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Company Name Regulatory Compliance Policies and Procedures

Table of Contents Table of Contents................................................................................................... i Compliance Manager – Duties and Responsibilities ............................................. 1 Detailed Duties and Functions ................................................................................................ 2 Surveillance of Regulatory Changes............................................................................ 3 Review Changes .......................................................................................................... 3 Periodic Testing ........................................................................................................... 4 Training ........................................................................................................................ 4 Advertising Approval .................................................................................................... 4 Complaint Management ............................................................................................... 4 Regulatory Reporting ................................................................................................... 4 Licensing Management ................................................................................................ 4 Personnel Compliance ................................................................................................. 4 Compliance Automation ............................................................................................... 5 Compliance Manager - Qualifications ..................................................................................... 6

2.1 Federal Regulatory Compliance Overview ...................................................... 7 RESPA - Real Estate Settlement Procedures Act (Regulation X) .......................................... 8 Policy in Practice .......................................................................................................... 8 Home Mortgage Disclosure Act (HMDA)............................................................................... 10 Policy in Practice – Loan Origination/Production Process ......................................... 10 ECOA- Equal Credit Opportunity Act - Regulation B ............................................................ 12 Fair Housing Act .................................................................................................................... 13 Policy in Practice ........................................................................................................ 13 Fair Credit Reporting Act - FCRA .......................................................................................... 14 Policy in Practice ........................................................................................................ 14 Regulation Z - Truth-In-Lending Act (TILA) ........................................................................... 15 Policy in Practice – Origination .................................................................................. 15 APR Tolerance ........................................................................................................... 15

2.2 RESPA – The Real Estate Settlement Procedures Act................................. 17 Purpose of the Law .................................................................................................... 17 Exempt Transactions ................................................................................................. 17 Kickbacks and Referral Fees and Fee Splitting ......................................................... 18 Fee Splitting ............................................................................................................... 18 Affiliated and Controlled Business Arrangements ..................................................... 18 2.21.1 Application Disclosures - The Good Faith Estimate of Closing Costs ....................... 19 Practical Applications of the GFE – Total Cash at Closing ........................................ 19 Using a Closing Cost Worksheet ............................................................................... 21 2.21.2 Completing The Good Faith Estimate ........................................................................ 21 2.21.3 Disclosing Originator Compensation and Closing Costs ................................ 25 2.21.4 The Good Faith Estimate Process .................................................................. 26 2.22 GFE Application Process .............................................................................................. 27 Issuing Initial GFE Forms ........................................................................................... 28 2.23.1 Changed Circumstances................................................................................. 29 Changed Circumstances Process.............................................................................. 29 “Curing” Tolerance Issues .......................................................................................... 31 2.24 RESPA Required Disclosures ....................................................................................... 32 At Application - The Special Information Booklet....................................................... 32 At Application - Notice of Transfer of Servicing ......................................................... 32 At Closing - HUD-1 Settlement Statement ................................................................. 33 At Closing - Aggregate Escrow Disclosure ................................................................ 33 Higher Priced Mortgage Loans and Escrow Accounts .............................................. 33

2.3 The Truth-in-Lending Act (TILA) - Regulation Z ............................................ 34

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Company Name Regulatory Compliance Policies and Procedures

