................................................................18

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Powers of Attorney .....................................................................................................20 Standard Endorsements .............................................................................................20 Effective Dates............................................................................................................20

Survey Requirements.............................................................................................................21 Hazard Insurance...................................................................................................................23

Dwelling Coverage......................................................................................................23 Effective Dates and Period .........................................................................................23 Paid Receipt................................................................................................................23 Mortgagee Clause ......................................................................................................23 Other Coverage ..........................................................................................................24 Binders........................................................................................................................24 Insurance for Condominiums......................................................................................25 Flood Hazard Insurance and Flood Determination.....................................................26 Flood Zone Determination ..........................................................................................26

Wood Destroying Insects .......................................................................................................28 Exceptions ..................................................................................................................28 Termite - High Rise Condominium .............................................................................28 Termite - New Construction Properties ......................................................................28 Termite Report Requirements ....................................................................................28 VA/FHA Loans ............................................................................................................28 Conventional Loans ....................................................................................................29 Soil Treatment Guarantee and Well System Properties.............................................29

Well and Septic Certification ..................................................................................................30 Well Certifications .......................................................................................................30 Septic Certifications ....................................................................................................30 Borrower's Acknowledgement ....................................................................................30 New Construction .......................................................................................................30 Community Water Supplier.........................................................................................31

New Construction...................................................................................................................32 All Loans .....................................................................................................................32 Residential Use Permit/Certificate of Use and Occupancy ........................................32 Conventional Loans ....................................................................................................32 FHA/VA Loans ............................................................................................................32 Completion Escrows ...................................................................................................33 Builder's Warranty.......................................................................................................33

Mortgage Insurance ...............................................................................................................34 Review the Certificate of Insurance............................................................................34

Powers of Attorney.................................................................................................................35 Refinance ...............................................................................................................................37

Right of Rescission .....................................................................................................37 Scheduling Refinance Settlements.............................................................................38

Transfer of Funds...................................................................................................................39 Conditions of Closing .............................................................................................................40

Hazard Insurance .......................................................................................................40 Residential Use Permit/Certificate of Occupancy.......................................................40 Signed Final Typed Loan Application (1003)..............................................................40 Sale of Previous Homes .............................................................................................40 Proof of Payoff of Debts..............................................................................................41 Pay Off of all Existing Liens ........................................................................................41 No Cash Out ...............................................................................................................41 Name Affidavit.............................................................................................................41 Active Duty Certification..............................................................................................41

Section 3 - Settlement/Closing Flow and Procedures .........................................43 Closing/Settlement Notification and Tickler Report ....................................................46 Settlement Exception Report ......................................................................................47 Pre-Settlement Quality Review...................................................................................48

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Pre-Closing Document Review Checklist ...................................................................49 Post-Closing Audit Preparation Checklist...................................................................50 Final Warehouse and Delivery Package Completion .................................................51

Final Documentation Follow-Up Process...............................................................................51 Final Documentation Follow-Up Process...............................................................................52

Closed Loan Audit Checklist.......................................................................................53 Section 4 - Closing Specific Loan Types.............................................................56

Closing FHA and VA Loans ...................................................................................................57 Allowable Fees and Charges......................................................................................57 VA/FHA Loans - Allowable Charges...........................................................................57 Loan Origination Fee ..................................................................................................57 Loan Discount Fee......................................................................................................57 Title Examination/Title Insurance Fees ......................................................................58 Recording Fees and Taxes.........................................................................................58 Escrows for Real Estate Taxes and Hazard Insurance- Per Diem.............................58

Disallowed Charges ...............................................................................................................58 Understanding the Mortgage Insurance on FHA Loans .............................................59 FHA Mortgage Insurance Escrow premium................................................................59

Reverse Mortgages for Seniors .............................................................................................60 Closing a Fixed Rate Mortgage..............................................................................................61

Term/Amortization ......................................................................................................61 Interest-Only ...............................................................................................................61 Prepayment.................................................................................................................61 Prepayment Penalties.................................................................................................62

Bi-Weekly Payment Plans......................................................................................................63 Closing Balloon Mortgages ....................................................................................................64

Conditional Refinance Provisions...............................................................................64 Product Specific Documents.......................................................................................64 Closing Loans with Buydowns....................................................................................65 Specific Closing Documents for Buydowns ................................................................66

Closing Adjustable Rate Mortgages.......................................................................................67 ARM Components - The Basic Four...........................................................................67 Frequency of Changes ...............................................................................................67 The Index....................................................................................................................68 The Margin..................................................................................................................68 Payment Caps ............................................................................................................69 Conversion Options ....................................................................................................70 Product Specific Closing Documents – ARMs............................................................70

Closing Second Mortgages ....................................................................................................71 First and Second Mortgage Combinations .................................................................71 Seller held Mortgages, Assumptions and Wraps........................................................71 Product Specific Closing Documents .........................................................................71

Section 5 - Closing Costs and Settlement Documentation..................................73 Understanding Closing Costs.................................................................................................73 Application Disclosures - The Good Faith Estimate of Closing Costs ...................................74

Practical Applications of the GFE – Total Cash at Closing ........................................74 Using a Closing Cost Worksheet ................................................................................75

Completing The Good Faith Estimate....................................................................................75 Completing The Good Faith Estimate....................................................................................76

2.21.3 Disclosing Originator Compensation and Closing Costs.................................79 2.21.4 The Good Faith Estimate Process...................................................................80

2.22 GFE Application Process ...............................................................................................81 Issuing Initial GFE Forms ...........................................................................................82 2.23.1 Changed Circumstances .................................................................................83 Changed Circumstances Process ..............................................................................83

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HUD-1 Settlement Statement.................................................................................................85 The HUD-1 Settlement Statement Elements..............................................................86 Underwriting Review of Cash Requirements and HUD-1...........................................89 What These Costs Represent.....................................................................................90 Section 800 – Lender and Broker Fees......................................................................93 Disallowed Fees .........................................................................................................93 Assigned and Brokered Loan Referral Fee Policy......................................................93 Brokering loans out for referral fees ...........................................................................93 Financing Agreement Review.....................................................................................94 Lender/Broker Credits - "Above Par" Pricing Towards Closing Costs........................95

