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6115 Program Guideline

VIEWS: 12 PAGES: 156

									6115 Program Guideline
   Non Conforming 6115
                                         Direct 6115
         Direct Mortgage Corp Non-Conforming Conventional LTV Matrices

MATRIX A
                           Fixed Rate, 40-Year Fixed/Balloon,
           Treasury/LIBOR ARMs (6 Month, 1/1, 3/1, 5/1, 7/1 and 10/1 ARMs)              2

                            40-Year 5/1 LIBOR ARM/Balloon

                                     Full/Alt Doc
           Single Family Detached or Attached, PUD, Condo, 2 units, Co-op 1
     Loan Amount        Max. LTV   Minimum Loan       Max.       Minimum Loan Score
                                    Score for LTV     CLTV             for CLTV
                                                620                                  620
     Up to $500,000            90%                              90%
                                        Interest-Only - 660                   Interest-Only - 660

                                                620                                  620
   $500,001 - 650,000          90%                              90%
                                        Interest-Only - 660                  Interest-Only - 660

                               70%              620             70%                  620
  $650,001 - 750,0004                    Interest-Only - 660                  Interest-Only - 660
                               80%              640             90%                  640
                                        Interest-Only - 660                   Interest-Only - 660
 $1,000,001 - 1,500,000 4      75%              700             85%                  700
 $1,500,001 - 2,000,0005       70%              700              85%                  700
1. Co-ops are not allowed with the 6 month, 1/1, 3/1, 7/1 and 10/1 LIBOR ARMs, the 1/1, 3/1
    Treasury ARMs, or 40-Year products.
2. Interest-Only feature available for loan amounts to $2 million, 30 year term only (not permitted
    with 40-Year products).
3. Reserves of at least six months PITI are required.
4. Reserves of at least nine months PITI are required.
5. Reserves of at least 12 months PITI are required.
6. 6 month ARM offered with LIBOR only.




DW0308                                  Page 1 of 20
             PRIMARY RESIDENCE - PURCHASE AND RATE/TERM REFINANCE
MATRIX B
                              Fixed Rate, 40-Year Fixed/Balloon
                 Intermediate Treasury/LIBOR ARMs (3/1, 5/1, 7/1 and 10/1 ARMs)              1

                              40-Year 5/1 LIBOR ARM/Balloon
                                             Full/Alt Doc

                                         Primary 3-4 Units
      Loan Amount              Max.                            Max. CLTV      Minimum Loan Score
                               LTV         Minimum Loan
                                           Score for LTV                           for CLTV

                                                 620                                   620
                               70%1
                                                                   70%         Interest-Only - 660
                                         Interest-Only - 660
      Up to 650,0002                             640                                   640
                                80%                                80%
                                         Interest-Only - 660                   Interest-Only - 660
                                                 620                                   620
                                70%
 $650,001 – 1,000,000    3                                         90%         Interest-Only - 660
                                         Interest-Only - 660
                                80%                                80%                660
                                                 660
 $1,000,001 – 1,500,000   4     75%                                80%                700
                                                 700
 $1,500,001 – 2,000,000   5     70%                               80%                 700
                                                 700
1. For LTV’s greater than 90%, refer to High Risk Transaction restrictions.
2. Reserves of at least two months PITI are required.
3. Reserves of at least six months PITI are required.
4. Reserves of at least nine months PITI are required
5. Reserves of at least 12 months PITI are required




DW0308                                   Page 2 of 20
           PRIMARY RESIDENCE - PURCHASE AND RATE/TERM REFINANCE
MATRIX C
                           Fixed Rate, 40-Year Fixed/Balloon
           Treasury/LIBOR ARMs (6 Month, 1/1, 3/1, 5/1, 7/1 and 10/1 ARMs)               1

                            40-Year 5/1 LIBOR ARM/Balloon

                                            Stated Doc

             Single Family Detached or Attached, PUD, Condo, 2 units, Co-op
      Loan Amount        Max. LTV    Minimum Loan     Max. CLTV    Minimum Loan Score
                                      Score for LTV                       for CLTV
    Up to $1,000,000           80%               740              80%                  740
 $1,000,001 – 2,000,000        65%               740               75%                  740
1. Interest-Only feature available for loan amounts to $2 million, 30 year term only (not permitted
   with 40-Year Mortgage Products).