Purposes of Truth-in-Lending Act .............................................................................. 34 2.31 - The APR (Annual Percentage Rate) Disclosure.............................................. 35 APR Tolerance ........................................................................................................... 35 2.31.2 Determining the Amount Financed - Prepaid Finance Charge ....................... 36 2.32 Additional Disclosures ................................................................................................... 37 At Application – ARM Disclosure ............................................................................... 37 Home Equity Lines and Open-Ended Credit .............................................................. 37 2.33 Notice of Right to Cancel (Right to Rescind) ................................................................. 38 Waiver of Right to Rescind ........................................................................................ 38 Right to Rescind in Open-end Transactions .............................................................. 38 Three Day Right to Cancel ......................................................................................... 38 2.34 - Advertising................................................................................................................... 39 2.35 – High Cost Loans ......................................................................................................... 41 Section 32 of Truth-in-Lending Act ............................................................................ 41 Loans Subject to Section 32 ...................................................................................... 41 Points and Fees Trigger ............................................................................................. 41 Section 32 Disclosures .............................................................................................. 41 Section 32 Prohibitions .............................................................................................. 41 Penalties for HOEPA Violations ................................................................................. 42 Assessing High-Cost Loans ....................................................................................... 43 Marketing Policy – Non-Traditional Loans and Predatory Lending ........................... 44 Hybrid and Non-Traditional Loan Guidance .............................................................. 45 Predatory Lending Policy ........................................................................................... 46 Characteristics of Predatory Lending ......................................................................... 46 Loan Flipping- No Financial Benefit – Equity Stripping.............................................. 47 Excessive Fees – Fee Packing .................................................................................. 49 Lending Without Regard for the Borrower’s Ability to Pay ......................................... 49 Fraud .......................................................................................................................... 50 Negative Amortization ................................................................................................ 51 Payments in Advance ................................................................................................ 51 Prepayment Penalties ................................................................................................ 51 Payments to Contractors ........................................................................................... 52 Mandatory Arbitration Agreements ............................................................................ 52 Due on Demand Clauses - Acceleration .................................................................... 53 Balloon Payments ...................................................................................................... 53 Predatory Servicing Practices .................................................................................... 53 Deceptive Practices ................................................................................................... 55 Encouraging Default................................................................................................... 55 State Predatory Lending Laws .............................................................................................. 56 National Bank Exemption ........................................................................................... 56 “Higher Priced Mortgage Loans” (HPML) - Section 35 .............................................. 57 HPML – Section 35 Calculator-Worksheet ................................................................ 58 2.36 Mortgage Disclosure Improvement Act (MDIA)............................................................. 59 Corrective Truth-in-Lending Disclosures.................................................................... 59

2.4 Consumer Credit Protection Laws ................................................................ 60 The Equal Credit Opportunity Act.......................................................................................... 60 Unlawful Inquiries ....................................................................................................... 60 Prohibitions ................................................................................................................ 60 Notification Requirements .......................................................................................... 60 Penalties .................................................................................................................... 61

Fair Housing and Fair Lending Acts .................................................................... 62 Plan Overview ............................................................................................................ 62 Approval of Third Parties ........................................................................................... 63 Employee Acknowledgement of Fair Lending Plan ................................................... 64

Fair Lending Compliance .................................................................................... 65

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Company Name Regulatory Compliance Policies and Procedures

The CFPB and Secondary Regulators....................................................................... 66 State Specific Fair Lending Regulations - New York State........................................ 66

Fair Lending and the Equal Credit Opportunity Act ............................................. 68 Federal Reserve Regulation B - 12 CFR Part 202 ................................................................ 68 General Rules for Compliance §202.4 ....................................................................... 68 Definitions - §202.2 .................................................................................................... 68 What information can be Requested – Section 202.5 ............................................... 69 Prohibited Basis ......................................................................................................... 69 How Applications are evaluated – Section 202.6/202.7 ............................................ 71 What is a “Statistically Sound Credit Scoring System?” ............................................ 72 Adverse Action ........................................................................................................... 73 Other General Requirements ..................................................................................... 75 Right to Receive a Copy of the Appraisal .................................................................. 76 Company Name May Not Discourage the Filing of an Application ............................ 77 The ECOA Code – Who Is Responsible For the Account? ....................................... 77 Company Name Do’s and Don’ts............................................................................... 78 Borrower’s Recourse for Inaccurate Credit Information............................................. 79 If the Loan is “Counter-Offered” ................................................................................. 80 What Recourse Does the Borrower Have? ................................................................ 80 Defining “Application” ............................................................................................................ 81 Application Paths and Requirements ......................................................................... 81 Underwriting Decision Process ............................................................................................. 82 Underwriting Flow .................................................................................................................. 82 If Loan Is Approved .................................................................................................... 83 Underwriting Disposition Process .............................................................................. 84 "Approved with Conditions" ........................................................................................ 84 Underwriting Approval Letter ..................................................................................... 85 Suspended Loans ...................................................................................................... 85 Denial - Adverse Action ............................................................................................. 87 Second Level of Review ............................................................................................ 88