Section 900 – Title Charges...................................................................................................96 Title Insurance ............................................................................................................96

Section 1100 and 1200 - Prepaid Items & Escrows...............................................................97 Interim Interest ............................................................................................................98 Interest Credit Closing ................................................................................................98 Partial Payment Closing .............................................................................................98 Mortgage Insurance and Insured Loans...................................................................100 The Funding Fee ......................................................................................................100 Private Mortgage Insurance Escrow.........................................................................100 Property Completion Escrows ..................................................................................101 Insurance Escrow .....................................................................................................102 Hazard Insurance Escrows.......................................................................................102

Real Estate Tax Escrows .....................................................................................................103 Calculating the Real Estate Tax Escrow Amount.....................................................103

Escrows and Escrow Procedure ..........................................................................................104 Real Estate Tax Escrows..........................................................................................104 Escrow Waiver..........................................................................................................105 Transfer of Escrows..................................................................................................106 Procedure for Escrow/Impound Transfer Request ...................................................106 Avoiding Problems with Seller Contributions............................................................109 Section 1200 - Government/Municipal Title Related Charges....................................110 Transfer Tax/Recordation Tax Tables for Jurisdictions Covered by Company Name111

Section 6 - Approved Attorney System .............................................................112 Approved Settlement Attorneys and Title Companies..............................................113 Approved Attorney Form...........................................................................................114 Approved Attorney List ............................................................................................115

Underwriting Module Company Name

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Introduction ...........................................................................................................1 Section 1 - Underwriting Position Description .......................................................2

Description....................................................................................................................2 SPECIFIC RESPONSIBILITIES ...................................................................................2

Underwriting Flow ....................................................................................................................3 Software Introduction ...............................................................................................................4

Using Data in the System .............................................................................................4 Building an Export "Template"......................................................................................4 Using the Exported Data ..............................................................................................5 Preparing to Merge.......................................................................................................6 Solving Simple Merge Problems ..................................................................................7 Daily & Monthly Reporting ............................................................................................9 Daily Reporting .............................................................................................................9 Monthly Reporting.......................................................................................................10

Appraisal Ordering – Random Appraiser Selection ...............................................................11 Appraisal Checklist .....................................................................................................11 Approved Appraiser Vendor List.................................................................................12 Random Appraisal Order Process..............................................................................13 Appraisal Order Form – Conventional Loans .............................................................15

Section 2 - Conventional Non-AU Underwriting Procedure and Process............16 FHLMC Gold Measure................................................................................................16 Underwriting Analysis/Approval Form ........................................................................18 Approving FHA Loans ................................................................................................20

Ensuring Data Integrity..................................................................................................... 20 Documentation for AUS Underwritten Loans .............................................................20 Handling “Refer” or “Ineligible” Findings.....................................................................20 APPROVING VA AUTOMATIC LOANS.....................................................................21 Underwriting Tools - Checklists ..................................................................................22

Maintenance of Loan Plan Specifications..............................................................................26 Creating Loan Plan Specifications..............................................................................27 Underwriting Tools......................................................................................................33 Income analysis ..........................................................................................................33 Adjusted Gross Income Analysis Form ......................................................................34 Comparative Income Analysis ....................................................................................35 Comparative Income Analysis ....................................................................................36 Training.......................................................................................................................37 Underwriting Documents ............................................................................................38 "Approved with Conditions" ........................................................................................38 Underwriting Approval Letter ......................................................................................40 Suspended Loans.......................................................................................................40 Suspended Loans.......................................................................................................41 Denial..........................................................................................................................42

Section 3 - Underwriting Investment Quality Loans ............................................43 Overview.....................................................................................................................43 “Investment Quality” Loans.........................................................................................43 Guidelines...................................................................................................................43 Forms..........................................................................................................................44 Quality control.............................................................................................................44 Underwriting Objectives..............................................................................................44

Section 4 - Analyzing The Borrower's Ability To Repay ......................................46 Overview.....................................................................................................................46 The Uniform Residential Loan Application .................................................................46 Documenting and verifying employment and income.................................................46

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Documenting and verifying employment stability .......................................................46 Verifying a borrower's employment status..................................................................46 Obtaining employer verification ..................................................................................46 Investigating gaps.......................................................................................................47 Evaluating family-employed borrowers.......................................................................47 Assessing the stability of employment........................................................................47 Documenting and verifying income from employment ...............................................48 Wages and salary .......................................................................................................48 Overtime, bonuses, and commissions........................................................................49 Overtime and bonus income.......................................................................................49 Commission income ...................................................................................................49 Documenting and verifying income from sources other than employment ................49 Nontaxable income.....................................................................................................50 Military income............................................................................................................50 Part-time income.........................................................................................................50 Retirement income......................................................................................................51 Social Security income ...............................................................................................51 Alimony or child support .............................................................................................51 Income from notes receivable ....................................................................................51 Income from interest and dividends............................................................................52 Mortgage differential payments ..................................................................................52 Income from trusts ......................................................................................................52 Veteran's Administration benefits ...............................................................................53 Rental income.............................................................................................................53 Automobile and expense account allowances ...........................................................53 Unemployment and welfare benefits ..........................................................................53 Tax Return Authenticity Process ................................................................................54

Section 5 - Documenting Assets And Liabilities ..................................................55 Ascertaining a borrower's assets................................................................................55 Determining sources of funds.....................................................................................55 Verifying sources of funds ..........................................................................................56 Checking and savings accounts .................................................................................56 Sale proceeds.............................................................................................................56 Anticipated sale proceeds ..........................................................................................56 Bridge loans................................................................................................................57 IRA/Keogh accounts ...................................................................................................57 Sale of government bonds..........................................................................................57 Sale of stock ...............................................................................................................58 Trust accounts ............................................................................................................58 Loans other than bridge loans ....................................................................................58 Gifts ............................................................................................................................58 Trade equity................................................................................................................59 Rent with option to purchase ......................................................................................59 Ascertaining a borrower's liabilities ............................................................................60 Ascertaining a borrower's net worth ...........................................................................60