                       PRIMARY RESIDENCE - CASH-OUT REFINANCE
MATRIX E
                           Fixed Rate, 40-Year Fixed/Balloon
          Treasury/LIBOR ARMs (6 Month 6, 1/1, 3/1, 5/1, 7/1 and 10/1 ARMs)              1

                           40-Year 5/1 LIBOR ARM/Balloon

                                            Full/Alt Doc

                    Single Family Detached or Attached, PUD, Condo, 2 units, Co-op 2
      Loan Amount            Max. LTV        Minimum Loan       Max. CLTV Minimum Loan Score
                                             Score for LTV                           for CLTV
                                80%                620              80%                 620
      Up to $400,000                       Interest-Only - 660                  Interest-Only – 660
                                90%                680              90%                 680
                                75%                620              80%                 620
   $400,001 – 650,000                      Interest-Only - 660                  Interest-Only – 660
                                80%                680              90%                 680
                                70%                620              80%                 620
  $650,001 – 1,000,0003                    Interest-Only – 660                  Interest-Only - 660
                                75%                680              90%                 680
 $1,000,001 – 1,500,0004        70%                700              85%                 700
 $1,500,001 – 2,000,0005        65%                700              85%                 700
1. Interest-Only feature available for loan amounts to $2 million, 30 year term only (not permitted
   with 40-Year products).
2. Co-ops are not allowed with the 6 month, 1/1, 3/1, 7/1 and 10/1 LIBOR ARMs, the 1/1, 3/1
   Treasury ARMs, or 40-Year products.
3. Reserves of at least six months PITI are required.
4. Reserves of at least nine months PITI are required.
5. Reserves of at least 12 months PITI are required.
6. 6 month ARM offered with LIBOR only.




DW0308                                   Page 3 of 20
                       PRIMARY RESIDENCE - CASH-OUT REFINANCE
MATRIX F
                           Fixed Rate, 40-Year Fixed/Balloon
           Treasury/LIBOR ARMs (6 Month, 1/1, 3/1, 5/1, 7/1 and 10/1 ARMs)             1

                           40-Year 5/1 LIBOR ARM/Balloon

                                            Full/Alt Doc

                                        Primary 3-4 Units
      Loan Amount            Max. LTV      Minimum Loan       Max. CLTV Minimum Loan Score
                                           Score for LTV                           for CLTV
                                                 620                                  620
                               70%                                70%
     Up to $650,0002                     Interest-Only - 660                  Interest-Only – 660
                               80%               680              80%                 680
                                                 620                                  620
                               70%                                70%
  $650,001 – 1,000,0003                  Interest-Only – 660                  Interest-Only - 660
                                75%              680              80%                 680
 $1,000,001 – 1,500,0004        70%              700              70%                 700
 $1,500,001 – 2,000,0005        65%              700              65%                 700
                                     loan amounts to $2 million, 30 year term only (not permitted
1. Interest-Only feature available for
   with 40-Year products).
2. Reserves of at least two months PITI are required
3. Reserves of at least six months PITI are required.
4. Reserves of at least nine months PITI are required.
5. Reserves of at least 12 months PITI are required.



                       PRIMARY RESIDENCE - CASH-OUT REFINANCE

MATRIX G
                            Fixed Rate, 40-Year Fixed/Balloon
            Intermediate Treasury/LIBOR ARMs (3/1, 5/1, 7/1 and 10/1 ARMs)                 1

                             40-Year 5/1 LIBOR ARM/Balloon

                                              Full/Alt Doc
                                           Primary 3-4 Units
      Loan Amount            Max. LTV        Minimum Loan       Max. CLTV Minimum Loan Score
                                             Score for LTV                           for CLTV
     Up to $400,0003            80%                740              80%                 740
 $400,001 – 1,000,0003          70%                740              70%                 740
$1,000,001 – 2,000,0003         65%                740              70%                 740
1. Interest-Only feature available for loan amounts to $2 million, 30 year term only (not permitted
   with 40-Year products).
2. 6 Month ARM offered with LIBOR only.
3. Reserves equal to at least 30% of the loan amount are required.