Fair Housing Act ................................................................................................. 89 Covered Transactions ................................................................................................ 90 Unlawful Lending Practices ........................................................................................ 90 Violations and Enforcement ....................................................................................... 91 Advertising ................................................................................................................. 92 Limitations Extended to 3rd Parties ............................................................................ 92 Allegations of Discrimination ...................................................................................... 93 Filing Complaints........................................................................................................ 94 2.42 Fair Credit Reporting Act (“FCRA”) .............................................................................. 95 Policy for Distributing Credit Information.................................................................... 95

2.43 Home Mortgage Disclosure Act (“HMDA”) .................................................. 96 Depository Institutions Subject to the Act .................................................................. 96 HMDA, Loan Application Method and Government Monitoring Information .............. 97 2.43.1 Community Reinvestment Act (CRA) ......................................................................... 99

2.44 The Fair and Accurate Credit Transactions Act (“FACTA”) ....................... 100 FACTA Red Flags .................................................................................................... 100 2.45 - Home Owner’s Protection Act ................................................................................... 101 PMI Cancellation ...................................................................................................... 101

2.46 Consumer Privacy Protection Laws .......................................................... 102 2.46.1 Gramm-Leach-Bliley Act – Privacy Act ......................................................... 102 USA Patriot Act ........................................................................................................ 102

2.7 SAFE Act Requirements ............................................................................. 103 Licensing and Professional Education Requirements (SAFE Act) ...................................... 103 Loan Originator License Verification ........................................................................ 104 Reporting of Licensee Termination .......................................................................... 104

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Company Name Regulatory Compliance Policies and Procedures

Branch Licensing Process – NMLS Call Reporting ................................................. 104 Secure and Fair Enforcement for Mortgage Licensing (SAFE Act) .................................... 105 Unique NMLS Identifier - Loan Originator and Company ........................................ 105

2.71 Origination Personnel Policies Dodd-Frank Act ........................................ 106 Compensation .......................................................................................................... 106 Creditor vs. Originator .............................................................................................. 106 Base Commission Schedule .................................................................................... 106 Dual Compensation.................................................................................................. 106 Avoiding “Steering”................................................................................................... 107 2.71.1 Compensation Policy and Procedure ....................................................................... 108 Compensation Policy – Consumer Paid Fees ..................................................................... 109 Process - Consumer Paid or Lender Paid ............................................................... 109 Consumer May NOT Pay Employee Directly ........................................................... 109 Compensation Plans ........................................................................................................... 110 Consumer/Creditor Paid Compensation Plan – Brokers or Creditors ..................... 110 Investor/Wholesaler (Creditor) Paid Compensation – for Brokers ........................... 111 Table of Creditors..................................................................................................... 111 Exception to Compensation Grid (Safe Harbor) ...................................................... 111 Safe Harbor – Consumer Chooses Product which results in Higher Compensation .......... 112 Customer’s Best Interest Worksheet (Anti-Steering Safe Harbor) .......................... 113 Commission Schedules and Permissible Payments ................................................ 114 Performance Reviews .............................................................................................. 115 Individual and Spousal Loans .................................................................................. 115 Time Keeping Policy ................................................................................................ 116 Employment Status Policy ................................................................................................... 116

2.72 Employment, Screening and Compensation Practices ............................. 119 Announcing Position Openings ................................................................................ 119 Treatment of Candidates ......................................................................................... 120 Checking References ............................................................................................... 122 Checking Background – Credit, Background and Housing Agencies ................................. 123 Additional Background Checks/Screening ............................................................... 124 Affirmative Action/Equal Employment Opportunity .................................................. 125 New Hire Reference and Background Check .......................................................... 126 Completing the Interview ......................................................................................... 127 New Hire Letter/Offer of Employment ...................................................................... 128 New Hire Procedures ............................................................................................... 129