Using Reduced Documentation ..........................................................................61 Verifying a borrower's employment status under Reduced Documentation ..............61 Verifying income under Reduced Documentation ......................................................61 Verifying assets under Reduced Documentation .......................................................62 Collecting documentation under Reduced Documentation ........................................62

Analyzing debt-to-income ratios.............................................................................................63 Analyzing monthly housing expense-to-income ratios ...............................................63 Monthly housing expense...........................................................................................63

Income Ratio Guidelines........................................................................................................63 Analyzing total obligations-to-income ratios ...............................................................64

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Total obligations..........................................................................................................64 Compensating factors.................................................................................................65 Analyzing high ratio mortgages ..................................................................................65

Section 6 - Determining Creditworthiness...........................................................66 Developing a credit history .........................................................................................66 Using the Residential Mortgage Credit Report...........................................................66 Credit Report Format Standards ................................................................................66 Reliability ....................................................................................................................67 Content .......................................................................................................................68 Credit information .......................................................................................................68 Public records information ..........................................................................................68 Using "in-file" credit reports ........................................................................................69 Building non-traditional credit histories.......................................................................69 Analyzing a borrower's credit history..........................................................................70 Considering indications of creditworthiness ...............................................................70 Payment history on previous mortgages ....................................................................70 Foreclosures on previous mortgages .........................................................................70 Undisclosed debt ........................................................................................................71 Revolving and installment credit accounts .................................................................71 Judgments, garnishments, or liens.............................................................................71 Bankruptcies ...............................................................................................................71 Analyzing derogatory information ...............................................................................71 Exploring credit information with the borrower ...........................................................72 Considering compensating factors .............................................................................73

Section 7 - Underwriting Property and Appraiser Approval .................................74 Appraiser Approval Process .......................................................................................74 Approved Appraiser Vendor List.................................................................................76 Evaluating Appraisers.................................................................................................77 Unacceptable appraisal practices...............................................................................77

Removal from Approved Appraiser List .................................................................................78 What appraisers need from the underwriter ...............................................................78 What the underwriter need from appraisers ...............................................................78 Standardized appraisal forms.....................................................................................79 Exhibits .......................................................................................................................79 Certifications ...............................................................................................................80 Other certifications......................................................................................................80

Section 8 - Analyzing the Appraisal - Subject Property.......................................82 Overview.....................................................................................................................82 The Uniform Residential Appraisal Report .................................................................82 The description of the property...................................................................................82 Identification of the property .......................................................................................82 Description of the neighborhood.................................................................................83 Location ......................................................................................................................83 Degree of development and growth rate ....................................................................84 Trends in market prices ..............................................................................................84 Marketing time ............................................................................................................85 Land use .....................................................................................................................85 Predominant occupancy .............................................................................................85 Price range and predominant price ............................................................................86 Age range and predominant age ................................................................................86 Good ...........................................................................................................................87 Average ......................................................................................................................87 Fair..............................................................................................................................88 Poor ............................................................................................................................88 Description of the Site.................................................................................................88

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Zoning.........................................................................................................................88 Highest and best use of land ......................................................................................89 Utilities ........................................................................................................................90 Streets ........................................................................................................................90 Lot ...............................................................................................................................90 The property's improvements .....................................................................................91 Conformity with the neighborhood..............................................................................91 Infestation, dampness, or settlement..........................................................................92 Insulation and energy efficiency .................................................................................92 Layout and floor plans ................................................................................................92 Gross living area and unit room list ............................................................................92 Heating and cooling systems......................................................................................93 Surfaces......................................................................................................................93 Miscellaneous features...............................................................................................93 Improvement analysis ratings.....................................................................................93 Remaining economic and physical life .......................................................................93 Impact of market conditions and depreciation............................................................94

Section 9 - Analyzing Market Value ....................................................................95 Estimates of market value......................................................................................................95

The cost approach......................................................................................................95 The sales comparison approach ................................................................................95 The selection of comparable sales .............................................................................96 Adjustments to comparable sales...............................................................................96 The net total adjustment .............................................................................................97 "Indicated values" .......................................................................................................97 Sales comparison data ...............................................................................................97 Net and gross adjustment percentages......................................................................98 Sales price ..................................................................................................................98 Sales or financing concessions ..................................................................................98 Date of sale.................................................................................................................99 Time adjustment .......................................................................................................100 Location and proximity of comparable sales ............................................................100 The income approach...............................................................................................100 The final reconciliation..............................................................................................101 Conditions.................................................................................................................101

Section 9 - Loan-to-value ratios ........................................................................102 Subordinate financing...............................................................................................103 Eligible types of subordinate financing .....................................................................103 Home equity lines of credit .......................................................................................104 Sales and financing concessions .............................................................................104 Acceptable "contributions"........................................................................................104 Unacceptable concessions or excess contributions.................................................104 Undisclosed seller concessions................................................................................105 Mortgage insurance (MI) premiums..........................................................................105

Company Name Investor/Agency Quality Control Plan

Table of Contents Page i

Table of Contents Table of Contents................................................................................................... i 1.10 Introduction ...................................................................................................1

1.10.2 Objective ...................................................................................................................... 1 1.11 Quality Control and Management Personnel Identified in Plan .......................................... 3

Quality Control Manager(s) for HUD and Investor Reporting................................................. 3 Section 1.20 – Post Closing Quality Control Review Program..............................4

1.21 - Audit Coverage/Scope ...................................................................................................... 4 1.21.1 Appraisal Audit Function.............................................................................................. 4 1.21.2 Federal Law Compliance Function .............................................................................. 4