DW0308                                   Page 4 of 20
                 SECOND HOME - PURCHASE AND RATE/TERM REFINANCE

MATRIX I
                           Fixed Rate, 40-Year Fixed/Balloon
           Treasury/LIBOR ARMs (6 Month6, 1/1, 3/1, 5/1, 7/1 and 10/1 ARMs)2
                            40-Year 5/1 LIBOR ARM/Balloon

                                            Full/Alt Doc

                    Single Family Detached or Attached, PUD, Condo, Co-op1
      Loan Amount            Max. LTV        Minimum Loan       Max. CLTV Minimum Loan Score
                                             Score for LTV                           for CLTV
                                70%                620             80%                  620
     Up to $650,000                        Interest-Only – 660                  Interest-Only – 660
                                80%                660             80%                  660
                                70%                620             70%                  620
  $650,001 – 1,000,0003                    Interest-Only – 660                  Interest-Only – 660
                                75%                660             80%                  660
 $1,000,001 – 1,500,0004        70%                700             80%                  700
 $1,500,001 – 2,000,0005        65%                700             80%                  700
1. Co-ops are not allowed with the 6 month, 1/1, 3/1, 7/1 and 10/1 LIBOR ARMs, the 1/1, 3/1
   Treasury ARMs, or 40-Year products.
2. Interest-Only feature available with loan amounts to $2 million, 30 year term only (not permitted
   with 40-Year products).
3. Reserves of at least six months PITI are required.
4. Reserves of at least nine months PITI are required.
5. Reserves of at least 12 months PITI are required.
6. 6 month ARM offered with LIBOR only.




DW0308                                   Page 5 of 20
                 SECOND HOME - PURCHASE AND RATE/TERM REFINANCE

MATRIX J
                           Fixed Rate, 40-Year Fixed/Balloon
           Treasury/LIBOR ARMs (6 Month2, 1/1, 3/1, 5/1, 7/1 and 10/1 ARMs)1
                            40-Year 5/1 LIBOR ARM/Balloon

                                             Stated Doc

                         Single Family Detached or Attached, PUD, Condo
 Loan Amount                Max. LTV        Minimum Loan        Max. CLTV Minimum Loan Score
                                             Score for LTV                           for CLTV
Up to $500,000 3               80%               740               80%                  740
$500,001 – 650,000  3          75%               740               80%                  740
$650,001 – 1,000,0003          70%               740               75%                  740
1,000,001 – 2,000,000  3       65%               740               75%                  740
1. Interest-Only feature available with loan amounts to $2 million, 30 year term only (not permitted
   with 40-Year products).
2. 6 month ARM offered with LIBOR only.
3. Reserves equal to at least 30% of the loan amount are required.




DW0308                                   Page 6 of 20
                           SECOND HOME - CASH OUT REFINANCE

MATRIX L
                           Fixed Rate, 40-Year Fixed/Balloon
           Treasury/LIBOR ARMs (6 Month6, 1/1, 3/1, 5/1, 7/1 and 10/1 ARMs)2
                            40-Year 5/1 LIBOR ARM/Balloon