2.73 Appraiser Independence ........................................................................... 130 Implementing Appraiser Independence Rules .................................................................... 130 Background .............................................................................................................. 130 2.73.1 Appraisal Management Service .................................................................... 131 2.73.12 Highlights of Company Compliance Procedures ........................................ 131 2.73.2 Pre-Qualification and Property Valuation ................................................................. 132 Valuation and Pre-Qualification ............................................................................... 133 Prohibited Practices for Production Staff ................................................................. 134 2.73.3 Underwriting Submission.......................................................................................... 135 Appraisal Copy to Borrower Certification ................................................................. 135 Borrower Appraisal Copy Notice Form .................................................................... 136 2.73.31 Basic Underwriting Submission Process................................................................ 137 2.73.4 Appraisal Ordering – Random Appraiser Selection ................................................. 139 Appraisal Checklist................................................................................................... 139 Approved Appraiser Vendor List .............................................................................. 140 Random Appraisal Order Process ........................................................................... 141 Random Order Rotation Log .................................................................................... 142 Appraisal Order Form............................................................................................... 143 2.73.5 Underwriting Property and Appraiser Approval ........................................................ 144

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Company Name Regulatory Compliance Policies and Procedures

2.73.51 Appraiser Approval Process ....................................................................... 144 2.73.52 Approved Appraiser Vendor List ................................................................. 146 2.73.53Prohibited Practices ..................................................................................... 146 2.73.54 Evaluating Appraisers ................................................................................. 147 2.73.55 Unacceptable appraisal practices ............................................................... 147 2.73.6 Removal from Approved Appraiser List ................................................................... 148 What appraisers need from the underwriter ............................................................ 148 What the underwriter need from appraisers ............................................................ 148 2.73.61 Appraisers .............................................................................................................. 149 Appraiser Approval Process .................................................................................... 149 Approved Appraiser Vendor List .............................................................................. 151 Appraisal Audit Function .......................................................................................... 152 Desk Review of Appraisal ........................................................................................ 153

2.8 Complaint Resolution .................................................................................. 155 State Laws ............................................................................................................... 155 Complaint Policy ...................................................................................................... 155

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Company Name Regulatory Compliance Policies and Procedures

Compliance Manager – Duties and Responsibilities The Compliance Manager is responsible for overseeing the mortgage and regulatory compliance program for Company Name. This includes a system of internal operating procedures to ensure compliance and minimize violations. The compliance program covers, but is not limited to, the following consumer laws:                    

Equal Credit Opportunity Act & Fair Lending Program Home Mortgage Disclosure Act Gramm-Leach-Bliley Act FACT Act – Information Security and ID Theft Real Estate Settlement Procedures Act (RESPA) Truth-in-Lending Act Unfair, Deceptive or Abuse Acts or Practices(UDAP) Fair Credit Reporting Act Fair Debt Collection Practices Act Service Members’ Civil Relief Act USA Patriot/Consumer ID Theft OFAC/Bank Secrecy Act/Anti-Money Laundering (AML/BSA) Dodd-Frank Financial Reform Act Flood Disaster Protection Act Qualified Mortgage/QRM SAFE Act Loan Officer Compensation – Anti-Steering Rule Federal and State Foreclosure and Bankruptcy State regulations related to mortgage origination and servicing in the Company Name Mortgage footprint HAMP Program (or other government sponsored loss mitigation programs).

This list of duties and responsibilities is not intended to be a complete list of all the duties and responsibilities.

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Company Name Regulatory Compliance Policies and Procedures

Detailed Duties and Functions Lead and direct the development and updating of regulatory compliance policies and procedures to ensure continuous compliance with federal and state regulations related to mortgage origination and servicing.

