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					                                                                                                     Underwriting


                                                                                                                          Posted 3/29/11


                                                                                  7 - Table of Contents
7-     UNDERWRITING ....................................................................................................... 7-1
  OVERVIEW ........................................................................................................................... 7-1
    Description .................................................................................................................... 7-1
    Philosophy ..................................................................................................................... 7-1
    Underwriting Options....................................................................................................... 7-1
    Underwriting Methods ..................................................................................................... 7-1
    Important ...................................................................................................................... 7-2
    Conventional Loans ......................................................................................................... 7-2
    Government Loans .......................................................................................................... 7-2
    Underwriting Help ........................................................................................................... 7-2
    Loan Quality................................................................................................................... 7-2
    LQI-Undisclosed Debt Policy ............................................................................................. 7-5
  REGULATORY COMPLIANCE......................................................................................................... 7-6
    Overview ....................................................................................................................... 7-6
    Correspondent Warranty .................................................................................................. 7-6
    RESPA Reform – MSI Documentation Requirements ............................................................ 7-7
      GFE and TIL Forms ...................................................................................................... 7-7
      GFE Certification and Applicant’s Intent to Proceed-Documentation .................................... 7-8
      Changed Circumstances Form - Documentation ............................................................... 7-8
    S.A.F.E. Act and FHFA-Data Capture ................................................................................. 7-9
    Risk Based Pricing Rules ................................................................................................ 7-11
  THIRD PARTY CONTRACT UNDERWRITING...................................................................................... 7-12
    Contract Underwriting Fees ............................................................................................ 7-12
    MSI as Investor ............................................................................................................ 7-12
    Home Mortgage Disclosure Act ....................................................................................... 7-12
    Approved Contract Underwriters ..................................................................................... 7-13
    Purchase Delivery Requirements ..................................................................................... 7-13
    Notice of Loan Approval ................................................................................................. 7-13
      At Close Conditions .................................................................................................... 7-13
    AUS ............................................................................................................................ 7-14
    TIP/Reminder: .............................................................................................................. 7-14
    Correspondent Warranty ................................................................................................ 7-14
  DELEGATED UNDERWRITING ..................................................................................................... 7-15
    Overview ..................................................................................................................... 7-15
    Correspondent Warranty ................................................................................................ 7-15
    Notice of Loan Approval ................................................................................................. 7-15
    Use of Contract Underwriters.......................................................................................... 7-16
    AUS ............................................................................................................................ 7-16

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Mortgage Services III, LLC Correspondent Lending Seller Guide                                                                 Underwriting
Version 10/28/08      REV (3/25/11)                                                                                                     7-i
Underwriting



Table of Contents, Continued

  MSI UNDERWRITING .............................................................................................................     7-17
    Overview .....................................................................................................................   7-17
    AUS Loans ...................................................................................................................    7-17
    Electronic (Paperless) Submission ...................................................................................            7-17
    E-File Underwriting Stacking Order..................................................................................             7-19
    HMDA Data ..................................................................................................................     7-19
    Purpose of Refinance .....................................................................................................       7-19
    Mortgage Insurance ......................................................................................................        7-19
    Notice of Loan Decision .................................................................................................        7-20
    Conditions/ Stipulation ..................................................................................................       7-20
    Warranty .....................................................................................................................   7-20
    Correspondent Responsibility .........................................................................................           7-20
  AUTOMATED UNDERWRITING ....................................................................................................        7-21
    Overview .....................................................................................................................   7-21
    LTV/CLTV and TLTV Calculation ......................................................................................             7-21
    Acceptable AUS Decisions ..............................................................................................          7-21
    AU Central Access .........................................................................................................      7-22
    AUS Tolerances ............................................................................................................      7-22
    Correspondent Responsibility .........................................................................................           7-22
    Freddie Mac TPO ...........................................................................................................      7-22
    Maximum Number of Borrowers......................................................................................                7-22
    Preliminary Findings ......................................................................................................      7-23
    Submission Requirements for AUS Loans .........................................................................                  7-23
    MSI Underwriting Submission .........................................................................................            7-23
    Closed Loan Submission ................................................................................................          7-23
    Underwriter Responsibility .............................................................................................         7-23
  UNDERWRITING GUIDELINES ....................................................................................................       7-24
    Overview – Conventional Guidelines ................................................................................              7-24
    Overview – Government Guidelines .................................................................................               7-24
    Product Summary Precedence ........................................................................................              7-24
    Fannie Mae 1008 Requirement .......................................................................................              7-24
    Presentation .................................................................................................................   7-24
  UNDERWRITING METHODS .......................................................................................................       7-25
    Overview .....................................................................................................................   7-25
  ASSETS AND LIQUIDITY ..........................................................................................................    7-26
    Overview .....................................................................................................................   7-26
    AUS Supporting Documents ...........................................................................................             7-26
    Borrower Funds Secured by an Asset...............................................................................                7-26
    Bridge Loan..................................................................................................................    7-26
    Business Funds .............................................................................................................     7-27
    Conversion of (or departure from) Principal Residence .......................................................                    7-28
    Cash Value of Life Insurance ..........................................................................................          7-30
    Credit Card Financing ....................................................................................................       7-30
    Checking and Savings Accounts ......................................................................................             7-30
    Deposit on Sales Contract ..............................................................................................         7-30
    Eligible Assets ..............................................................................................................   7-31
    Verification Requirements ..............................................................................................         7-31

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Table of Contents, Continued

    Funds to Close ..............................................................................................................        7-32
    Gifts ............................................................................................................................   7-33
    Gift of Equity ................................................................................................................      7-34
    Ineligible Assets ...........................................................................................................        7-34
    Large Deposit ...............................................................................................................        7-35
    Real Estate Proceeds .....................................................................................................           7-35
    Rent Credit for Options to Purchase.................................................................................                 7-35
    Reserves .....................................................................................................................       7-36
    AUS Underwritten .........................................................................................................           7-36
       Principal Residence Pending Sale .................................................................................                7-36
       Acceptable funds for Reserves .....................................................................................               7-37
    Retirement ...................................................................................................................       7-37
    Sale of Stocks or Bonds .................................................................................................            7-37
    Tax Deferred Exchange..................................................................................................              7-38
    Verification of Deposits ..................................................................................................          7-39
  BORROWERS ......................................................................................................................       7-41
    Overview .....................................................................................................................       7-41
    Borrowers ....................................................................................................................       7-41
    ARMs Length Transactions .............................................................................................               7-41
    First Time Homebuyers ..................................................................................................             7-41
    Illinois Land Trust .........................................................................................................        7-42
       Eligibility Requirements ..............................................................................................           7-42
       Documentation Requirements......................................................................................                  7-43
       Signature Requirements .............................................................................................              7-43
    Inter Vivos Revocable Trust (IVRT) .................................................................................                 7-44
       Eligibility Requirements ..............................................................................................           7-45
       Required Documentation ............................................................................................               7-46
    IVRT & Illinois Trust Checklists .......................................................................................             7-49
    Multiple Mortgages to the Same Borrower ........................................................................                     7-49
    Non-Arms Length or Identity of Interest Transaction .........................................................                        7-50
    Non-Occupant Co-Borrower ............................................................................................                7-53
    Non-Permanent Resident Alien .......................................................................................                 7-54
       Underwriting Requirements .........................................................................................               7-55
    Non-Purchasing Spouse .................................................................................................              7-55
    Permanent Resident Alien ..............................................................................................              7-56
    Power of Attorney .........................................................................................................          7-57
    Purchasing Co-Borrower ................................................................................................              7-58
    Owner Occupancy – Primary Residence ...........................................................................                      7-59
       MSI Definition of Primary Residence (Owner Occupancy) ................................................                            7-59
    Spousal Property Rights.................................................................................................             7-59
    Trailing Borrower Income...............................................................................................              7-59
    U.S. Citizen ..................................................................................................................      7-59
  CERTIFICATIONS ..................................................................................................................      7-60
    Summary.....................................................................................................................         7-60

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Mortgage Services III, LLC Correspondent Lending Seller Guide                                                                    Underwriting
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Table of Contents, Continued
  CONSTRUCTION TO PERMANENT FINANCING ...................................................................................               7-61
    Overview .....................................................................................................................      7-61
    Characteristics..............................................................................................................       7-61
    MSI Requirements ........................................................................................................           7-62
      MSI Construction-to-Perm Requirements Matrix.............................................................                         7-63
    Single Close .................................................................................................................      7-65
  CONTRIBUTIONS ..................................................................................................................      7-66
    Interested Party Contributions ........................................................................................             7-66
      Seller Concessions .....................................................................................................          7-67
      Realtor Commissions Limitations .................................................................................                 7-67
    Sales Abatement ..........................................................................................................          7-67
  CREDIT.............................................................................................................................   7-68
    Overview .....................................................................................................................      7-68
    MSI Approved Credit Reporting Vendors ..........................................................................                    7-68
    Age of Documents – Conventional Loans..........................................................................                     7-69
    Bankruptcy/ Foreclosure ................................................................................................            7-69
    Bankruptcy Underwriting ...............................................................................................             7-71
      Extenuating Circumstances for Bankruptcy Only. ...........................................................                        7-71
      Re-established credit considerations.............................................................................                 7-72
      Documentation Requirements......................................................................................                  7-73
      Pre-Foreclosure, Short Sale or Deed-in Lieu Underwriting ...............................................                          7-73
      Short Sale – Additional Guidelines ...............................................................................                7-74
      Additional Requirements – Purchase Transactions-Subject in Short Sale ...........................                                 7-74
      Short Sale Fees – Purchase Transaction ........................................................................                   7-75
      Foreclosure Guidelines................................................................................................            7-76
    Collections, Charge-offs, Judgments, Garnishments, and Outstanding Liens .........................                                  7-77
    Consumer Credit Counseling ..........................................................................................               7-77
    Credit Report Inquiries ..................................................................................................          7-78
    Credit Score (FICO).......................................................................................................          7-78
    Disputed Credit Information ...........................................................................................             7-79
      MSI Disputed Credit Policy ..........................................................................................             7-79
      Conventional, FHA and VA Loans .................................................................................                  7-79
      USDA loans ...............................................................................................................        7-79
    Electronic Credit Reports................................................................................................           7-80
    Non-Traditional Credit ...................................................................................................          7-80
    Residential Mortgage Credit Report .................................................................................                7-81
    Trade lines ...................................................................................................................     7-81
  DISASTER POLICY ................................................................................................................      7-82
    Overview .....................................................................................................................      7-82
    Timing .........................................................................................................................    7-82
    Definition .....................................................................................................................    7-82
    Areas subject to Disaster Policy ......................................................................................             7-82
    Appraisal Requirements .................................................................................................            7-83
      Appraisals Completed on or before the Incident Period End Date .....................................                              7-83
      FHA Streamlines ........................................................................................................          7-83
      Appraisals Completed up to 120-days after the Incident Period End Date ..........................                                 7-83
    Minor Damage Requirements..........................................................................................                 7-84
    Major Damage Requirements .........................................................................................                 7-84
    Damage Inspection Requirements ...................................................................................                  7-84

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Table of Contents, Continued

  DOCUMENTATION REQUIREMENTS .............................................................................................. 7-85
    Overview ..................................................................................................................... 7-85
       Closed Loans Delivered for Purchase ............................................................................ 7-86
       Tax Transcripts Review ............................................................................................... 7-86
    Age of Documentation ................................................................................................... 7-86
    General Requirements ................................................................................................... 7-87
    AUS Overlays ............................................................................................................... 7-88
    Direct VOE Requirements ............................................................................................... 7-89
    IRS 4506 ..................................................................................................................... 7-89
    Verbal Verification of Employment .................................................................................. 7-93
       Verbal Verification Requirements ................................................................................. 7-94
  ESCROW (COMPLETION) HOLDBACKS .......................................................................................... 7-95
    Overview ..................................................................................................................... 7-95
    Eligibility...................................................................................................................... 7-95
    Roof Repairs ................................................................................................................ 7-97
  ESCROW WAIVER POLICY ........................................................................................................ 7-98
    Overview ..................................................................................................................... 7-98
    Underwriter Responsibility ............................................................................................. 7-98
  GOVERNMENT UNDERWRITING .................................................................................................. 7-99
    Overview ..................................................................................................................... 7-99
    Underwriting Method ..................................................................................................... 7-99
    Underwriting Guidelines ................................................................................................ 7-100
    MSI FHA Sponsorship ................................................................................................... 7-100
  INCOME AND EMPLOYMENT...................................................................................................... 7-101
    Overview .................................................................................................................... 7-101
       Recent Tax Returns and a clarification of Income and “additional income”........................ 7-101
    DU/LP ........................................................................................................................ 7-101
    Alimony / Child Support / Separate Maintenance ............................................................. 7-102
    Boarder Income ........................................................................................................... 7-103
    Bonus and Overtime..................................................................................................... 7-103
    Clergy Income ............................................................................................................. 7-103
    Capital Gains ............................................................................................................... 7-104
    Commission Income ..................................................................................................... 7-105
    Disability Benefits ........................................................................................................ 7-105
    Dividends and Interest ................................................................................................. 7-105
    Employment by Relatives or Transaction Participants ....................................................... 7-106
    Foster Care Income ...................................................................................................... 7-106
    Foreign Income ........................................................................................................... 7-106
    Future Income ............................................................................................................. 7-107
    Military Income ........................................................................................................... 7-107
    Non-Taxable Income .................................................................................................... 7-108
    Mortgage Credit Certificate ........................................................................................... 7-108
    Note Receivable Income ............................................................................................... 7-108
    Part-Time, Second or Multiple Income ............................................................................ 7-108
    Pension / Retirement .................................................................................................... 7-109
    Public Assistance ......................................................................................................... 7-109

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Mortgage Services III, LLC Correspondent Lending Seller Guide                                                                 Underwriting
Version 10/28/08      REV (3/25/11)                                                                                                    7-v
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Table of Contents, Continued

    Rental Income - Primary ............................................................................................... 7-109
    Rental Income - Investment .......................................................................................... 7-111
    Qualifying Without Rental Income .................................................................................. 7-111
    Rental Income – Other Properties .................................................................................. 7-112
    Royalty Payments ........................................................................................................ 7-112
    Salaried Borrower ........................................................................................................ 7-113
    Salaried Income History................................................................................................ 7-113
    Salaried Documentation................................................................................................ 7-113
    Salaried Verification of Employment ............................................................................... 7-114
    Seasonal Income ......................................................................................................... 7-114
    Social Security ............................................................................................................ 7-114
    Self-Employed Borrowers .............................................................................................. 7-115
    Self-Employed Documentation ....................................................................................... 7-116
    Use of Corporate Net Profit ........................................................................................... 7-118
    Self-Employed Income History....................................................................................... 7-119
    Trust Income............................................................................................................... 7-119
    Unacceptable Sources of Income ................................................................................... 7-120
    Unemployment Benefits ................................................................................................ 7-120
    VA Benefits ................................................................................................................. 7-120
  LIABILITIES AND DEBT .......................................................................................................... 7-121
    Overview .................................................................................................................... 7-121
    Debt-to-Income ........................................................................................................... 7-121
  LOAN PURPOSE................................................................................................................... 7-122
    Overview .................................................................................................................... 7-122
    Purchase Transactions .................................................................................................. 7-122
    Refinance Credit Rule ................................................................................................... 7-122
    Refinance ................................................................................................................... 7-122
    Refinance Requirements ............................................................................................... 7-123
       General Refinance Requirements ................................................................................ 7-123
       Seasoning Requirements ........................................................................................... 7-123
       Rate/Term (R/T) or Limited Cash Out (LCO) Refinance .................................................. 7-126
       Cash Out Refinance ................................................................................................... 7-126
    Continuity of Ownership/ Obligations .............................................................................. 7-127
    Listed for Sale ............................................................................................................. 7-129
    Special Purpose Refinance ............................................................................................ 7-129
  MORTGAGE INSURANCE ......................................................................................................... 7-130
    Overview .................................................................................................................... 7-130
    Approved Mortgage Insurance Companies ....................................................................... 7-130
    Standard MI Coverage Requirements ............................................................................. 7-131
    MI Premium Options..................................................................................................... 7-132
    MSI Requirements for Single Premium MI ....................................................................... 7-132
    LPMI .......................................................................................................................... 7-133

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Underwriting                                                     Mortgage Services III, LLC Correspondent Lending Seller Guide
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Table of Contents, Continued

  PROPERTY......................................................................................................................... 7-134
    Appraisal Standards and Requirements ........................................................................... 7-134
      Interior Photos ......................................................................................................... 7-135
    Appraiser Independence Requirements (AIR) .................................................................. 7-136
    MSI Appraiser List ........................................................................................................ 7-137
    Limitations .................................................................................................................. 7-137
    Market Conditions Addendum ........................................................................................ 7-138
    Correspondent Warranty ............................................................................................... 7-138
    Age of Appraisal .......................................................................................................... 7-139
    Appraisal Forms ........................................................................................................... 7-140
    Appraisal Photographs .................................................................................................. 7-142
    Adverse Marketing Conditions........................................................................................ 7-143
      Special Appraisal Requirements for Adverse Market Conditions ....................................... 7-143
    Agricultural Properties .................................................................................................. 7-144
    Builder Bail Out Policy .................................................................................................. 7-144
    Comparables ............................................................................................................... 7-144
    New Projects and/or New Subdivisions Comparable Requirements ..................................... 7-144
    Chinese Drywall ........................................................................................................... 7-144
    Condominium Overview ................................................................................................ 7-145
    Condominium Appraisal ................................................................................................ 7-145
    Condominium Characteristics ........................................................................................ 7-145
    MSI Acceptable Condos ................................................................................................ 7-146
      DU Limited Review .................................................................................................... 7-146
      2-4 Unit Condos ....................................................................................................... 7-147
      Fannie Mae Approved Project ..................................................................................... 7-147
      FHA-Approved Project ....................................................................................................... 7-147
      Non-Warrantable Condos .................................................................................................... 7-147
    MSI Ineligible Condos ................................................................................................... 7-148
    General Condo Requirements ........................................................................................ 7-150
    Degree of Development ................................................................................................ 7-152
    Deed Restrictions ......................................................................................................... 7-153
      Occupancy Restrictions .............................................................................................. 7-153
      Property with Resale Deed Restrictions ........................................................................ 7-153
      Age Restrictions........................................................................................................ 7-153
      Documentation Requirements for Age-Restricted Properties ........................................... 7-154
    Environmental Issues and Other Hazards ........................................................................ 7-154
    Ineligible Property Types .............................................................................................. 7-155
    Investment Property Restriction..................................................................................... 7-155
      Additional Appraisal Requirements .............................................................................. 7-155
    Land Contracts ............................................................................................................ 7-156
    Underwriting the Land Contract for Sale ......................................................................... 7-156
    Leasehold Estate Overview............................................................................................ 7-157
      Leasehold Requirements Matrix .................................................................................. 7-157
    Lender Certifications Policy ........................................................................................... 7-158

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Mortgage Services III, LLC Correspondent Lending Seller Guide                                                                Underwriting
Version 10/28/08      REV (3/25/11)                                                                                                 7-vii
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Table of Contents, Continued
    Location ..................................................................................................................... 7-158
    Log Homes.................................................................................................................. 7-158
    Lot Size- Maximum Acreage .......................................................................................... 7-158
    New Construction......................................................................................................... 7-159
    Modular/ Factory Built Homes........................................................................................ 7-159
    Mixed Use Properties .................................................................................................... 7-160
    Outbuildings................................................................................................................ 7-161
    Private Road Maintenance ............................................................................................. 7-161
    Purchase Agreement (Contract) – Re-Negotiated ............................................................. 7-162
    PUD Overview ............................................................................................................. 7-163
    REO/Repo Properties .................................................................................................... 7-164
    Right of Redemption..................................................................................................... 7-164
    Rural Property ............................................................................................................. 7-165
    Security Bars .............................................................................................................. 7-165
    Subject Property Size ................................................................................................... 7-165
  PROPERTY FLIPPING ............................................................................................................. 7-166
    Overview .................................................................................................................... 7-166
    Chain of Title............................................................................................................... 7-166
    Underwriting Requirements for Purchase Transactions ...................................................... 7-166
    Red Flags.................................................................................................................... 7-167
    Property Flopping......................................................................................................... 7-167
  QUALIFYING RATIOS AND LIABILITIES ......................................................................................... 7-168
    Summary.................................................................................................................... 7-168
    Product Suites ............................................................................................................. 7-168
    Housing Payment Ratio ................................................................................................. 7-168
    Debt-To-Income Ratio .................................................................................................. 7-169
    Calculation .................................................................................................................. 7-169
    Alimony ...................................................................................................................... 7-169
    Automobiles ................................................................................................................ 7-169
    Paying off Debt ............................................................................................................ 7-170
    Monthly Payments ....................................................................................................... 7-170
    Co-Signed Obligations .................................................................................................. 7-170
    HELOC ........................................................................................................................ 7-171
       For qualifying purposes ............................................................................................. 7-171
    Revolving Debt ............................................................................................................ 7-171
    Student Loans ............................................................................................................. 7-171
  SUBORDINATE FINANCING ...................................................................................................... 7-172
    Overview .................................................................................................................... 7-172
    Requirements .............................................................................................................. 7-172
    Documentation Requirements........................................................................................ 7-175
    Home Equity Line of Credit............................................................................................ 7-175
  TEMPORARY BUYDOWNS ........................................................................................................ 7-176
    Overview .................................................................................................................... 7-176
    Buydown Funds ........................................................................................................... 7-176
    Source of Buydown Funds ............................................................................................. 7-176
    Terms ........................................................................................................................ 7-176
    Note........................................................................................................................... 7-176
    Buydown Agreement .................................................................................................... 7-177
    Calculation Example ..................................................................................................... 7-177



Underwriting                                                     Mortgage Services III, LLC Correspondent Lending Seller Guide
7-viii                                                                                     Version 10/28/08     REV (3/25/11)
                                                                       Underwriting



                                                                7 - Underwriting
Overview

Description         The Underwriting Chapter outlines the types of underwriting offered by
                    Mortgage Services III, LLC (MSI) as well as providing underwriting
                    requirements for MSI loan products.


Philosophy          MSI is committed to purchasing investment quality loans that meet
                    acceptable risk standards as defined by the mortgage industry.
                    All loans purchased by MSI must be underwritten according to the
                    guidelines and requirements of MSI; Fannie Mae; Freddie Mac; Ginnie
                    Mae (GNMA); FHA, VA, or USDA as applicable.
                    Correspondents must deliver loans in accordance with the standards and
                    requirements stated in the MSI Seller Guide.


Underwriting        MSI offers the following underwriting options to Correspondents:
Options
                       Third Party Contract Underwriting
                       MSI-Delegated Underwriting Authority
                       MSI Prior Approval Underwriting as required for specific products only,
                        see specific product suites for details.


Underwriting        MSI purchases loans that are:
Methods
                       Automated Underwriting System (AUS) Underwritten – MSI accepts
                        the Fannie Mae DU approve or Freddie Mac LP accept decision with
                        loan product parameter over-lays.
                       Manually Underwritten – MSI does not purchase manually
                        underwritten loans.


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Overview,               Continued


Important           Important reminder:
                    All “prior to doc” (aka “prior to close”) conditions must be
                    approved/accepted by the applicable underwriter prior to closing the loan.
                        If MSI underwrites the loan, MSI must approve/clear the prior-to-doc
                         conditions before documents are drawn and the loan closed.
                        Failure to have the conditions cleared/approved may result in
                         •   Additional prior to purchase conditions by MSI, or
                         •   Non-purchase of the loan.
                         •   Subsequent discovery of un-approved/cleared conditions in a post-
                             purchase audit may require repurchase of the loan.


Conventional        MSI requires that all conventional loans (conforming and jumbo) be
Loans               underwritten by one of the following MSI-approved underwriters:
                     Third Party Contract Underwriter. Third Party Contract Underwriting
                        MSI-approved Delegated Underwriter (in accordance with eligibility
                         requirements and the product guidelines).
                        MSI Prior Approval Underwriter for specific products only.


Government          MSI requires that government Loans be underwritten by:
Loans
                        MSI-approved Delegated DE Underwriter.
                         •   Correspondent must be a DE Underwriter in good standing and
                             have specific approval from MSI to sell delegated FHA loans.
                        MSI Prior Approval Underwriter – FHA sponsorship.


Underwriting        Use the following email address to request underwriting assistance:
Help
                                                MSIuw@msiloans.biz


Loan Quality        MSI will comply fully with the Quality Initiatives outlined by Fannie Mae
        (6/01/10)
                    (for loans with applications taken on/after 6/01/10) for all conventional
                    loans. Sellers warrant, by sale of a loan to MSI, that the loan is in
                    compliance with Fannie Mae Quality, including:


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Overview,                 Continued


Loan Quality, Continued

     Quality Topic                                          MSI Requirement/Audit Point
Validation of Social      MSI accepts only those borrowers with valid Social Security Numbers.
Security Number            On 4/17/10 the DU message became a verification request.
                           Effective for all loans delivered to MSI on/after 6/01/10 (regardless of AUS), MSI will
                              require that the SSN is validated.
                              • MSI uses a Fraudguard product for all loans underwritten by MSI.
                              • For loans underwritten by delegated Sellers, MSI requires that this validation be a part of
                                   their Fraud product (reports).
                          Important Note:
                           MSI will not purchase any conventional loan for which the AUS has an outstanding Social
                              Security Verification (SSN) Message on the final AUS finding.
                              • Follow the applicable agency guidelines for validating the SSN and resubmit the loan
                                  according the AUS Guidelines.
                              • Remember, if the SSN verification message is not removed on the final AUS finding,
                                  the loan is not eligible for funding/purchase.
Borrower Occupancy           On 4/17/10 the DU message became a verification request.
                             Effective for all loans delivered to MSI on/after 6/01/10 (regardless of AUS), MSI will
                              require that the borrower occupancy be validated. (MSI requires a Borrower Occupancy
                              Certification on all loans.)
                              • MSI uses a Fraudguard product for all loans underwritten by MSI.
                              • For loans underwritten by delegated Sellers, MSI requires that this validation be a part of
                                   their Fraud product (reports).
Validation of Qualified   MSI requires that each loan contain documentation (copy of screen print-outs) that each party to
Parties to the            the transaction has been checked/validated on the following Web Sites:
Transaction               GSA List: https://www.epls.gov/
                          LDP List: https://www5.hud.gov/ecpcis/main/ECPCIS_List.jsp
                          Qualified Parties to be checked:
                           Borrowers, Property Sellers, Title Company, Appraiser; Attorney; Loan Originator. Processor,
                                Listing and Selling Agents, and Settlement Agent.
                           You must check full and partial names (as applicable to the site).


                                                                                            Continued on next page




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Overview,                 Continued


Loan Quality, Continued

    Quality Topic                                            MSI Requirement/Audit Point
Borrower Credit-          Each loan file delivered to MSI for funding/purchase must be submitted through an appropriate
Undisclosed Liabilities   Fraud/Quality System (e.g. Core Logic, etc.) to ensure that all debts have been disclosed.
                           A copy of the system findings/report for each qualifying borrower must be included in the loan
                                file.
                           MSI will perform this “test” for each loan underwritten by MSI.
                           See LQI-Undisclosed Debt Policy for details.
                          Note:
                          If an investor subsequently determines that any debts were not adequately disclosed on the
                          application, nor included in the debt-to-income ratio such that the loan would not have met MSI’s
                          eligibility requirements, the mortgage loan will be subject to repurchase by the Seller.
Property Unit Number      Each loan is subject to a USPS review.

                          Note: For any property that is identified by a “unit” or “suite” number, that number must be
                          included as part of the property address and be present on all applicable loan file documents.


                                                                                              Continued on next page




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Overview,             Continued


LQI-                The following outlines the policy MSI follows to ensure compliance with
Undisclosed         the LQI-Undisclosed Debt Requirements:
Debt Policy
                    MSI underwrites the loan
                     MSI underwriter must condition the loan to “Pull LQI Credit Report
                      prior to issuing a Clear to Close”. (Important Note: MSI will clear
                      this condition, the report is ordered by MSI.)
                      • The underwriter must then review the LQI credit report for any
                          new undisclosed debts, increase in debts, or inquiries for new
                          debt.
                      • New or increased debt must be addressed by re-entering
                          new/increased debt amounts into DU or LP and if applicable, the
                          borrowers must provide an explanation for inquiries.
                     Once reviewed and resolved, the Underwriter adds a new condition to
                      the loan: “MSI LQI Credit Report is good through (date 10-business
                      days from date of LQI credit report). If loan does not close/disburse
                      by (date) the loan must be returned to Underwriting for a new LQI
                      Credit Report.”
                    Important Note:
                     In rare cases, review of previously undisclosed debt may result in the
                      borrowers no longer qualifying for the loan.
                    Seller (or Contract Underwriter) underwrites the loan
                    At time of loan funding/ purchase MSI will confirm that the Seller has:
                     Obtained and properly addressed in compliance with the MSI policy
                        an LQI Credit Report no earlier than 10 business days prior to the loan
                        closing (funding/settlement/disbursement date).
                        • Place the LQI Credit Report and all resulting/required
                            documentation behind the AUS Findings (included with all other
                            Fraud Check Reports and Documents.)
                    Note:
                     MSI will not fund/purchase a loan that does not include the LQI
                        required documentation that meets MSI policy.
                     LQI Credit Report must minimally be a “refresh, soft” credit report
                        (without scores) that the underwriter compares against the original
                        report.
                     MSI will accept products from the credit reporting companies that do a
                        “compare” of the original credit report against the refreshed report.
                        • MSI will not accept a fraud prevention report to satisfy this
                            requirement; updates must be obtained through credit
                            repositories.




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Regulatory Compliance

Overview        The Correspondent must underwrite each mortgage loan in compliance
                with the applicable underwriting guidelines in this Seller Guide and all
                applicable governing statutes and regulations as amended including, but
                not limited to, the following:
                 Equal Credit Opportunity Act (ECOA/Regulation B)
                   Consumer Credit Protection Act
                   Fair Credit Reporting Act
                   Fair Housing Act
                   Truth-in-Lending Act (TIL/Regulation Z)
                   Real Estate Settlement Procedures Act (RESPA/Regulation X)
                   Home Mortgage Disclosure Act (HMDA/Regulation C)
                   Home Ownership and Equity Protection Act (HOEPA-Section 32)
                   Agency, Federal, State and Municipal High-Cost and Anti-Predatory
                    Laws (the more restrictive guideline always applies)
                   The USA Patriot Act and Economic Sanctions as applied by the Office
                    of Foreign Asset Control (OFAC)
                The Correspondent may not discriminate against applicants on the basis
                of race, religion, national origin, sex, marital status, age (provided the
                applicant has the ability to enter into a binding contract) or because all or
                part of the applicant’s income is derived from any public assistance
                program.


Correspondent   By sale of a loan to MSI, the Correspondent warrants that the loan is in
Warranty        full compliance with all regulatory requirements.


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Regulatory Compliance,                              Continued


RESPA Reform        GFE and TIL Forms
– MSI                GFE: MSI requires full compliance with RESPA Reform, including the
Documentation          updated version (2010) of the Good Faith Estimate (GFE).
Requirements
       (1/01/10)
                       • The 2010 version of the GFE is the only version of the GFE that
  CLAR (1/07/11)           may be included in a loan file delivered to MSI.
                       • Inclusion of any other versions of the GFE form in the loan file may
                           be subject to failure to fund/purchase the loan.
                           o Additionally, if an older version GFE is delivered to MSI and
                                 subsequently to the end investor, the Seller is liable for any
                                 penalties incurred by MSI as a consequence.
                     TIL: Effective for Applications dated on/after 1/31/11. The
                       Federal Reserve Board (the “Board”) has published an interim rule
                       amending Regulation Z, requiring creditors to disclose certain
                       information about interest rates and payment changes in table format,
                       replacing the payment schedule previously required on the TIL
                       disclosure.
                     The new rule provides new model forms for use on closed end
                       transactions secured by real property or a dwelling.
                     The rule provides that creditors who properly use the new model
                       forms in accordance with the regulation are presumed to comply.
                     Only those changes or modifications to the model forms that are set
                       forth in the new rule or commentary are permissible. Examples
                       Include:
                       • Using the first person, instead of the second person, in referring to
                           the borrower;
                       • Using “borrower” and “creditor” instead of pronouns;
                       • Not using bold type for headings;
                       • Indicating certain disclosures are inapplicable for a transaction by
                           filling in a “N/A” or “0”.
                       • Elimination of the shading.
                    Notes:
                     TIL’s issued by MSI will comply with the new requirements.
                     Sellers’s that prepare their own TIL’s must be in full compliance. By
                       delivery/sale of the loan to MSI, the Seller warrants the TIL meets all
                       applicable Board requirements.
                     Disclosing the old format of the payment schedule on the TIL
                       disclosure, even if the new Interest Rate and Payment Summary
                       table has been added.

                                                                        Continued on next page




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Regulatory Compliance,                   Continued


RESPA Reform – MSI Documentation Requirements, Continued

               GFE Certification and Applicant’s Intent to Proceed-
               Documentation
               To document compliance with the new RESPA Reform requirements, MSI
               requires the Seller to certify issuance of the Good Faith Estimate (GFE)
               using the MSI Certification Form (or an equivalent).
                MSI will delay loans delivered without the certification for underwriting
                   and/or funding/purchase.
                Completion of the form is simple and self-explanatory.

               Changed Circumstances Form - Documentation
                Each time a new GFE is required, MSI requires documentation that
                  explains the reason for the new GFE.
                At a minimum, the broker/lender should include:
                  • Re-Disclosed GFE (s) – the loan must include the initial GFE and
                     any subsequent re-disclosed GFE in order of date (to clearly
                     indicate the date order of the changes, on the top of each
                     document, please print a number).
                     o Each re-disclosed GFE must include a fully completed Changed
                         Circumstances Form.
                     o The Final GFE should be stamped or printed clearly “Final” on
                         the top of the form.
                  • History via Changed Circumstances Form: Seller must use the
                     MSI Changed Circumstances Form (or an equivalent) to document
                     the history of the changed circumstances. The detailed history
                     must contain (but is not limited to) the elements below:
                     o Date of each changed circumstance.
                     o Date of each re-disclosure.
                     o Detailed description of and reason for each changed
                         circumstance.
                     o Note: To clearly show the chronological history of changed
                         circumstances, the Changed Circumstance form should include
                         the corresponding number of the re-disclosed GFE printed on
                         the top of the form.
                Detailed explanation of fees impacted by the changed circumstance.


                                                                       Continued on next page




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Regulatory Compliance,                              Continued


RESPA Reform – MSI Documentation Requirements, Continued

                    Important Note:
                    If MSI underwrites the loan:
                     Once the loan has received the “Clear to Close” from the MSI
                        underwriter if there is a change to the loan that results in changes to
                        the GFE:
                        • The loan must be resubmitted to the MSI underwriter with the
                            fully completed “Change of Circumstance Form” and the revised
                            Final GFE.
                            o The MSI underwriter must re-issue the “Clear to Close” based
                                on the revised information.
                        • Loans with Change of Circumstance/Final GFE issues that are not
                            reviewed and approved by the MSI underwriter are subject to (1)
                            refusal to fund or purchase or (2) request to repurchase if
                            discovered in a post-funding loan audit and MSI is unable to
                            resolve outstanding issues.