                                           Full/Alt Doc

                    Single Family Detached or Attached, PUD, Condo, Co-op1
 Loan Amount                 Max. LTV        Minimum Loan       Max. CLTV      Minimum Loan Score
                                             Score for LTV                           for CLTV
                                                   620                                  620
                                70%                                 80%
Up to $500,000                             Interest-Only - 660                  Interest-Only - 660
                                80%                680              80%                 680
                                                   620                                  620
                                70%                                 80%
$500,001 – 650,000                         Interest-Only - 660                  Interest-Only – 660
                                75%                680              80%                 680
                                                   620                                  620
                                60%                                 80%
$650,001 – 1,000,0003                      Interest-Only - 660                  Interest-Only – 660
                                65%                680              90%                 680
$1,000,001 – 1,500,000   4      60%                700              80%                 700
$1,500,001 – 2,000,0005         60%                700              80%                 700
1. Co-ops are not allowed with the 6 month, 1/1, 3/1, 7/1 and 10/1 LIBOR ARMs, the 1/1, 3/1
   Treasury ARMs, or 40-Year products.
2. Interest-Only feature available for loan amounts to $2 million, 30 year term only (not permitted
   with 40-Year products).
3. Reserves of at least six months PITI are required.
4. Reserves of at least nine months PITI are required.
5. Reserves of at least 12 months PITI are required.
6. 6 month ARM offered with LIBOR only.




DW0308                                  Page 7 of 20
                           SECOND HOME - CASH OUT REFINANCE

MATRIX M
                           Fixed Rate, 40-Year Fixed/Balloon
           Treasury/LIBOR ARMs (6 Month2, 1/1, 3/1, 5/1, 7/1 and 10/1 ARMs)1
                            40-Year 5/1 LIBOR ARM/Balloon

                                            Stated Doc

                         Single Family Detached or Attached, PUD, Condo
 Loan Amount                 Max. LTV        Minimum Loan       Max. CLTV      Minimum Loan Score
                                             Score for LTV                           for CLTV
Up to $400,0003                 75%               740               75%                 740
$400,001 – 650,0003             70%               740               70%                 740
$650,001 – 1,000,0003           65%               740               70%                 740
$1,000,001 – 2,000,0003         60%               740               70%                 740
1. Interest-Only feature available for loan amounts to $2 million, 30 year term only (not permitted
   with 40-Year products).
2. 6 month ARM offered with LIBOR only.
3. Reserves equal to at least 30% of the loan amount are required.




                       INVESTMENT - PURCHASE AND RATE/TERM REFINANCE 1, 2

MATRIX O
                               Fixed Rate, 40-Year Fixed/Balloon

            Intermediate Treasury/LIBOR ARMs (3/1, 5/1, 7/1 and 10/1 ARMs)
                             40-Year 5/1 LIBOR ARM/Balloon

                                           Full/Alt Doc

                    Single Family Detached or Attached, PUD, Condo, 2-4 Unit
 Loan Amount                Max. LTV         Minimum Loan       Max. CLTV Minimum Loan Score
                                             Score for LTV                           for CLTV
Up to $400,000                                     620                                  620
                              70%                                  70%
                                           Interest-Only - 660                  Interest-Only - 660
                                                   640                                  640
                              80%                                  80%
                                           Interest-Only - 660                  Interest-Only - 660
                                                   620                                  620
                              70%                                  90%
$400,001 – 650,000                         Interest-Only – 660                  Interest-Only – 660
                              80%                  660             90%                  660
$650,001 – 800,000            70%                  660             90%                  660
$800,001 – 1,000,000          65%                  680             90%                  680
1. Reserves of at least nine months PITI are required.
2. Interest-Only feature available for loan amounts to $1 million, 30 year term only (not
   permitted with 40-Year products).




DW0308                                  Page 8 of 20
                          INVESTMENT - CASH-OUT REFINANCE 1, 2, 3
MATRIX P
                             Fixed Rate, 40-Year Fixed/Balloon
             Intermediate Treasury/LIBOR ARMs (3/1, 5/1, 7/1 and 10/1 ARMs)
                              40-Year 5/1 LIBOR ARM/Balloon