1.22 – Selection Methodology..................................................................................................... 5 1.22.1 FHA Loan Selection Criteria ........................................................................................ 5 1.22.2 Early Payment Default ................................................................................................. 5 1.22.4 “Higher Risk” Criteria Loans Selected by Quality Control............................................ 6 1.22.5 Higher Risk Transactions Selected by Credit Policy as Warranted............................. 6 1.22.6 Streamline Refinances................................................................................................. 6 1.22.7 Special Handling for 203(k) Rehabilitation Transactions............................................. 7 1.22.8 Selection of Third Party Originator Transactions......................................................... 7

1.23 - Loan Sampling/Selection Procedure ................................................................................ 8 1.23.1 Post Closing Audit Selection Procedure...................................................................... 8 1.23.2 Pipeline Selection Tool ................................................................................................ 9

1.24 Loan Level Quality Control Review Procedure ................................................................. 10 1.24.1 Post Closing Review Process.................................................................................... 10 1.24.2 – Post Closing Loan Level Quality Control Review Form and Findings Report ........ 14 1.24.21 Quality Control File Order/Checklist ........................................................................ 16 1.24.22 Quality Control Credit Report Order Log ................................................................. 17 1.24.23 Request for Re-verification of Income or Assets ..................................................... 18 1.24.24 Appraisal Review Request....................................................................................... 20 1.24.24.1 Appraisal Request Log ......................................................................................... 21 1.24.24.2 Appraisal Desk Reviews and Field Reviews ........................................................ 22 1.24.24.3 Desk Review of Appraisal..................................................................................... 23 1.24.24.4 Appraiser Independence Rules ............................................................................ 24 1.24.4 Tax Return Authenticity Process (4506T).................................................................. 25 1.24.41 Tax Return Authenticity in Post-Closing Review ..................................................... 25 1.24.5 Owner Occupancy Re-Verification............................................................................. 26 1.24.6 Timing of Post-Closing Audits.................................................................................... 27 1.24.61 Audit Schedule......................................................................................................... 27 1.24.63 Completion of Review.............................................................................................. 27 1.24.64 Special Procedure – Early Default........................................................................... 27 1.24.65 Special Procedure – Pattern of Deficiencies or Fraud............................................. 28 1.24.65.1 Pattern of Fraud.................................................................................................... 28

1.25 Production (Pre-Funding) Quality Control Review Elements.......................29 1.25.1 Quality Control Review .............................................................................................. 29 1.25.21 Validation of Borrower’s Social Security Number .................................................... 29 125.22 Verbal Verification of Employment............................................................................ 30 1.25.31 Reviewing and Analyzing Automated Underwriting Findings .................................. 31 1.25.33 Validation of Income Computation Method.............................................................. 31 1.25.4 Pre-Funding Production and Post Closing Quality Control Review Checklist ........... 32

1.25.5 Pre-Funding/Pre-Closing Quality Control Review.......................................................... 38 1.25.52 Pre-Funding/Closing Document Review Checklist .................................................. 40

1.25.6 Post-Closing Loan Document Review ........................................................................... 41 1.26 Corrective Action and Report Management...................................................................... 44

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1.26.2 Corrective Action and Time Frames .......................................................................... 44 1.26.3 Notification to HUD or Other Agency of Significant Discrepancies ........................... 45

1.27 Quality Control Personnel ................................................................................................. 46 1.27.1 Production Personnel Separated by Plan.................................................................. 46 1.27.2 Disbarred Employees/Ineligible Participants ............................................................. 46 1.27.21 Periodic Review of Employee Performance ............................................................ 46 1.27.4 Use of Outside Firms to Perform Quality Control Review ......................................... 47

1.28 Financial and Compliance Audit........................................................................................ 49 1.28.1 Review of Rejected Loans ......................................................................................... 49 1.28.3 State Audit Compliance Preparation Checklist.......................................................... 52

1.29 Employee Resources – Training....................................................................................... 53 Resources............................................................................................................................. 53

1.30 Field Review of Branch Offices ........................................................................................ 54 1.28.1 Field Review Items..................................................................................................... 54 1.28.3 Prohibited Branch Arrangements (HUD) ................................................................... 54 1.29 Mortgage Insurance Endorsement Process ................................................................. 55 1-29-1 Post Endorsement Technical Reviews...................................................................... 57

1.30 Reporting of Loan Sales Process...................................................................................... 58 1.31 Termination of Insurance Process .................................................................................... 59

1.32 Escrow Reporting.......................................................................................................... 60 1.33 Record Retention Guidelines ............................................................................................ 61

1.34 Fraud Prevention – Red Flag Process ........................................................62 1.34.1 Fraud “Red Flags” Checklist ...................................................................................... 63

1.34.3 Origination Fraud Watch ................................................................................................ 66 1.34.31 Loan Characteristics ................................................................................................ 66

1.34.4 Red Flag Resources We Utilize ..................................................................................... 67 1.40 – Anti-Money Laundering and SAR Reporting ............................................68

1.41 AML and Mortgage Lending – No Currency Transactions ........................................... 68 1.42 BSA/AML, OFAC and Designated SAR Reporting Personnel.......................................... 69

BSA/AML Primary Manager.................................................................................................. 69 OFAC Manager..................................................................................................................... 69 Reporting Individuals with Access to FinCen........................................................................ 69

1.45 USA PATRIOT Act Compliance – Customer Identification............................................... 70 1.45.1 Minimum Information Required.................................................................................. 70 1.45.2 Disbarred Participants and Watch Lists..................................................................... 70

1.46 Review of Procedures ....................................................................................................... 71 1.47 Third Party Transactions and Vendors ............................................................................. 71 1.48 Employee Training Program ............................................................................................. 71 1.50 AML Red Flags.................................................................................................................. 72

1.51 Transactional and Account Activity Red Flags Checklist.............................................. 72 1.52 Health Care Professionals and Fraud........................................................................... 74 1.53 Mortgage Servicing Fraud/Fraud Red Flags ................................................................ 75

1.55 Money Laundering in Residential Real Estate .................................................................. 76 1.53 Self-Employment and Money Laundering......................................................................... 77

1.52.1 Self-Employment Money Laundering Red Flags ....................................................... 77 1.52.2 General Red Flags..................................................................................................... 78