S.A.F.E. Act        Effective for all loans (all products) with an application date
and FHFA-           on/after 7/01/10:
Data Capture
       (7/01/10)
                    MSI requires that all loans meet applicable State, Federal and GSE
  CLAR (1/07/11)    requirements for the S.A.F.E. Act.
                     MSI will validate the ID numbers provided on each Application and
                       Appraisal prior to funding.
                       • Loans underwritten by MSI: The MSI underwriter will validate
                           the ID numbers provided against the NMLS Web Site.
                       • Loans underwritten by the Seller and submitted for loan
                           funding/ purchase: MSI will validate the ID numbers provided
                           against the NMLS Web Site.
                     License ID/Numbers that are incorrect or missing will result in MSI not
                       funding/purchasing the loan until the issue is resolved.

                                                                         Continued on next page




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Regulatory Compliance,                     Continued


S.A.F.E. Act and FHFA-Data Capture, Continued
                  MSI currently requires the following in compliance with the GSE(Federal
                   Housing Finance Agency) data capture requirements and the S.A.F.E. Act:


               The following data elements/information must be captured:
                For the S.A.F.E Act:
                  •    Loan Originator ID – Provide on the 1003, initial and final.
                  •    Loan Originator Company ID – Provide on the 1003, initial and final.
                For the GSE’s:
                  •    Field Appraiser License Number – Provide on the Appraisal – No state
                       exceptions
                  •    Supervisory Appraiser License Number – Provide on the Appraisal –
                       No state exceptions.
               Notes:
                While FHA and VA have not yet enacted a requirement to disclose the NMLS
                  numbers (expected to be effective 3/01/11); MSI does require the
                  information for government loans delivered/sold to us.
                Requirements specific to federally regulated Loan originators and companies
                  have not yet been released and therefore will not be required until federal
                  requirements are published.
                MSI uses the following web site to validate NMLS numbers
                  (http://mortgage.nationwidelicensingsystem.org/Pages/default.aspx
               NMLS Number Tips:
                The NMLS Number should not:
                 •   Be the branch ID. GSE’s require the Loan Origination Company ID to be
                     provided.
                 •   Include letters or special characters.
                 •   Consist of Social Security Numbers, phone numbers, state license
                     numbers, or your client code.
                 •   Be shorter than four or longer than twelve digits.
                 •   Include leading zeros at the beginning of a number that do not factor into
                     the total number of digits.
                 •   Be the same for both the Individual ID and the Company ID. The Loan
                     Originator Company ID will always be different from the Loan Originator
                     Individual ID.


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Regulatory Compliance,                              Continued


Risk Based          Effective for all loan products, all loans with an application date
Pricing Rules       on/after 1/01/11 the new Risk-Based Pricing rules, issued by the
   REV (1/01/11)
                    Federal Reserve Board and Federal Trade Commission are effective.
                     Risk-Based Pricing rules are an amendment to The Fair and Accurate
                       Credit Transactions Act of 2003 (FACT Act). The FACT Act amended
                       the Fair Credit Reporting Act (FCRA).
                       • The Risk Based Pricing notice replaces the Notice to Home Loan
                           Applicant Disclosure (FACTA credit score disclosure).
                     The new federal law requires that all borrowers are provided with the
                       Risk-Based Pricing notice within 3 business days of having credit
                       pulled.
                       • The notice provides borrowers with information regarding their
                           credit, including how their credit score compares to the credit
                           scores of other borrowers.
                     Lenders should consult with their legal counsel or credit reporting
                       vendors to ensure that the Notice they intend to provide to their
                       applicants, on/after January 1, 2011, meets the disclosure
                       requirements detailed under FCRA.
                     MSI will accept the Risk Based Pricing Notice included on the Credit
                       Report or a separate Notice provided by the Seller.
                       • The notice provided must be in full compliance with the new Risk
                           Based Pricing Rules.
                     Important Reminder: By sale of the loan to MSI (regardless whether
                       MSI underwrites the loan or not), the Seller warrants that the loan is
                       in full compliance with all state and federal regulatory requirements.




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Third Party Contract Underwriting

Contract           For Sellers without Delegated Underwriting Authority that use the
Underwriting       services of MSI Underwriting:
Fees                MSI permits loans to be submitted only to the following Contract
  CLAR (1/13/11)
                       Underwriting Companies that currently have active master
                       agreements with MSI:
                       • GE
                       • Radian
                    When an MI company contract underwrites a loan that will be sold to
                       MSI, the Notice of Loan Approval (NOLA) must show MSI as the
                       Lender and the Investor.
                    The Seller is responsible to MSI for providing HMDA information that
                       must be reported.
                   For Sellers with Delegated Underwriting Authority
                    The contract services agreement is between the Correspondent and
                       the contract underwriting company.
                   Note: For all Sellers, when a contract underwriter is used, all applicable
                   fees are the sole responsibility of the Seller.


MSI as             When an MI company contract underwrites a loan that will be sold to MSI,
Investor           the Notice of Loan Approval (NOLA) must show the approved
                   Correspondent as the Lender and MSI as the Investor only.


Home                  The Delegated Correspondent is responsible, as the maker of the
Mortgage               credit decision, for HMDA reporting.
Disclosure Act        MSI, as the maker of the Credit Decision, must complete HMDA
                       reporting for Sellers that use either MSI underwriting or the MSI
                       approved Contract Underwriter.
                       • The Seller is responsible to MSI for providing HMDA information
                          that must be reported.


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Third Party Contract Underwriting,                                                 Continued


Approved              For Seller’s with Delegated Underwriting Authority
Contract
Underwriters          Contract Underwriting companies affiliated with the following mortgage
         (2/19/10)    insurance companies are acceptable to MSI:

                            Approved Mortgage Insurance Contract Underwriting Companies
   GE (Genworth)- GE Capital Mortgage Insurance Corporation            Radian – Radian Guaranty Inc
   MGIC - Mortgage Guaranty Insurance Company                          RMIC – Republic Mortgage Insurance Company
   PMI – PMI Mortgage Insurance Company                                UGI – United Guaranty – The Seller must have a direct
                                                                         contractual relationship with AIG/UGI. The master policy
                                                                         must be between the Seller and AIG/UGI.
Notes:
 MSI reserves the right to add or remove companies to this list at their sole discretion.
 The Seller must have a master policy with the applicable MI company. The contractual agreement is between the Seller and
   the contract underwriting company. The Seller is fully responsible to MSI for all applicable warranties.


Purchase              In addition to the documents required for loan delivery (See Closed Loan
Delivery              Delivery Transmittal, www.msicorr.com) the following additional
Requirements          documents are required for contract underwritten loans:

                      Notice of Loan Approval
                      The written evidence of approval (Notice of Loan Approval -NOLA) from
                      the Contract Underwriter is required as the first document in the credit
                      section for each closed loan delivered to MSI for purchase.
                      Supporting documentation for loan approval conditions (stipulations)
                      should be anchored directly behind the NOLA.
                      The NOLA should indicate:
                       The customer/lender name as the Correspondent.
                       The Investor name as Mortgage Services III, LLC.
                          • Loans that do not include the correct investor name may be
                              suspended for purchase.
                       The contract underwriting company name as well as the name and
                          signature of the underwriter making the loan decision
                       That “prior-to-close” (aka “prior to doc”) underwriting conditions
                          (stipulations) have been approved by the contract underwriter.
                      At Close Conditions
                      The Correspondent is responsible to ensure that all “At Closing” conditions
                      are satisfied and the acceptable documentation included in the delivery
                      loan file.

                                                                                            Continued on next page

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Third Party Contract Underwriting,                                Continued


Purchase Delivery Requirements, Continued
                AUS
                For loans submitted to Fannie Mae Desktop Underwriter® (DU) or Freddie
                Mac Loan Prospector® (LP), it should be clear in the loan file that the
                contract underwriter has validated the AUS information in full compliance
                with MSI and the applicable Fannie Mae/Freddie Mac requirements.
                Notes:
                   Each loan file submitted to an AUS must have in the Delivery file, the
                    final AUS report that reflects the loan information as approved and
                    closed. See AUS Tolerances for details.
                   Each loan must also include a Fannie Mae Delivery Transmittal (1008)
                    completed to reflect the closed loan file details.
                  MSI has strict restrictions regarding the “owner” of the AUS access
                   used by the Correspondent.
                TIP/Reminder:
                When the AUS provides a “red flag” or a verification message, MSI
                requires that the underwriter comply with the intent and directions in
                those messages.
                 It is the underwriter’s responsibility to pursue issues in the messages
                   and obtain additional information to address those issues, even if that
                   means ordering a desk review or other documentation to support
                   value issues.
                 The underwriter should justify and address in writing AUS messages
                   for which the underwriter has determined no further investigation or
                   documentation is required.
                Note: MSI retains the right to refuse to purchase/fund any loan for which
                the underwriter has not fully addressed the issues included in the AUS
                findings reports.


Correspondent   Upon the sale of a loan underwritten by a contract underwriter, the
Warranty        Correspondent warrants to MSI:
                 The loan meets MSI loan product parameters and guidelines
                 All “prior-to-closing” conditions (stipulations) have been satisfied
                   (approved) by the contract underwriter.
                 All “at-closing” conditions (stipulations) have been satisfied.
                 The loan meets all applicable regulatory compliance requirements for
                   the loan type and the jurisdiction in which the subject property is
                   located.




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Delegated Underwriting

Overview            Correspondents that meet additional eligibility requirements may be
                    approved by MSI for Delegated Underwriting authority.
                    See Eligibility/Correspondent Approval Types for full details regarding the
                    Delegated Underwriting approval levels.


Correspondent       Upon the sale of a loan underwritten by the delegated underwriter, the
Warranty            Correspondent warrants to MSI:
                       The loan meets MSI loan product parameters and guidelines.
                       All “prior-to-closing” (aka, “prior-to-doc” conditions (stipulations) have
                        been satisfied (approved) by the delegated underwriter.
                       All “at-closing” conditions (stipulations) have been satisfied.
                       The loan meets all applicable regulatory compliance requirements for
                        the loan type and the jurisdiction in which the subject property is
                        located.


Notice of Loan      A notice of loan approval (NOLA) from the delegated underwriter is
Approval            required as the first document in the credit section for each closed loan
                    delivered to MSI for purchase.
                    Supporting documentation for loan approval conditions (stipulations)
                    should be anchored directly behind the NOLA.
                    The NOLA should indicate:
                       The name and signature of the underwriter making the loan decision.
                       That “prior-to-close” underwriting conditions (stipulations) have been
                        approved by the underwriter.
                       The Fannie Mae 1008 must be fully completed and signed by the
                        delegated underwriter regardless of AUS decision.

                    Correspondent Warranty
                    If the loan is submitted to an AUS the Correspondent, by sale of the loan
                    to MSI, warrants that the loan has been validated in full compliance with
                    the applicable Fannie Mae or Freddie Mac requirements, and additionally
                    meets any more restrictive requirements imposed by MSI.


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Delegated Underwriting,                    Continued


Use of         Correspondents that use the services of a contract underwriting company
Contract       are solely responsible for loans underwritten by that contract underwriter.
Underwriters
               The warranties for each loan are the Correspondent’s sole responsibility.


               See Third Party Contract Underwriting for additional details.


AUS            Each loan file submitted to an AUS must have in the Delivery file, the final
               AUS report that reflects the loan information as approved and closed.
                  The information on the final AUS must meet the final loan details. See
                   AUS Tolerances for details.
                  Each loan must also include a Fannie Mae Delivery Transmittal (1008)
                   completed to reflect the closed loan file details.
                   •   The 1008 must be fully completed and executed by the
                       underwriter.




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MSI Underwriting

Overview            MSI requires Correspondents to use the services of their local contract
                    underwriting services company for conventional conforming loans and for
                    Jumbo loans up to $650,000.
                    Certain products require MSI underwriting:
                       See product suites for applicable products.


AUS Loans           As applicable to products requiring MSI underwriting:
                       When an AUS decision is required, the Correspondent must submit the
                        loan through DO or LP prior to submission for underwriting to MSI.
                        •    MSI will complete the validation and make the final decision on the
                             loan.
                       Each loan file submitted to an AUS must have in the Delivery file, the
                        final AUS report that reflects the loan information as approved and
                        closed.
                        •    Each loan must also include an executed Fannie Mae Delivery
                             Transmittal (1008) completed to reflect the closed loan file
                             details. See AUS Tolerances for details.


Electronic          MSI will accept the upload of electronic data (paperless file submission).
(Paperless)         The Correspondent must be able to:
Submission
                       Have the ability to export a DU formatted file from your current Loan
                        Origination System (LOS).
                       Be able to scan documents to attach an electronic credit file to MSI’s
                        website. MSI prefers the documents to be delivered in Adobe (.pdf)
                        format.
                       Complete a training session with your Account Executive.


                                                                         Continued on next page




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MSI Underwriting,                              Continued


Electronic (Paperless) Submission, Continued

                           Submitting a paperless file for underwriting is a two-step process.
                            Each step must completed for the file upload to be successful:

     Step                                                              Action
      1           Upload the Data File (3.2 Fannie Mae Format – (.fnm file extension required)
                  Notes:
                   This upload registers the loan but does not lock the rate or price.
                      Do not upload the loan once the file has been submitted to underwriting.
      2           Upload the electronic versions of the loan documents. This step must be completed after you have registered
                  the loan in Step 1.
                  Notes:
                   Upload documents as a single file, in the Required E-file Stacking Order.
                      MSI prefers that documents be uploaded in Adobe (.pdf) format.
                      Do not select a Document Type when uploading the electronic documents.
                      Uploaded documents are not available for viewing until after the MSI staff has validated the documents.
Additional Notes:
 If you have issues or problems with electronic submission, please call the Help Desk.
   See the Paperless Submission Tutorial on www.msicorr.com for detailed instructions.
   It is not necessary to submit a “paper” credit file unless MSI specifically requests original documents.
   Trailing documents (not included in the original E-file submission) or trailing underwriting conditions must be e-mailed or e-
    faxed to the specific assigned underwriter. Do not fax loan-specific documents to the general underwriting department fax.


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MSI Underwriting,                       Continued


E-File              Credit files that are electronically submitted to MSI must be scanned in
Underwriting        the following order, as applicable to the loan:
Stacking Order
                     Underwriting Submission Checklist (www.mlscor.com)
                     Lock Registration/Confirmation (From registering the loan data)
                     AUS Findings
                     Credit Report
                     1008
                     Final 1003 (unsigned, final corrected to as approved loan details must
                        be signed at closing.)
                     Initial 1003
                     Income Verification (VOE, pay stubs, W-2)
                     Asset Verification (VOD, Bank Statements, HUD-1 on previous sale)
                     Other Credit Information
                     Purchase Agreement
                     Flood Cert
                     Appraisal (if not available, must be e-mailed to the underwriter, once
                        assigned)
                     Appraiser’s License
                     All Disclosures (GFE, TIL, RESPA, ARM, etc.)


HMDA Data           Note: Because MSI is responsible for reporting detailed HMDA information
                    on loans we underwrite, MSI will perform an audit of certain loan
                    information (e.g. the Government Monitoring section of the 1003, etc.).
                    Purpose of Refinance
                    MSI does require that the “purpose of refinance” be completed on the
                    1003 to HMDA requirements for each refinance loan submitted for
                    underwriting or for purchase.

                    Important: We will request proper completion of HMDA data prior to
                    submitting the loan to underwriting.


Mortgage            Loans Requiring Mortgage Insurance
Insurance
  CLAR (1/27/11)     If MSI underwrites the loan (regardless of Seller’s delegated
                       underwriting authority):
                       • MSI will order the MI unless the Seller is a Bank or Credit Union.
                       • If the Seller is a Bank or Credit Union, they may order their own
                          MI, MSI will condition for acceptable mortgage insurance on the
                          loan if it has not already been “placed” by the Seller.


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MSI Underwriting,                 Continued


Notice of Loan      Notice of Loan Approval or Suspension
Decision
                     •   Via facsimile or email.
                    Notice of Loan Denial
                     •   Phone call, and
                     •   Documentation via facsimile or email
                     •   See Correspondent Responsibility for details for notification of
                         denial to borrowers.

                 Important Note: Once MSI declines a loan for purchase in underwriting,
                 the lock is automatically cancelled. The loan is no longer locked.


Conditions/      MSI requires the following:
Stipulation
                    All prior-to-close (prior-to-doc) conditions must be cleared/approved
                     by the underwriter prior to the loan being sent for closing/
                     disbursement.
                    MSI requires that all prior-to-close (prior-to-doc) conditions be sent to
                     the underwriter at one time.
                 Important Note:
                 Conditions that are sent to MSI separately will not be reviewed until all
                 conditions for the loan have been received.


Warranty         Loans that are underwritten by MSI provide a limited waiver of
                 Representations, Warrants and Covenants (Reps/Warrants) for the credit
                 approval.
                    MSI will not hold the Correspondent accountable for the Early Payment
                     Default provision.
                    Limitations: The limited waiver of Reps/Warrants is predicated on the
                     reliance of MSI that the loan presented was free of misrepresentation
                     or fraud.


Correspondent    Correspondents are solely responsible for notifying borrowers of loan
Responsibility   denial in full compliance with regulatory requirements.
                    MSI should be shown as a creditor when the MSI decision is the
                     deciding factor in the denial of credit to the borrower.




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Automated Underwriting

Overview            Subject to product limitations within the Seller Guide, MSI will accept
        (1/26/09)
                    loans that are submitted to the following Automated Underwriting
                    Systems (AUS):
                       Fannie Mae Desktop Underwriter® (DU)
                     Freddie Mac Loan Prospector® (LP)
       (12/11/10)   Notes:
                     All loans submitted to AUS must be submitted to the most current
                       DU/LP version as required by MSI:
                       • MSI requires the use of DU Version 8.2 effective for new loan
                           submissions (case files created) in DU on/after 12/11/10.
                       • Loans originally submitted (case files originally created) to DU
                           Version 8.1 before 12/11/10 and resubmitted through Version 8.1
                           will be honored; however all loans submitted and/or resubmitted
                           through Version 8.1 must be closed and delivered to MSI for
                           purchase/funding no later than 1/11/11.
                     MSI requires the final finding from DU; DO “preliminary” findings are
                       not acceptable.
                       • You may access DU through AU Central; see the link on
                           www.msicorr.com.


LTV/CLTV and        With the 8.2 version of DU, Fannie Mae changed the LTV calculation
TLTV                method; MSI’s systems have been changed for all loans to comply with
Calculation         Fannie Mae:
  CLAR (1/07/10)
                     Under the new LTV/CLTV calculation method, the result of the
                       LTV/CLTV ratio calculation will be truncated to two decimal places. The
                       truncated results will then be rounded up to the next whole percent.
                       For Example:
                       94.010% LTV/CLTV would be truncated to 94.01 and rounded up to
                       95%
                       80.001% LTV/CLTV would be truncated to 80.00 and rounded up to
                       80%

                       CLTV/TLTV: When MSI states maximum “CLTV/TLTV” in a Product
                        Matrix, CLTV/TLTV includes all (Total) subordinate financing including
                        HELOC’s to their full line of credit (not just the amount
                        used/outstanding).


Acceptable          Varies per product, see product guidelines.
AUS Decisions


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Automated Underwriting,                             Continued


AU Central          MSI provides access to DU and LP via AU Central through our Web Site
Access              www.msicorr.com, the submitted loans are not required to be subject to
                    contract underwriting, in accordance with the Correspondent’s delegated
                    underwriting authority.


AUS                 Each loan file submitted to an AUS must have in the Delivery file, the final
Tolerances          AUS report that reflects the loan information as approved and closed.
                    The following information on the final AUS must meet the information
                    included in the closed loan file:
   Income                     Interest Rate                                          Refi purpose
   Assets                     Loan Type                                              Occupancy
   Liabilities                Loan Term                                              Subordinate Loan
   Loan Amount                Loan Purpose                                            Amount
   Sales Price                Property Taxes: Must use the higher of:
   Appraised Value             appraisal, title or appraiser’s estimate for re-
   Property Type               assessment or a minimum 1.5% of sales price
                                of property.


Correspondent       For each loan submitted to an AUS, the Correspondent is responsible for
Responsibility      ensuring that the AUS loan is validated by an underwriter in strict
                    adherence with the applicable agency requirements.


Freddie Mac         Freddie Mac requires a Third-Party Originator (TPO) number for all users
TPO                 that do not access LP.com through their own Seller/Servicer number.
                    Once you have your TPO number from Freddie Mac, you may associate
                    your TPO number with MSI. To do so, you may work either directly with
                    Freddie Mac LP.com or through AU Central.
                       In LP, you find Mortgage Services III, LLC, a subsidiary of First State
                        Bank in the drop-down to assign the loan to MSI.
                       For Assistance, please contact either Freddie Mac
                        (www.loanprospector.com/getstarted) or the Customer Service
                        representative for any private label AUS


Maximum             MSI will not accept loans where there are more than 4 borrowers on a
Number of           loan.
Borrowers
       (11/01/09)      The AUS will accept more than 4 borrowers; however MSI requires no
                        more than 4, and MSI does require an AUS approval.


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Automated Underwriting,                                Continued


Preliminary         MSI will not accept a loan for purchase with DO Preliminary Findings. The
Findings            loan must be submitted to DU and receive a final underwriting
                    recommendation to be considered AUS underwritten by MSI.


Submission          MSI Underwriting Submission
Requirements        MSI requires a copy of the loan summary detail from the applicable AUS
for AUS Loans
                    as well as the findings to include the AUS-ran credit report from Fannie
                    DU or Freddie LP in the underwriting file.

                    Closed Loan Submission
                    Upon submission of the closed loan for purchase:
                       The latest AUS findings and loan summary detail that matches the
                        closed loan details. See AUS Tolerances.
                       Each loan must also include an executed Fannie Mae Delivery
                        Transmittal (1008) completed to reflect the closed loan file details.


Underwriter         The underwriter must:
Responsibility
                       Verify the accuracy of the data entered into the underwriting system
                        by comparing the data to the documentation in the actual
                        underwriting file.
                       The final decision should ensure that all data matches the source
                        documentation and the documentation exists to support all of the data
                        that was used to underwrite the file.
                       Verify that applicable guideline “over-lays” meet the specific product
                        requirements
                       If this validation process reveals discrepancies between the data in the
                        underwriting system and the data from the source documents; the
                        mortgage must be re-underwritten and re-submitted using the correct
                        data.
                        •    The underwriter must comply with the tolerances outlined by MSI,
                             see AUS Tolerances.




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Underwriting Guidelines

Overview –     MSI bases underwriting guidelines for conventional loans on Fannie Mae
Conventional   guidelines.
Guidelines
               If an underwriting requirement is not specifically addressed in the
               product guidelines or in this Underwriting chapter, then use the current
               Fannie Mae guidelines.
                  Fannie Mae Guides are accessible on the Internet from
                   efanniemae.com/Single Family/Guides. Fannie provides a link to
                   AllRegs

               Note: If the product is specifically a Freddie Mac agency product, or if the
               Correspondent uses LP as the AUS, as permitted by the product
               guidelines, Freddie Mac/MSI underwriting requirements must be used.


Overview –     Government loans must be underwritten to the current FHA, VA or USDA
Government     guidelines (as applicable to the loan product) unless otherwise specifically
Guidelines
               indicated in the product guidelines.


Product        In all cases, if the product suite specifically addresses an underwriting
Summary        requirement, the guidelines in the product suite prevail over this
Precedence
               Underwriting Chapter.


Fannie Mae     Each non-government loan delivered to MSI requires a Fannie Mae
1008           Delivery Transmittal (1008) completed to match the final approved loan,
Requirement    regardless of AUS summaries (and/or company Notice of Loan Approval
               documents included in the loan file.
                The 1008 must:
                   • Be executed by the underwriter in the “Underwriter” line in Section
                      #III (signature is required/printed-typed name is optional).
                   • The Underwriter may also be the contact and can sign again in
                      Section # IV; however, MSI cannot fund/purchase the loan if the
                      Underwriter has failed to sign the form in Section # 3.
                   • If the subject property is a conventional condo, the 1008 must
                      include the condo classification under which the condo was
                      warranted.


Presentation   The subjects in the underwriting requirements section of this chapter are
               presented alphabetically to facilitate research.




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Underwriting Methods

Overview            MSI will permit the following underwriting methods to be used for loans
                    submitted for purchase;
                       AUS – DU or LP are required. See Automated Underwriting.
                       MSI Third Party Contract Underwriting – See Third Party Contract
                        Underwriting.
                       Delegated Underwriting Authority – as specifically approved by
                        MSI for certain Correspondents. See Delegated Underwriting.
                       MSI Underwriting – See MSI Underwriting.

                    See each individual product suite to determine the underwriting method
                    that is acceptable for the product.




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Assets and Liquidity

Overview         Liquidity or cash reserve describes cash or the ability to convert assets to
                 cash in a short time. Net worth without liquidity is not enough.
                    A borrower’s balance sheet should reflect and validate the estimates
                     concerning his or her prior and current income stream.
                    Higher incomes should translate into liquidity found on the borrower’s
                     balance sheet.


AUS Supporting    If the Correspondent enters assets into the AUS, the most recent
Documents         supporting documentation (to standard guidelines) must be included in
                  the loan file, regardless whether the AUS requires supporting
                  documentation or not.


Borrower         A loan secured by an asset may be used as Assets as follows:
Funds Secured
by an Asset         May be used as a source of funds for down payment, closing costs,
                     and financial reserves.
                    Document terms of the secured loan.
                    Calculate monthly payments and consider in debt ratio.


Bridge Loan      Bridge (or swing) loans are a form of second trust that is collateralized by
                 the borrower’s present home, which is usually for sale.
                  By using funds from a bridge loan, the borrower can close on a new
                    house before selling his/her existing house.
                    A specified limitation on the term of a bridge loan is not required.
                    The bridge loan amount may not exceed 90.00% of the current
                     appraised value of the bridge property.
                    This type of financing is acceptable if:
                     •   The purchaser has the ability to carry the payment on:
                         − The new home (PITI).
                         − The payment on the other obligations.
                         − The payment on the current home (PITI).
                         − The payment on the bridge loan.
                    If the repayment schedule for the bridge loan is not monthly, it must
                     be converted to a monthly amount for qualifying purposes.
                    The bridge loan is not cross-collateralized against the new property.

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Assets and Liquidity,                        Continued


Bridge Loan, Continued

                       Exclusion of a debt for the present home and for a bridge loan is
                        allowed if the borrower can evidence:
                        •    Copy of the executed sales contract for the present home.
                        •    Copy of the lender’s commitment to the buyer of the present
                             residence (if the contract contains a financing contingency) with no
                             stipulations.
                        •    Evidence of 6 months reserves covering the PITI of the previous
                             residence in addition to the first mortgage reserve requirements.


Business            In some cases, business accounts are an acceptable source of down
Funds               payment or reserves; however, they are not acceptable under all
                    circumstances because these funds are typically required to meet current
                    business overhead and future capital requirements and generally are not
                    representative of the borrower’s savings history.
                     Consideration for use of business accounts is an “exception” to policy.
                        The exception may be considered by the underwriter if the borrower
                        can evidence that the withdrawal of the funds will not negatively
                        impact the operation of the business.
                       Businesses other than the following types may require additional
                        supportive documentation as deemed appropriate by the underwriter:
                       • Sole proprietor
                       • Sub Chapter S
                       • Individually owned Corporation
                    Notes:
                     The borrower must document a minimum 51% ownership to use
                       business funds, as permitted.
                     Documentation from a disinterested third party (CPA, Tax Attorney,
                       etc.) confirming the Borrower has access to the funds and use of these
                       funds will not adversely affect the business is required.
                       • If the Borrower(s) does not use an accountant to prepare their
                           taxes on a regular basis, they may enlist the services of an
                           accountant on a one-time basis to analyze the income and
                           expenses to provide a statement that the withdrawal of funds will
                           not adversely affect the business.


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Assets and Liquidity,                               Continued


Conversion of          Borrowers who currently own their home typically have 3 options when
(or departure          they decide to purchase a new one:
from)                   Sell the current home and pay-off the outstanding mortgage. See
Principal
                          Principal Residence Pending Sale for additional details when the
Residence
                          current home does not sell prior to purchase of the new home.
                        Convert the current home to a second home.
                        Convert the current home to an investment property.

                       The following matrix outlines the requirements for borrowers that convert
                       or have a pending sale for their current residence.

                                     Conversion of (Departure From) Current Property
Relocation              If the mortgage file contains an executed buyout agreement that is part of an employer relocation plan
transaction where       and the employer/relocation company takes responsibility for the outstanding mortgage(s), the amount
the departing           of the payment on the property pending sale does not need to be included in the monthly debt payment-
residence is            to-income ratio and the reserve requirements do not apply.
pending sale
                        If the mortgage file does not contain an executed buyout agreement but:
                        There is a documented minimum 30% equity in           There is not a documented minimum 30% equity
                        the existing property. The value of the current       in the existing property. The value of the current
                        property must be documented by a Fannie Mae           property must be documented by a Fannie Mae
                        2055-Exterior).                                       2055-Exterior.
                        The following is required:                            The following is required:
                            The borrower’s executed non-contingent               The borrower’s executed non-contingent
                             sales contract for the previous residence,            sales contract for the previous residence,
                             and                                                   and
                            A lender’s commitment to the buyer of the            A lender’s commitment to the buyer of the
                             previous residence (if the executed sales             previous residence (if the executed sales
                             contract includes a financing contingency),           contract includes a financing contingency),
                             and                                                   and
                            Evidence the borrower has reserves equal to          Evidence the borrower has reserves equal to
                             2-months PITI for both mortgages.                     6-months PITI for both (each) mortgages.
Important Note: MSI will accept only a full Appraisal or as a minimum a Fannie Mae 2055-Exterior to document equity in the
converting/departing residence. The appraisal form must be dated within 60-days of the Note date of the current transaction. See
the applicable current agency Seller Guide (DU or LP) for additional information-more restrictive guidelines apply.


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Assets and Liquidity,                               Continued


Conversion of (or departure from) Principal Residence, Continued

                                    Conversion of (Departure From) Current Property
Conversion to a            Both the current and the proposed mortgage payments (including all Taxes, Insurance, HOA dues)
Second Home                 must be used to qualify the borrower for the new transaction.
                         Reserves must be 6-months PITI for each property.
                        Exception:
                         Reduced reserves (as determined by the AUS), but no less than 2-months for each property, may
                            be considered under the following circumstances:
                            • There is a documented minimum 30% equity in the existing property. The value of the current
                                 property must be documented by a Fannie Mae 2055-Exterior, see the Important Note.
Conversion to an           Both the current and the proposed mortgage payments (including all Taxes, Insurance, HOA dues)
Investment                  must be used to qualify the borrower for the new transaction.
           (11/05/10)    Reserves are minimum of 6-months PITI for each property.
                        Exception:
                         Borrowers may use up to 75% of the rental income from the existing property to be used to offset
                            the mortgage payment for qualification purposes if the following guidelines are met:
                            •      There is a documented minimum 30% equity in the existing property. The value of the current
                                  property must be documented by a Fannie Mae 2055-Exterior, see the Important Note.
                            • The rental income is documented as follows:
                                  o Fannie Mae Form 1007, single Family Comparable Rent Schedule.
                                  o A copy of the fully executed lease agreement.
                                  o Documentation of the receipt of the security deposit from the tenant (deposited into the
                                       borrower’s account).
                         Reserves may be 2 months for each property.
                         If the 30% equity in the existing property cannot be documented, rental income may not be used
                            to offset the mortgage payment and the borrower must qualify with both payments and reserve
                            requirements. Reserves are 6-months for each property.
                        For loans submitted to LP:
                         In addition to all currently published guidelines for primary residences being converted to
                            investment properties (See the Seller Guide/Underwriting/Assets and Liquidity/Conversion of (or
                            departure from) Principal Residence, MSI will add the following additional requirement (for LP
                            loans):
                         In order to use the income from the conversion of the primary to an investment, the borrower must
                            provide a documented (supported by filed tax returns) 2-year history of managing 1-4 investment
                            property.
Important Notes: MSI will accept only a full Appraisal or as a minimum a Fannie Mae 2055-Exterior to document equity in the
converting/departing residence. The appraisal form must be dated within 60-days of the Note date of the current transaction. See
the applicable current agency Seller Guide (DU or LP) for additional information-more restrictive guidelines apply.


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Assets and Liquidity,                Continued


Cash Value of    The surrender of life insurance is acceptable under the following
Life Insurance   parameters:
                  Can be used as a source of funds for the down payment, closing costs,
                    and financial reserves.
                  Document by providing a copy of the check from the insurer or a copy
                    of the payout statement issued by the insurer.


Credit Card      Charges to a personal credit card may be used as follows:
Financing         The total borrowed may not exceed 1% of the loan amount, which
                    may only include the following costs incurred in the loan process:
                    • Actual cost of appraisal – up to $500 – may be charged on a credit
                       card.
                    • May be used for application fee process charges (i.e., lock-in fees,
                       credit report, appraisal)


Checking and        Borrower’s bank statements for the most recent two months.
Savings              • The statement must be a copy of the original bank statement
Accounts                showing the borrower’s name, institution name, and account
                        number.
                        o Underwriters reserve the right to request additional supporting
                            documentation.
                     • If a direct Verification of Deposit is provided, it must be
                        accompanied by a copy of the original bank statements.
                    Large deposits and recently opened accounts must be documented
                     and explained.


Deposit on       The deposit on the sales contract is an acceptable source for down
Sales Contract   payment and/or closing costs.
                  When the deposit is used to make any portion of the borrower’s down
                    payment it must come from his/her own funds.
                  Verification that the deposit has cleared the bank must be
                    documented if it is ≥ 2% of the sales price.
                  When the deposit is 2% over the sales price the money must be
                    sourced as follows:
                    • The source must be verified with either:
                       − Bank statements for most recent two months (If check has
                           cleared account, the statement should cover the period up to
                           and including the date the check cleared).
                       − Verification that the deposit has cleared the bank must be
                           documented if it is ≥ 2% of the sales price.