Annually

Semi-Annually

Monthly

Quarterly

X

X X

X X

X X X

X

X

X

X

X

X X

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X X X X X X X

Reporting

X X

NMLS Call Reporting Vendor Management Licensing

X

Assemble HMDA Data

X

Investor Suspense

X

Complaint Management

X X

Advertising/Messages Approval

X X X

Employee Audit

X

Branch Audit

Assign New and Re-Train for all employees Anti Money Laundering, Fair Lending, UDAAP. Evaluate training to validate correct information. Anti Money Laundering Fair Lending (Origination, Processing, Underwriting, Vendors) Unfair, Deceptive Practices (Originating, Servicing) Compliance (Quality Control) Fair Credit Reporting (Origination - ordering, Servicing) Privacy Appraisal Evaluate each branch location to ensure licensing compliance Evaluate each employee for compliance with licensing, performance, required training, and background checks Review all outgoing commercial messages for compliance Assemble Messages for pre-approval against policy Review Databases for Complaints - CFPB, State, BBB, Qualified Written Request (HUD) and respond Review investor findings and rebut-correct Assemble, review and submit HMDA data Audit HMDA Data Collection Process Assemble, review and submit Call Report data At inception and annually Assemble, review and submit all State/Local licensing and renewal data Operating Policies and Procedures Compliance Committee Audit Committee Quality Control Organizational Issues, Vendor Management HR/Employee/Originator Compensation

X

Operational Audit

Review changes and updates and submit changes for management approval

X

Periodic Training

Review changes and updates and submit changes for management approval

X

Review industry news and publications to maintain current knowledge of industry and regulatory changes Compile and Assemble

Daily

Surveillance of Regulatory Changes Distribute Regulatory Changes Edit Current Policies Based on Changes Evaluate Forms Based on Changes

X

Description

X

Functional Area

Weekly

The following rubric describes the periodic reviews that the compliance manager must undertake. Ingrain these milestones in your time management/corporate calendar to ensure adherence. In this way the Compliance Manager can address the compliance policies and procedures and ensure that they remain current and distributed to employees.


Company Name Regulatory Compliance Policies and Procedures

Surveillance of Regulatory Changes Review the following information resources to receive prompt notification of industry changes. Compile these changes into the existing policies and procedures on a weekly basis and distribute to all employees. Suggested Resources 

Mortgage Industry Websites  Mortgage Bankers Association Website  CFPB Website  Federal Reserve Website Newsletter Subscriptions  Mortgage News Daily - reports@mortgagenewsdaily.com  MortgageMag.com –  National Mortgage News  DocMagic - news@docmagic.com  Official NMLS Course Provider Newsletter  HOMEOWNERSHIP-L@hudlist.hud.gov  Buckley & Sanders Infobytes

Review Changes Review, coordinate, and address new or proposed regulations or significant changes to existing laws to ensure continuous compliance. Review forms and disclosures to ensure that they comply with all applicable state and federal laws and regulations Responsible for ensuring that the company’s compliance practices are in line with current laws and regulations

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Company Name Regulatory Compliance Policies and Procedures

Periodic Testing Monitor periodic compliance testing programs and assist with the development and implementation of any required corrective actions. Training Ensure the company has implemented adequate training with respect to compliance issues, laws and regulations. Advertising Approval Examine promotions, advertising or solicitations to ensure compliance with applicable state and federal regulations. Provide input regarding any compliance concerns relevant to products and services offered. Complaint Management Review and validate investor regulatory compliance suspense/rejects and provide any appropriate rebuttals and/or corrective action necessary. Respond to customer complaints directed through any applicable government agencies and/or other interested third parties. Regulatory Reporting Direct and manage the company’s data and reporting for both internal and external purposes:  

Oversee the quarterly review of HMDA data and the annual HMDA reporting function for the Company. Oversee and manage the NMLS Call Reporting data assembly and delivery.

Licensing Management Ensure Company Name obtains and renews all licenses necessary to conduct business in each state that the company conducts, or plans to conduct, business in. Manage and report on licenses for each licensed individual. Personnel Compliance

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Company Name Regulatory Compliance Policies and Procedures

In addition to monitoring licensing, monitor all company personnel to ensure compliance with semi-annual training requirements, background checks, disbarment and satisfactory performance evaluations. Compliance Automation Assist in overall maintenance and development of automated compliance system

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Company Name Regulatory Compliance Policies and Procedures

Compliance Manager - Qualifications Required Experience To perform this job successfully, an individual must be able to perform each essential duty satisfactorily. The requirements listed below are representative of the knowledge, skill, and/or ability required. Reasonable accommodations may be made to enable individuals with disabilities to perform the essential functions. Required Level of Education Bachelor's degree Required Minimum Experience    

5 years recent retail lending experience 2 years management or supervisory experience Aptitude for mathematics of consumer finance Certified Regulatory Compliance Manager (CRCM) designation

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Company Name Regulatory Compliance Policies and Procedures

2.1 Federal Regulatory Compliance Overview Company Name is subject to and complies with all State and Federal Laws and Regulations. We provide detailed instruction to our employees. We are providing this brief summary of our policies in action.