1.53 Red Flag Business Types ................................................................................................. 80 1.53.1 Cash Intensive Businesses........................................................................................ 80

1.60 SAR Reporting ............................................................................................81 1.61 SAR Reporting Workflow .............................................................................................. 81

1.62 Thresholds for Reporting Findings.................................................................................... 82 1.65 SAR Completion Process.................................................................................................. 83

1.65.1 Manual SAR Filing ..................................................................................................... 83 1.65.3 Management Notification of SAR Filings ................................................................... 84 1.65.4 SAR Record Retention and Supporting Documentation............................................ 84

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1.65.5 Prohibition of SAR Disclosure.................................................................................... 84

Company Name Compliance Policies and Procedures

Page i

Table of Contents Table of Contents................................................................................................... i 2.1 Federal Regulatory Compliance Overview......................................................1

RESPA - Real Estate Settlement Procedures Act (Regulation X) .......................................... 2 Policy in Practice.......................................................................................................... 2

Home Mortgage Disclosure Act (HMDA)................................................................................. 4 Policy in Practice – Loan Origination/Production Process........................................... 4

ECOA- Equal Credit Opportunity Act - Regulation B .............................................................. 6 Fair Housing Act ...................................................................................................................... 7

Policy in Practice.......................................................................................................... 7 Fair Credit Reporting Act - FCRA............................................................................................ 8

Policy in Practice.......................................................................................................... 8 Regulation Z - Truth-In-Lending Act (TILA)............................................................................. 9

Policy in Practice – Origination .................................................................................... 9 APR Tolerance............................................................................................................. 9

2.2 RESPA – The Real Estate Settlement Procedures Act.................................11 Purpose of the Law .................................................................................................... 11 Exempt Transactions ................................................................................................. 11 Kickbacks and Referral Fees and Fee Splitting......................................................... 12 Fee Splitting ............................................................................................................... 12 Affiliated and Controlled Business Arrangements ..................................................... 12

2.21.1 Application Disclosures - The Good Faith Estimate of Closing Costs ....................... 13 Practical Applications of the GFE – Total Cash at Closing........................................ 13 Using a Closing Cost Worksheet ............................................................................... 14

2.21.2 Completing The Good Faith Estimate ........................................................................ 14 2.21.2 Completing The Good Faith Estimate ........................................................................ 15

2.21.3 Disclosing Originator Compensation and Closing Costs ................................ 18 2.21.4 The Good Faith Estimate Process.................................................................. 19

2.22 GFE Application Process .............................................................................................. 20 Issuing Initial GFE Forms........................................................................................... 21 2.23.1 Changed Circumstances................................................................................. 22 Changed Circumstances Process.............................................................................. 22

2.24 RESPA Required Disclosures ....................................................................................... 25 At Application - The Special Information Booklet....................................................... 25 At Application - Notice of Transfer of Servicing ......................................................... 25 At Closing - HUD-1 Settlement Statement................................................................. 26 At Closing - Aggregate Escrow Disclosure ................................................................ 26

2.3 The Truth-in-Lending Act (TILA) - Regulation Z............................................27 Purposes of Truth-in-Lending Act .............................................................................. 27 2.31 - The APR (Annual Percentage Rate) Disclosure.............................................. 28 APR Tolerance........................................................................................................... 28 2.31.2 Determining the Amount Financed - Prepaid Finance Charge....................... 29

2.32 Additional Disclosures ................................................................................................... 30 At Application – ARM Disclosure ............................................................................... 30 Home Equity Lines and Open-Ended Credit.............................................................. 30

2.33 Notice of Right to Cancel (Right to Rescind)................................................................. 31 Waiver of Right to Rescind ........................................................................................ 31 Right to Rescind in Open-end Transactions .............................................................. 31 Three Day Right to Cancel......................................................................................... 31

2.34 - Advertising................................................................................................................... 32 2.35 – High Cost Loans......................................................................................................... 34

Section 32 of Truth-in-Lending Act ............................................................................ 34

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Loans Subject to Section 32 ...................................................................................... 34 Points and Fees Trigger............................................................................................. 34 Section 32 Disclosures .............................................................................................. 34 Section 32 Prohibitions .............................................................................................. 34 Penalties for HOEPA Violations................................................................................. 35 “Higher Priced Mortgage Loans” (HPML) - Section 35 .............................................. 36

2.36 Mortgage Disclosure Improvement Act (MDIA)............................................................. 37 Corrective Truth-in-Lending Disclosures.................................................................... 37

2.4 Consumer Credit Protection Laws ................................................................38 The Equal Credit Opportunity Act .......................................................................38

Unlawful Inquiries....................................................................................................... 38 Prohibitions ................................................................................................................ 38 Notification Requirements.......................................................................................... 38 Penalties .................................................................................................................... 39

2.41 Fair Housing and Fair Lending Acts............................................................40 Covered Transactions................................................................................................ 43 Unlawful Lending Practices........................................................................................ 43 Violations and Enforcement ....................................................................................... 44 Advertising ................................................................................................................. 45 Limitations Extended to 3rd Parties ............................................................................ 45 Allegations of Discrimination...................................................................................... 46 Filing Complaints........................................................................................................ 47

2.42 Fair Credit Reporting Act (“FCRA”) .............................................................................. 48 Policy for Distributing Credit Information.................................................................... 48

2.43 Home Mortgage Disclosure Act (“HMDA”) ..................................................49 Depository Institutions Subject to the Act .................................................................. 49

2.43.1 Community Reinvestment Act (CRA)......................................................................... 50 2.44 The Fair and Accurate Credit Transactions Act (“FACTA”) .........................51

FACTA Red Flags...................................................................................................... 51 2.45 - Home Owner’s Protection Act ..................................................................................... 52

PMI Cancellation ........................................................................................................ 52 2.46 Consumer Privacy Protection Laws ............................................................53

2.46.1 Gramm-Leach-Bliley Act – Privacy Act........................................................... 53 USA Patriot Act .......................................................................................................... 53