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Assets and Liquidity,                        Continued


Eligible Assets     The following types of accounts will be considered eligible liquid assets for
        (8/31/09)   closing costs and/or reserves:
                     Stocks/Bonds (See Acceptable funds for Reserves.)
                       Bridge Loan (See Bridge Loan for details)
                       Certificate of Deposit
                       Checking Account
                       Gifts (Personal Gift - See Gifts for details)
                       Gift of Equity (See Gift of Equity for details.)
                       Money Market Fund
                       Mutual Fund (See Acceptable funds for Reserves.)
                       Rent Credit in Options to Purchase (See Rent Credit for Options to
                        Purchase for details.)
                       Retirement Fund
                       Savings Account
                       Trust Funds
                       The following types of accounts will be considered eligible assets for
                        reserves at 60.00% of documented vested value:
                       • Individual Retirement (IRA) and Keogh Accounts
                       • 401 (k) Plan Accounts
                    See Reserves for additional information.
                    Verification Requirements
                       As determined by AUS and, if not required by AUS and assets were
                        entered and submitted for AUS review, MSI requires supporting
                        documentation (See AUS Supporting Documents).
                       Two consecutive monthly bank statements.
                       Satisfactory explanation and documentation should be provided for
                        large deposits in excess of one month’s salary.


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Assets and Liquidity,                  Continued


Funds to Close   Sources of Funds for Closing
                 The borrower must have sufficient cash deposits and other assets to close
                 the loan and to confirm the level of reserves needed after closing.
                    Generally, the borrower must have enough assets to cover the
                     minimum required down payment that must come from his or her
                     personal funds.
                    However, funds received from other acceptable sources can be used to
                     accompany the minimum down payment from the borrower’s funds to
                     pay the borrower’s share of the closing costs and prepaid items and to
                     satisfy the reserve requirement.
                 Acceptable sources of down payment:
                    Gift from family member, as permitted by the product.
                    Trade Equity – funds from their existing home in trade as part of the
                     down payment.
                    Rent Credit – lease-purchase funds.
                    Funds held in a checking or savings account.
                    Stocks
                     •   A photocopy of the stock certificate, accompanied by a current
                         dated newspaper stock list.
                    Government Bonds.
                     •   The value of government bonds should be based on their purchase
                         price unless the redemption value can be documented.
                    Mutual Funds.
                    Trust Accounts.
                     •   Funds disbursed from a borrower’s trust account are an acceptable
                         source of the down payment and reserve requirements if the
                         borrower has immediate access to them.
                     •   Confirmation from the trust manager or trustee is to verify the
                         value of the trust account and prove the conditions under which
                         the borrower has access to funds
                    Retirement Accounts (IRA/Keogh Accounts, 401Ks), see Retirement
                     for requirements and limitations.


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Gifts                Gifts are an eligible source of down payment and/or closing costs for
                     primary residences only, provided they are donated by a related person
                     (see below) and do not require repayment by the borrower.
                      Gifts must be from relatives, domestic partners, or fiancé/fiancée.
                        No portion of the down payment may be donated by interested parties
                         to the transaction including sellers, realtors, brokers, or sales
                         associates.

                     The following conditions apply when a gift is being used for down
                     payment, closing costs or prepaid items:
                      Generally, the borrower must invest at least 5% of his/her own funds
                        toward the down payment unless the gift is 20% of the lesser of the
                        sales price or appraised value of the property.
                         •   If the gift towards down payment is 20% or more, the borrower is
                             not required to make an investment from his or her own funds.
        (11/19/10)
                 )      The gift donor must be a relative or someone who can demonstrate a
                         history of shared financial relationship with the borrower.
                         •  A relative is any person related by blood, legal proceedings,
                            marriage or adoption (e.g. parent or step-parent, sibling,
                            aunt/uncle, child (adoptive or natural), etc.
                        Permitted for second homes; however, a gift of equity is not
                         permitted.
                        Not permitted for Investment properties.

                     The gift must be verified and documented as follows:
                      Donor’s gift letter stating: relationship to borrower, amount of the gift,
                        date the gift was/will be given, the donor’s name and address and that
                        the gift does not need to be repaid.
                         •   The gift letter must executed by the donor.
                       Verification of transfer of gift funds via cancelled check, deposit slip
                        and a copy of the check, or copy of the check and bank statement
                        reflecting deposit.
                     Notes:
                      Specific product, program or agency minimum investment standards
                        may differ. Review product guidelines for specific products.
                        Gifts may not be used to meet reserve requirements. Review product
                         summaries.


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Gift of Equity   A gift of equity is treated as a liquid asset and must be documented with
                 an executed gift letter.
                  A gift of equity is considered a Non-ARMs length transaction and the
                     following guidelines must be met:
                     •   Sales contract must reference the amount of equity gift being
                         transferred.
                     •   Seller must be an immediate relative (Parent, grandparent, child,
                         sibling, legally adopted or foster)
                         o The relative providing the gift of equity may not be, or have
                              any affiliation with the builder, developer, real estate agent or
                              any other interested party to the transaction.
                     •   Primary Residence Only.
                     •   Appraiser to acknowledge the gift equity and state no effect on
                         value.
                     •   All limitations on gift funds apply. See Gifts for down payment
                         guidelines.
                     •   The HUD-1 for the subject must reflect the exact dollar amount of
                         the gift equity.
                         o The borrower may not receive any liquid funds from the trade
                              equity.
                 Note:
                    If the product specifically restricts Non-ARMS length transactions, a
                     gift of equity is not permitted.
                    Interest Only products do not permit “gift of equity”


Ineligible       The following assets are ineligible for loans sold to MSI:
Assets            Cash on hand
                  Cash Out proceeds
                  Stock options
                  Realtor’s Commission received from subject property financial
                    transaction
                  Pooled Funds
                  Restricted Retirement Funds – those with prohibitive withdrawal
                    penalties or those that are not permitted to be withdrawn.
                  Seller-Funded Down payment Assistance Programs.
                  Sweat Equity


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Large Deposit       The following must be explained or documented in the loan file:
                       Any deposit larger than one month’s salary; and
                       Cumulative monthly deposits larger than one month’s salary.
                    Note: As applicable to the AUS engine.


Real Estate         To use proceeds from the sale of a currently owned other-real-estate
Proceeds            property for closing-fund requirements and post-closing liquidity/cash
                    reserve ratio calculations, use the following guidelines:
                     The closing of the other real estate transaction must take place prior
                       to or simultaneous with the subject closing; and
                       The net proceeds to the borrower must be verified via either a:
                        •    HUD-1 statement, or
                        •    Closing statement, or
                        •    Equity statement from the closing agent.


Rent Credit for     Option to Buy – (aka Lease Option to Purchase)
Options to
Purchase            The property seller may give the purchaser/borrower credit toward the
                    down payment for a portion of previous rent payments made by the
                    purchaser under a documented rental purchase (Lease Option) agreement
                    that had a minimum original term of at least 12-months.
                     The purchaser/borrower is not required to make a minimum cash
                      down payment from personal funds for the rent credit to be applied
                      toward the down payment.
                    Documentation Requirements
                     A copy of the rental/purchase agreement must be provided to verify
                      the monthly payments and the specific terms of the lease with option
                      to buy.
                       The appraiser must determine the “market” rent in the area.
                        •    The amount of the rent applied toward the down payment is the
                             difference between the market rent and the actual rent paid.
                       Copies of the cancelled checks or money order receipts are required to
                        verify payments made.


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Assets and Liquidity,                   Continued


Reserves           AUS Underwritten
   REV (2/25/11)    MSI requires that all conventional loans receive an Accept or Approve
                      decision from either DU or LP. MSI does require specific reserves
                      regardless of the AUS.
                   Primary Residence Single Family
                    Per the AUS Finding.
                   Primary Residence – 2-4 Units
                    Borrowers must have 6 months PITI regardless whether or not rental
                      income is used to qualify.
                   Second Home
                    Borrowers must have 2 months PITI for the subject property and an
                      additional 2 months PITI for each second home or 1-4 investment
                      property financed by the borrower.
                   Investment Property
                    Borrowers must have 6-months PITI in reserve for the subject
                      property, regardless whether rental income is used to qualify or not.
                      •   Additionally, borrowers must have a minimum 2 months PITI for
                          each other financed second home or 1-4 unit investment property
                          for which they are obligated.
                   Principal Residence Pending Sale
                   If the borrower’s current principal residence is pending sale, and he or
                   she is purchasing a new principal residence, both the current and
                   proposed mortgage payments must be used in qualifying the borrower for
                   the new mortgage loan.
                    Additionally, MSI requires minimum reserves of 6 months principal,
                       interest, taxes, and insurance (PITI) for each property, but will allow
                       a reduction to 2 months if 30% equity in the existing principal
                       residence is documented with a current appraisal, minimum 2055
                       (exterior).
                    Exception: MSI will not require the current principal residence’s PITI
                       to be used in qualifying as long as the following additional documents
                       are provided:
                       • 6-months payment Reserves after closing on the current subject
                           property
                       • The executed sales contract for the current residence, and
                       • A Clear firm commitment to purchase from the lender with
                           confirmation that any financing contingencies are cleared.
                   See Conversion of (or departure from) Principal Residence for additional
                   details and guidelines.


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Assets and Liquidity,                        Continued


Reserves, Continued
        (8/31/09)   Acceptable funds for Reserves
                       Assets on hand, documented by the Bank Statements.
                       Net proceeds from the sale of a previous asset that is not for closing
                        the subject property.
                       Retirement Accounts – When using retirement accounts as reserves,
                        only 60.00% of the vested value may be used. See Retirement for
                        additional details.
                        • May need to document that the account funds can be liquidated if
                            required. This condition may be added at the underwriter’s
                            discretion.
                       Gift funds are never acceptable as reserves.
                       Stocks, bonds and mutual funds used as assets toward reserves,
                        70.00% of the value may be used, not 100%.
                        • Stock options and non-vested restricted stock are not eligible for
                            use as reserves.


Retirement          Retirement accounts (IRAs, Keogh accounts, 401(k) accounts, etc.) are
        (8/31/09)   subject to withdrawal penalties and tax surcharges if withdrawn prior to
                    normal distributions.
                    Because of these restrictions, the following guidelines apply to the use of
                    retirement accounts for closing-funding requirements:
                     Unless specified by an automated underwriting system, 60.00% of
                        IRAs, Keogh Accounts, 401(k) Accounts, and the cash value of
                        annuities can be used to determine funds available for withdrawal.
                       Borrower must provide evidence of the receipt of the retirement
                        withdrawal to provide the sufficient funds for closing.


Sale of Stocks      Funds from the sale of stocks or bonds is acceptable as long as the
or Bonds            following apply:
                     The existence and value of the stock or bonds is verified.
                        •    The value of stocks are verified with a current statement from the
                             stockbroker.
                       A copy of the stock certificate and dated newspaper stock price list
                        must verify the value and existence of stock not held by a financial
                        institution.
                    Note: Verification of sale is required only if the specific funds are needed
                    for closing.

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Tax Deferred   A 1031 Tax Deferred Exchange is permitted as a source of funds for
Exchange       Investment properties under the following guidelines:
                  Permitted only when the property sold (exchanged) and the subject
                   property are both investment properties.
                  The sales contracts from both the sale of the previous property (from
                   which the 1031 assets are acquired) and the purchase of the subject
                   property must state that a 1031 Deferred Tax Exchange is being
                   utilized.
                  The loan closing for the property sold and the subject property
                   purchased through the exchange must be handled by a qualified
                   intermediary.
                   •   The intermediary must be an independent third party such as a
                       title company, escrow agent, or exchange company and not a real
                       estate agent, broker, attorney, accountant, banker or investment
                       advisor.
                  Reverse exchanges are not allowed because the borrower is not on
                   title to the property at the time of closing.
                  Subordinate financing is not permitted.
                  The following documentation is required in the loan file:
                   •   Copy of the sales contract from both the sale of the previous
                       property and the purchase of the subject property.
                   •   1031 Exchange Agreement and title transfer.
                   •   HUD-1 from the sale of the previous property and the purchase of
                       the subject property.
                   •   Verification of receipt of funds from the intermediary.


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Verification of     To substantiate a borrower has sufficient cash deposits and other assets
Deposits            available to complete the mortgage transaction and retain adequate
                    reserves after closing; the loan file must verify the amount in the
                    borrower's depository accounts (checking accounts, savings accounts and
                    retirement accounts) for the two-month period that precedes the date of
                    the loan application.
                     When there is a recently opened account, a recently received large
                        deposit, or an account balance considerably greater than the average
                        balance the source of funds must be documented.
                       The loan file must also verify the value of the borrower's other
                        financial investments (stocks, bonds, mutual funds, etc.) as of the
                        date of the loan application.
                       See Acceptable funds for Reserves

                    Bank Statements
                    Are required even if a VOD is received from each depository.
                     Verify available funds for closing by obtaining from the borrower a
                       copy of the applicable bank or investment portfolio statements that
                       cover activity in the accounts for the most recent two-month period
                       (or, if account information is reported on a quarterly basis, for the
                       most recent quarter).
                       If the latest bank statement is more than 45 days earlier than the
                        date of the loan application, a more recent supplemental bank-
                        generated form that shows the account number, balance and date is
                        required
                       The statements must be a copy of the original bank statements:
                        •    “FAXED” or statements downloaded from the Internet must clearly
                             identify the name of the depository or investment institution and
                             the source of the information (e.g. the information is contained in
                             the banner that is at the top of the document).
                       Bank or investment portfolio statements must clearly identify the
                        borrower as the account holder and include:
                        •    The account number;
                        •    The time period covered by the statement;
                        •    All deposits and withdrawal transactions (for a depository account)
                             or all purchase and sale transactions (for a financial portfolio
                             account); and
                        •    The ending account balance.


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               Retirement Accounts
                  Retirement account statements must identify the borrower's vested
                   amount and the terms and conditions for loans or the withdrawal of
                   funds.
                   •   Calculate at 60% of the vested amount when using for reserves.
                   •   When using for down payment, the documented liquidated amount
                       may be used.




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Borrowers

Overview               Eligible borrowers are noted in each separate product summary.
                       In general, only natural persons are eligible for loans sold to MSI.
                           The definitions provided below are for general terms used in the Seller
                            Guide.


Borrowers
         (5/21/10)
    CLAR (2/25/11)

                           Eligible                                                      Ineligible
   Natural Person(s)                                              Foreign Nationals
   Permanent Resident Aliens                                      Borrowers without Social Security Numbers
   Non-Permanent Resident Aliens                                  Land Trusts (except Illinois)
   Inter Vivos Revocable Trusts (See Inter Vivos Revocable        Life Estates
    Trust (IVRT))                                                  Corporations, General and Limited Partnerships
 Illinois Land Trust ( See Illinois Land Trust)                   Co-Signers and Guarantors – MSI requires each
Note: All borrowers must have a valid social security number.       borrower to take title to the property.
                                                                   “Doing Business As” (DBA’s).
                                                                   Religious/non-profit organizations
                                                                   Borrowers with Diplomatic Immunity
                                                                   Borrowers that have been declined in underwriting or for
                                                                    funding/purchase by MSI, that same borrower/same
                                                                    property is ineligible for resubmission for a minimum of 6
                                                                    months from the date of declination.


ARMs Length            An ARMs length transaction occurs when the parties involved are entirely
Transactions           independent of one another. All parties deal with one another as strangers
                       and have no reason to collude.


First Time             In all circumstances, first time homebuyers should have an acceptable
Homebuyers             housing history. However, if a housing history does not exist (e.g.,
                       borrowers lived rent free with family) the underwriter may waive the
                       housing history requirement for permitted programs based on one of the
                       following:
                        Established credit history, as reflected in the AUS approval


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Illinois Land   A property owner will transfer the property title to a corporation or
Trust           financial institution that currently is in the business of acting as trustee
                under an “Illinois Land Trust”. Concurrently, the owner (beneficiary)
                retains the power to manage, sell and control the property.
                 There are two parts to the “Illinois Land Trust”,
                    •   The “Deed of Trust” that transfers the title from the beneficiary to
                        the trustee and;
                    •   The “Trust Agreement” that states the rights and power of
                        direction.
                Eligibility Requirements
                   Illinois Land Trusts are acceptable under the following conditions:
                    •   Conforming conventional fixed rate and ARM’s. Other products
                        may permit; see the individual, products within the product suites
                        for details.
                    •   AUS underwriting only with Approve/Eligible or Accept.
                    •   Owner occupied.
                    •   All beneficiaries are individuals;
                    •   The borrower must be one of the primary beneficiaries of the trust.
                    •   The trustee must be a corporation or financial institution (no
                        exceptions) currently in the business of acting as trustee under
                        Illinois Land Trusts.
                    •   The beneficiaries must have sole power of direction over the land
                        trust and trustee.
                    •   All beneficiaries are obligated as individuals under the terms of the
                        Note.
                    •   The borrowers have been underwritten and are qualified borrowers
                        under the requirements of the product.
                    •   The term of the trust agreement is at least as long as the term of
                        the security instrument.
                    •   Legal title to the property must be held in the name of the trustee
                        on behalf of the land trust and may not be other owners.
                    •   The title insurance policy must ensure full title protection, and
                        must indicate that title to the subject property is vested in the
                        name of the trustee.
                    •   The policy may not list any exceptions with regard to the trust or
                        the trustee. The title company must have received a copy of the
                        trust.

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Borrowers,               Continued


Illinois Land Trust, Continued
  CLAR (2/25/11)    Documentation Requirements
                    In addition to the Note and Security Instrument, the following Trust
                    documents must be included in the loan file:
                     Trust Agreement– An original stamped (by the Trust Department)
                        and signed copy of the executed trust agreement
                     Land Trust Rider to the Mortgage/Deed of Trust
                     Land Trust Rider to the Note
                     Security Assignment to Beneficial Interest in Land Trust
                    Important:
                     No additions, deletions or other riders are acceptable.
                     MSI will not accept a Power of Attorney signature when closing in the
                        name of a Trust.
                    Signature Requirements

                    Document                                           Signature Requirements
Note                                                           The number of the trust and the date the
                                                                trust was created must be placed
                                                                immediately after the name of the trustee.
                                                               The Beneficiary must execute the Note as an
                                                                individual.
                                                               The trustee must execute.
Land Trust Rider to the Note                                   The Beneficiary must execute the Note as an
                                                                individual.
                                                               The trustee must execute.
Security Instrument                                            The number of the trust and the date the
                                                                trust was created must be placed
                                                                immediately after the name of the trustee.
                                                               The Trustee must execute.
Land Trust Rider to the Mortgage/Deed of Trust                 The trustee must execute.
Security Assignment to Beneficial Interest in Land             The beneficiary must assign his/her beneficial
Trust                                                           interest in the Note and Trust Agreement to
                                                                the Lender/Investor.
Important: The Riders must be dated and executed the same day as the Mortgage and the Note.


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Inter Vivos    MSI will purchase loans subject to an inter vivos (living) trust as permitted
Revocable      by the applicable product.
Trust (IVRT)
               An Inter Vivos revocable trust is a trust that:
                An individual creates during their lifetime.
                  Is effective during the creator’s life.
                  Amendable by the creator at any time.

               Inter Vivos Revocable Trust are permitted and accepted as “borrower and
               property owner” under the following requirements:
                In compliance and valid with state law.
                   •   An IVRT that is established and recorded in one state may not be
                       applicable under the laws of another state.
                   •   If the IVRT is not established in the same state as the subject
                       property, the Attorney’s Opinion Letter must state that, under the
                       laws of the property state, the IVRT and the trust documents are
                       valid and enforceable. If an institutional trustee has been
                       appointed, that the Trustee is in fact authorized to act as Trustee.
                  Established by a natural person, as opposed to a legal entity.
                   •   It may be established by one individual or jointly by more than one
                       individual.
                  Trustee must have the power to mortgage the security property.
                  Each individual establishing a Trust is a Trustor/Grantor/Settlor/Donor
                   (the Settlor); the terminology used will depend upon the applicable
                   state. Additionally, if no institutional trustee was appointed, this same
                   individual/Settlor must be a Trustee.


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Borrowers,               Continued


Inter Vivos Revocable Trust (IVRT), Continued
 CLAR (12/09/10)    Eligibility Requirements
                     Single Family, Primary Residence or Second Homes only.
                     At least one of the Settlors must be a borrower.
                     At least one of the Primary Beneficiaries must be a borrower and a
                        Settlor.
                     At least one of the Primary Beneficiaries who is a borrower and a
                        Settlor has reserved the right to Revoke, Alter, or Amend the Trust
                        during his/her lifetime.
                     At least one of the individuals/Settlor must be the Primary Beneficiary
                        and an occupying borrower whose income or assets were used to
                        qualify for the loan.
                     At least one of the Trustees must be a Primary Beneficiary, borrower,
                        and Settlor.
                     Full title must be vested in the trustee(s); no other owners.
                     Title exceptions with respect to the trust are not permitted.
                     Underwritten as if the individual(s) establishing the trust were the
                        borrower(s).
                     There is no unusual risk of impairment of the lender’s rights including
                        the right to have full title to the property conveyed to the lender
                        should foreclosure proceedings have to be initiated or a deed in lieu
                        issued to cure a default under the terms of the mortgage.

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Borrowers,              Continued


Inter Vivos Revocable Trust (IVRT), Continued
                    Required Documentation
                       An Attorney’s Opinion Letter is required, verifying the following:
                        •    The Trust was validly created and duly exists under applicable law.
                        •    The Trust is revocable.
                        •    The borrower is the Settlor of the Trust and the Beneficiary of the
                             Trust.
                        •    The Trust assets may be used as collateral for a loan.
                        •    The Trustee is:
                             o Duly qualified under applicable law to serve as Trustee.
                             o Is the Borrower.
                             o Is the Settlor.
                             o Is fully authorized under the Trust documents and applicable
                                 law to pledge or otherwise encumber the Trust Assets.
        (4/01/10)       •    Additionally, the Attorney’s Opinion Letter must clearly include
                             the following information:
                             o Name of the Trust
                             o Date Executed
                             o That the trust is Revocable
                             o Does the trust have multiple trustees; their names.
                             o How the trust requires the vesting to be held.
                             o The attorney needs to verify that the trust has not been
                                 revoked, modified, or amended in any manner that would
                                 cause the representations to be incorrect.
                             o Verify that a Power of Attorney can execute closing documents
                                 on the trust.
                    Exception for Trust Certificate Authorized States:
                    In lieu of the Attorney’s Opinion Letter and copies of trust documents the
                    title company Trust Certification is acceptable in the following states:
                       AL           DC          MI         NH        PA             UT
                       AZ           ID          MN         NM        SC             VT
                       AR           IA          MO         NC        SD             VA
                       CA           KS          NE         OH        TN             WY
                       DE           ME          NV         OR        TX

                       Trust Agreement
                        •    A complete copy of the Trust Agreement.
                        •    The Trust Agreement must show that the trust was created under
                             the laws of the state in which the property is located. (See
                             Attorney’s Opinion Letter in Inter Vivos Revocable Trust (IVRT).)

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Borrowers,                     Continued


Inter Vivos Revocable Trust, Continued

Required Documentation, Continued
  CLAR (2/25/11)              Note
                               • Each Trustee of the Trust must sign the Note as Trustee
                               • Each Settlor who signed an application (1003) must sign the Note
                                  as an individual
                               • Each individual that is not a Trustee but signed an application
                                  (1003) must sign the Note as an individual.

                           Important: MSI cannot accept a Power of Attorney signature to close
                           when closing in the name of a Trust.
                                           Note Signature Requirements
Single Line Signature Example
(signed as)    John Smith
John Smith, Individually and as Trustee of the John Smith Trust, under Trust Instrument dated 1-1-07, for benefit of John Smith.

Dual Line Signature Example
(signed as)    John Smith
John Smith, Individually

(signed as)    John Smith
John Smith, Trustee of the John Smith Trust, under Trust Instrument dated 1-1-07, for benefit of John Smith.


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Borrowers,                     Continued


Inter Vivos Revocable Trust, Continued

Required Documentation, Continued

                              Trust Addendum to the Note
                               •    Original signed document is required.

                                   Addendum to the Note Signature Requirements
Example 1
(signed as)    John Smith
John Smith, Trustee of the John Smith Trust, under Trust Instrument dated 1-1-07, for benefit of John Smith.

Example 2
(signed as)    John Smith
John Smith, Revocable Trust Settlor

                              Security Instrument (SI)
                               •    The vesting on Page 1 of the SI should match the vesting on the
                                    Title Commitment

                                    Security Instrument Signature Requirements
                                         Vested as Individual and Trustee
Single Line Signature Example
(signed as)    John Smith
John Smith, Individually and as Trustee of the John Smith Trust, under Trust Instrument dated 1-1-07, for benefit of John Smith.

Dual Line Signature Example
(signed as)    John Smith
John Smith, Individually

(signed as)    John Smith
John Smith, Trustee of the John Smith Trust, under Trust Instrument dated 1-1-07, for benefit of John Smith.
                                               Vested as Trustee Only
(signed as) John Smith
John Smith, Trustee of the John Smith Trust, under Trust Instrument dated 1-1-07, for benefit of John Smith.

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Borrowers,                  Continued


Inter Vivos Revocable Trust, Continued

Required Documentation, Continued

                           Revocable Trust Rider to the Security Instrument
                            •    Must be included in the loan file and be signed by the Trustee.

                                Revocable Trust Rider Signature Requirements
Example 1
(signed as)    John Smith
John Smith, Trustee of the John Smith Trust, under Trust Instrument dated 1-1-07, for benefit of John Smith.

Example 2
(signed as)   John Smith
John Smith, Revocable Trust Settlor


IVRT & Illinois        For each loan sold to MSI where the property is held in the name of a
Trust                  trust, the applicable Checklist must be completed.
Checklists
                       See the applicable checklist on www.msicorr.com/forms.


Multiple               Owner-Occupied Primary Residence
Mortgages to            Effective for loans locked on/after 7/15/10: When the subject property
the Same                  is an owner-occupied primary residence, MSI permits the Borrower (s)
Borrower
                          to have no more than 10 financed (1-4 unit) properties in which the
                          borrower may have an individual or joint ownership.
         (7/15/10)
                       Second Home Investment Properties
                        When the subject property is a second home or investment property,
                          MSI will permit the borrower to have no more than 4 financed
                          properties that are individually, jointly owned or LLC-owned.
                       Notes:
                        Joint ownership is considered against the maximum.
                        Any liability on the personal credit report will also be considered
                          against the maximum.
                        If the borrower’s name is on the Note, the property must be
                          considered in the minimum, even if the borrower is not on title.

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Borrowers,        Continued


Non-Arms       A non-arms length transaction is a transaction where there exists a
Length or      personal or business relationship between the borrower and any party
Identity of    involved in the transaction.
Interest
Transaction     These types of transactions may also be known as, Identity of Interest
                   Transactions.

               The following types of non-arms length transactions are permitted, as
               long as the underwriting (credit) requirements are met:
                Family sales or transfers (with/without consideration) – including the
                   estate of a deceased family member unless the transaction is a probate
                   sale.
                   • Often there is no real estate agent involved or the agent may be a
                       family member.
                   • These types of transactions carry the potential for increased risk as
                       they may be a bailout situation (e.g. the selling party has financial
                       problems and is unable to refinance).
                       o The underwriter must carefully scrutinize the transaction and
                           ensure that all credit requirements are met; the underwriter
                           must provide a detailed written explanation of the validity of
                           the transaction.
                Corporate sales or transfers (from a business to a personal owner).
                Employer/Employee Sales:
                   • Borrowers who are employed in the Real Estate, Mortgage or
                       construction trade field that are participants in the construction or
                       financing of the property.
                   • Borrower(s) who are employed in the Real Estate, Mortgage or
                       construction trade field that are participants and receive profit
                       from the listing, selling, financing or are participants in the
                       construction of the property.
                   • Borrower(s) may act as the Realtor of the subject property.
                       o Important Note: In these transactions, the borrower(s) may
                           not apply the commission from the subject property toward
                           their down payment, closing costs, or reserve requirements.
                A purchase and sale transaction between a property owner and tenant,
                   excluding a “lease purchase” transaction.
                   • Tenant currently occupying property and purchasing from the
                       seller.


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Borrowers,                Continued


Non-Arms Length or Identity of Interest Transaction, Continued

                         Title Changes – When the borrower has been transferred into title
                          and is attempting to refinance the previous owner’s mortgage to
                          obtain financing in his/her own name. This type of transaction raises
                          red (risk) flags similar to those of a flip transaction.
                          • These types of Non-Arms Length transactions are acceptable as
                              either a Rate/Term or Cash Out Refinance only under one of the
                              following scenarios and guidelines:

Evidence that the recent title change is due to marriage,   The borrower has been in title for a minimum of 6
divorce or death, and                                       months, and
 The Borrower qualifies according to the product            The transaction and borrower must meet all
    guidelines, and                                             applicable Credit and Underwriting Requirements for
 The Borrower provides an explanation for the title            Non-Arms Length Transactions, and
    transfer.                                                The Borrower provides an explanation for the title
    • The underwriter must ensure that this explanation         transfer.
         meets the transaction requirements.                    • The underwriter must ensure that this
                                                                     explanation meets the transaction requirements.

                     Credit and Underwriting Requirements for Non-ARMs
                     Length/Identity of Interest Transactions.
                     Identity of Interest (Non-Arms Length Transactions) are considered on a
                     case-by-case basis and are subject to the additional requirements:
                      Maximum 95.00% LTV/CLTV
                        • Five percent of the sales price must be verified as being saved by
                             the Borrower (these funds do not need to be used toward the
                             down payment)
                      Borrower must provide a copy of the canceled earnest money check to
                        verify payment to the Seller.
                      Primary Residence Only.
                        • Not permitted for Second Homes and Investment properties.
                      Full/Alt documentation of the Borrower’s Income and
                        employment.
                      Document all assets needed to close loan, regardless of LTV.
                        • The accounts may not be co-mingled in joint accounts between the
                             interested parties.
                        • The assets used to close the loan must be accessible to the
                             borrower only (and not any of the other interested parties).

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Borrowers,         Continued


Non-Arms Length or Identity of Interest Transaction, Continued

               Credit and Underwriting Requirements, Continued

                  Verification that the Borrower is not now, nor has been in the previous
                   24 months, in title to the property.
                   • Exception to this is a “Title Changes” transaction where 6-months
                       title is required.
                  Payment history for the existing mortgage (verification of the Seller’s
                   mortgage) on the subject property to validate no pattern of
                   delinquency within the past 12-months.
                   • This is used to confirm that the transaction is not a financial
                       “bailout” situation and may not be required for all types of
                       transactions.
                  Borrower must provide a written explanation stating the relationship
                   to the Seller and the reason for the purchase. (Not required for
                   refinance transactions.)
                  The underwriter must be satisfied that the transaction makes sense
                   and that the borrower will occupy the property as a primary residence.
                   • The underwriter must provide a detailed justification for approving
                       the transaction.
                  Full appraisal (1004D) required, regardless of AUS findings.
                   • The appraisal must acknowledge the non-arms length (identity of
                       interest) transaction and any impact on value.
                  A fully executed, legally binding purchase and sales agreement is
                   required and the relationship between the parties must be disclosed.

               Note: These relationships may influence the transaction and are generally
               not encouraged for financing.


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Borrowers,               Continued


Non-Occupant        A non-occupant co-borrower is a borrower that does not occupy the
Co-Borrower         subject property, but whose income has been used to qualify for the loan.
                     Joint responsibility (with the primary borrower) for repaying the loan
                       requires that the non-occupant co-borrower sign the Note.
                        • If they are also taking an ownership position, they must execute
                          the Mortgage/Deed of Trust.
                    Additional Requirements:
                       DU/LP findings must identify that a non-occupant co-borrower was
                        used to qualify the loan.
                       Maximum 90.00% LTV
                       Single Unit Only
                       Primary Residence Only
                       Non-occupant co-borrower may not be an interested party to the sales
                        transaction, such as the property seller, property builder, and real
                        estate broker.
        (3/22/10)      Ratios:
                        • The Owner Occupant (occupying borrower) must qualify at a max
                            35/43%, regardless of AUS findings.
                       Down Payment: If the LTV is greater than 80.00%, the owner-
                        occupant(s) must make the first 5% down payment from their own
                        verified funds.


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Borrowers,            Continued


Non-             A non-permanent resident alien is an individual who seeks temporary entry
Permanent        to the United States for a specific purpose.
Resident Alien
                  DU messages refer to a Non-Permanent Resident Alien as “Non-U.S.
                     Citizen”
                     MSI will grant loans to Non-Permanent Resident Aliens with acceptable
                      Visas under the same parameters extended to a U.S. Citizen, unless
                      restricted in a specific product summary.

                 Visa Classifications
                 One of the following valid Visa Classifications are required.
                  Acceptance of additional classifications must be approved by a MSI
                    underwriter.

                          Type                                   Classification

                           E-1                                    Treaty Trader

                     G-1 through G-4      Representative, officer or employee of recognized and non-
                                            recognized foreign government and members of their
                                                               immediate family

                          H-1B                                 Temporary Worker

                           L-1                             Intra-company transferee

                       TN/NAFTA            Professionals from Canada or Mexico who enter the U.S.
                                                         under the NAFTA agreements

                 Notes:
                      The loan file must contain a copy of the front and back of the valid Visa. The
                       approved application for one of the Visas listed above is not acceptable and a
                       copy of the actual Visa must be obtained.
                      The borrower must have a social security number; a Tax Identification
                       Number (TIN) is not acceptable.


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Borrowers,               Continued


Non-Permanent Resident Alien, Continued
                    Underwriting Requirements
                    The following requirements apply to Non-Permanent Resident Aliens:
                       Minimum 2-years residency, credit, employment in the U.S. and must
                        be currently residing in the U.S.
                       Borrower must have a U.S. source of employment that is expected to
                        continue for 3 years.
                       If any qualifying income is in foreign currency, 75% of the currency
                        exchange value may be used to qualify the borrower.
                       Funds for closing must be in U.S. bank accounts.
                        • If funds were transferred from a foreign depository, the borrower
                            must provide evidence that they owned the funds prior to the
                            transfer.
                    Note: MSI requires 2-year’s tax transcripts to support income for each
                    borrower with qualifying income.


Non-                In those states subject to community property, the credit report for the
Purchasing          non-borrowing spouse must be pulled and reviewed (outside the AUS) so
Spouse              the underwriter can determine any adverse or additional liability for the
                    borrowing spouse.
                    Note:
                     For Primary Residence: MSI requires the non-purchasing spouse to
                        sign the Security Instrument (mortgage/deed of trust) and applicable
                        Riders and Disclosures as identified on the specific Security
                        Instrument(SI) as a non- purchasing spouse and not as a
                        borrower.
                        • The requirement for the non-purchasing spouse to sign the SI and
                            applicable Riders applies to all mortgage transactions (purchases
                            and refinances) on the borrower’s primary residence.
                        • The non-purchasing spouse is not required to sign the Note and,
                            will not be responsible for the mortgage debt.
                        • MSI requires that the Non-Purchasing spouse must be “aware of”
                            the closing and actually sign the appropriate documents required
                            in the jurisdiction to waive marital property rights. (Generally the
                            SI and applicable Riders.)
                        • Signing the SI and other related documents does not make the
                            non-purchasing spouse a co-borrower.

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Borrowers,           Continued


Permanent        A permanent resident alien is an individual who is lawfully residing in the
Resident Alien   United States permanently.
                  MSI will grant loans to permanent resident aliens under the same
                     parameters extended to U.S. Citizens.