Management of Compliance Process In order to effectively manage the compliance elements of our business we have implemented the following management reporting procedures. Operating Policies and Procedures – Operating Committees We have structured our operating policies and procedures to intersect with those of compliance. On a weekly basis we evaluate changes in the industry and update our procedures. On a monthly basis, the management committee meets to evaluate and approve the activities of the firm and to approve any changes to policy. The following committees and subjects are covered:      

Regulatory Compliance Committee Audit Committee Quality Control Organizational Reporting Discipline Policies and Records of Disciplinary Actions Oversight of Employees and Third Party Vendors

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Company Name Regulatory Compliance Policies and Procedures

RESPA - Real Estate Settlement Procedures Act (Regulation X) 12 USC Section 2601 et seq. - This law requires the lender to provide the borrower with information regarding closing costs and expenses and other disclosures related to the real estate settlement process. Policy in Practice Good Faith Estimate A written commitment of charges the borrower is to incur at settlement must be provided at application or mailed to applicant within 3 business days of receipt of application. We may not collect any fee, other than a credit report, prior to providing this estimate. We define this as a “GFE application” and may distinguish this from our “Complete Application.” A GFE application is where there is 1) 2) 3) 4) 5) 6)

Borrower name Social Security Number property address property value or sales price loan amount borrower income

HUD Special Information Booklet “Understanding Closing Costs” This applies to purchase transactions only. The booklet contains information on settlement procedures and costs. This must be mailed to applicant within 3 business days of receipt of application. Required Settlement Service Provider This disclosure is required if we use a specific settlement service provider such as specific tax service, credit reporting agency, appraisers and flood certificate providers. This must be provided at application or mailed to applicant within 3 business days of receipt of application. Affiliated/Controlled Business Arrangement Disclosure We must disclose an identity of interest or compensation for referring a borrower to any provider of a required service. Title Companies, Insurance, Real Estate Firms, and Pest Inspections are examples of these types of providers. Servicing Transfer

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Company Name Regulatory Compliance Policies and Procedures

We must identify the applicant’s rights under the Servicing Transfer Practices Act, and provide an estimate of the percentage of we service and transfer. This notice must be provided at application or mailed within 3 business days of application. HUD-1 Settlement Statement Borrowers have a right to receive the HUD-1 Settlement Statement a minimum of 24 hours prior to closing. We insure satisfaction of this by requiring a copy of the HUD-1 in advance of arranging for wire transfer of funds (see pre-closing/funding procedure).

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Company Name Regulatory Compliance Policies and Procedures

Home Mortgage Disclosure Act (HMDA) The purpose of HMDA is to assist the government in identifying possible discriminatory lending patterns and enforcing the anti-discrimination statutes. It also is to determine whether depository institutions are filling their obligation to serve the housing needs of the communities and neighborhoods in which they are located. Only those loan applications for which Company Name makes a credit decision must be considered when interpreting the HMDA reporting requirements. If Company Name denies the loan application prior to submitting the application to our sponsor/lender or investor; or the borrower withdraws their application prior to the submission of the loan application to our sponsor/lender or investor; it is Company Name’s responsibility to report these activities under HMDA. In addition, if Company Name does not make a credit decision as stated above, it is required to file a Negative HMDA Report. Policy in Practice – Loan Origination/Production Process Our production personnel attend either state approved, privately sponsored or association sponsored continuing education courses that describe HMDA related laws. Data Requirements Lender must property complete government-monitoring section of 1003 and capture additional information        

property location income-all borrowers loan type loan amount occupancy purpose race sex

In addition, for the purposes of monitoring under ECOA we must collect   

national origin marital status age

If a loan application is a “face-to-face” application, the government monitoring section must be completed by "visual observation” if borrower chooses not to provide the data.

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2.0 Compliance Module