2.7 SAFE Act Requirements ...............................................................................54 Licensing and Professional Education Requirements (SAFE Act)........................................ 54

Loan Originator License Verification.......................................................................... 55 Reporting of Licensee Termination ............................................................................ 55 Branch Licensing Process – NMLS Call Reporting ................................................... 55

Secure and Fair Enforcement for Mortgage Licensing (SAFE Act) ...................................... 56 2.71 Origination Personnel Policies Dodd-Frank Act ..........................................57

Compensation ............................................................................................................ 57 Creditor vs. Originator ................................................................................................ 57 Base Commission Schedule ...................................................................................... 57 Dual Compensation.................................................................................................... 57 Avoiding “Steering”..................................................................................................... 58

2.71.1 Compensation Policy and Procedure......................................................................... 59 Compensation Policy – Consumer Paid Fees....................................................................... 60

Process - Consumer Paid or Lender Paid ................................................................. 60 Consumer May NOT Pay Employee Directly............................................................. 60

Compensation Plans ............................................................................................................. 61 Consumer/Creditor Paid Compensation Plan – Brokers or Creditors ....................... 61 Investor/Wholesaler (Creditor) Paid Compensation – for Brokers............................. 62 Table of Creditors....................................................................................................... 62

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Exception to Compensation Grid (Safe Harbor) ........................................................ 62 Safe Harbor – Consumer Chooses Product which results in Higher Compensation............ 63

Customer’s Best Interest Worksheet (Anti-Steering Safe Harbor) ............................ 64 Commission Schedules and Permissible Payments.................................................. 65 Performance Reviews................................................................................................ 66 Individual and Spousal Loans .................................................................................... 66 Time Keeping Policy .................................................................................................. 67

Employment Status Policy..................................................................................................... 68 2.72 Employment, Screening and Compensation Practices ...............................70

Announcing Position Openings.................................................................................. 70 Treatment of Candidates ........................................................................................... 71 Checking References................................................................................................. 73

Checking Background – Credit, Background and Housing Agencies ................................... 74 Additional Background Checks/Screening................................................................. 75 Affirmative Action/Equal Employment Opportunity .................................................... 76 New Hire Reference and Background Check ............................................................ 77 Completing the Interview ........................................................................................... 78 New Hire Letter/Offer of Employment........................................................................ 79 New Hire Procedures................................................................................................. 80

2.73 Appraiser Independence.............................................................................81 Implementing Appraiser Independence Rules ...................................................................... 81

Background ................................................................................................................ 81 2.73.1 Appraisal Management Service...................................................................... 82 2.73.12 Highlights of Company Compliance Procedures .......................................... 82

2.73.2 Pre-Qualification and Property Valuation ................................................................... 83 Valuation and Pre-Qualification ................................................................................. 84 Prohibited Practices for Production Staff ................................................................... 85

2.73.3 Underwriting Submission............................................................................................ 86 Appraisal Copy to Borrower Certification................................................................... 86 Borrower Appraisal Copy Notice Form ...................................................................... 87

2.73.31 Basic Underwriting Submission Process.................................................................. 88 2.73.4 Appraisal Ordering – Random Appraiser Selection ................................................... 90

Appraisal Checklist..................................................................................................... 90 Approved Appraiser Vendor List ................................................................................ 91 Random Appraisal Order Process ............................................................................. 92 Random Order Rotation Log...................................................................................... 93 Appraisal Order Form................................................................................................. 94

2.73.5 Underwriting Property and Appraiser Approval.......................................................... 95 2.73.51 Appraiser Approval Process ......................................................................... 95 2.73.52 Approved Appraiser Vendor List ................................................................... 97 2.73.53Prohibited Practices ....................................................................................... 97 2.73.54 Evaluating Appraisers ................................................................................... 98 2.73.55 Unacceptable appraisal practices................................................................. 98

2.73.6 Removal from Approved Appraiser List ..................................................................... 99 What appraisers need from the underwriter .............................................................. 99 What the underwriter need from appraisers .............................................................. 99

2.73.61 Appraisers .............................................................................................................. 100 Appraiser Approval Process .................................................................................... 100 Approved Appraiser Vendor List .............................................................................. 102 Appraisal Audit Function .......................................................................................... 103 Desk Review of Appraisal ........................................................................................ 104

2.8 Complaint Resolution..................................................................................106 State Laws ............................................................................................................... 106 Complaint Policy ...................................................................................................... 106

Company Name Red Flag Information Security and Identity Theft Program

Page i – Table of Contents

Table of Contents Table of Contents................................................................................................... i Introduction ...........................................................................................................1

Information Security ..................................................................................................... 2 Federal Laws................................................................................................................ 2 Beyond Compliance..................................................................................................... 2

Section 1 - Understanding Information Security and Identity Theft .......................3 Identity theft in the United States ............................................................................................ 3

Identity Theft vs. Identity Fraud.................................................................................... 3 Identifying Potential Fraud Quickly .............................................................................. 5

Section 2 - Information Security Plan....................................................................7 Introduction .................................................................................................................. 7 Areas of Risk................................................................................................................ 7 Authorized Personnel................................................................................................... 7 Office Security.............................................................................................................. 7 Clean Desk Policy ........................................................................................................ 8

Laptop Computers and Mobile Devices .................................................................................. 9 Desktop Security Policy......................................................................................................... 10 Document Retention and Destruction ................................................................................... 12

Document Retention .................................................................................................. 12 Document Destruction ............................................................................................... 13 Onsite Records Storage Policy .................................................................................. 14

Electronic Communication..................................................................................................... 15 Best Practices ............................................................................................................ 15 Confidential Information ............................................................................................. 16 Disclaimer .................................................................................................................. 16 System Monitoring ..................................................................................................... 17

Secure Fax Transmission...................................................................................................... 17 Secure Telephone Communications ..................................................................................... 17 Data Breach Policy Implementation Guide ........................................................................... 19