                 One of the following forms of documentation must be provided for a
                 borrower to be considered eligible for a loan as a permanent resident alien:

                    Alien Registration Receipt Card I-551 (Green Card)
                    Alien Registration Card I-551 (Conditional Green Card) which must
                     have the expiration, date on the back and also must be accompanied
                     by a copy of a filed INS Form I-751
                    Non-expired Foreign passport that contains a non-expired stamp,
                     which states the following: “Processed for I-551 Temporary Evidence
                     of Lawful Admission for Permanent Residency. Valid until (mm-dd-yy)
                     Employment Authorized”

                 Notes:
                  The borrower must have a social security number; a Tax Identification
                    Number is not acceptable.
                    A copy, front and back, of the documentation must be included in the
                     loan file.
                    Classifications are subject to change by the Government at any time.
                     •   It is the Correspondent’s responsibility to ensure that the
                         Permanent Resident Alien is lawfully permitted as a permanent
                         resident in the United States.


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Borrowers,               Continued


Power of            MSI will accept a Limited (or Specific) Power of Attorney that references
Attorney            the property and authorizes the attorney in fact to enter into a real estate
                    transaction and to mortgage the property.
                    Power of Attorney (POA) must meet the following requirements:
                       The POA can be used for closing documents only, and is not
                        acceptable for application or credit verification documents.
                        •    The initial 1003 must be signed by the borrower(s), not the
                             attorney in fact – the final 1003 may be signed by the attorney in
                             fact at closing.
                             o Exceptions are granted for borrowers who are physically
                                 incapacitated. For the safety of our borrower, a letter from the
                                 attorney or the doctor must certify that the borrower is
                                 incapacitated, (Copies of private medical records should never
                                 be provided.)
                        •    For all Property Transactions:
                             o An employee of the Correspondent must physically see the
                                 borrower at some point prior to loan closing.
                             o A letter of certification, signed by an employee of the
                                 Correspondent, certifying visual, physical contact with the
                                 borrower must be included in the loan file.
                       The POA must be drafted in accordance with applicable state law and
                        be acceptable to the recording agent in the local jurisdiction.
                        •    It must be acceptable to the title insurance company issuing the
                             title insurance (no title exception to the POA).
                        •    If an attorney signed the loan documents in fact, the Power of
                             Attorney must have been approved by the title company issuing
                             the title policy.


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Borrowers,             Continued


Power of Attorney, Continued
  CLAR (2/25/11)     Indicate clearly that the mortgagor is appointing an attorney in fact.
                     Precisely identify who is being appointed.
                     Be signed and dated by the borrower.
                     Be notarized.
                     Be recorded prior to or concurrent with the security instrument.
                     Contain the full subject property address with legal description.
                     The use of a General Power of Attorney will only be considered in
                      cases where the borrower is currently serving on active military duty
                      outside of the U.S. See specific requirements in the Government
                      Product Suite.
                      • An “Alive and Well” certification is required.
                   See Pre-Purchase Delivery/Power of Attorney for signature details.
                   Notes:
                    The typed signature line and actual signatures must match exactly on
                      all power of attorney documents.
                    MSI cannot accept a Power of Attorney signature to close when closing
                      in the name of a Trust.


Purchasing         A purchasing co-borrower is a person who has applied with the applicant
Co-Borrower        for joint credit and who takes title to the security property. A purchasing
                   co-borrower must sign the Note.


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Borrowers,               Continued


Owner               MSI requires that for primary residence transactions, each occupying
Occupancy –         borrower must certify the following:
Primary              That they will occupy the subject property within 60-days of loan
Residence
                       closing and that they will continue to occupy the subject property for a
        (4/17/10)
                       minimum of 1-calendar year from the date of closing.
                     MSI will not purchase/fund an “owner-occupied” loan for which the
                       borrower(s) have not signed the MSI Occupancy Affidavit/Certification
                       (or equivalent document). Note: If MSI draws documents, MSI always
                       includes the Occupancy Statement which meets requirements.
                    MSI Definition of Primary Residence (Owner Occupancy)
                    A primary residence is property that is physically occupied by the
                    Borrower as his/her principal residence. Residency is defined by the
                    following criteria:
                     Borrower occupies the property for the major part of the year.
                     Property location is convenient to the borrower’s principal place of
                        employment.
                     Property address is of record for one or more of the following: Federal
                        tax reporting, voter registration, driver’s license, occupational
                        licensing, etc.


Spousal             When a married applicant qualifies for a mortgage based on his or her
Property            own financial capacity (without the assets/income of their spouse), the
Rights
                    spouse does not need to sign the Note, Mortgage or Deed of Trust.
                       However, they will be required to sign the security instrument or any
                        other documentation required to evidence that the spouse is
                        relinquishing all rights to the property in order to perfect the lien
                        under current governing state law.


Trailing            Trailing borrower income is not permitted by MSI for either conventional
Borrower            or government loans.
Income
        (7/20/09)


U.S. Citizen        A United States Citizen is a native or naturalized person entitled to all
                    rights and privileges of the United States. Product requirements are based
                    on the assumption that a borrower is a United States Citizen.




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Certifications

Summary        Copies of certifications that include, but may not be limited to the
               following, must be provided if required in the Sales Agreement, or by the
               underwriter or the appraiser:
                  Septic
                  Termite
                  Well
                  Survey


               Note: Any other type of certification required by the Sales Agreement,
               underwriter, or appraiser is required in the loan delivery file, regardless
               whether or not it is mentioned herein.




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Construction to Permanent Financing

Overview            Construction-to-Permanent financing involves the granting of a long-term
                    mortgage to a borrower to replace the interim construction financing used
                    for the construction of a new home.
                       MSI does not provide nor participate in the construction financing
                        phase of the transaction.
                    Construction-to Permanent (Construction-to-perm) financing may be
                    structured as either a purchase transaction (the borrower may not receive
                    any cash back at time of settlement) or a refinance transaction (the
                    borrower may or may not receive cash back at settlement).
                       Purchase Transaction structure-loan must meet LTV/CLTV based on
                        purchase parameters
                       Refinance Transaction structure – loan must meet LTV/CLTV based on
                        applicable refinance parameters.


Characteristics     To be considered construction-to-perm, one of the following
                    characteristics must be met:
                       The borrower is the primary obligor on the construction financing
                        which is obtained through a legitimate financial institution, or
                       The borrower is the owner of the lot on which the residence is
                        constructed.
                    Important: MSI considers long term financing to make a single
                    disbursement to a builder/contractor or other party for the purchase of a
                    completed newly constructed property to be a purchase transaction, not
                    construction-to-perm, and subject to purchase transaction guidelines.


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Construction to Permanent Financing,                                         Continued


MSI                 Unless otherwise referenced in the MSI Product suite or Underwriting
Requirements        Guidelines, construction to permanent loans must meet the guidelines
       (10/15/09)
                    applicable to DU/LP.
                    All construction to permanent loans must adhere to these additional
                    requirements:
                       The property must be fully complete at the time of the permanent
                        financing funding.
                        • If there are weather related completion items. See Escrow
                            (Completion) Holdbacks.
                       A final Certificate of Occupancy (or equivalent for the jurisdiction)
                        must be obtained
                       Appraiser must provide a final “certification of completion” showing
                        the property 100% complete (1004D/442)
                       Color Photographs of the completed property are preferred, MSI will
                        accept either color or clear and sharp black and white photos.
                       Single Close transactions are not acceptable to MSI.
                       Follow the more restrictive of MSI specific product or underwriting
                        guidelines or DU/LP for any topic not addressed herein.
                       See the MSI Construction-to-Perm Requirements Matrix for additional
                        guidelines.
                       See New Construction for additional details.


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Construction to Permanent Financing,                                                              Continued


MSI Requirements, Continued

                                 MSI Construction-to-Perm Requirements Matrix
             Topic                                                        MSI Requirements
Age of Documents                       Credit – 120 days prior to the Note Date
                                       Appraisal – 120 days prior to the Note Date
                                        •    The appraiser must provide a 1004D/442 to document completion. If the update
                                             indicates the property has declined in value, a new appraisal is required.
Borrower in Construction           If the borrower is acting as his/her own builder/general contractor or sub-contractor and his/her
Industry                           primary occupation is in the construction industry, the following guidelines must be met:
                                       Property must be owner-occupied primary residence.
                                   Acquisition Cost Documented
                                       Acquisition cost must be fully documented, regardless of the transaction structure
                                        •   The itemized cost breakdown must be documented/supported by providing copies of
                                            receipts, bills, lien waivers, lot purchase agreement, etc.
                                       The LTV/CLTV will be based on the lesser of the documented acquisition cost or
                                        appraised value
                                       The borrower cannot receive cash back at closing.
Data Input                             DU: All loans should be input into DO/DU as construction to permanent refinance or
                                        purchase.
                                       LP: All loans should be run as a “regular” refinance or purchase without utilizing the
                                        “construction to permanent”
Lot inherited or received as a     If the lot is acquired through a gift or inheritance, base the LTV ratio as follows (regardless of
gift.                              how the transaction is structured):
                                    Divide the loan amount by the lesser of:
                                         • The current appraised value of the property (both lot and improvements) or
                                         • The sum of the documented costs of the construction and current appraised value of
                                                the lot.


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Construction to Permanent Financing,                                                             Continued


MSI Requirements, Continued

                                MSI Construction-to-Perm Requirements Matrix
            Topic                                                      MSI/DU Requirements
Documentation of Acquisition           Acquisition cost must be documented as follows:
Cost                                    • Purchase contract or construction statement signed by the borrower and the builder
               CLAR (1/27/11)               (copy of document used to obtain construction financing)
                                        • Documentation of the cost of the lot (if obtained separately)
                                            o Copy of the lot purchase agreement or contract for deed, and
                                            o Owner’s title policy to document ownership, and
                                            o HUD-1 settlement statement
Structuring the Transaction            Construction-to Permanent loans may be “structured” (fees charged and underwritten
and General Requirements                under those guidelines, LTV and CLTV) as either a purchase or refinance transactions.
                                       The lot on which the improvements are built must have been owned/acquired prior to the
                                        date of the construction loan application
                                       The construction financing must be in the borrower’s name.
Purchase Transactions                  Base the LTV on the lesser of:
Basing the LTV/CLTV                   Lot Acquired < 12 months prior to the            Lot Acquired ≥ 12 months prior to the
                                      application for construction financing.          application for construction financing.
                                       The current appraised value for the              The current appraised value of the
                                        property (both the lot and the                    property (both lot and improvements) or
                                        improvements), or                                The sum of the documented costs of
                                       The total acquisition costs (which are            the construction and current appraised
                                        the sum of the documented costs of the            value of the lot.
                                        construction and the sales price of the
                                        lot).
Refinance Transactions                 Base LTV/CLTV on the lesser of:
Basing the LTV/CLTV                   Lot Acquired < 12 months prior to the            Lot Acquired ≥ 12 months prior to the
                                      application for construction financing.          application for construction financing.
                                       The current appraised value for the              The current appraised value for the
                                        property (both the lot and the                    property (both the lot and the
                                        improvements), or                                 improvements),
                                       The total acquisition costs (which are
                                        the sum of the documented costs of the
                                        construction and the sales price of the
                                        lot).
Right of Rescission (ROR)              If the borrowers are currently residing in the subject property (current residence on 1003
                                        is subject property) a ROR is required.

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Construction to Permanent Financing,                                     Continued


Single Close        MSI does not purchase loans that have used the “single close” method for
        (5/01/09)
                    Construction-to-Permanent loans.
                       The final permanent mortgage must be a separate closing.
                        •    MSI will not accept any final loan documents that are modified in
                             any way.
                        •    The final Uniform instruments must be correct (and un-modified)
                             for the type of final loan used.




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Contributions

Interested                Certain interested parties (seller, builder, Realtor, etc.) may choose to
Party                     pay a portion of the closing costs (which are normally paid by the
Contributions
                          borrower) on the borrower’s behalf.
                          Any portion of the fees and services, or any other item related to the
                          transaction, that would normally be paid by the borrower, but are paid by
                          the interested party are considered contributions.
                             Because excessive contributions can negatively impact the
                              transaction, maximum contributions are limited, see the Maximum
                              Seller Contributions matrix.
                             The contribution amount that exceeds the limit are considered sales
                              concessions. See Seller Concessions for details.)

Eligible Contributions
The fees and services that are considered interested parted contributions include, but are not limited to (follow Fannie Mae
Guidelines):
     Appraisal Fees                                                       Pre-paid Settlement Costs
     Attorney Fees                                                        Real Estate Tax Service Fees
     Buydowns                                                             Recording fees
     Commitment Fees                                                      Stamps
     Discount Fees                                                        Title Insurance
     Origination Fees                                                     Transfer Fees

                                                  Maximum Seller Contributions
                  Occupancy                                   LTV/CLTV Range                          Maximum Contribution
              Primary Residence                                     >90.00                                       3%
                 Second Home                                    75.01 – 90.00                                    6%
                                                                   ≤75.00                                        9%
    Investment Property                                               All                                        2%
    Note: The maximum LTV/CLTV must be calculated based on the lesser of the reduced sales price (reduced by the sales
    concession) or appraised value, whichever is lower.

 Ineligible Contributions
 Generally, the cost of any contributions that are in the form of personal property or “give-aways” (such as furniture, decorator
 items, automobiles, club membership, etc.) are not “eligible” contributions and must be considered Sales Concessions and
 deducted dollar-for-dollar from the lesser of the sales price or appraised value. (See Seller Concessions for details.)


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Contributions,                 Continued


Interested Party Contributions, Continued
                    Seller Concessions
                    “Give-aways” or contributions that exceed the allowable limits are
                    considered Sales or Seller Concessions. Sales/Seller Concessions must be
                    deducted dollar-for-dollar from the lower of the sales price or appraised
                    value, and the loan amount and LTV/CLTV must be adjusted accordingly.
        (2/08/10)   Realtor Commissions Limitations
                    MSI applies the following restriction in the HUD-1 Review:
                     Real Estate Commissions include the commissions appearing in section
                       700 of the HUD-1 as well as any non-lien related disbursements such
                       as marketing expenses, finder’s fee, consulting fees or assignments of
                       sales fees.
                       • Any combination of these disbursements that exceed 8% of the
                           sales price is considered a sales concession by MSI and must be
                           deducted dollar-for-dollar from the sales price.
                       • The LTV must then be recalculated and meet all applicable
                           guidelines.

                    Note: The Sales Commission restriction is separate from the contribution
                    limitations and must be applied regardless of any interested party
                    contributions on the loan.


Sales               Loans with any abatement (that is, funds provided to a lender or third
Abatement           party by an interested party to pay or reimburse in whole or in part a
        (9/17/10)
                    certain number of monthly mortgage payments of principal, interest,
                    taxes, insurance and assessments on the Borrower’s behalf in excess of
                    Prepaids/Escrows associated with the Mortgage closing) are not
                    acceptable.
                     This means that they simply are not permitted; there is no calculation
                        of “sales concession” and reduction to the sales price or value of the
                        property; MSI will not permit an interested third party to provide
                        funds to make a borrower’s payment.




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Credit

Overview       MSI requires that a borrower’s current and past credit history be analyzed
               through the review of a credit bureau report prepared by an independent
               licensed credit reporting agency or credit reporting repository.
               MSI accepts the following types of credit reports, depending on the
               circumstances of the mortgage request.
                  Residential Mortgage Credit Report (RMCR)
                  AUS Credit Report -3 file merged report pulled into the AUS

               Note: Non-Traditional Credit Reports are not permitted under any
               circumstances.


MSI Approved   MSI has agreements with the following Credit Reporting Vendors:
Credit          CBC Innovis
Reporting       Credco/Credstar
Vendors
                Equifax Mortgage Solutions
                Kroll Factual Data Corp.

               When using LP and MSI is the secondary reviewer, the credit report must
               have been run through one of our approved credit reporting vendors (or
               affiliates).
                    • If MSI is unable to “pull” the credit from an affiliate of one of the
                        above credit reporting companies, the Seller is responsible for
                        correcting any issues to ensure MSI can “pull” the credit; MSI will
                        not “sign up” with any additional credit vendors or affiliates to
                        resolve the issue.

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Age of              All standard credit documentation used to determine the borrower’s
Documents –         eligibility must be no more than:
Conventional         Credit Documents (including income and assets) – 90-days prior to
Loans
                        the Note Date for existing properties.
                     Credit Documents - 120-days prior to the Note Date for Construction-
       (11/19/10)
                        To-Permanent.
                     At time of Underwriting for all conventional loans:
                        • Pay Stubs must be within 30-days of underwriting and no later
                             than 30-calendar days from the Note Date. (The Underwriter may
                             need to condition for an updated Pay Stub.).
                        • Bank Statements must be within 45-days of underwriting.
                     See Construction to Permanent Financing for specific details for
                        construction to permanent financing.

                    Notes:
                     Document age is measured from the date of the document to the date
                       the Note is signed.
                     MSI reserves the right to request updated credit at our discretion.


Bankruptcy/         MSI will purchase loans where the borrower has a previous bankruptcy,
Foreclosure         deed-in-lieu or foreclosure as long as they meet the following guidelines.
       (12/12/09)
                       Applicable to the specific product, loans must receive a
                        DU/Approve/Eligible or LP/Accept/Eligible, and meet the guidelines in
                        this section.
                       MSI will not purchase a loan where the borrower is currently involved
                        in a foreclosure or deed-in-lieu situation.


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Credit,           Continued


Bankruptcy/Foreclosure, Continued

             Topic                                          DU and LP – Regardless of the findings:
Bankruptcy - 7 or 11                  4-Years
Re-established Credit                  Require a minimum 4-year period of re-established credit from the date of the
                                          discharge of the bankruptcy.
Bankruptcy – Chapter 13                2-Years from Discharge – Discharge is the successful completion of the Chapter
Re-established Credit                     13 repayment plan. (Debts were repaid.)
                                       4 Years from Dismissal- Dismissal is the “forgiving” of an unsuccessful Chapter
                                          13 plan. (Debts were not repaid and the failed Chapter 13 is dismissed.)
Extenuating Circumstances             Minimum 2 years from discharge or dismissal. For all bankruptcy actions.
All Bankruptcy
Multiple Bankruptcy Filings           Minimum 5-years re-established credit for borrowers with more than 1 bankruptcy filing in
                         (12/12/09)   the past 7 years.
                                       MSI may accept extenuating circumstances:
                                           • Minimum 3 years from discharge/dismissal of latest bankruptcy. The most
                                                current bankruptcy filing must have been a result of extenuating circumstances.
                                           • Approval for “extenuating circumstances” must be received from MSI
                                                Underwriting prior to the purchase of any loan.
Foreclosure                           7 Years
                        (11/18/10)     No additional requirements/restrictions apply.
                                       MSI does not permit a waiver of the 7-years for extenuating circumstances.
                                       Measured from the completion date of the foreclosure action as report on the credit
                                           report or other foreclosure documents.
Notes:
 MSI will not refinance properties currently in foreclosure proceedings.
 MSI will not make a loan to a borrower involved in a “short-sale” situation within 4 years of the new application date.
    • See and/or Short Sale Guidelines for details.
 See credit requirements in Bankruptcy Underwriting.
 See Extenuating Circumstances for details.


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Credit,        Continued


Bankruptcy          Extenuating Circumstances for Bankruptcy Only.
Underwriting
                    Important Note: Financial mismanagement is not an extenuating
                    circumstance.

                    Extenuating circumstances are life events that result in a sudden,
                    significant and prolonged reduction in income or a catastrophic
                    increase in financial obligation. Extenuating circumstances should not be
                    judged solely by the event, they must take into consideration the actual
                    event, the severity of the resulting hardship and the extent of the
                    applicant's effort to resolve the situation.
                    For example:
                    A job layoff (the event) in itself should not automatically be considered
                    an extenuating circumstance (even if it is supported by documentation
                    from a third party). If, however, the unemployment that results from a
                    job layoff was prolonged and the loss of income was significant in relation
                    to the applicant's obligations and available assets at the time of the
                    layoff, then the layoff can be considered as an extenuating circumstance.

                       A divorce (the event) should not be considered as extenuating
                        circumstance unless, as the result of the divorce, the applicant had no
                        reasonable options other than to default on his or her obligations and
                        to file for bankruptcy protection.
                       Illness or death of primary wage earner.


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Credit,        Continued


Bankruptcy Underwriting, Continued
                  Re-established credit considerations

                  When reviewing loans with bankruptcies, the underwriter must consider
                  the following:
                     Regardless of the reason for the bankruptcy, the underwriter must
                      determine if the applicant has an acceptable payment record under
                      the re-established history.
                     The re-established history must reveal a payment record that
                      illustrates the borrower now has the willingness and the ability to
                      manage their finances.
                     When the applicant’s previous credit history includes a bankruptcy or
                      foreclosure, their credit report must be current as of the date of the
                      mortgage application. Additionally, the credit report under the re-
                      established credit must include:
                      •   A minimum of 4 credit references, active within the past 24-
                          months, with at least 1 of the references being “traditional” (credit
                          card, installment loan for a car, etc.) and 1 being housing related.
                          o If the housing item is not listed, copies of cancelled checks are
                              required.
                      •   Housing: No payments past due since the discharge or completion
                          of the bankruptcy.
                      •   Installment and revolving: No more than 2 that were 30 days
                          past due in the most recent 24-months, and none 60 or more days
                          past due since the discharge or completion of the bankruptcy.
                          o No new public records for bankruptcies, foreclosures, deeds-in-
                              lieu, unpaid judgments or collections, garnishments, tax liens,
                              and so forth since the discharge or completion of the
                              bankruptcy.


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Credit,           Continued


Bankruptcy Underwriting, Continued
                        Documentation Requirements
                        The following supporting documentation must be included in the loan file:
                             Copies of the bankruptcy petition, schedule of debts and the discharge
                              papers indicating which debts were discharged.
                             Evidence that all debts not satisfied by the bankruptcy have been paid
                              or are being paid in a satisfactory manner.
                              •   Only those payments or delinquencies that occurred during the
                                  bankruptcy are to be omitted from credit reporting. Those
                                  payments since discharge on reaffirmed debts must be verified and
                                  paid on time.
                             A written statement from the applicant satisfactorily explaining the
                              causes of the bankruptcy.

                        Note: MSI reserves the right to request any additional documentation it
                        may deem necessary to ensure the re-establishment and maintenance of
                        satisfactory credit for the borrower.
          (5/14/10)     Pre-Foreclosure, Short Sale or Deed-in Lieu Underwriting
                         If the borrower has avoided foreclosure through a Pre-Foreclosure
                           Sale (also identified as a Short Sale) or a Deed-In-Lieu the following
                           waiting (credit re-establishment) periods apply:

Pre-Foreclosure Event                          Credit Re-Establishment Period
                                                From the date of the completion of the event to the new application date
Deed in Lieu of Foreclosure                    4 Years – Maximum 90.00% LTV/CLTV
Pre-Foreclosure Sale (Also referred to as      7 Years – Maximum LTVs permitted per the applicable product
a Short Sale)                                  Exception:
                                               2-Years – Maximum 80.00% LTV/CLTV
                                                Permitted ONLY with documented extenuating circumstances. (e.g. death of
                                                   wage earner; loss of employment; financial mismanagement not acceptable
                                                   under any circumstances.)
Notes:
 MSI follows the Fannie Mae definition that a “short sale” is a pre-foreclosure sale (sale of the property in lieu of foreclosure
    resulting in the servicer accepting a payoff less than the total amount owed.)
 All LTV/CLTV maximums are based on the lesser of the LTV/CLTV in this matrix or the product maximum LTV/CLTV.
 Re-established credit must meet the more restrictive of MSI/Agency guidelines.
 MSI does not permit lesser waiting periods or LTV/CLTVs based on extenuating circumstances, unless specifically stated
    above.
 See Short Sale – Additional Guidelines.

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Credit,        Continued


Credit, Continued
        (6/02/10)   Short Sale – Additional Guidelines
                     Refinance Transaction: A refinance on a write-down by the Servicer
                       is ineligible for purchase/funding by MSI.
                       • If any borrower on the refinance is currently or in the past
                            involved in a short-sale, deed-in-lieu situation on a property other
                            than the subject property, they must meet our credit re-
                            establishment guidelines. See Pre-Foreclosure, Short Sale or Deed-
                            in Lieu Underwriting)
                     Purchase Transaction:
                       • For borrowers purchasing a short sale, non-arms length
                            transactions are not eligible. See Non-Arms Length or Identity of
                            Interest Transaction.
                       • For transactions that include the purchase of a property involved in
                            a Short Sale situation, MSI will require evidence of the
                            authorization of the short sale from the current servicer (lender).
                       • Important: MSI requires that the underwriter document the loan
                            file so that it clearly indicates that no fraud or property flopping
                            has occurred in the course of the short sale purchase transaction.
        (2/26/10)   Additional Requirements – Purchase Transactions-Subject in Short
                    Sale
                     Only the current legal title holder of record may be reflected as seller
                       on the HUD 1, purchase contract and appraisal for all transactions.
                       • The only exception to this will be estate sales with a documented
                            inheritance to the new seller.
                     Any deed transfers to a Trust or LLC will also require complete
                       consummation of the prior transaction including satisfaction of all of
                       the seller’s current liens and the appraisal must also denote all
                       transfers and dollar amounts and address any legitimate increases.
                     Relocation companies will be required to consummate their transaction
                       and pay off the current liens of the seller and hold legal, free and clear
                       title to be eligible as the seller.
                       • Otherwise, the current seller of record must be reflected as the
                            seller on the purchase contract, the HUD 1 Settlement Statement
                            and the appraisal.
                     Important: Under no circumstances will any double escrows be
                       allowed nor will we allow for an interim purchaser to step into the
                       transaction without a complete, identified transfer.

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Credit,        Continued


Credit, Continued
                    Short Sale Fees – Purchase Transaction
                    In an increasing number of purchase transactions, the industry is seeing
                    property sellers engaging the services of short sale “negotiators” who will
                    then approach the underlying lien holders and negotiate payoff figures
                    less than the outstanding balances owed. The short sale negotiator
                    expects a fee for providing this service and those fees are paid by the
                    seller and/or the buyer as part of the new purchase transaction.
                     Property buyers are agreeing to pay fees in connection with the
                        purchase that have traditionally been considered the responsibility of
                        the seller. Some examples include but are not limited to:
                        • Short sale processing fees (also negotiation fees, buyer discount
                            fees, buyer short sale fees);
                        • Payment(s) to subordinate lien holder(s); and
                        • Payment of delinquent taxes or HOA dues
                     These expenses do not represent a common and customary charge
                        and therefore must be treated as a sales concession if any portion is
                        reimbursed (to the buyer) by an interested party to the transaction.
                        • If a buyer agrees to pay any fees or sums due of this nature
                            and is further reimbursed by the seller or any other
                            interested party to the transaction, MSI will consider the
                            amount being reimbursed as a sales concession.
                        • The amount reimbursed will not be considered an allowable
                            financing concession and will not be included in acceptable seller-
                            paid closing costs.
                        • The amount of determined sales concession must reduce the
                            sales price or value of the property from an underwriting
                            standpoint and a reduction in the requested loan amount may be
                            necessary.
                        • Further, the buyer’s payment of short sale fees and amounts
                            traditionally associated with the seller may not be included as part
                            of the buyer’s acquisition cost.
                    See Property Flopping for additional details.


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Credit, Continued
       (12/12/09)   Foreclosure Guidelines
                    The foreclosure must have been completed a minimum of 5-years before
                    the credit report date.
                     Additional requirements that apply after 5 years up to 7 years
                        following completion date:
                        • Purchase Transactions: The purchase of a principal residence is
                            permitted with a minimum 10 % down payment and minimum
                            representative credit score (FICO) of 680 (unless a higher FICO is
                            required by the product.)
                            o Purchase of a second home or investment property is not
                                permitted.
                        • Refinance Transactions:
                            o Limited cash-out refinances are permitted for all occupancy
                                types pursuant to the current eligibility requirements.
                            o Cash out refinances are not permitted for any occupancy type.

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Collections,        MSI generally requires the borrower to pay off at (or prior to) closing.
Charge-offs,
Judgments,          If the total balance of accounts is $1,000 or less we will not require them
Garnishments,       to be paid.
and                  Documentation must substantiate that the accounts pose no threat to
Outstanding             our mortgage lien and are not likely to affect the borrower’s equity
Liens                   position.
                     MSI requires that all outstanding judgments and tax liens must be
        (9/29/10)
                        paid (satisfied), regardless of AUS findings.
                    Notes:
                     If the AUS requires that the amount be paid, the AUS supersedes the
                       MSI requirement.
                    For loans underwritten by MSI:
                     The following exception may be granted for loans underwritten by
                       MSI:
                       • Collection accounts, charged-off accounts or garnishments that
                           exceed the $1,000 limit in combined balances do not have to be
                           paid off prior to closing provided all of the following are
                           documented:
                           o A strong credit profile (FICO within limit, all other credit
                              acceptable).
                           o Meaningful financial reserves (reserves in an amount to permit
                              the accounts to be paid in full if necessary).
                           o Evidence that the account(s) pose no threat to our first
                              mortgage lien.


Consumer            The presence of consumer credit counseling service does not alter the
Credit              underwriting recommendation. Whether the borrower has or has not
Counseling          completed his or her participation in the sessions before closing on the
                    mortgage transaction is not relevant since it is the borrower’s credit history
                    that is of primary importance.
                      If borrower is currently in CCC, borrower must provide a letter from
                       the service stating that they can incur the new housing expense.
                     If the loan is approved through the AUS, the CCC has been considered
                       and no further action is required.
                    Note: Underwriters must carefully review borrowers with CCC to
                    determine over-all credit worthiness. MSI reserves the right to deny
                    borrowers they deem, in their sole determination of risk, do not have a
                    good credit profile.

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Credit,        Continued


Credit Report       Recent Attempts to Obtain New Credit
Inquiries           (Effective for conventional loans underwritten on/after 11/08/10.)
                    The presence of unrelated credit inquiries represents a higher credit risk.
       (11/08/10)

                       When the Borrower’s credit report indicates that a creditor has made
                        an inquiry within the previous 120-day period, the Seller must
                        determine whether additional credit was granted.
                        •   If additional credit was granted, the Seller must obtain verification
                            of the debt and must consider the debt when qualifying the
                            Borrower. A supplemental update to the Credit Report is
                            acceptable documentation.
                        •   If no new credit was granted, MSI requires a satisfactory Letter of
                            Explanation (LOX). Please note, additional documentation may be
                            required to validate no new debt if the inquiry could have resulted
                            in a significant debt/obligation for the borrower.
                        •   LQI guidelines for undisclosed debt must also be met. See LQI-
                            Undisclosed Debt Policy.

                    Important Note: MSI retains the right to pull a “soft” credit report
                    during our pre-purchase or QC review to validate no new debts.


Credit Score        Minimum Credit Score (FICO) must be met for each loan, regardless of
(FICO)              AUS approval/acceptance. See the product matrices within the Product
                    Suites for details.
                    Credit scores are required on the credit reports for all borrowers and co-
                    borrowers.
                     To arrive at an individual borrower’s useable score:
                       • If 3 scores are provided for the borrower, the middle score is used
                           to underwrite.
                       • If 2 scores are provided for the borrower, the lower score is used.
                       • If only 1 score is provided, the borrower is not eligible.
                     To arrive at the score used to validate the salability of the loan to
                       MSI – use the lowest of all of the borrower’s individual useable score.
                     It is the underwriter’s responsibility to ensure that the credit score for
                       the loan is ≥ the MSI minimum required FICO for the product.

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Disputed               Disputed account cannot be ignored and all AUS conditions on the
Credit                  disputed account must be satisfied prior to loan funding/purchase.
Information
                       Should a borrower indicate that any significant information in the
                        credit file is inaccurate a request should be made to the credit
                        reporting company to confirm accuracy.

                    MSI Disputed Credit Policy
                    For loans with an Approve/Accept AUS credit decision:
                       If there is a disputed account on the Credit Report, the underwriter
                        must determine/document whether or not the disputed account(s)
                        belongs to the borrower or that the dispute has been resolved.

                    Conventional, FHA and VA Loans
                     If the trade line does not belong to the borrower, or a reported
                       payment history is inaccurate you must obtain written documentation
                       and include it in the loan file submitted for purchase.
                       • You must ensure that all AUS conditions have been met.
                       • The underwriter must carefully evaluate the borrower’s credit and
                          written explanation for the dispute to ensure the credit-worthiness
                          of the borrower and include any accurate payment information.
                       • The underwriter must provide a written explanation in the loan
                          file.
                     If the trade line does belong to the borrower and the reported
                       payment history is accurate, the disputed trade line(s) must be
                       considered in the credit risk assessment.
                       • To ensure the disputed trade line is considered, you must obtain a
                          new credit report with the trade line no longer reported as
                          disputed and resubmit the loan casefile to DU.

                    Note: MSI will not accept an AUS loan that is “down-graded” and
                    manually underwritten by anyone but MSI, regardless of delegated status.
                    See the Government Product Suite for full details.

                    USDA loans
                     Loans must follow the current USDA Disputed Credit Policy.


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Credit,        Continued


Electronic        Electronically obtained credit bureau reports are permitted from an
Credit Reports    automated underwriting system (AUS) as follows:
                     Must be ordered from one of the three credit agencies:
                      •   Equifax Information Svc. LLC
                      •   Experian Credit Data
                      •   Trans Union
                     Must be a Three Bureau In-file Merged Report
                     Credit risk scores are made available to the AUS
                     The report must contain
                      •   OFAC alerts
                      •   Social Security number alerts


Non-              MSI does not permit the use of non-traditional credit (not presented by
Traditional       the credit reporting agency).
Credit


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Credit,        Continued


Residential         Residential Mortgage Credit Report (RMCR) provides current, verified and
Mortgage            detailed borrower information. The report agency verifies:
Credit Report
                       Most recent 2-year employment history
                       Residence history
                       All debts, including terms, balances, and ratings.
                       Past due payments
                       Available legal information through public records, such as judgments,
                        foreclosures, garnishments and bankruptcies.
                       Joint or combined report for a married couple must contain all debts of
                        both parties or separate reports must be provided
                       Individual separate reports must be run for un-married borrowers
                       OFAC alerts
                       Social Security number alerts


Trade lines         A trade line reflects a history of open or paid credit obligations detailing
                    borrower’s credit reputation.
                       Credit score should be obtained from 4 trade lines with a 24 months
                        satisfactory history to ensure a representative score
                       Must include opening date, current balance and payment history
                       One trade line must be currently open for > 24 months and cannot be
                        a collection or charge-off




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Disaster Policy

Overview        MSI will purchase loans that are located in a declared disaster area
                (natural or man-made) provided the subject property has not been
                negatively affected by the disaster.
                See Pre-Purchase Delivery/Disaster Policy for additional requirements for
                loans closed (disbursed) but not yet purchased by MSI.


Timing          This disaster policy should be followed for a minimum of 120 days after
                the disaster incident period has ended, unless more restrictive guidelines
                are dictated by one or more of the agencies (Fannie Mae, Freddie Mac,
                FHA, VA or USDA.)


Definition      A major disaster is defined as one that causes substantial damage to
                numerous homes and community infrastructure.
                   Disasters include, but are not limited to, hurricanes, earthquakes,
                    floods, landslides, tornadoes, wildfires, volcanic eruptions, civil unrest
                    or terrorist attacks.
                   When a major disaster occurs, the Federal Emergency Management
                    Agency (FEMA) issues a Disaster Declaration identifying the specific
                    areas impacted.
                Incident Period is defined as the time that the disaster affects the area.
                   For example, a tornado is generally 1 day, while flooding could last a
                    week or more.


Areas subject   MSI’s disaster policy applies to those areas identified by FEMA as eligible
to Disaster     for Individual Assistance.
Policy
                As a courtesy, MSI will attempt to communicate requirements applicable
                to each specific disaster. However, it is the Correspondent’s sole
                responsibility to be aware and fully knowledgeable regarding natural or
                man-made conditions that may adversely affect the subject property in
                the area in which they originate loans, and to insure loans in those areas
                comply with MIS’s Disaster Policy.
                   The Correspondent should contact the appropriate source e.g. state
                    office, regional Federal Emergency Management Agency (FEMA)
                    offices, news agency, etc. to determine whether properties located in
                    its origination regions are included in the disaster areas.


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Appraisal           Appraisals Completed on or before the Incident Period End Date
Requirements           For all loans underwritten but not closed/disbursed by the
        (8/04/10)       Correspondent, or loans closed/disbursed/delivered to MSI, but not
                        yet purchased:
                        • MSI requires a property inspection to verify the property is sound,
                            marketable, and habitable and in the same condition as when it
                            was originally appraised. The following are acceptable forms of
                            damage inspection:
                            o One of the following appraisal forms is acceptable. The report
                                must show no damage to the subject property.
                            o 1004D/442, signed by the original appraiser,
                            o Fannie Mae Form 2075 or Freddie Mac 2070, or
                            o A Disaster Compliance Inspection Report, ordered through your
                                original AMC. This report may be completed either by the
                                original appraiser or by another licensed appraiser chosen by
                                the AMC.
                        • Clear sharp photos of the subject and street are required.
                        • The appraiser must address if there is any negative impact to the
                            property as a result of the disaster incident.
                        • The underwriter must review the property re-inspection and “sign-
                            off” on the re-inspection prior to closing.
                     If the subject property is damaged, see Minor Damage Requirements
                      and Major Damage Requirements.
        (6/19/10)   FHA Streamlines
                     For any FHA Streamline Refinance Without an Appraisal affected by a
                      Declared Disaster, MSI requires a minimum 2075 Drive-By Appraisal
                      to confirm/validate that the property has not been negatively affected
                      by the disaster.
                      • The 2075 is mandated by investor delivery requirements; and MSI
                          retains the right to request the 2075 at our sole discretion.
                          o The 2075 may be required for a minimum of 120 days
                              following the date of the incident.
       (11/03/10)   Appraisals Completed up to 120-days after the Incident Period End Date
                       A full appraisal (URAR/1004) with exterior and interior inspection with
                        clear sharp photos is required.
                       The appraiser must address any lingering negative impact on value,
                        habitability or marketability of the Disaster occurrence.

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Disaster Policy,                Continued


Minor Damage        Minor Damage defined as damage to the property that does not affect
Requirements        health, safety, habitability, soundness, or structural integrity of the
       (10/15/09)
                    property.
                     MSI does not require minor damage to be repaired prior to loan
                       purchase; however, professional estimates of the repair costs should
                       be obtained and a repair escrow account established with sufficient
                       funds to guarantee completion of repairs. This account must be
                       documented in the loan file.
                     Escrow Holdback to guarantee completion of the minor repairs may be
                       waived subject to:
                       • Maximum LTV/CLTV 95.00%
                       • A final inspection from the appraiser (1004D/442, with clear sharp
                           photos) outlining the specific items not completed and their impact
                           on marketability, health and safety is provided to the loan
                           underwriter.
                       • Cost to complete minor items is < 2% of the total value of the
                           residence.
                       • The escrow-holdback-waiver request is approved by the
                           underwriter.
                       • The property must be repaired and the final inspection
                           (1004D/442) forwarded to MSI, as a final trailing document, no
                           later than 180 days after the original loan closing/disbursement.


Major Damage        Major damage is defined as damage that affects the marketability, health,
Requirements        safety, habitability, soundness or structural integrity of the subject
                    property and must be repaired before the loan is eligible for sale to MSI.


Damage              If the subject property suffered major damage, the damage must be
Inspection          repaired prior to funding/purchase. The subject property must be re-
Requirements        inspected:
        (8/04/10)
                       The damage must be repaired prior to the purchase of the loan –
                        evidenced by a new 442/1004D with clear sharp photos.
                        •   The extent of the damage must be addressed with a statement
                            that the repairs have been completed and,
                            o The interior and exterior of the property is free from damage
                               from the disaster and the disaster had no effect on value or
                               marketability of the subject property.
                        •   New Property clear sharp Photos –Exterior, Interior and
                            Neighborhood – taken after the disaster Incidence Period.




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Documentation Requirements

Overview            MSI accepts the following documentation types:
                     Full/Alternative (Full/Alt Doc)
                       • MSI requires completion of a Verbal Verification of Employment (V-
                           VOE) at time of underwriting and 5-calendar days prior to
                           close/disbursement.
                           o The V-VOE must be included in every loan file delivered to MSI
                               for purchase. (regardless of underwriter)
                           o See Verbal Verification of Employment.
                    Note:
                    On all loans (including FHA/VA streamline refinance loans) received for
                       funding/purchase, MSI performs a verbal verification of employment.
                     If the borrower(s) is no longer employed and can no longer qualify for
                       the loan, MSI will refuse funding/purchase.
        (1/01/09)    A 4506-T, signed/dated by each borrower at closing is required,
                       regardless whether tax transcripts are included in the closed loan
                       delivered for purchase. See IRS 4506 for full details.
        (6/01/09)    Tax Transcripts/Record of Account must cover:
                       • Salaried (W-2) Borrowers: The most current 2-years.
                       • Self-Employed (Passive Income) Borrowers: The most recent 2-
                           years.
                       • Jumbo loans exceeding $750,000: The most recent 2 years.
                    Notes:
                     If the borrower has not yet filed the most recent year, MSI requires
                       the most current 2 years that have been filed AND documentation
                       that the most current year has been extended.
                       • MSI requires a copy of the 4868 (IRS request for Extension) and a
                           copy of the Account Transcript that documents the borrower has
                           filed an extension with the IRS and provides the status of the
                           borrower’s “account” (estimated taxes owed and payments
                           received).
                           o Order the Account Transcript on the 4506-T by checking Box
                               6b.
                           o Important: The last day to file tax returns that have been
                               extended is October 15.
                       • Once the official IRS period for extensions has passed (October
                           15!), MSI requires the most current tax returns, stamped as
                           received by the IRS (The applicable tax transcripts are required
                           once available after the 10/15 deadline.); if they cannot be
                           provided, the loan is not eligible for funding/purchase by MSI.
                     One year of tax transcripts is never acceptable to MSI.

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Documentation Requirements,                             Continued


Tax Transcripts/Record of Account, Continued

                Closed Loans Delivered for Purchase
                   MSI requires that the loan file contain 2-years of tax transcripts/
                    Record of Account. MSI will review tax transcripts and the Record of
                    Account prior to loan purchase/funding.
                Note: MSI still requires the 4506-T signed/dated by each borrower at
                close to facilitate any post-purchase quality control audit.
                Tax Transcripts Review

                Underwriting Tip:
                Tax Transcripts must be reviewed against the income stated on the 1003
                and the validated income in the loan file. The purpose of obtaining tax
                transcripts directly from the IRS is to support that the income is valid,
                we assume that income reported to the IRS is the usable income for loan
                qualification. Therefore, good credit risk principles dictate:
                 Tax returns provided must match the tax transcripts received. See our
                    guidelines for amended returns.
                 W-2 and paystubs must be validated by the tax transcripts.
                 Compare the IRS tax transcripts to the documentation provided to
                    validate income.
                    • Transcripts that show lesser earnings than the income
                        documentation AND acceptable amended returns cannot be
                        provided, do not validate income. The loan is ineligible for
                        underwriting approval and/or funding purchase.
                    • Transcripts with earnings 10% and greater must be addressed and
                        adequately explained and documented.
                 Tax Returns cannot be submitted just to qualify for a loan. (E.g. the
                    tax transcripts document that the borrower just recently –within the
                    past 60 to 90 days finally filed their last 2-years tax returns.)
                 MSI considers the tax transcripts critical documents for quality
                    assurance to ensure that the income used to qualify is valid. To that
                    extent the tax transcripts must be “underwritten/audited” using good
                    credit principles.
                    • We reserve the right to refuse underwriting approval/
                        funding/purchase of any loan that does not meet, in our sole
                        estimation, valid quality assurance of the tax transcripts to the
                        income documentation provided in the loan file.


Age of          At the time of underwriting, the age of the documentation must meet the
Documentation
                current MSI requirements for the type of transaction. See Age of
                Documents.

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Documentation Requirements,                                     Continued


General             All income/asset documentation must meet the following “general”
Requirements        requirements:
       (11/19/10)
                     All documentation must follow the more restrictive of the applicable
                         AUS or MSI.
                     All documentation must be original OR must be a certified exact true
                         copy
                         • Certified true copies may be individually stamped certified true and
                            exact (the signature must contain at least the initial of the first
                            name of the signer and the full surname) OR
                         • A “blanket” true and exact certification may be included; it must
                            identify the loan and the name of the person certifying the
                            documents.
                     Erasures and white-outs are not permitted.
                     Fax Copies
                         • Documentation must be faxed directly to the Seller from the
                            employer (see Direct VOE Requirements), borrower and/or
                            landlord.
                         • Copies or faxes from a builder, real estate agent, property seller or
                            other third party are not acceptable.
                     Internet Documentation
                         • All internet documentation must meet the general requirements as
                            well as:
                                o Identify the source of the information. The headers/footers
                                    and banner portion of the printout of the downloaded Web
                                    Site must reflect the appropriate source.
                                o Display the URL address and the date/time printed. (If
                                    faxing, ensure that the fax header does not cover the URL
                                    information.)
                     Paystubs
                         • Must be computer generated or typewritten.
                         • Clearly identify the borrower as the employee.
                         • Show the gross earnings for both year-to-date and the pay period.
                         • Show the pay period covered.
                         • Show the employer’s name.
                         • Must be dated within 30-calendar days of loan closing (Note Date).
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Documentation Requirements,                                                   Continued


AUS Overlays            MSI requires certain documentation in addition to that required by an
        (11/19/10)
                        AUS.

         AUS “standard” (Full/Alt) documentation                                 AUS “reduced” documentation
         AUS Documentation Required for 2-Years                             AUS Documentation required for < 2-Years
                    MSI requires …                                                      MSI requires …
Income/Employment                                               Income/Employment
 Direct VOE(s) covering 2-years (See Direct VOE                 MSI will accept the reduced requirements as note on the
     Requirements.)                                                  Findings, with the following overlays:
     • If a Direct VOE is used, MSI always requires the              • Current Pay stub showing year-to-date.
          paystub, W-2 and/or tax return to support.                 • One year’s W-2 or tax returns (Unless Self-
 Current Pay stub covering 1 month and providing year-to-                Employed, See Notes)
     date income                                                     • V-VOE completed at time of underwriting and no
 Two-years W-2’s or signed tax returns                                   earlier than 5-days prior to close/disbursement.
 V-VOE completed at time of underwriting and no earlier             • 4506-T, signed/dated at closing.
     than 5-days prior to close/disbursement.                   See Income and Employment for more details.
 4506-T, signed/dated at closing.
See Income and Employment for more details.
Notes:
 MSI requires that the YTD paystub be dated within 30-calendar days of loan closing (Note Date); underwriter may need to
     condition for an “updated” YTD paystub.
 Self-Employed Borrowers, including borrowers on commission, seasonal employees, and any other income that requires
     the use of “averaging taxable income” to qualify:
     • MSI requires 2 year’s tax returns (applicable to the type of employment) regardless of the AUS.
Assets/Funds to Close and/or reserves                              Assets/Funds to Close and/or reserves
 Copies of original bank statements or                             MSI will accept the AUS Findings.
 Other supporting documentation, see Assets and                    If bank statements are included, they must be a copy of
    Liquidity for more details.                                        the original bank statement, showing all appropriate
                                                                       identification information.
Note: MSI requires copies of the most current 2-year’s tax transcripts with discrepancies addressed for all loans; regardless of
the MSI/AUS documentation requirements.


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Documentation Requirements,                                     Continued


Direct VOE          When used, a “direct” Verification of Employment (VOE) must be returned
Requirements        to the originating lender directly from the source. There must be no
                    evidence that the borrower(s) acted as intermediary.
                        •    Verification of Employment Form (VOE)
                        •    Verification of Deposit form (VOD)
                        •    Verification of Mortgage (VOM)
                       Copies, including facsimile copies, are acceptable provided that it is
                        clear from the document that the information was taken from the
                        original document (No corrections or alterations); if faxed, that it was
                        sent directly from source.
                       MSI always requires a copy of the most recent Pay stub with year-to-
                        date information to support the direct VOE.
                       The Underwriter reserves the right to require that original documents
                        be provided.


IRS 4506            In keeping with current Risk trends:
        (6/01/09)
                       Tax Transcripts/Record of Account must cover:
                        • Salaried (W-2) Borrowers: The most current 2-years.
                        • Self-Employed (Passive Income) Borrowers: The most recent 2-
                           years.
                        • For Jumbo loans that exceed $750,000: The most recent 2-years.
        (1/23/09)   MSI Underwriting
                     Loans submitted to underwriting without the tax transcript documents
                      will be conditioned for a copy of the acceptable tax transcripts/Record
                      of Account prior to loan funding/purchase. See Closed Loans
                      Delivered for Purchase below for guidelines.
                     MSI still does require, for post-purchase quality control that the
                      borrowers sign a 4506-T at time of loan closing. This form must be
                      included in the closed loan delivery file.

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Documentation Requirements,                             Continued


IRS 4506, Continued

               Closed Loans Delivered for Purchase
                For loans underwritten by delegated underwriters, MSI will obtain and
                  review tax transcripts and the Record of Account prior to loan
                  purchase/funding. Loan purchase will be delayed.
                  To avoid delay and expedite loan funding, MSI strongly encourages
                   the Correspondent to include the tax transcripts and Record of
                   Account activated at time of underwriting in the closed loan file.

               Important Notes:
                For all loans submitted for loan purchase/funding, MSI will expedite
                 loan purchase/funding for Correspondents that provide the Tax
                 Transcripts and a Certification of IRS Tax Transcript Review with the
                 delivery package.
                 • MSI will validate that the Tax Transcripts meet our requirements.
                 • However, funding will occur faster because MSI will not need to
                     order Tax Transcripts nor will we require our QC underwriters to
                     re-review and validate the tax transcripts in the delivered loan file.
                Regardless whether the tax transcripts are included or not, MSI still
                 requires the 4506-T signed/dated by each borrower at close to
                 facilitate any post-purchase quality control audit.

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Documentation Requirements,                                     Continued


IRS 4506, Continued
        (5/04/09)   MSI 4506-T Completion Requirements
                     MSI will require that all 4506-T forms:
                      • Be prepared on standard letter-sized paper, with legible fonts.
                      • Be typed (printed in typed format from a computer; see the Adobe
                         information below).
                      • Are fully completed with required information.
                      • Include execution by each applicable party.
                    MSI 4506-T Completion Requirements, Continued
                      • The 4506-T form may not be altered in any way.
                          o For example: if one of the years requested has been typed and
                               then an additional year is added in handwriting, this is
                               considered altered and will be rejected.
                          o If the year has been crossed-off and changed or otherwise
                               altered in any way, the form will be rejected.
                          o Do not cross off any information on the form; that will be
                               considered an alteration and the IRS will reject the form.
                          o If three years have been typed on the form, and only two years
                               are requested, circle the years requested, do not cross off the
                               unwanted year.
                    Important Note:
                     MSI will require “correction” of any 4506-T’s that do not meet the IRS
                      requirements for submission on/after 5/04/09. Funding will be delayed
                      pending receipt of acceptable 4506-T forms. (Please remember that
                      even if we receive tax transcripts, a completed 4506-T is required for
                      quality control purposes.)
                     The IRS provides an Adobe version of the 4506-T form (with 2nd page
                      completion instructions) that can be completed on-line (to insure
                      legibility and completion of all applicable fields) and then printed at:
                                     http://www.irs.gov/pub/irs-pdf/f4506t.pdf
       (11/17/08)   Important Note: Amended Tax Returns
                    The IRS permits tax returns to be amended up to 3-years after the initial
                    tax-filing year.
                       MSI does not accept tax returns that have been amended solely for
                        the purpose of qualifying.

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Documentation Requirements,                            Continued


Amended Tax Returns, Continued

               If tax returns have been amended, the underwriter (and MSI) must be
               able to document the following, via the tax transcripts obtained using the
               4506-T:
                The IRS has processed and accepted the amended tax returns; that
                   information is contained in the transcripts.
                All outstanding liabilities and/or tax penalties have been paid; the
                   transcripts show no outstanding money owed to the IRS.
                Additionally, the underwriter must carefully review any increased
                   income to insure its validity, and the loan file should contain:
                   •  Wage earners must provide documentation to support receipt of
                      the income as well continuation of the income (reasonably for at
                      least 2-years in the future).
                   • Important: The underwriter in these cases must make every
                      effort to prudently document the added income and the reasonable
                      expectation of continuation.
                  Amended tax returns for self-employed borrowers will be accepted
                   only if:
                   • It is clearly evident that the tax returns were not amended
                      solely to qualify for the loan. (E.g. application date 6/1, tax
                      returns amended either 2 months before application or during the
                      loan processing period.)
                   • The increase in the income is minimal and is clearly due to an error
                      at the time the tax returns were originally filed.

               Important Notes:
               MSI reserves the right to refuse to purchase/fund any loan for which, in
               our sole opinion, an amended tax return does not appear to be valid.


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Documentation Requirements,                                     Continued


Verbal                 MSI requires that the Seller perform a Verbal VOE to MSI
Verification of         requirements no earlier than 5 calendar days prior to the Note date.
Employment              The Verbal VOE must be included in the Delivery File.
        (8/20/10)
                       If the borrower is no longer employed:
                        • If the loan was underwritten by MSI, the loan must be
                            returned to the underwriter with a revised 1003, 1008, AUS finding
                            and employment verification so that the underwriter can re-
                            underwrite the borrower with the new/reduced income.
                        • If the loan was underwritten by a delegated underwriter,
                            the delegated underwriter is required to completely re-review the
                            loan using the new/reduced income.
                            o If the loan still qualifies, it may be delivered to MSI with all
                                applicable documentation corrected accordingly.

                    Additionally:
                     MSI will perform, as a part of the pre-purchase/funding audit, a new
                      Verbal VOE prior to funding/purchase.
                     If the borrower is not longer employed the applicable underwriter will
                      need to confirm that the borrower can still qualify for the loan; if not,
                      the loan is not eligible for funding/purchase.
                    See Verbal Verification Requirements.


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Documentation Requirements,                            Continued


Verbal Verification of Employment, Continued
               Verbal Verification Requirements

                  The Verbal Verification must be completed independently by the
                   lender.
                  The following information must be written and signed.
                  The written Verbal Verification of Employment must:
                   • Verify the name, address and phone number of the company
                      contacted.
                      o The company information should be obtained from a third party
                           source like the Yellow/White Pages, Directory Assistance,
                           411.com, or contacting the local licensing bureau.
                   • Verify the name and title of the person contacted.
                      o For wage earners, this should be Human Resources or the
                           borrower’s supervisor/manager if applicable to the business.
                   • The date of contact.
                   • The information that was verified.
                   • The name and title of the person completing the verification.
                   • The signature of the person completing the verification.

               Notes:
                MSI will accept Freddie Mac Form 90.
                For salaried or commissioned borrowers it is necessary to verbally
                  verify that the borrower is currently employed.
                For self-employed borrowers, it is necessary to independently verify
                  that the business still exists (and is operating) through independent
                  verification.
                  • Examples of acceptable sources for self-employed Verbal VOE are:
                      Accountant [Accountant is defined as either a licensed or certified
                      public accountant who must be a disinterested third party, may
                      not be related to the Borrower(s)], Department of Revenue Web
                      Sites, Secretary of State Web Sites, Better Business Bureau,
                      LexisNexis, Dunn & Bradstreet Report or copy of the current
                      Business License together with verification of active status.
                  • If the Borrower does not have an accountant they use on a regular
                      basis, the Borrower can procure the services of an Accountant on a
                      one-time basis to verify the existence of the business.




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Escrow (Completion) Holdbacks

Overview                Escrow (completion holdbacks) may be permitted for weather related
                        items only.


Eligibility             Permitted under the following requirements and restrictions.

          Topic                                                  Requirements/Restrictions
Eligible Mortgages            A mortgage subject to the following are eligible for an escrow holdback (for completion):
                               Owner-occupied new construction
                               Detached single-family residence or detached PUD
                                  • Modular (factory Built not eligible)
                               Maximum LTV’s:
                                   •    FRM = 95.00%                •    ARM = 90.00%
Title and Mortgage                The mortgage and title insurance may not be adversely affected during or after the time the
Insurance                          holdback is in effect.

Marketability/Acceptability   Repairs/completion items must meet the following restrictions:
                               The repair/completion must be weather-related in nature and may not affect the livability or
                                  safety of the dwelling.
                                  • The dwelling must be habitable, safe and structurally complete.
                               For any item, there must be no adverse affect to marketability.
                               The incomplete work cannot prevent the issuance of the Certificate of Occupancy (or
                                  jurisdictional equivalent).
                               The work must be completed within a specific time frame, and the notice of completion
                                  forwarded to MSI as a “trailing document.”


Ineligible Completion         The following repairs/completion items are not eligible for completion holdbacks:
Items                             Structural Repairs                Roof Repairs-if they affect the habitability of the
           CLAR (2/09/11)         Well/Septic                        property– See Roof Repairs for additional details.
                                  Foundation Work                Clean-up/correction of environmental hazards
                                                                  Any items deemed inappropriate by MSI Underwriting
                              Important: When in doubt, contact MSI underwriting to confirm eligibility.


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Escrow (Completion) Holdbacks,                                            Continued


Eligibility, Continued

         Topic                                           Requirements/Restrictions
Time and Escrow Limits      Maximum combined repair items may not exceed 10% of the lesser of the appraised or sales
                             price.
                            Minimum amount to complete the escrow will be 150% (1.5 times) of the estimated cost to
                             complete.
                            Weather Related Items –Max completion period is 90 days.
                             • For those states with extreme weather, contact MSI for approval to extend the period up
                                  to a maximum of 180 days.
Documentation            In the closed loan package:
Requirements              Appraiser’s cost breakdown (item by item) or contractor’s (not the builder) bid used to
                              determine the amount of escrow.
                              • The maximum amount for completion escrow is 10% of the lesser of the property’s cost
                                   or the appraised value.
                          A copy of the signed escrow agreement must be included in the closed loan delivery package.
                              • The escrow agreement must include language that specifies that the lender may use the
                                   funds to complete the repairs if not completed by the expiration date of the escrow
                                   account.
                         As final trailing documents, forwarded within the time limits noted above.
                          A clear final inspection from the appraiser. (Fannie Mae 1004D/Freddie Mac 442)
                          FHA loans require a Mortgagee’s Assurance of Completion Form.
                          The Seller is responsible to ensure the repairs are complete within 90-days (periods up to
                              180-days must be approved by MSI). The loan is subject to repurchase if the 1004D/442 is
                              not provided to MSI within those time limits.
                          Evidence that the funds have all been paid in accordance with the escrow completion
                              agreement.
                          A final title report showing no outstanding mechanics liens and no outstanding exceptions to
                              the postponed improvements and or the completion escrow agreement; additionally, the
                              lender of record must be in first lien position.
Swimming Pool Escrows    Not Permitted.


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Escrow (Completion) Holdbacks,                                  Continued


Roof Repairs            MSI will permit an Escrow Completion Holdback if a roof inspection
    CLAR (2/09/11)       cannot be performed due to weather. Additionally, if the sales
                         contract requires that funds be held pending possible roof repair or
                         replacement, MSI will permit to our Escrow Completion Holdback
                         policy.
                         •  However, if the roof visibly appears to be structurally unsound
                            which could render the property uninhabitable, the subject
                            property is not eligible for funding/purchase and an Escrow
                            Completion Holdback is not permitted.
                        The Roof Repair Escrow (Completion) Holdback must meet all MSI
                         requirements stated herein.
                        Exception: MSI will accept, in lieu of the 1004D/442, a certification of
                         completion and warranty for the roof work from a licensed roofer.
                         • The certification and warranty must be on the roofer’s letter head
                            and the license number must be clearly evident.
                         • MSI reserves the right to validate the license and to request a
                            1004D/442 if the certification is not acceptable to an end investor.




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Escrow Waiver Policy

Overview              MSI will permit escrow accounts to be waived on conventional loans
  CLAR (1/27/11)
                       when the LTV is 80.00% and below (90.00% and below in certain
                       states), unless prohibited by the product guidelines or state law.
                       •   Waiver of the escrow of MI premiums is never permitted, even if
                           the state permits the waiver of escrows for LTV’s greater than
                           80.00@ LTV.
                      Waiver of escrows is never permitted for Government or USDA loans.

                   See the Pre-Purchase Chapter for full details.


Underwriter           The Underwriter must review the request for Escrows (Impounds) to
Responsibility         be waived; if the borrower does not demonstrate the ability to save
                       money, Escrow Waiver should not be permitted.
                      If a borrower has previously been in default on a mortgage, escrows
                       may not be waived.




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Government Underwriting

Overview             All government loans must meet the more restrictive of MSI Overlays,
                     FHA, VA or USDA.
                     Each government loan sold to MSI must be fully insured and/or
                     guaranteed by the applicable government agency.

                     MSI does not intend to recreate or attempt to repeat the underwriting
                     guidelines or requirements of any of the government agencies in this
                     Seller Guide.

                     See the Government Loan Product Suite for product specific MIS overlays.


Underwriting         MSI will accept government loans underwritten to the following methods.
Method

      Loan Product                      Underwriting Method – Contract Underwriting is not permitted.
FHA                        The underwriter must be a DE.
                            •   If the Correspondent is DE approved, they may underwrite and insure the loan for
                                purchase to MSI.
                            • If the Correspondent is not DE approved, loans may only be submitted to MSI for
                                underwriting and insuring if the Correspondent is sponsored by MSI.
                            • Correspondents without a DE or MSI sponsorship may not sell FHA loans to MSI.
                           Each FHA loan must be submitted to DU/LP to access the TOTAL Scorecard.
                            •    If an accept/approve is obtained, the loan must meet additional MSI Overlays in the
                                 product suite.
                            •    If a Refer is received, the loan may be manually underwritten in full compliance with the
                                 applicable AUS/MSI and FHA guideline.
VA                         The underwriter must be VA approved (VA Automatic) with LAPP Authority.
                            • All lenders must have an Approval Number issued by VA to originate VA loans.
                           Each loan must be submitted to DU or LP.
                            •    If an approve is obtained, the loan must meet additional MSI Overlays in the product suite.
                            •    If a Refer is received, the loan may be manually underwritten in full compliance with the
                                 applicable AUS/MSI and VA guideline.
USDA                       The loans must be manually underwritten to the more restrictive of MSI/USDA requirements.
                           The loans must always be approved first by the Delegated or MSI underwriter and then
                            submitted and approved by USDA.
                        Note: Loans may be submitted to GUS (USDA Underwriting Engine) for underwriting assistance.
                        However, the loan must contain the Conditional Commitment of Loan Approval from USDA>


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Government Underwriting,                         Continued


Underwriting   Each loan must be underwritten in full compliance with MSI/applicable
Guidelines     government agency guidelines.
                  All additional restrictions or guidelines required by MSI and/or the AUS
                   must be applied to each loan.
                  The loan must be closed exactly as approved by the AUS. Changes
                   prior to closing must resubmitted and/or duly approved by the DE
                   underwriter or the agency (as applicable)


MSI FHA        MSI provides FHA Sponsorship to Correspondents based on FHA
Sponsorship    guidelines and requirements.
                  The Correspondent is fully responsible for complying with all FHA
                   requirements as they apply to FHA Sponsorship.
                  The Correspondent is solely responsible to:
                   •   Provide MSI a well-processed and complete loan file at time of
                       underwriting.
                   •   Provide MSI a complete loan file at closed loan delivery to facilitate
                       insuring.




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Income and Employment

Overview            The underwriter must carefully evaluate the borrower’s employment and
                    income history, stability and likelihood of continuance and must document
                    the most current last two years of employment income history, using
                    Verification of Employment forms and pay-stubs evidencing most current
                    year-to-date paystub, must be within 30-days at the time of underwriting
                    and W-2 forms for the past two years.

                    Recent Tax Returns and a clarification of Income and “additional
                    income”
                    See IRS 4506 for details.
                       Income must be validated by tax transcripts.
                        •    For any additional income over and above the W-2 income
                             reflected as wages on Line 7, the tax transcripts must validate said
                             income.
                        •    Income which is increased by more than 10% over the prior year’s
                             income may not be entered into, or used within the AUS without
                             validation/confirmation from tax transcripts.
                       Additional Anomaly (1-time) Income:
                        •    In all prudent underwriting, in order for income to be used for
                             qualification purposes, there must be a history (generally 2-years)
                             of the income and a reasonable expectation that the income will
                             continue for a minimum of 2-years.
                       This requirement precludes the use of anomaly (1-time) type income,
                        such as income from a boarder where there is no history of boarder
                        income for the borrower (as permitted, see Boarder Income); part-
                        time jobs are generally precluded without a history or some type of
                        expectation of continuance; sale of assets, while OK for down-
                        payment cannot be used as income, etc.


DU/LP               Loans receiving an Approve/Accept through DU/LP may follow the AUS
                    findings for acceptable documentation of income in lieu of the
                    documentation stated within.
                    Note:
                     MSI always requires paystubs, W-2’s and/or tax returns.
                        • See AUS Overlays for details.
                     A Verbal Verification of Employment at time of underwriting and no
                        earlier 5 calendar days prior to close/disburse.
                        • See Verbal Verification Requirements for details.
                     A fully executed 4506-T, regardless of the AUS findings and/or tax
                        transcripts in the loan file. See IRS 4506 for details.

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Income and Employment,                                        Continued


Alimony /                MSI guidelines for Alimony/Child Support or Separate Maintenance
Child Support            Income are required, regardless of the AUS Findings Message.
/ Separate
Maintenance                  The underwriter must manually apply the following guidelines.
      (LP-9/27/09)
    (DU-10/08/09)




    If the Alimony/Child Support or                                             Then…
     Separate Maintenance Income
Is 30% or less of the total qualifying      The borrower must have received the full income for a minimum of 6 months
income                                      prior to application. To consider the income:
                                             The payer must be obligated in writing to make payments:
                                                 • For a minimum of 6-months prior to loan application, and
                                                 • For a minimum of 3-years after loan closing.
                                             Evidence of the regular and stable receipt of the full amount of the income
                                                 for most current 6-months is required.
Is more than 30% of the total qualifying    The borrower must have received the full income for a minimum of 12 months
income                                      prior to application. To consider the income:
                                             The payer must be obligated in writing to make payments:
                                                 • For a minimum of 12-months prior to loan application, and
                                                 • For a minimum of 3-years after loan closing.
                                             Evidence of the regular and stable receipt of the full amount of the income
                                                 for most current 12-months is required.
Required Acceptable Documentation
 Verification of the award (“obligation in writing”) of alimony/child support /separate maintenance in one the following
    documents:
    • Copy of the divorce decree or, Formal separation agreement or Court records or order.
        o MSI will also accept any other legal agreement or court decree that describes the payment terms, or a copy of any
              applicable state law that requires alimony, child support or maintenance payments and specifies the conditions
              under which the payments must be made.
    • The document must specify the amount of the award and the period of time over which it must be received.
 Evidence that the payments have been received in the full amount and consistently (deposit slips, canceled checks,
    bank statements or Federal income tax returns, etc..) is required.
 Restrictions – Income may not be considered if:
    • At any percentage of the total, the payer is obligated less than 6 months after loan closing.
    • The payments received (regardless of the court documents) are not for the full amount OR are not received on a
        consistent basis.
Important Notes:
 Alimony is taxable therefore do not gross-up; however, child support is not taxable and is eligible to be grossed-up.
 Documentation for alimony, child support income is not required if the borrower does not use the income to qualify.


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Income and Employment,                                  Continued


Boarder             Rental income from boarders in a single-family primary residence or
Income              second home may not be considered as income.
                     However, may be considered acceptable if received from a live-in aide
                       for a disabled borrower. The Aide must present documentation to
                       demonstrate shared residency and payment of rent.


Bonus and           Bonus and Overtime may be included if the income has been:
Overtime             Consistently received for the most recent two years as evidenced by
                       the tax returns (2-years)
                     Employer confirms its likelihood of continuance
                     Stable
                     Must be averaged.
                       • Any year-to-date overtime or bonus amounts may be included in
                           the average if the year-to-date amount is consistent with the
                           amounts received over the last two years.


Clergy Income       Clergy Income
                    General IRS Statement:
                    For income tax purposes, a licensed, commissioned, or ordained minister
                    is generally treated as a common law employee of his or her church,
                    denomination, or sect.
                     There are, however, some exceptions such as traveling evangelists
                        who may be treated as independent contractors (self-employed).
                     Additionally, if the minister performs ministerial services, they are
                        taxed on wages, offerings, and fees received for performing
                        marriages, baptisms, funerals, etc.
                     The services performed in the exercise of the ministry are generally
                        subject to self-employment tax for Social Security purposes.

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Income and Employment,                       Continued


Clergy Income, Continued

                What this means when calculating the income.
                 Ministers are subject to rather complicated taxing rules dependent
                    upon how they are employed by the church
                 The review of the W-2’s or tax returns should verify the following:
                    • Does the minister pay their own social security taxes (if there is no
                       deduction on the W-2, tax returns must be requested).
                       o The underwriter must verify (via tax returns) that the
                           employee is paying the Social Security and Medicare costs or
                           has personally filed an exemption from the IRS.
                       o From a qualification standpoint, the amount that should be paid
                           for social security or medicare cannot be considered
                           sustainable income for qualification purposes. (If an exemption
                           is filed, the amount may be considered as income.)
                    • Does the minister receive a housing allowance/housing
                       (parsonage) included in their salary?
                       o According to tax rules, any excess housing allowance/housing
                           (amount paid that exceeds the “standard common rent” must
                           be declared as income.)
                       o From a qualification standpoint, the underwriter can use only
                           the taxable amount of income from the housing allowance to
                           qualify the borrower.
                Note: IRS tax rules are subject to change. If the borrower insists the
                income is valid, documentation from a CPA and/or the IRS Web Site must
                be provided.