Background ................................................................................................................ 19 Definition of Breach.................................................................................................... 19 Reporting Breaches and Breach Response Team .................................................... 19 Risk Assessment Process ......................................................................................... 19 Assigning Risk Score ................................................................................................. 22 Notification of Individuals ........................................................................................... 22 Timing of Notification.................................................................................................. 22 Responsibility for Notification..................................................................................... 23 Content of Notification................................................................................................ 24 Method of Communication ......................................................................................... 24

Process for Remediation of a Breach.................................................................................... 25 Credit Monitoring Data Breach Risk Packages.......................................................... 25 Reporting a Data Breach ........................................................................................... 26

Section 3 - Red Flag Identity Theft Program – Covered Transactions ................28 Covered Transactions - Defined............................................................................................ 28

High Risk Entities and Practices ................................................................................ 28 Mortgage Fraud and Identity Theft............................................................................. 28 Risk from Referral Sources........................................................................................ 29

Section 4 – Vendors and Vendor Approval Process ...........................................30 Risk from Vendors...................................................................................................... 30 Information Transfer to Investors and Private Mortgage Insurance Companies ....... 33 Information Transfers to Credit Bureaus.................................................................... 34

Company Name Red Flag Information Security and Identity Theft Program

Page ii – Table of Contents

Information transfers to Appraisers............................................................................ 35 Information Transfer to Attorneys and Title Companies ............................................ 36 Closing Agent Risk Assessment ................................................................................ 36

Section 5 - Identity Theft “Red Flags” .................................................................37 Victim or Perpetrator? ................................................................................................ 37

Originator’s Role in Red Flag Actions ................................................................................... 40 Pre-Qualification and Qualification............................................................................. 40 Origination Review – Borrower Identity...................................................................... 41 Originator Review – Income and Employment Documentation ................................. 42 Originator Review – Asset Documentation ................................................................ 43 Originator Review – Property Information.................................................................. 44

Loan Processing Red Flag Review ....................................................................................... 45 Processor/Underwriter Red Flag - Application Review.............................................. 46 Processor/Underwriter Red Flag Review – Credit Report, Employment and Income Verification ................................................................................................................. 47 Processor/Underwriter Red Flag Review – Asset Documentation ............................ 48 Processor/Underwriter Red Flag Review – Transaction............................................ 49 Verbal Verification of Employment............................................................................. 50

Truncating Social Security Numbers on Requests................................................................ 51 Truncating Social Security Numbers on Requests................................................................ 52

Section 6 – Red Flag Discovery and Process.....................................................53 Working with Borrowers -Counseling the Public ................................................................... 54

Advising Consumers on Strategies to Deter Identity Theft ........................................ 54 Working With Borrowers Who Have Identity Theft Problems .................................... 54

Procedure upon Red Flag Alert............................................................................................. 55 Preparing The Identity Theft Affidavit-Police Report.................................................. 56 Completing A Suspicious Activity Report (SAR)........................................................ 59 Completing A Suspicious Activity Report (SAR)........................................................ 60

Community Outreach............................................................................................................. 62 Section 7 – Approval, Implementation and Revision of the Red Flag Policy.......63

Initial Training............................................................................................................. 63 Updating the policy..................................................................................................... 63

Company Name Operations Module

Page i

Table of Contents Table of Contents................................................................................................... i Introduction ...........................................................................................................1 Section 1 - Organization .......................................................................................2

Position Descriptions............................................................................................................... 3 Branch Manager........................................................................................................... 3 Operations Manager .................................................................................................... 4 Receptionist/Administrative Assistant .......................................................................... 5 Settlement Manager/Coordinator................................................................................. 6 Mortgage Loan Processor............................................................................................ 7 Underwriter................................................................................................................... 8 Loan Officer/Loan Originator........................................................................................ 9

Administrative Duties - Policies...........................................................................10 Greeting Guests - Lobby............................................................................................ 10 Incoming Telephone Cells ......................................................................................... 11 Tracking Loan Officers............................................................................................... 12 Couriers...................................................................................................................... 14 Established Daily/Inter-Agency/Inter-Office Courier services.................................... 14 Incoming Item Log...................................................................................................... 14 Outbound Document Courier Log.............................................................................. 14 Overnight/Express Couriers....................................................................................... 17 Daily Mail.................................................................................................................... 18 Outgoing Daily Mail .................................................................................................... 18 Invoices ...................................................................................................................... 19 Postage Machine ....................................................................................................... 20 Office Supplies ........................................................................................................... 21 Ordering Office Supplies............................................................................................ 21 Office Supply Set Up - New Office............................................................................. 23 Initial Equipment Requirements ................................................................................. 24 Forms Management................................................................................................... 25 Origination and Processing Forms Checklist ............................................................. 26 Settlement Forms....................................................................................................... 27 Receptionist/Administrative Forms ............................................................................ 28 Faxing ........................................................................................................................ 29 Maintenance............................................................................................................... 30 Telephone System Operation .................................................................................... 31 Telephone Relief/Duty Schedule ............................................................................... 32

Disaster Recovery Plan ......................................................................................33 Introduction ................................................................................................................ 33 Audience .................................................................................................................... 33

Purpose of the Business Continuity Plan .............................................................................. 33 Maintenance............................................................................................................... 34 Testing ....................................................................................................................... 34

Organization of Disaster Response and Recovery ............................................................... 35 Disaster Response..................................................................................................... 35 Disaster Detection and Determination ....................................................................... 35 Disaster Notification ................................................................................................... 35

Recovery Procedures............................................................................................................ 36 Notification List........................................................................................................... 36 Early Warning............................................................................................................. 36 Preparation Procedures ............................................................................................. 36

Activation of Continuity Plan.................................................................................................. 37

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Recovery ............................................................................................................................... 38 Fire Drills .................................................................................................................... 39

Section 2 - Employment and Compensation Practices .......................................40 Announcing Position Openings.................................................................................. 40 Treatment of Candidates ........................................................................................... 41 Checking References................................................................................................. 43