Capital Gains   Capital gain income is generally a one-time transaction (sale of stocks or
                other one-time sale of assets); therefore, it is generally not considered
                stable monthly income.
                 However it may be utilized as a compensating factor if:
                   • Normal and recurring portion of the borrower’s income.
                 When using capital gains as steady income from your profession, the
                   following requirements must be met:
                   • 3 years tax returns – showing a consistent history of capital gains
                       being the borrower’s “salary.”

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Income and Employment,                                  Continued


Commission          Expenses reported on Form 2106 of the borrowers tax returns must be
Income              deducted from the income to arrive at the net commission income and the
                    net income must be average over the most recent two years.
       (11/18/10)

                    Commission received 12 to 24-months may be considered if 12 months are
                    reflected on tax returns. Commission received less than 12 months may be
                    considered at the underwriter’s discretion.

                    Declining income sources should not be averaged, and an explanation for
                    the decline should be obtained. The most recent lower income would be
                    used for qualification purposes.

                    If a borrower earns 25% or greater of their income as commission, then
                    the last 2-year federal tax returns with all attachments are required,
                    regardless of AUS.


Disability          Disability benefit payments should be treated as acceptable stable income
Benefits            unless the terms of the disability policy specifically limits the stability or
                    continuity of the benefit payments.
                     Must have a remaining term of three years
                       Benefits that will decrease to a lesser amount within the next three
                        years because of long-term conversion, the lesser amount should be
                        utilized in qualifying the borrower.
                       Copy of disability policy or statement is required
                       Statement from benefits’ payer, such as insurance company,
                        employer, etc., is required.


Dividends and       Income from bank accounts, bonds, savings bonds, money market funds
Interest            and cash dividends from stocks are acceptable if verified. Such income
                    should be adjusted if the assets are liquidated. The previous 2 year tax
                    returns, including applicable schedules, are required to verify the amount
                    and stability of the income as well as develop a two-year average of the
                    income.


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Income and Employment,                         Continued


Employment        If the borrower is employed by a relative, a closely held family business,
by Relatives or   the property seller, real estate agent or any party to the real estate
Transaction       transaction, the following documentation must be obtained:
Participants
                   Borrower’s signed and completed personal federal income tax returns
                      for the most recent 2-year period, and
                   Direct VOE Form, and
                      • The direct VOE cannot be completed by a relative or other
                          interested party; the CPA should complete and provide a letter
                          stating (confirming) the borrower has no ownership interest in the
                          company.
                   Current paystub, and
                   W-2’s for the most recent 2 tax years.
                  Current income reported on the VOE or paystub may be used if it is
                  consistent with the W-2 earnings reported on the tax returns. If the tax
                  returns do not include W-2 earnings or if the income is substantially lower
                  than the current VOE or paystub, further investigation is needed to
                  determine whether income is stable.


Foster Care       Foster Income received from a state or county sponsored organization
Income            may be considered acceptable with a two-year history and the likelihood
                  of continuation.
                  Note: A 12 to 24 month history is permitted as long as the income does
                  not represent more than 30% of the total gross income that is utilized in
                  qualifying the borrower.
                  Documentation:
                     Letters from the state agency providing the income
                     Copies of deposit slips or bank statements confirming the regular
                      deposits consistently for 3 months.


Foreign           MSI will not accept foreign income unless it is reported on U.S. Tax
Income            Returns.


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Income and Employment,                                  Continued


Future Income       Conventional Loans Only:
        (7/15/10)   MSI permits borrowers to be qualified using future income under the
                    following requirements:
                     Future income must be documented in the loan file with a formal
                        offer/contract from the new employer stating all pertinent information
                        (start date/salary, etc.)
                        • The offer must be non-contingent (passing the bar exam would not
                            be acceptable.)
                     Documentation of the formal acceptance by the borrower, without
                        contingencies, must be included.
                     Borrower must start the new job within 60-days of loan closing.
                     Borrower must have documented reserves of 6-months PITI for the
                        new loan.
                     MSI verbal verification of employment guidelines must be
                        met/included.
                    Important Note: New employment may not be with a family member.


Military            Base military pay, in addition to the following, are permitted:
Income
                       Flight or hazard pay
                       Rations
                       Clothing allowance
                       Quarters’ allowance
                       Proficiency Pay
                    Note:
                       Income paid to military reservists while they are fulfilling their reserve
                        obligations is also acceptable if it satisfies the same stability and
                        continuity tests applied to second-job income.
                       Military pay tables are accessible on the Web, www.dfas.mil


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Income and Employment,                       Continued


Non-Taxable    The underwriter must verify that the particular source of income is
Income         nontaxable and both the income and its tax-exempt status are likely to
               continue for the next three years.
                  If the income is nontaxable and the income and its tax-exempt status
                   are likely to continue, the underwriter may develop an “adjusted gross
                   income” for the borrower by adding an amount equal to 25% of the
                   nontaxable income to the borrower’s income.
                  If the actual amount of federal and state taxes that would generally be
                   paid by a wage earner in a similar tax bracket is more than 25% of
                   the borrower’s nontaxable income, the underwriter may use that
                   amount to develop the “adjusted gross income”.
                  This adjusted gross income should be used in calculating the
                   borrower’s qualifying ratio.


Mortgage       Not permitted as an acceptable source of income.
Credit
Certificate    Loans with an MCC are not eligible for purchase.


Note           To be considered as an acceptable source of income the following applies:
Receivable
Income            Must evidence continuance for at least 3 years
                  Copy of the note to establish the amount and length of payment
                  Must have been received for the last 12 months
                  Acceptable evidence includes:
                   •   Deposit slips
                   •   Copies of signed federal income tax returns filed with IRS
                   •   Copies of bank statements reflecting deposit of funds
               Note: Payments on a newly executed Note that specifies a minimum
               duration of three years may not be used as stable income.


Part-Time,     All types of supplemental income must be received, uninterrupted, for the
Second or      most recent two years and supported by IRS W-2 forms.
Multiple
Income


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Income and Employment,                                  Continued


Pension /           Income from retirement accounts must be verified by the employer’s
Retirement          statement or benefit letter, tax returns or IRS W-2 forms.
                       If bank statements are used as the primary verification source, they
                        must confirm regular deposits.
                       If the income is received monthly, it must be determined that the
                        income is expected to continue for at least three years to be
                        considered as qualifying income.


Public              Public Assistance may be considered as an acceptable income source if
Assistance          the following apply:
                     Received for the past two years
                     Likely to continue for the next three years
                     Documented by letters or exhibits from the paying agency stating the
                        amount, frequency and duration of the benefits payments.


Rental Income       When the subject property is a primary residence 2-4 unit:
- Primary           If the underwriter uses rental income from the subject property in
                    qualifying the borrower, MSI requires the following:
                     Small Residential Income Property Appraisal Report (1025) to
                        document comparable rents.
                     Operating Income Statement (Fannie Mae 216), and one of the
                        following:
                        • See Appraisal Forms for additional details.
                        • Current Lease (if subject was acquired subsequent to filing
                            previous year’s tax return), or
                        • Most recent federal income tax return (if subject was acquired
                            prior to filing previous year’s tax return).
                     Net rental income will be obtained from Form 216 (if the transaction is
                        a purchase or if the subject was acquired subsequent to filing previous
                        year’s tax return).
                     Net rental income will be obtained from Schedule E (if the subject was
                        acquired prior to filing previous year’s tax return).

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Income and Employment,                           Continued


Rental Income - Primary, Continued

                      If rental income is used to qualify:
                       • MSI requires a minimum of 6-months rent loss insurance. Evidence
                           of active coverage is required in the delivery file.
                           o The rent loss insurance is not required if the rental income was
                               not used to qualify.
  CLAR (1/27/11)      Reserves – When rental income is used to qualify the borrower:
                       •   MSI requires that the AUS findings for Reserves be followed.
                   Important Note – Delivery Requirement:
                   If the Borrower qualifies without the use of the rental income (with the
                   full payment-which includes PITI and any operating expenses for the
                   property), MSI does require that the Gross Monthly Rent for each of the
                   non-occupied units be provided on the Underwriting Transmittal
                   (1008).
                    Gross Monthly rent may be obtained from one of the following:
                        • Copy of current leases or the Appraisal Report (1025), or
                        • Schedule E of the Tax Return (if the property has been owned at
                           least one tax year).
                   Important Reminder – Conversion of Former Principal Residence.
                   If the rental is a conversion of a former principal residence, see
                   Conversion of (or departure from) Principal Residence for guidelines.


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Income and Employment,                                  Continued


Rental Income       When the subject is an investment property (1 or 1-4 Unit):
- Investment        If the underwriter must use rental income from the subject property to
                    qualify the borrower, MSI will require the following:
                     See Appraisal Forms for additional details.
                     Minimum 2 years landlord experience (managing rental properties),
                        and
                     Evidence of 6-month rent loss insurance, and
                     Current Lease (if subject was acquired subsequent to filing previous
                        year’s tax return), or
                     Most recent year federal tax returns with all schedules (if subject was
                        acquired prior to filing previous year’s tax return).
                     Net rental income/loss will be obtained from Form 216 (if the
                        transaction is a purchase).
                     Net rental income/loss will be obtained from Form 216 (for properties
                        acquired subsequent to filing previous year’s tax return).
                     Net rental income/loss will be obtained from Schedule E (for
                        properties acquired prior to filing previous year’s tax return).
       (12/12/09)   Important Note:
                     Reserve requirements: 6-months PITI in reserve is required for
                        each investment property. See Reserves for details.


Qualifying          Important Note – Delivery Requirement:
Without             If the Borrower qualifies without the use of the rental income (with the
Rental Income       full payment-which includes PITI and any operating expenses for the
                    property), MSI does require that the Gross Monthly Rent for each of the
                    non-occupied units be provided on the Underwriting Transmittal
                    (1008).
                     Gross Monthly rent may be obtained from one of the following:
                         • Copy of current leases or the Appraisal Report (1025), or
                         • Schedule E of the Tax Return (if the property has been owned at
                            least one tax year).

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Income and Employment,                        Continued


Rental Income   When rental income applies to properties owned by the borrower
– Other         other than the subject property.
Properties      If the underwriter uses rental income to qualify the borrower, the
                following apply:
                 Rental income must be shown in the “Schedule of Real Estate Owned”
                    on the 1003.
                 MSI will require the following:
                    • Signed Current Lease (for properties acquired subsequent to filing
                        previous year’s tax return) and independent validation of
                        comparable rents (1007/1025 or equivalent), or
                    • Most recent year federal tax returns with all schedules (for
                        properties acquired prior to filing previous year’s tax return).
                 Reduced documentation scenarios utilizing positive cash flow require a
                    2-year history of receipt of specific stated earnings.
                 Net rental income will equal 75% of the gross rent per the lease (for
                    properties acquired subsequent to filing previous year’s tax return).
                 Net rental income/loss will be obtained from Schedule E (for
                    properties acquired prior to filing previous year’s tax return).
                    • The aggregate net rental loss must be considered a liability.

                Note: Please see the current applicable Fannie (DU) or Freddie (LP)
                guides for additional guidance in correctly calculating rental income.


Royalty         To   be considered as an acceptable income source, the following apply:
Payments            Most recent two year tax returns, including Schedule E.
                    Document minimum 12 month receipt of income
                    Income to continue for the next three years

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Income and Employment,                                  Continued


Salaried             A salaried borrower is defined as a wage earner that derives income
Borrower             through employment at a business where there is little or no ownership
      (LP-9/27/09)
                     interest (less than 25%).
    (DU-10/08/09)
                      Compensation may be based on an hourly, weekly, monthly or semi-
                        monthly basis.
                      MSI requires that the underwriter provide a written analysis of the
                        income used to qualify the Borrower(s) on a separate sheet OR on the
                        Transmittal (1008).
                        • Required for LP loans submitted or resubmitted on/after 9/27/09;
                            required for DU loans submitted or resubmitted on/after 10/08/09.
                     Notes:
                      Wage earners employed by a family member or working at a family
                       business must provide the last 2 years tax returns with all schedules
                      Less than 2 years employment history may be considered at the
                       underwriter’s discretion for recent college graduates or military
                       personnel


Salaried             MSI requires salaried borrowers to exhibit the following employment
Income               standards:
History
                      A minimum of two years employment history
                        Prior to closing, MSI requires that the Correspondent independently
                         verify borrower is still employed via a Verbal VOE. See Verbal
                         Verification Requirements for details.


Salaried             Standard sources of proof of employment for a salary/wage-earning
Documentation
                     borrower are:
                      W-2 for the past 2 years
                      Current pay-stub evidencing 30-day earnings and/or showing YTD
                        income
                     Note:
                      If the AUS calls for “reduced” documentation, MSI requires a
                        minimum of the most current 1-year W-2, regardless of AUS. See
                        AUS Overlays for additional details.
                      Handwritten pay-stubs will not be accepted unless supported by a
                        written VOE and tax returns.

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Income and Employment,                            Continued


Salaried            “Stand alone” Verifications of Employment are not permitted for
Verification of     verification of employment or income.
Employment
                     VOE’s must always be supported by a copy of the most recent paystub
                        validating the current “salary” and the current year-to-date, and
                       W-2’s for 2 years
                       Correspondents must verbally verify the Borrower(s) employment
                        prior to closing. See Verbal Verification Requirements for details.


Seasonal            Seasonal income can be considered as stable income if the borrower has
Income              worked in the same line of seasonal work for the past two years and the
                    borrower’s employer indicates that there is a reasonable expectation that
       (11/19/10)
                    the borrower will be rehired for the next season.
                    Notes:
                       Income must be calculated over the most recent 24 months, as shown
                        on the most recent tax returns, 2-years is required, regardless of AUS.
                       If income is declining, use the most recent year’s income under close
                        underwriter review.


Social Security     Benefits that have a defined expiration date must have a remaining term
                    of at least three years to be considered.
                    Acceptable verification for Social Security benefits includes once of the
                    following:
                       A copy of the Social Security Administration’s award letter.
                       Copies of the borrower’s two most recent bank statements to confirm
                        regular deposit of the payment.
                       Signed tax returns or W-2’s for the most recent two years.


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Income and Employment,                                  Continued


Self-Employed        Self-employed borrowers add an additional layer of risk, since the main
Borrowers            source of income for self-employed borrowers is their private business.
                     Self-employed borrowers income depends on the continuity of the business.
                      Therefore, specific documentation relating to the business (such as P&L
                        statements and federal business returns) is required for borrowers who
                        are self-employed.
                     The following are considered to be “self-employed”:
                      Individuals who own 25% or more of a business
                      Individuals whose combined business interest comprise 25% or more of
                        the total
      (LP-9/27/09)   Note:
    (DU-10/08/09)
                      If the Borrower(s) is self-employed, but the income is not used to
                        qualify, the underwriter must obtain the Borrower’s individual income
                        tax returns to determine if there is a business loss that may have an
                        impact on the stable monthly income used for qualifying.

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Income and Employment,                            Continued


Self-Employed        Handwritten pay-stubs are not acceptable unless supported by computer
Documentation        generated W-2’s and/or signed 1040’s and Form 4506-T from the IRS
                     covering the appropriate period.
         (6/18/10)

                     Standard sources of proof of employment for a self-employed borrower
        (11/19/10)   are:
                      On all self-employed borrowers an unaudited Profit and Loss Statement
                        (P&L) and a letter from a CPA stating that the company is currently in
                        business is required if the loan is underwritten after the end of the first
                        quarter (fiscal or calendar, dependent upon the business)
                        • If the borrower’s prepare his or her own taxes, and do not use an
                           accountant or CPA, MSI requires a documented independent third
                           party verification that the business is currently operating.
                        • This is an underwriting income requirement and is in addition to
                           our standard Verbal Verification of Employment requirements.
                        • Important Reminder: Each loan must have a Verbal Verification of
                           Employment completed no earlier than5 calendar days prior to loan
                           closing/settlement.
                        • An audited P & L may be required at the underwriter’s discretion
   CLAR (3/10/11)       • An unaudited independent third party (tax preparer, accountant,
                           business banker or attorney) prepared profit and loss statement and
                           balance sheet is required on every self employed borrower when it
                           has been 6 months or more since the last calendar/fiscal year of
                           the filing of their last tax return. (I.e. for loans submitted to
                           underwriting in July with tax returns from prior year ending
                           December).
                           o The profit and loss figures will not be used for income calculation
                               but will be used for establishing stability of income.
                           o However, they can be used for income if they are audited by an
                               accounting firm or CPA.

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Income and Employment,                                  Continued


Self-Employed Documentation, Continued

                     Please Note: If the Borrowers have completed and submitted the current
                     year’s tax returns, but the tax transcripts are not yet available (due to IRS
                     delay), the income from the current year may be used if:
                      Documentation of filing is provided: “Electronic confirmation of filing” or
                         a stamped receipt from the IRS office, and
                      If taxes are owed, a copy of the cancelled check showing taxes paid –
                         note that the Underwriter must document an acceptable source of funds
                         for the payment.
                      If no taxes are owed, the borrower must provide evidence of the
                         quarterly payments to the IRS to match (validate) payments reflected
                         on the tax return.
                         • Limitation: If the delta between the current income and the
                             previous year income is greater than 20%, then tax transcripts
                             must be provided, no exceptions.
                     Important Note: MSI requires 2-years most current tax returns,
                       regardless of AUS.
                         Sole Proprietorship
                          • Last two years personal 1040s
                          • Schedule “C”
                          • If tax filing deadline has passed, must obtain an executed
                             extension.
                         General and Limited Partnership, Limited Liability Corporations
                          and “S” Corporations
                          • Last two years personal 1040s
                          • Last two years 1065s
                          • Last two years K-1s
                          • All associated schedules

                         Corporations
                          •   Last two years personal 1040s
                          •   Last two years 1120s
                          •   All associated schedules


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Income and Employment,                           Continued


Use of              Self-Employed Income Sources; Use of Net Profit from a
Corporate Net       Corporation (1120-type corporate filing):
Profit              To use the “net” profit from an “1120”-corporation as income, the
        (3/11/10)
                    borrower must meet the following guidelines/requirements:
                     The borrower(s) must have 100% ownership of the
                       corporation/business.
                     The borrower(s) must have a legal right to any additional income.
                       • MSI requires a corporate resolution or other comparable document
                           that establishes that right.
                     The borrower(s) must demonstrate a minimum 2-year history of
                       receiving this income.
                     MSI requires verification from the accountant for the
                       business/company indicating that the business can support the on-
                       going distribution of the corporate profits at the same or an increasing
                       level.
                     The Underwriter’s analysis of the business must also support that the
                       business is capable of providing the borrower(s) with the additional
                       income.
                       • MSI requires that the Underwriter provide this justification in
                           writing in the loan file.

                    Important Note: These guidelines refer to 1120 Corporations and not
                    “S” Corporations.

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Income and Employment,                                  Continued


Self-Employed       Self-employed borrowers must have a history of stable and durable
Income              income for the previous 2 years.
History              A written income analysis must be prepared and included in the loan
     (LP-9/27/09)
   (DU-10/08/09)
                       file.
                       • LP (Freddie Mac) – Form 91
                       • DU (Fannie Mae) – Form 1084
                     Prior to closing, MSI requires that the Correspondent independently
                       verify the existence of the business via a verbal verification of
                       employment through the CPA, business license or telephone listing –
                       this verbal verification should be included in the loan delivery file.
                     See Verbal Verification Requirements for details.


Trust Income         A copy of the Trust Agreement or the trustee’s statement confirming the
                     amount, frequency, and duration of the payments should be provided.
                     The income must continue at least 3 years to be considered as income.
                         Validation of the asset and continuation of the trust income must be
                          documented.
                         Borrowers completely relying upon trust income for the mortgage
                          repayment must provide copies of the trust agreement and the most
                          recent 2 years signed, dated federal tax returns, with supporting
                          schedules. The borrowers should have personal access to the trust
                          assets.


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Income and Employment,                       Continued


Unacceptable   Income derived from any of the following may not be used in qualifying
Sources of     income.
Income
                  Income based on Future Earnings
                  Draw Income
                  Capital withdrawals
                  Capital Gains unless the borrower is in a business that generates
                   capital gains income, see Capital Gains.
                  Expense/Auto Reimbursement
                  VA Education Benefits
                  Income not listed on Tax Returns
                  Illegal Income
                  Any income that cannot be documented and verified


Unemployment   Acceptable if properly documented:
Benefits
                  Received for the past two years
                  Likely to continue for the next two years
                  Copies of the past two year tax returns


VA Benefits    To be considered as an acceptable source of income, the following apply
               to VA Benefits:
                  Must be documented by a letter or distribution form from the
                   Department of Veterans Affairs
                  Must continue for the next three years
               Note: Education benefits are not acceptable.




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Liabilities and Debt

Overview            Borrower’s liabilities must be considered when underwriting the loan to
                    arrive at the qualifying debt-to-income (DTI) ratio.
                    Liabilities are any debt, lien, judgment or other consideration that impacts
                    the borrower’s ability to repay the mortgage loan.


Debt-to-            See Qualifying Ratios and Liabilities for full details.
Income




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Loan Purpose

Overview            Note these guidelines should be used only to determine whether a
                    transaction should be underwritten as a purchase or a refinance.
                    Federal or State laws may categorize the transaction differently for
                    disclosure purposes.


Purchase            A purchase transaction is one in which the proceeds are used to finance
Transactions        the purchase of a home.
        (1/18/10)

                    See Purchase Agreement (Contract) – Re-Negotiated for restrictions.


Refinance              MSI will not purchase any loan as a refinance transaction that is
Credit Rule             currently involved in foreclosure proceedings.
                       MSI will not purchase any loans participating in ‘churning”, where the
                        borrower is getting a new refinance every 3-to-6 months.
                    See Bankruptcy/ Foreclosure.


Refinance           A refinance transaction occurs when the borrower obtains a new loan on a
                    currently owned residence. MSI identifies the following refinance
                    transaction types. Seasoning and Continuity of Ownership requirements
                    apply to all refinance transactions.
                       Rate/Term
                        •   Follows the same guidelines as a Fannie Mae Limited Cash Out
                            Refinance.
                        •   The borrowers receive no equity cash from the refinance
                            transaction.
                       Cash Out Refinance
                        •   The borrowers receive equity cash from the refinance transaction.

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Loan Purpose,                          Continued


Refinance                 The guidelines below must be followed, regardless of AUS Findings.
Requirements

                                                      Refinance Requirements
General Refinance Requirements
    Continuity of obligation requirements must be met. See Continuity of Ownership/ Obligations
    A property currently listed for sale, or listed for sale within the past 6 months, is not eligible for a refinance transaction.
     • Calculate the timing by using the verified date the subject was removed from the MLS to the actual date of loan
          application.
Seasoning Requirements
          Topic                     Rate/Term or Limited Cash Out (LCO)                                    Cash Out
Transaction Eligibility             For Primary Residence and Second                       The current loan must be a minimum of 6
                                     Homes:                                                  months old from the Current Note Date to
             REV (3/01/11)           • The borrower must have held title to                  the Application Date.
                                           the property for a minimum of 30                 The same borrowers on the existing
                                           days, unless the mortgage being                   Note/Title must be the new application, if
                                           refinanced was a purchase money                   not; Continuity of Obligor Requirements
                                           transaction.                                      must be met. See Continuity of
                                     • When the mortgage being refinanced                    Ownership/ Obligations for details.
                                           was a purchase money transaction                 If there is no existing lien on the property
                                           the mortgage must be seasoned a                   (e.g. purchased for cash or paid-in-full).
                                           minimum of 120 days from the “old”                •      The borrower must evidence
                                           Note date to the refinance Note date.                   “ownership” (title) for a minimum of 6
                                    For Investment Properties                                     months; the transaction must be
                                     • The borrower must have acquired the                         completed and priced as a cash out.
                                           property a minimum of 6-months
                                           prior to application date.
                                     • If the property has been owned less
                                           than 6-months, it is not eligible for
                                           refinance.
                                    The same borrowers on the existing
                                     Note/Title must be on the new application,
                                     if not, Continuity of Obligor Requirements
                                     must be met. See Continuity of
                                     Ownership/ Obligations for details.
                                    If the property was subject to a cash-out
                                     refinance within the past 6 months (from
                                     Current Note Date to Application Date),
                                     the loan must be underwritten and priced
                                     to the more restrictive cash out guidelines.
                                    A copy of the most previous HUD-1 must
                                     be provided to document whether or not
                                     cash was taken.



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Loan Purpose,                        Continued


Refinance Requirements, Continued

                                                 Refinance Requirements
Seasoning Requirements, Continued
          Topic                 Rate/Term or Limited Cash Out (LCO)                                 Cash Out
Calculation of Value         Use the current appraised value.
“Seasoning”                 Important:
Properties with existing     If the property has been owned less than 12-months and the appraisal shows a substantial
lien                            increase in value from the original purchase price, the Appraiser should ensure the increase
                                in value is valid (e.g. appraisal indicates increasing values for the market, appraisal
                                comparables support increasing values, documented home improvements).
                             If the increase in value is unsupported, the lower of the original purchase price or the new
                                appraised value must be used to determine LTV/CLTV.
                             MSI reserves the right to request additional documentation.
                            Property “free & clear”, no existing lien
                             Property acquired within 6-12 months prior to the application date for new financing:
                                • Base LTV on the lesser of the original sales price/acquisition cost (documented by the
                                     HUD-1 Settlement Statement) or the current appraised value.
                             Property acquired more than 12 months prior to the application date for new financing:
                                 •    Base LTV on the appraised value.
Continuity Of Obligation        If there is no Continuity of Obligation (see Continuity of Ownership/ Obligations) and there is
Does Not Exist with              an outstanding lien on the property, the loan is eligible as follows:
Lien on Existing Property        • The property must have been acquired (owner on title) for a minimum of 6-months.
                                 • The transaction must be completed and priced as a cash out refinance.
                                 • The maximum LTV is limited to the lesser of the product maximum or 50.00%.


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Loan Purpose,                       Continued


Refinance Requirements, Continued

                                                   Refinance Requirements
Rate/Term (R/T) or Limited Cash Out (LCO) Refinance
Mortgage Amount: The mortgage amount is limited to:
   The sum of the unpaid balance of the existing first mortgage, closing costs, points, pre-paid items, and, if applicable, the
    amount required to satisfy certain subordinate loans used for the original purchase of the property.
    • Any “cash” back to the borrower may not exceed the lesser of $2,000 or 2% of the loan amount.
Note: See the Product Suite for the applicable product, additional Rate/Term cash back restrictions may apply.
 Subordinated Second liens: There are no seasoning requirements for current secondary liens that are being subordinated
    to the new loan. See Subordinate Financing.
    • It is critical that the existing secondary liens are subordinated at closing to the new mortgage.
   See Special Purpose Refinance for details on Buyout of Spouse, Inherited Property
REV (3/01/11) Verification of Funds
 For all refinance transactions for all conventional loans (regardless of AUS); MSI will require verification of funds.
    • The loan file must include a minimum of the most current month’s bank statement. The verified funds must cover any
         cash to close and required reserves.
    • Neither LP nor DU will be updated to request this verification as a condition, the information and documentation must
         be provided “manually” to the loan file and AUS submission.
Note: Please see “Transaction Eligibility” for details on R/T refinance for loans where the most recent transaction within 6
months has been a cash-out refinance.
Cash Out Refinance
Mortgage Amount:
   The mortgage amount must be used to pay the current unpaid principal balance of the existing first mortgage; it may be
    used to pay closing costs, points, pre-paid items, subordinate mortgage liens and additional cash to the borrower.
   Subordinate Liens: No seasoning requirement.


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Loan Purpose,                  Continued


Continuity of       Continuity of Obligation must be established, appropriately addressed and
Ownership/          satisfied for scenarios in which the vested title of the property is being
Obligations
                    amended through a refinance transaction.
                       It is necessary to establish who is obligated for the current mortgage
                        and who holds title.
                       The following matrix provides details and example regarding the
                        acceptability to MSI of such amendments.


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Loan Purpose,                         Continued


Continuity of Obligor, Continued

                                     Scenario                                           Continuity   Rate & Term       Cash Out
                                                                                                      or Limited
                                                                                                      Cash Out

Owner/Co-Owners or Husband & Wife on the Note and Title.                                   Yes           X (1)`           X (1)
 They want to refinance the property under same Note/Title terms.
Important: As long as continuity is proven, the new mortgage may drop borrowers.
Both Spouses (Co-Owners) in Title, however only 1 Spouse (Owner) is obligated on           No              No             X (1)
the Note.
 They want to refinance and replace the non-obligated Spouse/Owner for the
     obligated Spouse/Owner on the new Note, both will remain on Title.
One Spouse/Owner on the Note and Title.                                                    Yes            X (1)           X (1)
 Spouse/Owner wants to refinance and add Spouse/Co-Owner to the Title and
    new Note.
Both Spouses (Co-Owners) in Title. Only 1 Spouse/Owner obligated on the current            No             X (2)           X (1)
Note.
 They get divorced and the home is awarded to the non-obligated Spouse by the
     courts. Non-obligated Spouse wants to pay off the existing loan and/or “Buy out”
     the Spouse who was not awarded the property.
Property Owned Free & Clear by Owners/Co-Owners or Husband & Wife                          Yes             No             X (1)
 The want to refinance and leave both owners or remove 1 of the owners for the
    new Note and/or Title.
Partnership or Corporation                                                                 No             No              No
 At least one of the owners want to refinance and take the new Note and Title as                         Not             Not
     an individual,                                                                                    Permitted.      Permitted.
Property in LLC or Previously in an LLC - Loans must be submitted to DU not LP             Yes            X (1)           X (1)
for this scenario.                                                                      As long as
 Any property that was previously held in an LLC must have been transferred to         guidelines
      the individual borrower (making the application for refinance) a minimum of 1-     are met.
      day prior to the application date. Additionally:
      • The LLC must have been incorporated a minimum of 1-year prior to the
            property transfer date.
      • The chain of title must document the date of transfer from the LLC to
            individual ownership (our borrower).
      • The borrower must further document that:
            o He/she was a member of the LLC prior to transfer of the property;
                  and that the LLC meets the applicable seasoning requirements.
            o The mortgage payments were made from personal accounts.
Notes:
(1.) Must meet current “seasoning” requirements for both eligibility and calculation of the LTV. See Refinance Requirements.
(2.) Must be underwritten as a Special Purpose refinance under current Special Refinance/Buyout requirements. See Special Purpose
     Refinance.

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Loan Purpose,                  Continued


Listed for Sale        Homes listed for sale within the most recent 6 months are not eligible
        (9/29/10)       for refinance transactions.
                        • Borrower must provide documentation of cancelled MLS listing or
                            similar documentation to proceed with a refinance transaction.
                        • Calculate the 6-month timing from the date the home is removed
                            from the MLS (or sale by owner) against the earlier of the
                            application date or the earliest credit document in the loan file.
                       All refinances are acceptable at published parameters once the “full”
                        6-month off-the-market period has passed.


Special             The following refinances are considered “Special Purpose Refinances” by
Purpose             Fannie Mae:
Refinance
        (7/23/10)      Buyout Refinance – Divorce or inheritance where one party is buying
                        out the other parties.
                        •    MSI does not provide any special requirements for these types of
                             refinances.
                        •    They must be priced and underwritten a cash out refinances,
                             regardless of the AUS.




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Mortgage Insurance

Overview             Mortgage Insurance is required on loans with a loan-to-value (LTV) over
                     80.00%. MSI will accept the private mortgage insurers noted in the
                     “Approved Mortgage Insurance Companies” matrix below.
                     Important Note: If MI is required on a loan, and the insurer’s guidelines
                     are more restrictive than MSI or DU/LP, the MI company guidelines
                     prevail.


Approved             The matrix below lists the private mortgage insurance companies
Mortgage             currently approved by MSI.
Insurance             The Seller must have a direct contractual relationship with the MI
Companies
                         Company; the master policy must be between the Seller and the MI
         (2/19/10)
    CLAR (1/27/11)       Company.
                      If MSI underwrites the loan, unless the Seller is a Bank or Credit
                         Union, MSI will order the MI from one of our currently approved MI
                         companies, which may be more restrictive than the companies listed
                         below.

                                     Approved Mortgage Insurance Companies
    GE – (Genworth) GE Capital Mortgage          Radian Guaranty, Inc.
     Insurance Corporation
    MGIC - Mortgage Guaranty Insurance           RMIC – Republic Mortgage Insurance Company
     Company
    PMI – PMI Mortgage Insurance Company         UGI – United Guaranty – The Seller must have a direct contractual
                                                   relationship with AIG/UGI. The master policy must be between the
                                                   Seller and AIG/UGI.
Note: MSI reserves the right to add or remove companies to this list at their sole
discretion.


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Mortgage Insurance,                           Continued


Standard MI         The matrix below outlines the “standard” mortgage insurance coverage
Coverage            required by MSI.
Requirements
                       MSI will not accept financed, reduced or custom MI, regardless of the
                        AUS findings.
                       MSI will accept Lender Paid Mortgage Insurance (LPMI); it must be
                        Seller-funded, MSI does not have a Correspondent LPMI product. See
                        LPMI for details.
                       MSI will accept Single Premium MI, paid by the Lender. See MSI
                        Requirements for Single Premium MI

                              LTV Ranges                    ≤ 20 Year Terms       > 20 ≤40 Year Terms
                            90.01 – 95.00%                       25%                     30%
                            85.01 – 90.00%                       12%                     25%
                            80.01 – 85.00%                       6%                      12%


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MI Premium          MSI will accept only the following Mortgage Insurance premium options as
Options             permitted by specific product guidelines:
        (1/23/09)
                       Monthly – must be deferred payment premium option (Zero up front)
                        (the premium is due with the first mortgage loan payment)
                       Single Premium Paid in Full – acceptable for conforming conventional
                        loan products unless specifically prohibited in the product sub-set.


MSI                 MSI will accept the single premium paid in full mortgage insurance
Requirements        options offered by MSI approved mortgage insurers as long as they meet
for Single
                    the following MSI requirements:
Premium MI
        (1/23/09)      At time of loan delivery, indicate single premium MI in the comments
                        section of the Fannie Mae 1008.
                       Single premium may be either lender or borrower purchased. The
                        premium may be paid by the property seller in full compliance with
                        interested party (seller concession) requirements. See Contributions.
                        •   The loan delivery file must contain evidence that the proper MI
                            Disclosure (if applicable) was provided to the borrower.
                        •   If the premium is paid by the property seller (or lender), the
                            underwriter must fully consider and address any impact to
                            interested party contributions and/or property LTV. See
                            Contributions.
                       The MI premium may not be financed.
                       The single premium MI Certificate must have a single lump sum
                        premium indicated.
                       Proof of payment in full of the premium is required. Proof may be
                        provided:
                        •   On the HUD-1 (paid at closing), and
                        •   By inclusion of a paid receipt and/or
                        •   By statement of “paid in full” on the MI Certificated included in the
                            loan delivery file.


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LPMI                MSI will accept loans with LPMI under the following limitations/
                    requirements:
                     Single Premium, paid in full. (See MSI Requirements for Single
                       Premium MI for additional details.)
                     Standard coverage is required.
                     The loan must meet the applicable MI company guidelines.
                     Permitted on 30-year FRM only; temporary buydowns not permitted.
                     Register and lock loans under the Conforming FRM product.
                     Funding for the LPMI is the responsibility of the Seller.
                     Financed Mortgage Insurance is not permitted.

                    Note: MSI does not offer a product with “inclusive” pricing for LPMI.




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Property

Appraisal           Each appraisal report sold to MSI must:
Standards and
Requirements           Be provided by independent, disinterested appraisers.
        (9/01/10)       •   Appraisers must be licensed or certified in accordance with Title XI
                            of the Financial Institutions Reform, Recovery and Enforcement Act
                            (FIRREA) of 1989.
                        •   Any party having an interest in the transaction is prohibited from
                            applying pressure or influence on the appraiser to encourage
                            providing specific results or findings.
                       Develop the value of the property independently, without regard to
                        race, color, religion, sex, handicap, familial status or national origin.
                       Meet the more restrictive applicable appraisal requirements for
                        Fannie Mae, Freddie Mac, FHA, VA, USDA and MSI.
                       Be computer generated (Adobe Format, .pdf) on the current form
                        applicable to the product and property type.
                       Have all information complete without any blanks, alterations or
                        omissions.
                       Include the appropriate attachments and addenda.
                        •   Clear sharp pictures of the subject and comparables are required.
                       Present a complete and accurate evaluation of the property that
                        supports the appraised value.
                       Be signed and dated by the appraiser that inspected the property. (If
                        the completing appraiser is provisional or a trainee, the
                        licensed/certified appraiser must countersign.)
                       All appraisals must conform to and recognize the USPAP as the
                        minimum appraisal standards
                        •   Appraisers must be state-licensed and strictly adhere to USPAP
                            guidelines.
                        •   Copy of Appraiser’s unexpired license or state mandated on-line
                            verification is required and
                        •   Must include, on the report, the appraiser’s license or certification
                            number.

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Appraisal Standards and Requirements, Continued
        (9/01/10)   Interior Photos

                    MSI requires all conventional appraisals to meet the updated Fannie Mae
                    requirements, as outlined in SEL-2010-09 (6/30/20),
                    https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/sel1009.pdf
                    .
                    Most notable of the Fannie changes is the requirement for interior photos.
                     MSI will require the following for all conventional appraisals,
                        regardless of AUS:
                        • The appraisal must include interior photos whenever an interior
                           inspection is performed as part of the appraisal process. The
                           minimum requirements for interior photos include the following
                           areas:
                           o Kitchen
                           o All Bathrooms
                           o Main Living Area
                           o Examples of physical deterioration, if present, and
                           o Examples of recent updates, such as restoration, remodeling
                               and renovation, if present.
                           o MSI defines “recent” as any improvement with material impact
                               to the market value within the lesser of 12 months prior to the
                               effective date of the appraisal or after the transfer of the
                               property from an unrelated party.

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Appraisal Standards and Requirements, Continued
   REV (1/27/11)   Appraiser Independence Requirements (AIR)
                   Each conventional appraisal must be performed in full compliance with the
                   Fannie Mae/Freddie Mac Appraiser Independence Requirements (effective
                   10/15/10)
                    See the Fannie Mae and Freddie Mac Guide and their web sites for
                      additional details.
                    MSI requires that each loan with a conventional appraisal sold
                      include a Certification of AIR compliance. The Certification can be from
                      either the Correspondent or an Appraisal Management Company
                      (AMC), if used by the Correspondent.
                      • On our Web Site, MSI provides a sample certification from the
                          Seller and a sample certification from the AMC.
                          o MSI does not require that our form be used, however, the
                              Certification provided must be at least equivalent to the
                              samples provided.
                          o Note: MSI does not provide an “approval service” for the
                              Certification forms submitted by the Seller. By sale of the loan
                              to MSI, the Seller warrants that the Certification provided
                              meets or exceeds our guidelines (outlined in the sample
                              Certification).
                    Additionally, MSI requires that each loan with a conventional
                      appraisal include the AIR Borrower Acknowledgment Form (see the
                      Web Site) fully executed by each borrower.

                   Quick Note: See the Government Product Suite for details regarding
                   compliance with the HUD Appraiser Independence guidelines for FHA
                   loans.

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Appraisal Standards and Requirements, Continued

                       Important Note: MSI will not accept the transfer of any conventional
                        appraisal subject to AIR.
                        • The appraisal should always be ordered in the name of the
                           “lender” (the lender is the entity providing funds for closing the
                           loan).
                    Rights of MSI
                    MSI reserves the right to:
                     Question the appraiser’s findings or request additional information
                       from the appraiser if deemed necessary in MSI’s sole judgment.
                       Choose to accept, or not, appraisals completed by appraisers that do
                        not meet its guidelines and standards. Upon notification by MSI, the
                        Correspondent must take steps to ensure that no appraisal or other
                        third-party service is delivered to MSI if prepared by an appraiser or
                        other provider that MSI has deemed unacceptable for purchase.
                       Take disciplinary action (up to and including legal action) against any
                        appraiser or other third-party vendor with the appropriate governing
                        entities.
                       Request new or additional appraisals at our sole discretion of risk.
MSI Appraiser       MSI provides on the Web Site (www.msicor.com ) an MSI Appraiser List.
List                Appraisers that appear on this list are not acceptable to MSI. If a loan is
        (1/14/09)
                    submitted for underwriting or funding/purchase with an appraisal
                    completed by an appraiser on this list, MSI:
                       Important Clarification: The MSI Appraiser List is effective for all
                        MSI products.
                       Requires that a second appraisal be completed by a separate, different
                        appraiser who does not appear on the MSI Appraiser List. The second
                        appraisal value will be used for LTV and underwriting purposes.

                    Limitations
                    MSI does not permit provisional appraisers or appraiser trainees to solely
                    complete appraisals for loans sold to MSI due to the limited education,
                    experience, and training of these appraiser classifications.
                    A supervisory appraiser must countersign the report and perform an
                    interior inspection of the subject property for each appraisal completed by
                    a provisional or appraiser trainee.


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Appraisal Standards and Requirements, Continued
Market              Effective for Conventional and FHA appraisals dated on/after 4/01/09,
Conditions          MSI will require the Market Conditions Addendum (Fannie Form
Addendum
        (4/01/09)
                    1004MC/Freddie Form 71) to be completed in full compliance with
                    requirements outlined in Fannie Mae Announcement 08-30 and ML 2009-
                    09 (applicable to FHA loans).
                       Important: MSI requires that all applicable appraisals are completed
                        in full compliance with Fannie Mae guidelines (and FHA Guidelines in
                        ML 2009-09, as applicable).
                       See the applicable Web Sites (Fannie Mae/Freddie Mac or HUD) for full
                        details.
        (5/01/09)   Correspondent Warranty
                    By sale of the loan to MSI, the Correspondent warrants:
                       That they have adequate business controls in place to ensure its
                        employees or other interested parties do not compromise the accuracy
                        and integrity of appraisal reports.
                       That the appraiser is licensed and/or certified under the applicable law
                        where the loan was originated (in accordance with the provisions of
                        Title XI of the Financial Institutions Reform, Recovery and
                        Enforcement Act (FIRREA) of 1989).
                       The appraiser and appraisal meets all current USPAP regulations and
                        requirements.
                       The appraiser and appraisal meets all agency requirements applicable
                        for the loan type.
                       Conventional appraisals meet the current requirements for the AIR as
                        outlined by Fannie Mae and Freddie Mac in their respective Guides.
                        •   Conventional appraisals must meet the additional documentation
                            requirements for MSI. See Appraiser Independence Requirements
                            (AIR)

                    Important: It is the Correspondent’s sole responsibility to evaluate the
                    appraiser and ensure that the appraiser used for each transaction is state
                    licensed and meets the appraiser and appraisal requirements for the
                    Uniform Standards of Professional Appraisal Practice (USPAP); and, as
                    specific to the loan product, current requirements published by Fannie
                    Mae, Freddie Mac, FHA, VA and USDA.

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Age of                 All loans sold to MSI must meet the following requirements for the age of
Appraisal              the appraisal:
         (5/18/09)

      Conforming Conventional                               Jumbo                               Government & USDA
    Existing              New                   Existing               New                  Existing              New
                       Construction                                 Construction                               Construction
   120 Days (1)           120 Days (1)          120 Days (1)           120 Days (1)          120 Days (2)         120 Days (2)
Notes:
(1) At the Note Date, if the appraisal date is greater than the stated number of days for the property type, a new appraisal is
     required. The new appraisal must be the same type as the expired appraisal. Appraisal updates are no longer
     acceptable.
     Note: Certain product types and/or MI companies may require more restrictive appraisal age guidelines. The more
     restrictive guidelines always apply.
(2) Government appraisals may not be recertified or updated A new appraisal must be provided. Advance Notice: Effective for
     casefiles on/after 01/01/10, FHA will require that the appraisal be dated within 120-days of the Note Date.


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Appraisal            The following is a listing of appraisal forms to be utilized for all property
Forms                types eligible for financing.
                     The most recent revision of the listed appraisal form must be used.

                                               Appraisal Forms
FNMA 1004/ FHLMC 70            Used for single-family properties, both attached & detached including PUD and site-
                               detached condominiums (when permitted by the DU Finding).
                                Note: Required for any property that was a Deed-In-Lieu or a Foreclosure. No
                  (10/08/10)       Streamlined Appraisals accepted by MSI.
                               LP-Home Value Explorer® (HVE):
                                If the final LP Feedback Certificate includes the Home Value Explorer® (HVE):
                                  • If the HVE indicates a variance greater than 20%, MSI requires (in addition to the
                                       applicable URAR) a Desk Review in full compliance with Freddie Mac
                                       requirements.
FNMA 1004D /FHLMC 442          Used for appraisal updates (if permitted) and/or completion reports for all 1-4 Unit appraisal
                               reports.
FNMA/FHLMC 2055                Streamlined version of the 1004/70.
                               May be used as instructed by an automated underwriting system and as permitted by the
                               product summary.
FNMA 1075                      Used for an exterior only inspection of a condominium.
FNMA 1073/FHLMC 465            Used for condominium properties (including 2-4 Unit Projects).
FNMA 1025/FHLMC 72             Used in the appraisal of two-to-four unit properties (A duplex, triplex or fourplex).


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Appraisal Forms (continued)

                                                    Investment Appraisal Forms
    In addition to the appraisal forms specified, the following forms are required for all 2-4 owner-occupied and all investment
                                               properties (regardless of AUS findings)
FNMA 216/FHLMC 998 One-to-Four Unit                       Form required for one-to-four unit owner occupied and non-owner
Investment Property Operating Income Statement.           occupied rental properties where the borrower is using rental income to
                                                          qualify. See the Important Delivery Requirement.
FNMA 1007/FHLMC 1000 Single Family                        Form required for single-family properties (1-unit investment only)
Comparable Rent Schedule                                  regardless of borrower using rental income to qualify and AUS findings.
(8/31/09)
Note: MSI requires a second full appraisal (AIR compliant) for all investment (non-owner occupied) properties with a sales price
or appraised value less than $100,000.

Important Delivery Requirement:
 Regardless whether or not rental income is used to qualify the Borrower, the Gross Monthly Rent for each single unit
    Investment Property, and each non-owner-occupied unit in a 2-4 unit Primary Residence, must always be completed on
    the Underwriting Transmittal. These figures must be obtained/supported by documentation in the loan file. See Rental
    Income for additional information.
                                                 Streamline Appraisal Forms
                                  Permitted as applicable to the AUS and the Product Summary
Form 2055 FNMA/FHLMC                                          Quantitative Analysis Appraisal Report is for use in both an
                                                               “interior/exterior” and “exterior only” inspection.
                                                              For an “exterior only” inspection, the appraiser must be able to
                                                               obtain sufficient information or reconcile discrepancies between the
                                                               data sources utilized.
                                                              Important Note: If the appraiser is unable to do this, the report
                                                               must be upgraded to include an “interior” inspection.
Exterior only requirements                                    A street map that shows the location of the subject property and
                                                               the location of the comparable sales.
                                                              A photograph of the front of the subject property. The appraiser is
                                                               not required to photograph the street scene or the comparables,
                                                               but is required to physically inspect the subject neighborhood and
                                                               the comparable sales.


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Appraisal Forms (continued)

                                          Streamline Appraisal Forms (continued)
                                 Permitted as applicable to the AUS and the Product Summary
If the appraiser determines the property to be proposed      For an “interior/exterior” inspection appraisal, the appraiser is
construction or is undergoing renovation, the report must    required to provide the following:
be upgraded to include an “interior” inspection.              An exterior building sketch of the improvements that indicates
                                                                  the dimensions
                                                              A street map that shows the location of the subject property
                                                                  and the location of the comparable sales
                                                              A photograph that shows the front, the rear and a street view
                                                                  of the subject property.
                                                              Photographs that show the front view of each comparable
                                                                  sale.
                                                              Certification of completion, if applicable
(1/07/09)                                                        Form 2070 is not acceptable to MSI except as permitted by
Form 2070 – Loan Prospector Condition and                         the Disaster Policy, see Appraisal Requirements.
Marketability Report – FHLMC                                      • The 2055 is the minimal appraisal form acceptable to
                                                                       MSI.
(1/07/09)                                                        Form 2075 is not acceptable to MSI except as permitted by
Form 2075 – DU Property Inspection Report                         the Disaster Policy, see Appraisal Requirements.
                                                                  • The 2055 is the minimal appraisal form acceptable to
                                                                       MSI.
Photograph Specifics – Subject                               Photographs must be originals that are produced by either
                                                (10/15/09)   photography or electronic imaging. We do not require photographs
                                                             of comparable rentals and rental listings.
                                                             Important Note: The secondary market requires an Adobe (.pdf)
                                                             version of each appraisal. Adobe versions may be uploaded to
                                                             appraisals@msiloans.biz.; identify the email with the borrower’s last
                                                             name and MSI loan number.
Fannie Mae Property Inspection Waiver (PIW)                  Not permitted by MSI under any circumstances.
Freddie Mac Property Inspection Alternative (PIA)            Not permitted by MSI under any circumstances.


Appraisal                Clear sharp photos of the subject and comparables are always required as
Photographs              applicable. Color photos are preferred, but as long as the photos are clear
            (10/15/09)
                         and sharp and show applicable details, they are acceptable. See Interior
                         Photos
                          To meet secondary market requirements, MSI requires an electronic
                            (Adobe; .pdf) version of the appraisal. To eliminate delivery delays,
                            prior to loan delivery, please upload the Adobe version of the
                            approved appraisal to appraisals@msiloans.biz., identified in the
                            subject line by the borrower’s last name and the MSI loan number.

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Adverse             The level of collateral risk associated with housing trends indicating values
Marketing           are unstable or declining combined with the risk of special loan products,
Conditions
                    purposes and/or occupancy, may require a reduction in the LTV/CLTV for
                    a given loan.
                    Special Appraisal Requirements for Adverse Market Conditions
                    Properties with adverse marketing conditions (i.e. declining values, over
                    supply, or marketing times in excess of 6-months) require careful review
                    and the following specific required support documentation:
                        The maximum LTV/CLTV of any property located in a soft or declining
                         market is the lesser of 95.00% or the maximum LTV/CLTV for the
                         specific product unless a lower LTV/CLTV is required by the product.
                        At least 2 of the 3 comparables must be dated within 90-days of the
                         appraisal date.
                         •   If the appraiser is unable to provide 2 comparables within 90 days
                             and/or current listing(s), the appraiser must provide a detailed
                             explanation and identify whether value adjustments resulted.
                         •   The explanation from the appraiser must be consistent with other
                             tools utilized to review the appraisal.
                         •   When the appraiser is unable to provide this (or other)
                             information, second level reviews through MSI escalation
                             processes may be required on loans underwritten by MSI.
                         •   Delegated or contract Underwriters are responsible for determining
                             the value is supported using all supporting documentation and
                             additional valuation tools.
                        A minimum of 1 listing or pending sale is required as a supporting
                         document.
                        The appraiser must address the impact on marketability and value of
                         both favorable and unfavorable factors.
                         •   The appraiser must avoid using subjective, racial or stereotypical
                             terms, phrases or comments within the appraisal report.
                        Days on the market must be reported for the subject property and
                         each comparable sale and must support the Average Marketing Time
                         listed on page 1 of the Appraisal Report.
                    Important Note:
                    MSI will not purchase any loan where the borrower pays over the list price
                    in a declining or oversupply market (6 months or greater).


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Agricultural       Agricultural properties such as working farms, ranches, orchards, other
Properties         income-producing farm-type properties and undeveloped land or land-
                   development type properties are not eligible for purchase. See
                   Outbuildings for additional details.


Builder Bail          MSI will not fund/purchase any loan where the subject property is a
Out Policy             Builder Bail Out. Effective for Conventional, FHA and USDA loans.
  CLAR (2/09/11)
                       • MSI defines a Builder Bail Out as any property (Condo, Attached
                           PUD, PUD, sub division or new construction single family—
                           identified herein as “project”) where the Builder has failed to
                           complete the project and it has been “taken over” by the bank or
                           its agents to complete the sale of the project.


Comparables        All current Fannie/Freddie appraisal guidelines must be followed when
                   choosing comparables to support the value of any property.
                    New projects (condos, condo conversions, new subdivisions and PUD
                       projects all require extra diligence to ensure the value is supported.)

                   New Projects and/or New Subdivisions Comparable Requirements
                    One comparable from inside the subject development/project.
                    A minimum of 1 comparable from outside the development/project
                     and/or from outside the influence of the developer.
                    Additionally, if possible a minimum of 2 resale comps to verify that
                     current transactions have been exposed to the open market.
                     • If resales cannot be obtained, the appraiser must address and
                         adequately support the final valuation of the property.


Chinese               Chinese drywall is drywall that was imported from China from 2001
Drywall                through 2007, which emits sulfur gases, which usually create a
  CLAR (1/27/11)
                       noxious odor, and corrodes copper and other metal surfaces,
                       damaging air conditioning, electrical wiring, copper, plumbing,
                       appliances and electronics.
                      Chinese drywall is an environmental issue and can also cause adverse
                       health effects.
                      Properties with Chinese drywall must be identified and are
                       unacceptable and will not be purchased by MSI.
                       • Mitigation: Should Sellers have knowledge the subject property is
                           or may be exposed to sulfur-containing (Chinese) drywall, the
                           property inspection must confirm the property has been fully
                           gutted down to the bare studs and all items installed are new. The
                           only items that may be re-used are tile and some stone.

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Condominium         Unless excluded by specific product guidelines, MSI will purchase loans
Overview            that are secured by properties located in a condominium project (condos)
                    as long as they meet the requirements outlined in this section.
                    See the product guidelines for specific details on property type eligibility.


Condominium         A full condo appraisal (Form 1073) is required on each condo, regardless
Appraisal           of AUS.
                       The appraisal facilitates the condo review.
                    Note: When permitted by the DU Finding, a detached condo project may
                    be permitted to use the 1004 Appraisal Form. See MSI Acceptable
                    Condos.


Condominium         A condominium is a real estate project formed according to state
Characteristics     condominium statutes, a recorded declaration, and other constituent
                    documents.
                    The structure is generally of two or more units. The interior space of the
                    units is individually owned. There is no individual land ownership.
                    The balance of the property (both land and building) is owned in common
                    by the owners of the individual units. The common areas are administered
                    and maintained by an owners’ association that levies monthly
                    maintenance charges against each unit owner.
                    Important Notes:
                       Condominiums and/or PUD’s are not defined by “zoning”. In many
                        areas, properties may be “zoned” as a Condo or PUD; however, if the
                        properties do not meet the Condominium Characteristics herein.
                        •    If the properties are single family residences with no Home
                             Owner’s Association, no dues and no common areas, they are not
                             Condos or PUD’s and must be treated as a single family residence
                             property.
                       If the Correspondent submits a loan locked/priced as a single family
                        dwelling and the property is subsequently determined to be a
                        condominium, the loan is subject to re-lock and/or re-pricing as a
                        condominium property.


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MSI                      MSI will purchase condominium properties for certain products as long as
Acceptable               they meet MSI-specific requirements.
Condos
         (8/10/09)             MSI does not permit investment condos.
                               See the specific product subsections in the Product Suites for eligibility
                                for products.

      Project Type                                                 Type of Analysis Required
Condo Projects consisting           The project type must be identified as a condo (subject to Home Owner Association with
of Single Family Detached            required HOA dues and common areas).
Units                               The project must be identified on the Fannie Mae 1008 as Condo in Section I, and
                                    The underwriter must identify whether the project is a New Project (Type P-New not eligible
                                     for MSI) or Type Q (established-eligible as a Limited Review) project.
                                    Detached Condos must meet the Fannie Mae insurance requirements. (See General Condo
                                     Requirements.)
                                    If the condo project consists solely of detached dwellings, Appraisal Form 1004 may be used
                                     as long as the DU Finding states the 1004 may be used. (Form 1073 may always be
                                     used.).
                                     • The appraiser must include an adequate description of the project and information
                                           about the HOA fees and quality of project maintenance.
DU Limited Review                The projects require minimal analysis.
                                  The loan must be submitted to Fannie Mae DU and the property identified as a condo
Q for Established                    • The loan must be Approve/Eligible, and
                    (8/10/09)        • The findings must state that the property is a condo subject to Limited Review.
                                  The MSI Form, MSI Condo Questionnaire Limited Review must be completed and included
Detached and attached                in the underwriting package.
condo units                       The appraisal must support all information provided in the completion of the Limited Condo
                                     Questionnaire.
                                  The project must be properly identified on the Fannie Mae 1008 to Fannie Mae
                                     requirements.
                                 Fannie Mae clarification, Excerpted from Fannie Mae Announcement 08-34: (1/01/09)
                                  The Limited Review process is intended to be used on a “spot loan” basis, meaning that
                                     lenders may originate loans that arise through the ordinary course of business.
                                  A lender may originate more than one loan in a particular project under the Limited Review
                                     process provided that the project is an established project and meets the requirements for
                                     Limited Review set forth in Announcement 07-18.
                                  However, if the lender has targeted the project with specific marketing efforts or is named as
                                     a preferred lender by either the developer or the project’s home owner’s association, the
                                     project is ineligible for Limited Review and the lender must use one of the other project
                                     review processes.


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MSI Acceptable Condos, Continued

      Project Type                                                 Type of Analysis Required
2-4 Unit Condos                The following additional guidelines apply for 2-4 Unit Projects:
             (6/06/09)          No single entity (the same individual, investor group, partnership, or corporation) may own
                                    more than one unit within the project;
                                All units, common elements, and facilities within the project—including those that are owned
                                    by any master association—must be 100% complete;
                                All but one unit in the project must have been conveyed to owner occupant principal
                                    residence or second home purchasers; and
                                The units in the project must be owned in fee simple or leasehold, and the unit owners must
                                    be the sole owners of, and have rights to the use of, the project’s facilities, common
                                    elements, and limited common elements.
                                MSI requires the completion of the 2-4 Unit Condo Questionnaire.
Fannie Mae                      MSI will not purchase/fund properties in condo projects with Fannie Mae Approval (1028 or
Approved Project                    PERS)
         REV (3/25/11)              • Condos must meet current Fannie Mae guidelines for a Limited Review. MSI
                                         requires the full completion of our Condo Questionnaire.
                                    • The DU Finding must state “Limited Review”.
                                    • Condos submitted to LP are not acceptable; all condos must meet MSI/Fannie Mae
                                         guidelines.
FHA-Approved Project               MSI will not accept conventional condo projects with an FHA approval.
                   (2/01/10)
Non-Warrantable                If the project is unable to be warranted to one of the types listed in this matrix, the project is
Condos                         considered “unwarrantable” and is not eligible for sale to MSI.
Seller Warranty:
 Sellers that have Delegated Underwriting Authority, using Contract Underwriting (whether with Delegated Underwriting
     Authority or not) are fully responsible for warranting condos to MSI.
 MSI relies on the Seller’s condo warranty to sell the loan on the Secondary Market and reserves the right to request
     supporting documentation from the Seller for post-purchase/funding audit.
 Seller’s for which MSI underwrites the loan are fully responsible for completing applicable Condo Questionnaire’s and
     providing required information to MSI.
 The condo must be in full compliance with MSI/Fannie Mae hazard and title insurance requirements. See General Condo
     Requirements /Insurance for details. Projects with more than 20-units require Fidelity insurance (or per state requirements.).

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MSI Ineligible   Ineligible condo projects are defined by Fannie Mae, Correspondent
Condos           should refer to those published guidelines for complete current details.
                 In general, the following characteristics may be used to identify projects
                 that are ineligible.
                  Projects that restrict the owner’s ability to occupy the unit
                  Projects with mandatory rental pooling agreements that require unit
                     owners to either rent their units or give a management firm control
                     over the occupancy of the units.
                     • These formal agreements between the developer, homeowners’
                         association, and/ or the individual unit owners, obligate the unit
                         owner to rent the property on a seasonal, monthly, weekly, or
                         daily basis.
                     • In many cases, the agreements include blackout dates, continuous
                         occupancy limitations, and other such use restrictions.
                     • In return, the unit owner receives a share of the revenue
                         generated from the rental of the unit.
                  Projects with non-incidental business operations owned or operated by
                     the homeowners’ association such as, but not limited to, a restaurant,
                     a spa, a health club, etc.
                  Investment securities (i.e., projects that have documents on file with
                     the Securities and Exchange Commission, or projects where unit
                     ownership is characterized or promoted as an investment
                     opportunity).
                  Common interest apartments or community apartment projects are
                     projects or buildings that are owned by several owners as tenants-in-
                     common or by a homeowners’ association in which individuals have an
                     undivided interest in a residential apartment building and land, and
                     have the right of exclusive occupancy of a specific apartment in the
                     building.
                  Timeshare or segmented ownership projects.
                  Houseboat projects.

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MSI Ineligible Projects, Continued

                       Multi-dwelling unit condos—projects that permit an owner to hold title
                        (or stock ownership and the accompanying occupancy rights) to more
                        than one dwelling unit, with ownership of all of his or her owned units
                        (or shares) evidenced by a single deed and financed by a single
                        mortgage (or share loan).
                       Condo projects that represent a legal, but non-conforming, use of the
                        land, if zoning regulations prohibit rebuilding the improvements to
                        current density in the event of their partial or full destruction.
                       MSI considers any project for which the homeowners’ association or is
                        named as a party to current litigation that relates to the project as
                        ineligible.
                       Projects that include registration services and offer rentals of units on
                        a daily basis.
                       Projects with names that include the words “hotel” or “motel”.
                       Any project that is operated as a commercial hotel or motel. The
                        following characteristic are hotel-like and make the project ineligible:
                        • Central Telephone system.
                        • Room Service.
                        • Units that do not contain full-sized kitchen appliances.
                        • Daily cleaning service is provided.
                        • Advertising of rental rates.
                        • Registration Service.
                        • Restrictions on interior decorating.
                        • Franchise agreements.
                        • Central key systems.
                        • Location of property in a resort area (with these other contributing
                            factors.)
                        • Owner occupancy density, the project may have few or no owner
                            occupants.
                        • Any project that has been converted from a hotel/motel.


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General Condo          The following MSI overlays apply to condominium properties; always
Requirements           validate eligibility with specific product parameters in the applicable
                       product suites:
         (8/10/09)
                        The project is not an ineligible condo to MSI or current Fannie Mae
                           guidelines.
                        Project has demonstrated market acceptance.
                        When applicable, validate with the mortgage insurer that the project is
                           acceptable for coverage.
                        Guideline Matrix: The following matrix provides general guidelines
                           for warranting a new or established project.
                           • The applicable Condo Questionnaire must be fully completed prior
                               to making a warranty.
                           • The condo type must be clearly identified on the Fannie Mae 1008.

           Topic                                                      Condo Guidelines
Adverse Environmental Factors      Any adverse environmental factors affecting the condominium project must be
                                      addressed by the appraiser.
                                   Any factors affecting safety, habitability or marketability of the unit or project will render
                                      the project ineligible.
                                   See the current Fannie Mae Seller Guide for full details regarding Unacceptable
                                      Environmental Conditions.
Completion                         The project must be complete including all units and common elements.
                                   At least 90.00% of the total units in the project must have been conveyed to the unit
                                      purchasers.
Number of Units Rented            Maximum 30% (of total number of units sold) may be rental.
                                  Fannie Mae Clarification, excerpted from Fannie Mae Announcement 08-34:
                      (8/26/10)    Fannie Mae permits the inclusion of financial institution owned (REO) properties that are
                                      for sale (not rented) as owner-occupied units for the purpose of calculating the owner-
                                      occupancy ratio.
                                   Projects where the borrower is an investor must be counted as non-owner occupied for
                                      the purposes of determining the owner-occupancy ratio.
Delinquent HOA Dues                   If more than 15% of the units are delinquent 30-days or more on their HOA dues, this
                                       project is ineligible.
Commercial Use                    Commercial use within the project may not exceed 20% of the total square footage for the
                      (2/20/09)   project and should be compatible with residential use.
Right of Refusal                  Any right of first refusal in the project’s constituent documents will not impair the rights of a
                                  first mortgagee to:
                                   Foreclose or take title to a condominium unit pursuant to the remedies in the mortgage.
                                   Accept a deed in lieu of foreclosure in the event of default by a mortgagor.
                                   Sell or lease a unit acquired by the mortgagee.
                                   Age restriction that does not meet the requirements within the Fair Housing Act for age
                                        discrimination.

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General Condo Requirements, Continued

            Topic                                                     Condo Guidelines
Special Assessments                   If there are pending assessments, consider the impact on all the units and the
                                       marketability.
Insurance                             MSI requires $1 million liability insurance with acceptable building coverage and a
                      (2/20/09)        deductible that is no greater than 5% of the face amount of the policy for the HOA on all
                                       condos.
                                      Minimum requirements for hazard, general liability, employee dishonesty and flood
                                       insurance are as established by Fannie Mae and Correspondents should refer to those
                                       Agencies’ published guidelines for details.
                                      Fidelity bond coverage is required on all projects with more than 20 units. (0r per state
                                       requirements.)
                                      Pooled insurance is ineligible.
                                  See www.efanniemae.com for details
                                  Fannie Mae Clarification, excerpted from Fannie Mae Announcement 08-34:
                                  Lenders must review the entire condominium project insurance policy to ensure that the
                                  owners’ association maintains a master or blanket type of insurance policy for only the
                                  project in which the individual condominium unit will be financed. The following are not
                                  permitted:
                                   a blanket policy that covers multiple unaffiliated condominium associations or projects,
                                       or
                                   a self insurance arrangement whereby the owners’ association is self insured or has
                                       banded together with other unaffiliated associations to self insure all of the general and
                                       limited common elements of the various associations.
                                  Fannie Mae Clarification, excerpted from Fannie Mae Announcement 08-34:
                                   Fannie Mae permits the inclusion of financial institution owned (REO) properties that are
                                       for sale (not rented) as owner-occupied units for the purpose of calculating the owner-
                                       occupancy ratio.
                                   Projects where the borrower is an investor must be counted as non-owner occupied for
                                       the purposes of determining the owner-occupancy ratio.
                                  Commercial use within the project may not exceed 20% of the total square footage for the
                                  project and should be compatible with residential use.
                                  Any right of first refusal in the project’s constituent documents will not impair the rights of a
                                  first mortgagee to:
                                   Foreclose or take title to a condominium unit pursuant to the remedies in the mortgage.
                                   Accept a deed in lieu of foreclosure in the event of default by a mortgagor.
                                   Sell or lease a unit acquired by the mortgagee.
                                   Age restriction that does not meet the requirements within the Fair Housing Act for age
                                        discrimination.

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General Condo Requirements, Continued

            Topic                                                         Condo Guidelines
Insurance (continued)
                                   As a reminder, condominium association project insurance must cover 100.00% of the
                                   insurable replacement cost of the project improvements, including the individual units in the
                                   condominium project.
                                    The borrower must obtain a “walls-in” coverage policy (commonly known as HO-6
                                        policy) unless the master policy clearly documents that the interior of each unit is
                                        covered for replacement of improvements and betterments that the borrower may have
                                        made.
                                        • The HO-6 insurance policy must provide coverage in an amount that is no less
                                             than 20% percent of the condominium unit’s appraised value. The standard
                                             requirement for a 5 % deductible applies. Note: If the borrower has an
                                             impound/escrow account; the HO-6 premium must be included in the escrow
                                             account.
                                    Coverage does not need to include land, foundations, excavations, or other items that
                                        are usually excluded from insurance coverage.
                                    Fannie Mae expects lenders to verify hazard insurance (including wind and flood
                                        insurance, if applicable) coverage at the project level as part of their review of a project.
                                    Lenders must verify that each condominium association is covered by an individual
                                        policy before it delivers a mortgage loan on an individual unit in a condominium project.
Litigation                          MSI considers a condo involved in litigation to be ineligible for purchase by MSI.
Required Documentation             In addition to all standard documentation, the following specific documentation must be
                                   delivered with the loan file when the subject property is a condo:
                                    Individual Condominium Appraisal Report
                                    Fully completed and executed applicable Condo Questionnaire
                                        • The Questionnaire must be updated each 90-days
                                    Fannie Mae 1008 completed with the type of warranty the Correspondent is making for
                                        the project.
                                    Condominium Rider to the Security Instrument must be attached to the uniform
                                        instruments.
Seller Concessions                 Illegal seller concessions make the project ineligible. Includes sales contributions that exceed
                        (2/2/09)   current limits for the applicable product.


Degree of               Geographical areas less than 25% developed are generally not acceptable
Development             for maximum financing.
                           Areas between 25% and 75% developed and showing steady growth
                            pattern are acceptable for maximum financing.