Checking Background – Credit, Background and Housing Agencies ................................... 44 Additional Background Checks/Screening................................................................. 45 Affirmative Action/Equal Employment Opportunity .................................................... 46 New Hire Reference and Background Check ............................................................ 47 Completing the Interview ........................................................................................... 48 New Hire Letter/Offer of Employment........................................................................ 49 New Hire Procedures................................................................................................. 50 Assigned and Brokered Loan Referral Fee Policy..................................................... 51 Brokering loans out for referral fees........................................................................... 51

Employee Levels ................................................................................................................... 52 Supervision ................................................................................................................ 53 Team Concept............................................................................................................ 53 Monitor Processors' Case Loads ............................................................................... 54 Problem Areas ........................................................................................................... 57 Petty Cash.................................................................................................................. 58 Deposit for Fees......................................................................................................... 59 Employee Roster........................................................................................................ 60 Personnel Records..................................................................................................... 60 Personnel Records..................................................................................................... 61 Time Sheets ............................................................................................................... 63 Salary Level and Payroll ............................................................................................ 64 Payroll ........................................................................................................................ 65

Performance Reviews.........................................................................................66 Performance Evaluation Forms ................................................................................. 67 Employee Separation/Termination............................................................................. 75

Employee Training Calendar ..............................................................................76 Outside Vendors & Service Providers.................................................................77

Credit Bureaus ........................................................................................................... 77 Appraisers ............................................................................................................................. 78

Appraiser Approval Process ...................................................................................... 78 Approved Appraiser Vendor List ................................................................................ 80 Appraiser Invoices...................................................................................................... 81 PMI Companies.......................................................................................................... 82 Outside Investors ....................................................................................................... 83 Tax Return Authenticity Process................................................................................ 84

Branch Licensing Procedure...............................................................................85 Out of State Transactions - Foreign Corporations ..................................................... 85 Local Jurisdiction – Office Registration...................................................................... 85 Public Offices – Non-Commercial Building ................................................................ 85

Employee Handbook Company Name

Page i

Table of Contents Table of Contents...................................................................................................i 6.0 Introduction .................................................................................................... 1

6.01 Hours of Operation...........................................................................................................2 6.01.1 Holidays.............................................................................................................2

6.02 Organizational Chart ........................................................................................................3 6.02 - Employee Handbook - General Employment Policy................................... 4

6.02.1 Equal Employment Opportunity.........................................................................5 6.02.2Training Policy ....................................................................................................6 6.02.3 Performance Reviews .......................................................................................7 6.02.4 Termination - Voluntary .....................................................................................8 6.02.4 Involuntary .........................................................................................................8

6.03 Pay Periods General Policy.......................................................................... 9 6.03.1 Salaried Employees ....................................................................................................10

6.03.2 Hourly Employees ...........................................................................................11 6.03.3 Overtime ..........................................................................................................12

6.04 Medical - General Policy ............................................................................ 13 6.05 General Attendance ................................................................................... 14

6.05.1 Late Arrival/Illness ...........................................................................................15 6.05.2 Jury Duty Policy...............................................................................................16 6.05.3 Working on Holidays........................................................................................17 6.05.4 Holiday Pay Rates Schedule...........................................................................17 6.05.5 Vacation Request ............................................................................................18 6.05.06 In/Out Notice..................................................................................................19

6.06 General Business Conduct......................................................................... 20 6.06.1 Proper Business Conduct Defined? ................................................................20 6.06.2 Employee Dishonesty......................................................................................21 6.06.3 Workplace Violence.........................................................................................22 6.06.4 Sexual Harassment .........................................................................................23 6.06.5 Drug-Free Workplace Policy ...........................................................................24

6.07 - Employee Safety - Work Practices - General Information ........................ 26 Your Responsibilities ..................................................................................................26 General Safe Work Rules And Work Practices ..........................................................27 Electrical Safety..........................................................................................................27 Fire Safety ..................................................................................................................28

6.08 - General Telephone Use ........................................................................... 29 Introduction ............................................................................................................................29

Transferring Calls .......................................................................................................30 6.08.2 Checking Voicemail ....................................................................................................33

Receptionist/Secretarial Instruction............................................................................34 Employee Emergency Numbers.................................................................................37

6.09 - Computer Use.......................................................................................... 38 6.09.01 Problems/Maintenance..................................................................................38 6.09.02 Software/Upgrades........................................................................................39 6.09.03 Email Use ......................................................................................................40 6.09.4 Internet Access................................................................................................41

6-10 Social Media Policy .................................................................................... 42 6-10-1 Social Media Guidelines and Policy – Why We Have Them......................................42 6-10-2 What We Require Of You – Our Policy ......................................................................42

6-10-21 Remember Company Name’s Code of Ethics ..............................................42 6-10-22 Social Media Do’s and Don’ts .......................................................................42

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6-11 What We Request From You.........................................................................................45 6-11-1 Alert Us to Negative and Positive Content About Company Name ................45 6-11-2 - Help Us Create Content................................................................................45

6-12 Good Things For Us All To Remember About Social Media .........................................45 6-12-1 The Internet is a Public Space ........................................................................45 6-12-2 The Internet is an Open Space .......................................................................45 6-12-3 Scams & Viruses.............................................................................................46 6-12-4 You Are What You Tweet ...............................................................................46

6-12-5 Who to Contact with Questions ..................................................................................46 Fax Usage ..................................................................................................................47

Section 8 - Sales Process - General Policy........................................................ 49 Misleading or Misrepresentative Sales Actions or Advertisements............................49 Wholesale ...................................................................................................................50 Retail...........................................................................................................................51 Bait & Switch...............................................................................................................52

The Policy ..............................................................................................................................52 Empowerment.............................................................................................................53 “Tips” for Empowerment .............................................................................................53 Pure Selling Environment ...........................................................................................55

Section 9 - Expenses - General Policy ............................................................... 56 Request for Check......................................................................................................57 Purchase Orders ........................................................................................................58 Office Supplies ...........................................................................................................59

Section 10 - Office Space / Physical Plant ......................................................... 60