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Deed                Occupancy Restrictions
Restrictions           Reasonable local, state or federal restrictions on the maximum
                        number of occupants permitted to occupy a dwelling unit are
                        acceptable as long as such limitations are applied to all occupants and
                        do not operate to discriminate on the basis of race, color, religion,
                        sex, national origin, handicap or familial status.
                       If any restriction is noted in the purchase contract, appraisal, title
                        commitment or in the project covenants/restrictions that appears not
                        to apply to all occupants, contact MSI Underwriting to determine
                        whether the loan is eligible for purchase.
                    Property with Resale Deed Restrictions
                    Properties with Resale Deed Restrictions (AKA inclusionary zoning) are not
                    eligible for sale to MSI.
                    Age Restrictions
                    If a housing development has an age restriction, it must comply with one
                    of the following Fair Housing Act exemptions:
                     Government Housing Programs
                        • The prohibitions against discrimination on the basis of age or
                            familial status do not apply with respect to dwellings provided
                            under any State Or Federal Program specifically designed and
                            operated to assist the elderly or to house elderly persons. The
                            Secretary of HUD must determine that the development meets this
                            exemption.
                     Age Restrictions – 62 years of age or older
                        • The prohibitions against discrimination on the basis of age or
                            familial status do not apply with respect to dwellings intended for,
                            and solely occupied, by persons 62 years of age or older.
                       Age Restrictions – Any Age Restriction
                        • The prohibitions against discrimination on the basis of age or
                           familial status do not apply with respect to dwellings intended and
                           operated for occupancy by person 55 years of age or older
                           provided that all of the following apply:
                           o At least 80% of the occupied units are occupied by persons 55
                              years of age or older, and
                           o The housing facility or community publishes and adheres to
                              policies and procedures that demonstrate the intent to provide
                              housing to persons 55 years of age or older, and
                           o The housing facility or community can provide documentation
                              for verification of occupancy, by means of
                               reliable surveys and affidavits;
                               examples of published written policies and procedures for
                                   determination of compliance with the Act.
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Deed Restrictions, Continued
                   Documentation Requirements for Age-Restricted Properties
                      When it is determined that a housing development is subject to age
                       restrictions, the Homeowners Association must complete and sign the
                       form Housing Developments Subject to Age Restrictions (See
                       www.msicorr.com ).
                      By signing this form, the association certifies that the housing
                       development is in compliance with the Fair Housing Act.
                      The fully executed form must be included in the underwriting package.


Environmental      When a Seller sells a loan to MSI (regardless whether MSI or the Seller
Issues and         underwrites the loan), the Seller Represents, Warrants and Covenants the
Other Hazards      following to MSI as to each loan:
                    The subject property is not exposed to Environmental Hazards which
  CLAR (1/27/11)
                       are not covered by fire and extended coverage insurance or other
                       available insurance.
                    Environmental Hazards refer to any natural or man-made
                       characteristics that are present in, or affect, the subject property or
                       neighborhood, including but not limited to, hazardous wastes, toxic
                       substances, radon gas, asbestos-containing materials, urea-
                       formaldehyde insulation, sulfur-containing drywall (also known as
                       Chinese drywall – see Chinese Drywall), except as the Seller has
                       specifically and fully remediated and such remediation has been
                       inspected by a professional qualified to verify that the Environmental
                       Hazard has been satisfactorily corrected, prior to MSI
                       purchasing/funding the Loan.


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Ineligible          The following property types are        ineligible for sale to MSI:
Property
Types
                     Manufactured Housing (all               Unique (one-of-a-kind) properties
                       mobile homes)                          Properties in “fair” condition
                     Dome Homes                              Properties sold at auction(1)
                     Earth Berm                              Properties without a clear title
                     “Store Front” properties                Properties with less than 600 feet
                    (1) This does not include standard purchase transactions where the seller
                        is a financial institution disposing of their REO properties. See Property
                        Flipping and REO/Repo Properties for additional details.


Investment          Additional Appraisal Requirements
Property            For all Non-Owner Occupied (investment) properties with a sales price or
Restriction         appraised value less than $100,000, MSI requires a full second appraisal.
        (8/31/09)
                     Each appraisal must be AIR compliant.
                    Notes:
                     See Rental Income for additional investment property requirements.
                     MSI requires a minimum 6-months reserves for investment properties,
                       regardless of AUS, see Reserves.

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Land                    A land contract, also known as an installment land contract or a contract
Contracts               for deed, is a real estate agreement between a buyer and seller, whereby
                        the buyer makes installment payments to the seller and the buyer may
                        then use and occupy the property:
                         The deed from the property seller to the buyer may not be recorded
                            until all or a specified part of the sales price has been paid.
                         The buyer does not obtain the transfer of title until the land contract is
                            paid; however, if the land contract is recorded, it should be reflected
                            in the chain of title in the title report.
                        Underwriting the Land Contract for Sale
                        If the buyer is obtaining mortgage financing to pay-off the land contract,
                        it may be underwritten as either a purchase or a refinance, under the
                        following conditions:

         If the land contract was executed …                                                  Then …
Within 12 months of the older of the application date/ or      Treat the transaction as a purchase:
the oldest credit document in the file.                         Underwrite and price the loan as a purchase
                                                                   Base the LTV on the lower of current appraised value or
                                                                    acquisition cost.
                                                                   Acquisition Cost is equal to the sum of:
                                                                    •    Original purchase price, and
                                                                    •    Documented cost of renovations or improvements.
Greater than 12 months of the older of the application         Treat the transaction as a refinance:
date/ or the oldest credit document in the file.                Underwrite and price the loan as a Rate/Term (Limited Cash
                                                                   Out) refinance
                                                                   Base the LTV on current appraised value.
Notes:
 Regardless how the transaction is structured, if the borrower has occupied the property as a primary residence, the Right of
    Rescission rules apply.
    The loan must meet all applicable guidelines for the type of transaction for which it is treated.
    A copy of the Land Contract must be included in the loan delivery file (or u/w file if submitted to MSI for underwriting).
    The borrower must document a payment history for the Contract of Deed. (Copies of cancelled checks will be required.)


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Leasehold               MSI will purchase conventional loans secured by property held in a
Estate                  leasehold estate for certain specific products. See the specific product
Overview
                        suite for more details.
Leasehold Requirements Matrix

         Topic                                                          Requirements
Market Acceptance           The property must be located in an area in which they are common and customary and receive
                            market acceptance.
                             The appraiser must address this market acceptance.
Real Property                   The mortgage must cover the property improvements and the leasehold interest in the land.
                                The leasehold and improvements must constitute real property, be subject to the mortgage
                                 lien, and be insured by the lender’s title policy.
Riders                          A Leasehold Rider to the Security Instrument is required on all leasehold estates.
                                It must incorporate a cross-default provision so that a default on the lease is a default on the
                                 mortgage.
Title                           The title may not make an exception to the leasehold and
                                It must be an ALTA Leasehold Policy.
Term                        The term of the leasehold estate should run for at least 5-years beyond the maturity date of the
                            mortgage loan.
                             This requirement does not apply if fee simple title will vest in the borrower at an earlier date.
Fannie Mae Guidelines       The leasehold must meet the more restrictive of MSI/Fannie Mae requirements as outlined in the
                            most current MSI Seller Guide or Fannie Mae Seller Guide (www.efanniemae.com)
MSI Restrictions            MSI will not purchase any condo in vested in a leasehold estate.


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Lender                 MSI, under no circumstance, will accept a Lender Certification to
Certifications          document completion of repairs for the subject property. Effective for
Policy                  Conventional, FHA and USDA loans.
  CLAR (2/09/11)
                        • MSI requires the Appraiser to complete the Appraisal Update
                           and/or /Completion Report (1004D/443).
                        • See Roof Repairs for Licensed Roofer exception.


Location            MSI does purchase properties in urban, suburban and rural areas to
                    MSI/Fannie Mae guidelines.
                     MSI reserves the right deem a property to be rural in nature (and
                       apply those restrictions) if the lot size exceeds typical urban or
                       suburban lot size or if the location is remote from a metropolitan area.
                     Any time the appraiser extends the distance range or timing for
                       comparables, full documentation and justification must be included in
                       the appraisal.
                    See Lot Size- Maximum Acreage and Degree of Development for more
                    details.


Log Homes           MSI will accept “true” log homes under the following additional
                    restrictions:
                     Contact MSI pricing for special pricing for Log Homes.
                     The log home must demonstrate market acceptance.
                     The appraiser must provide a minimum of 2 true log homes as
                        comparables within 6-months marketing time.
                    Note: Homes with “log siding” are not considered “true” log homes and
                    are not subject to these restrictions.


Lot Size-           MSI will accept properties that are residential in nature up to 10 acres as
Maximum             long as they are common and customary to the area.
Acreage              The appraiser and the underwriter must address the acreage issue and
        (3/20/09)
                       the residential nature must be the highest and best use of the subject.
                    Note:
                     Properties zoned agricultural are limited to 10 acres, no exceptions.
                     Value based on a lesser amount of acreage than the actual lot size is
                       not acceptable on any loan.
                     MSI may accept properties with greater than 10 acres as an
                       exception; you must contact MSI Underwriting and receive written
                       approval for the exception.

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New                 Regardless of market conditions, appraisals for properties located in a
Construction        new construction subdivision or development must include at least 1
                    current sale from the subject development/builder and either
                     One closed sale from a competing development/builder, or
                     One closed sale from the subject development that has closed within
                        90-days from the date of the subject property appraisal.
                    Underwriting Tip:
                     For new construction properties where taxes must be
                      estimated:
                      • To ensure that the borrowers qualify for the loan (and do not
                         experience credit issues after closing); MSI underwriters/auditors
                         use the higher of the appraiser’s estimate of taxes or 1.5% of the
                         appraised value of the property.


Modular/            Factory-built housing must assume the characteristics of site-built
Factory Built       housing and be legally classified as real property. The purchase,
Homes               conveyance, and financing (or refinancing) of the property, which must be
                    evidenced by a valid and enforceable first lien mortgage or deed of trust
                    that is recorded in the land records, must represent a single real estate
                    transaction under applicable state law.
                     Prefabricated, panelized, or sectional housing units must conform to
                        all local building codes in the jurisdiction in which they are
                        permanently located.
                     Modular homes must be built to the state building code requirements
                        of the state in which they are to be installed.
                        • The Modular home must conform to all building codes, local zoning
                             requirements and International Code Council (ICC) building codes.
                        • Modular homes are not the same as “manufactured homes” or
                             “mobile homes.”
                        • They are neither built nor transported on a steel chassis (frame)
                             with a “trailer hitch.” Modular homes are constructed in large
                             sections (modules) which are then transported to the building site
                             where they are constructed with a seal plate (just like “stick built”)
                             on a basement, slab or footer (just like “stick built”).
                        • They do not display a “HUD Data Plate/Compliance Certificate”.
                     MSI will not purchase Modular/Factory Built homes that are part of a
                        PUD or condominium.
                     MSI Appraisal Requirements:
                        • Marketing time must not exceed 6 months
                        • Appraiser must provide a minimum of 2 similar factory-built
                             comparables

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Mixed Use      MSI will accept mixed use properties unless specifically restricted in a
Properties     product suite.
               To be acceptable, it must be determined that the nature, intent, and
               primary purpose of the property is residential in use. The following should
               be considered in making this determination:
                  The subject must be a single family dwelling.
                  The room layout must be reasonable for a residential home.
                  The property must be appraised as residential real estate, with
                   commercial value not included in the appraiser's market value.
                  The appraiser must comment on any affect the commercial use has on
                   marketability and compatibility with the subject's neighborhood.
                  The commercial use must be allowed by zoning and the subject must
                   conform to zoning.
                  Agricultural usage is not permitted.
                  Commercial use should not result in significant alteration to the
                   property or one that could not be easily converted back to residential.
                   •   In general, the commercial use should not exceed 20% of total
                       gross living area of the property.
                   •   The commercial use should generate a minimal amount of traffic
                       noise.

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Property,            Continued


Outbuildings        Underwriters must give properties with outbuildings special consideration
                    in the appraisal review.
                       Properties with minimal outbuildings, such as a small barn or stable,
                        that are relatively insignificant in value in relation to the total
                        appraised value of the subject property are acceptable if they are
                        typical to the subject area.
                        •    For example, a property that has a small barn or stable is
                             acceptable if the appraiser demonstrates they are typical for the
                             area through the use of comparables with similar improvements.
                             o If the appraiser cannot demonstrate that the outbuildings are
                                 typical for the area, it demonstrates they are atypical for the
                                 area and the market would assign little or no contributory
                                 value for them.
                             o If the outbuildings are atypical for the area, they may still be
                                 eligible for purchase as long as the appraiser’s analysis reflects
                                 little (or no) value for the outbuildings.
                       Properties with the presence of significant outbuildings, such as a
                        large barn, storage areas for equipment or farm-type animals, or a
                        silo, indicate that the property is agricultural in nature.
                        •    Regardless whether the outbuildings are assigned value or not,
                             MSI does not make residential property loans on agricultural
                             property.


Private Road        If the property is on a community-owned or privately owned and
Maintenance         maintained street, there must be an adequate, recorded agreement for
                    maintenance of the street, the agreement and terms must be referenced
        (7/15/10)
                    on the Title.
                       The privately owned and maintained street should be common and
                        customary to the area. The appraiser must comment on the effect of
                        that location on the marketability of the subject property.


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Purchase            For all loan products, (Conventional and Government, excluding USDA)
Agreement
(Contract) –        MSI will not accept re-negotiated purchase agreements (contracts) that
Re-Negotiated
                    increase the sales price after the original appraisal is completed if:
        (1/18/10)
                     The appraised value is higher than the contracted sales price provided
                        to the appraiser, and
                     The new purchase agreement and/or addendum used to modify the
                        sales price is dated after the appraisal is received (completed), and
                     The only change to the purchase agreement is the increase in sales
                        price.

                    If the purchase agreement is re-negotiated subsequent to the completion
                    of the appraisal, the loan-to value will be based on the lower of the
                    original purchase price or the appraised value, unless:
                     A re-negotiation of only seller paid closing costs and/or pre-paids
                        occurs where seller paid closing costs/pre-paids are common and
                        customary for the market and supported by the comparables. Refer to
                        Seller Guide for allowable contributions, or
                     An amended purchase agreement for a new construction property is
                        obtained due to improvements that have been made that impact the
                        tangible value of the property.
                        • In the event of such changes, an updated appraisal must be
                            obtained to verify the value of the modifications.

                    Notes:
                     MSI will rely on the appraiser to certify that he/she has seen the
                       purchase agreement.
                     MSI reserves the right to require supporting documentation if any type
                       of real estate scheme is suspected.


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PUD Overview            Unless excluded by specific product guidelines, MSI will purchase loans that
                        are secured by properties located in a Planned Unit Development project
                        (PUD) as long as they meet the requirements outlined in this section.
                        A PUD is a project that consists of common property and improvements that
                        are owned and maintained by the Homeowner’s Association (HOA) for the
                        benefit and use of the individual PUD units. A PUD owner received title to a lot
                        that includes the dwelling.
                        Notes:
                         In order for a project to qualify as a PUD, each unit owner’s membership
                            in the homeowners’ association must be automatic and nonseverable, and
                            the payment of assessments related to the unit must be mandatory.
                         Zoning is not a basis for classifying a project or subdivision as a PUD.

 Subject Property in PUD                                                 Requirements
Detached Singe Unit              Type E
                                  The property is treated the same as any other single family property.
                                  There are no special “PUD” requirements except for insurance. They must meet the
                                     insurance requirements for single family as well as any applicable agency HOA/common
                                     area insurance requirements.
Attached PUD                     Type E
                    (10/08/09)    The control of the owner’s association has been turned over to the unit purchasers.
                                     • If the project is part of a larger development (even though it is a sub-association of
                                          the master owner’s association for the overall development), the Correspondent may
                                          classify the project as Type E once the control of the project’s sub-owner’s
                                          association for the subject property has been turned over to the unit owners.
                                  Once this criterion has been met, there are no other special “PUD” requirements; however,
                                  MSI requires that the Condo-Attached PUD Limited Questionnaire be completed for all
                                     attached PUD units and they must meet the insurance requirements for single family as
                                     well as any applicable agency HOA/common area insurance requirements.
                                 Type F – DU Approve – Limited Delegated stated in DU Finding
                                  If the control of the owner’s association is still with the developer, the Correspondent must
                                     perform a Lender-delegated Review of the PUD Project.
                                  If the loan receives a DU Approve, the Limited Review consists only of the following
                                     warranties:
                                     • The Project is not an ineligible project. See MSI Acceptable Condos.
                                     • The units, common areas, and facilities within the subject project (or legal phase) are
                                          complete.
                                     • The project is covered by the insurance required by Fannie Mae in the most recent
                                          Seller Guide (See www.efanniemae.com )
                                     • MSI requires that the Condo-Attached PUD Limited Questionnaire be completed for
                                          all attached PUD units.
Notes: If the attached PUD is not a Type E (HOA in unit owner’s control) and it does not receive the “Limited Review” finding in
DU, the property is not eligible for purchase by MSI.

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REO/Repo            For conventional and government loans:
Properties          MSI will not purchase any “reo or repo” properties that requires repairs
                    (regardless whether the appraiser is valued “as is” or not). Loans secured
       (12/12/09)
                    by “repo” properties will be subject to the following:
                     MSI requires a full appraisal; AIR compliant for conventional loans;
                        government loans must meet current FHA appraisal guidelines.
                     The LTV is based on the lesser of the appraised value, sales price or
                        auction/foreclosure bid value or auction/foreclosure sales price.
                     There must be no restrictions on the purchase contract.
                     Below market rate is not permitted.
                     The property must be habitable.
                     All local jurisdictional requirements must be met.
                     All utilities must be operational at the time of the appraiser’s property
                        inspection.
                     All deferred maintenance or repairs must be completed prior to or by
                        time of closing.
                     Escrow holdbacks are not allowed.
                     MSI
                    Note: If the original appraisal notes deferred maintenance or no
                    operational utilities, a final inspection report must be completed showing
                    all utilities are satisfactorily operational and there are not deferred
                    maintenance items that affect the safety or habitability of the subject
                    property.


Right of            For all Products:
Redemption          MSI will not fund/purchase any loan with a current/active Right of
        (7/15/10)
                    Redemption listed on the Title.
                     If the Title references that a property is within a Right of Redemption
                       period and the expiration date has not passed prior to the loan closing
                       date, the loan is ineligible for funding/purchase.
                     MSI will consider funding/purchase if the Right of Redemption on the
                       Title is expired before the date of loan closing.

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Rural Property      Rural properties may be acceptable for purchase unless otherwise limited
                    by the parameters of the particular loan product.

                    Rural properties must meet the following requirements:
                     Owner occupied primary residence or second home.
                     Marketing time must be 6 months or less and values must be stable or
                       appreciating.
                     The area must generally be a minimum of 25% developed.
                     All comparable sales must generally be located within 5 miles of the
                       subject property.
                     Be accessible by roads that meet local standards.
                     Have adequate sewage, water, and utilities available and in service.
                     Land value generally may not exceed 35%.
                     Property may not be agricultural.
                    See Lot Size- Maximum Acreage


Security Bars       The appraisal must comment and follow state and local requirements with
                    respect to properties using security or “burglar” bars,
                       There must be an emergency release latch for at least one window in
                        each room where the security bars are located, unless local or
                        municipal code states otherwise.


Subject             Properties less than 600 sq ft. are not eligible for purchase.
Property Size




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Property Flipping

Overview                A “flip” or “property flipping” is generally defined as a purchase
                        transaction for a property that has recently been acquired by the property
                        seller and is being sold for a quick profit.
                            A flip transaction is evident if the title reveals several changes in
                             ownership in the course of a few months. Flip transactions are
                             ineligible for purchase by MSI.


Chain of Title          For all loans, MSI requires at time of purchase, evidence in the loan file
                        of a minimum 12-month chain of title.
                        If the preliminary title or title binder evidence that chain with no
                        indication of flipping, no further documentation is required.

                              If the Title …                                                         Then …
 Evidence that the seller or the property owner has owned the subject         MSI considers this property ineligible unless the seller
 property 3-months or less                                                    has been transferred and/or must make a job move or
                                                                              the property is a company relocation or an
                                                                              inheritance.
 Evidences that the seller or the property owner has owned the                MSI requires a reasonable explanation for the
 subject property more than 3-months but less than 12 months                  property turn-over.
                                                                              Property Flopping – Involving a short sale with an
                                                                              interim buyer – MSI requires that the seller own the
                                                                              subject property a minimum of 120 days (4-months)
                                                                              prior to re-sale. See Property Flopping for details.
 Evidences that the seller has owned the property a minimum of 12             MSI does not require additional documentation
 months
 Notes:
  If, in MSI’s opinion, the property value is artificially inflated, MSI reserves the right to refuse purchase of the loan.


Underwriting            FHA Loans:
Requirements
for Purchase            Follow FHA guidelines for “property flipping.”
Transactions            Conventional and VA loans:
                            MSI requires a 12-month chain of title, showing the property seller’s
                             name on the current title.
                            MSI does not allow double escrows.


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Property Flipping,                     Continued


Red Flags           MSI has identified the following as “red flags” that may indicate a
                    property flip:
                     Subject property is being re-sold at large increase after being recently
                       renovated.
                     Property seller is LLC (Limited Liability Company).
                       • Check preliminary HUD-1 to verify seller on sales contract is listed
                           as seller on HUD-1.
                     Inconsistencies exist between the owner as listed on the appraisal, the
                       vested owner as listed in the title commitment, and the seller as listed
                       in the sales contract.
                     Comparables in the appraisal report do not appear to be the best
                       available comps, comps have transferred multiple times within 12
                       months, or the appraisal reflects excessive adjustments.
                     Title commitment reflects multiple deeds necessary to effect transfer
                       of title.
                     Title commitment, sales contract, or appraisal lists the owner as
                       "owner of record."
                     Seller held seconds.

                    Note: MSI will review loans prior to purchase for the indicated red flags.


Property            For Conventional loans involved in any short sale negotiation and
Flopping            resale with an interim purchaser/seller to our applicant, MSI requires:
                     A copy of the HUD-1 from the purchase showing it was a legitimate
                       non-arms length transaction and
                     The loan must include the contact information to the short sale lender,
                       and
                     Evidence/verification from the title company that all terms and
                       requirements of the short sale/lender seller have been met, and
                     MSI requires that the “interim” short-sale purchase occur a minimum
                       of 120-days prior to the “final” sale to our borrower.
                     Note: If the short sale is purchased directly from a Bank or Agency
                       (Fannie or Freddie), with no “interim buyer”, MSI will waive the 120-
                       day requirement.




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Qualifying Ratios and Liabilities

Summary          Each product has specific qualifying ratio requirements published in the
                 product summary.


Product Suites   Each product subset within the product suite notes the maximum
                 qualifying ratios for that particular product.
                 If a ratio restriction is noted in a specific product subset, those ratios
                 must be met regardless of the AUS finding.


Housing          The monthly housing expense is the sum of the following charges on the
Payment Ratio    primary residence (or new loan on a primary residence) divided by the
                 Borrower’s stable monthly income:
                  Monthly principal and interest payment on the Borrower’s primary
                    home and
                    • 1/12th of the annual hazard insurance premium
                    • 1/12th of the annual real estate taxes
                    • 1/12th of the annual flood insurance premium, when applicable
                    • Monthly leasehold payments, when applicable
                    • Monthly homeowner association dues, condominium maintenance
                       fees, monthly assessments, when applicable
                    • 1/12th of the annual private mortgage insurance premium, when
                       applicable
                  Monthly payment for other financing, when applicable
                  For equity lines of credit, the payment made on the outstanding
                    balance should be used for qualification

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Qualifying Ratios and Liabilities,                              Continued


Debt-To-            The debt-to-income (DTI) ratio compares the Borrower’s total monthly
Income Ratio        obligations with their qualified monthly gross earnings.
                     A favorable comparison validates the ability of the Borrower to repay
                        the loan based on his financial strength
                     The Debt to Income ratio (DTI) is calculated by the sum of the
                        following divided by the Borrower’s stable monthly income:
                        • Monthly housing expense on the Primary as calculated above
                        • All installment debt with over ten (10) payments remaining
                        • All revolving debt
                        • Alimony, child support or maintenance payments with more than
                            ten (10) payments remaining
                        • Real estate net rental losses from all investment properties owned
                        • Second Home total housing debt, if applicable
                        • Any other obligation where a monthly payment is required


Calculation         Depending upon the specific product, loan qualification may be based on
                    either:
                       Housing and Debt, which are generally listed as 34/41%
                        •    Qualifying calculation for this method requires the housing ratio to
                             be noted separately with a minimum qualification for housing.
                       Total DTI, generally listed as “DTI” in a product matrix or in
                        guidelines.
                        •    Qualifying calculation for this method requires the total DTI to be
                             the determining factor with little to no consideration placed on the
                             housing ratio.


Alimony             If a borrower is paying alimony, the payment must be considered a debt.


Automobiles         Payments on all automobile installment loans and automobile leases,
                    regardless of the remaining number of payments, must be included in the
                    calculation of recurring monthly expenses.
                       Car allowances may be used to “off-set” car payments, but the car
                        payments may not be “ignored”
                    Note: To use a “car allowance” as income, follow Fannie Mae guidelines,
                    see the Fannie Mae Seller Guide at AllRegs. The underwriter must justify
                    the use in writing.


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Qualifying Ratios and Liabilities,                          Continued


Paying off     Paying off revolving debt to qualify a borrower is not permitted. The
Debt           borrower must be able to qualify with current debt.
                  Paying off installment debt to qualify is acceptable; however, paying
                   down installment debt to 10-monthly payments is not permitted.


Monthly        The monthly debt payment is the sum of the following monthly
Payments       obligations:
                  Monthly housing expense
                   •   Monthly housing expense includes principal & interest, taxes &
                       insurance (regardless whether they are in escrow or not &
                       including flood and MI as applicable), HOA dues/fees, leasehold
                       fees as applicable.
                  Automobile installment or lease payments
                  Installment debts with 10 or fewer monthly payments should also be
                   considered as a recurring monthly obligation if it significantly affects
                   the borrower’s ability to meet his or her credit obligations.
                  Revolving Debts, use the greater of the minimum payment reflected
                   on the credit report, 5% of the balance or $10.00, in the debt to
                   income ratio.
                  Aggregate negative net rental income from all investment properties
                   owned.
                  Monthly mortgage payment for second home.
                  Payments on all deferred loans (i.e., student loans and loans in
                   forbearance).


Co-Signed      Co-signed obligations, for mortgages and installment loans, can be
Obligations    excluded from recurring monthly expenses if all of the following
               documentation is provided:
                  Twelve months of cancelled checks that show payments have been
                   made by another party.
                  If the account on loan has been in existence for less than 12 months,
                   the full payment of the co-signed account is considered a liability and
                   must be used in calculating the debt ratio.
                  Verification that there have been no delinquencies on the account
                   during the most recent 12 months.


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Qualifying Ratios and Liabilities,                              Continued


HELOC               For CLTV/TLTV Calculation Purposes:
       (9/17/10)
  CLAR (1/07/11)
                     Use the entire line of credit and not just the outstanding balance.

                    For qualifying purposes
                     Borrower's housing-expense to income ratio is based on the required
                       payment shown on the credit report. The payment must be
                       “reasonable” (i.e. a $20 payment on a $200 K line of credit is not
                       reasonable.)
                       • If the credit report payment is not reasonable or
                       • If the payment is not shown on the credit report, calculate the
                           payment on the outstanding balance as shown under the terms of
                           the HELOC Note.
                     If the borrower cannot qualify with the payment, the credit line may
                       be reduced or closed to permit qualification for the loan.
                       • If the HELOC credit line has been reduced or closed, MSI requires
                           evidence (copy of loan modification or lower amount recorded on
                           the title or lien removed from the title) to validate reduced
                           payments.
                    See Home Equity Line of Credit for additional details.


Revolving           Monthly Payments (or 5% of the outstanding balance if a monthly
Debt                payment is not provided) on revolving accounts, regardless of the
                    balance, must be included in the total debt to income calculation.


Student Loans       Student loans must be included in debt ratio calculation regardless of
                    deferred status.
        (7/15/10)
                       If a payment is not indicated on the credit report, a copy of the
                        borrower’s payment letter or forbearance agreement is required to
                        determine the payment amount to use in calculating the borrower’s
                        total monthly obligations.
                       If no required payment is included in the documentation for student
                        loans (active or deferred); MSI requires the payment to be calculated
                        at 2% of the current balance for qualifying purposes.




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Subordinate Financing

Overview       Second Trust Deeds, junior liens and subordinate liens (secondary
               financing) are defined as mortgages (encumbrances on real estate) that
               have rights that are secondary (inferior) to that of another recorded
               interest (mortgage) in the same property.
               MSI will purchase loans with subordinate financing as long as the
               Combined Loan-to-Value (CLTV) ratio of the first and second do not
               exceed the limits outlined by these guidelines and by the product
               guidelines.
               See the loan parameters in the product suite for eligibility and maximum
               limits.


Requirements   The subordinate (secondary) financing must meet the following guidelines
               (Guidelines apply to new and existing subordinate financing):
                  The secondary financing must meet the more restrictive of MSI or
                   current Fannie Mae guidelines or the current Freddie Mac guidelines
                   (applicable to the AUS used).
                  The maximum Combined Loan to Value (CLTV/HCLTV) ratio of the first
                   and second must not exceed the limits outlined by these guidelines
                   and by the product loan parameter matrix.
                  A certified copy of the executed second Note and Subordination
                   Agreement (when applicable) must be provided to confirm loan
                   amount, payment terms and lien status.
                  The subordination agreement must be recorded concurrently (and
                   clearly in second position) with the first Mortgage/Deed of trust, as
                   applicable.
                  “Piggy Back” or simultaneous seconds must be recorded in clear
                   second position, evidenced by the closing instructions and the final
                   title policy when issued.
                  The secondary financing must have a term of no less than five years,
                   unless the financing fully amortizes prior to that time.
                  The financing must not permit the Note holder to “call” the financing
                   within the first five years following loan closing.
                  The subordinate financing may not be a “wrap-around” type
                   transaction.


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Subordinate Financing,                            Continued


Requirements (continued)

                       The interest rate of the subordinate financing should be at "market
                        rate", no more than 2% below Fannie Mae's posted net yield for
                        second mortgages.
                       The secondary financing must not have a negative amortization
                        feature.
                       The term of the Note must provide for regular monthly payments of at
                        least interest only with no provisions for future advances.
                       If subordinate financing exists, maximum loan to value on the first
                        mortgage is 80.00%.
                       The subordinate financing must permit prepayment without penalty.
                       Monthly payments on the secondary financing must be included in the
                        borrowers housing and debt ratios.
                       Payments may be graduated or variable, as long as:
                        •    The annual payment adjustments of the secondary do not exceed
                             the lesser of a 2% interest rate increase or an 8.50% payment
                             increase.
                       The total amount of the subordinate financing amortizes during the
                        term of the loan.


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Subordinate Financing,                        Continued


Requirements (continued)
       (10/08/09)      New subordinate financing:
                        •   Employer Seconds are not permitted.
                        •   Community Seconds are not permitted.
                        •   May not be provided by a private party that is a real estate broker,
                            real estate agent, builder, developer etc.
                        •   Private second mortgages may be held by the property seller (aka
                            seller carry-back) as long as they meet all guidelines as outlined
                            by MSI/Fannie Mae as well as the following additional guidelines
                            below:
                            o Permitted for owner-occupied principal residences only.
                            o Permitted only after the borrower has made a 5.00% minimum
                                down payment (from verified personal funds).
                            o The appraiser must note that the secondary financing being
                                provided by the seller and not any negative impact on value or
                                marketability.
                            o The interest rate must be at current market. If it is more than
                                2.00% below Fannie Mae’s posted net yield in effect for second
                                mortgages at the time of closing/disbursement, the amount of
                                the seller second must be treated as a sales concession and will
                                require a dollar-for-dollar reduction in the sales price.
                       The existing subordinate lien holder may be an owner-carry second
                        from the owner of the property, or an institutional lender.


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Subordinate Financing,                            Continued


Documentation       For Underwriting (to be reviewed by the Underwriter, included in the
Requirements
                    Underwriting File):
                       Existing: A copy of the executed Note, Trust Deed and Subordination
                        Agreement. See
                       New: A copy of the Note that will be executed at closing on the new
                        subordinate financing.

                    For Closed Loan Delivery:
                       A certified copy of the executed second Note, Trust Deed, and
                        Subordination Agreement (if applicable) must be provided with the
                        loan file delivered for purchase to confirm loan amount, payment
                        terms, and lien status.


Home Equity         Home Equity Lines of Credit (HELOC) are permitted to the more restrictive
Line of Credit      of Fannie Mae/MSI guidelines.

                    Note:
                       The Delivery File must include the appropriate documentation to
                        confirm the HELOC loan terms (e.g., Note, etc.)
                    See HELOC for qualification details.




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Temporary Buydowns

Overview       Temporary buydowns allow for the borrower to reduce an initial period of
               mortgage payments through direct payment from an interested party of
               the loan transaction.
               The purpose of a temporary buydown is to assist the borrower in
               qualifying for the mortgage.


Buydown        Buydown funds must be deposited into a separate custodial account.
Funds


Source of      Funds may be provided by any source or combination of sources,
Buydown        including family members and interested parties to the loan transaction.
Funds
                  If the funds are contributed by an interested party, the funds may be
                   subject to interested party contribution limits. See Interested Party
                   Contributions.

               The buydown plan must be a written agreement between the party
               providing the buydown funds and the borrower.
                  When the lender funds the buydown account, the buydown agreement
                   must require that the funds in the buydown account be transferred to
                   the new servicer.


Terms          An interest rate buydown plan must provide for a buydown period not
               greater than 24 months and decreases of not more than 1% in the
               portion of the interest rate paid by the borrower in each 12-month
               interval.
               Refer to product guidelines for specific buydown terms available.
               Note: MSI will purchase only “full” interest rate buydowns (e.g. 2-1- 1-0,
               etc)


Note           The Temporary Buydown does not change the terms of the mortgage
               Note. The permanent Note Rate is printed on the Note and the borrower is
               obligated to pay that Note Rate if the buydown funds are not available.


                                                                       Continued on next page




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Temporary Buydowns,                                     Continued


Buydown                  A buydown agreement detailing the terms must be signed at closing.
Agreement
                         The agreement must:
                            Provide that the borrower will not be relieved of his/her obligation to
                             make the mortgage payment required by the terms of the Note if for
                             any reason the buydown funds are not available.
                            Outline the disposition of buydown funds in the event of the mortgage
                             being paid-in-full, defaulting, and/or being assumed) as applicable to
                             the loan product.
                            Be in full compliance with current Fannie Mae and/or FHA
                             requirements.
                         MSI provides a sample Buydown Agreement on our Web Site,
                         www.msicorr.com .


Calculation              Example for:
Example
                         2/1 Buydown Type for $100,000 loan amount, 7.00% note rate at 30 year
                         amortization

                                              Typical Buydown Schedule – 3/2/1
                                                            Year 1
Note Rate Monthly P&I                                            $665.30
1st Year Payment Rate at 5.000%                                  $536.82
1st   Year Monthly Buydown Amount                                $128.48 (12 X this amount = Total)
1st Year Total Buydown Amount                                    $1,541.76
                                                            Year 2
Note Rate Monthly P&I                                            $665.30
2nd   Year Payment Rate at 6.000%                                $599.55
2nd Year Monthly Buydown                                         $65.75(12 X this amount = Total)
2ndYear Buydown Amount                                  $789.00
Total Buydown Amount – sum of each annual buydown = $2,330.76
Notes:
 MSI provides special Temporary Buydown pricing; the cost of the buydown is priced by MSI and may or may not be the
    actual cost of the buydown.
      If the Correspondent chooses MSI pricing for a Temporary Buydown, the Buydown Schedule must reflect the terms of the
       actual buydown cost and not be a reflection of the dollar amount of the buydown pricing.




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