                                           Full/Alt Doc

                    Single Family Detached or Attached, PUD, Condo, 2 Unit
 Loan Amount                Max. LTV         Minimum Loan       Max. CLTV Minimum Loan Score
                                             Score for LTV                           for CLTV
Up to $300,000                                     620                                  620
                              70%                                  70%
                                           Interest-Only - 660                  Interest-Only – 660
                                                   680                                  680
                              80%                                  80%
                                                   620                                  620
$300,001 – 400,000            70%                                  70%
                                           Interest-Only - 660                  Interest-Only – 660
                                                   680                                  680
                              75%                                  80%
                                                   620                                  620
                              65%                                  65%
$400,001 – 650,000                         Interest-Only – 660                  Interest-Only – 660
                              70%                  720             70%                  720
$650,001 – 800,000            60%                  680             60%                  680
$800,001 – 1,000,000           N/A                 N/A             N/A                  N/A
1. Reserves of at least nine months PITI are required.
2. Interest-Only feature available for loan amounts to $800,000, 30 year term only (not
   permitted with 40-Year products).
3. For loans with conforming loan amounts not utilizing the Interest Only feature; refer to
   Conventional Conforming LTV/TLTV/CLTV matrices

                          INVESTMENT - CASH-OUT REFINANCE 1, 2, 3
MATRIX Q
             Intermediate Treasury/LIBOR ARMs (3/1, 5/1, 7/1 and 10/1 ARMs)
                              40-Year 5/1 LIBOR ARM/Balloon

                                           Full/Alt Doc

                                                3-4 Unit
 Loan Amount               Max. LTV          Minimum Loan       Max. CLTV Minimum Loan Score
                                             Score for LTV                           for CLTV
Up to $400,000                70%                 700              70%                  700
$400,001 – 650,000            65%                 700              65%                  700
$650,001 – 800,000            60%                 700              60%                  700
$800,001 – 1,000,000           N/A                N/A              N/A                  N/A
1. Reserves of at least nine months PITI are required.
2. Interest-Only feature available for loan amounts to $800,000, 30 year term only (not
   permitted with 40-Year products).
3. For loans with conforming loan amounts not utilizing the Interest Only feature; refer to
   Conventional Conforming LTV/TLTV/CLTV matrices




DW0308                                  Page 9 of 20
Multiple Loans to One Borrower

MULTIPLE FINANCED PROPERTIES

The following guidelines apply to the number of 1-4 unit financed properties owned by all Borrowers
on the Loan transaction, not just the primary Borrower.
 Property Type                        Total # financed with Direct      Restrictions on 5th and 6th
                                      Mortgage and other lenders                 property
 Primary                                         Unlimited                          No
 Second Home                              4 (including primary)                    Yes1
 Investment                               4 (including primary)                    Yes2
*Second Home and Investment Restrictions

1. A second home or investment property that will be the Borrower's third or fourth financed property
   is subject to the following restrictions:

    •   Fixed rate product
    •   Purchase or rate/term refinance transaction

2. An investment property that will be the Borrower’s third or fourth financed property is
   subject to the following restrictions:

    •   Purchase or rate/term refinance transaction

PROPERTY OWNERSHIP LIMITATIONS

There are no restrictions on the number of properties that a Borrower owns free and clear.

Non-U.S. Citizen Borrowers

NON-PERMANENT RESIDENT ALIENS

All non-permanent resident aliens must provide evidence of an acceptable visa. Please refer
to acceptable visa classes and documentation requirements.

Restrictions

All non-permanent resident aliens must have a minimum two-year history of credit and
employment in the U.S. or another country. In addition, non-permanent resident aliens who
meet at least one of the following requirements are generally eligible for the same financing
terms as U.S. citizen*:

•        Minimum two-year history of residence, employment and credit in the U.S., or

•        Meet all of the requirements for a Relocation/Transferee Borrower, or

•        Borrowing with a U.S. citizen or permanent resident alien.


Non-permanent resident aliens not meeting any of these three options, but who have a
documented two-year history of credit and employment in the U.S. or another country are
eligible for financing under the following terms:



DW0308                                     Page 10 of 20
•      Two bank references evidencing a two-year credit history in another country may be
       provided to establish credit for Borrowers having less than a two-year credit history
       in the U.S.

•      The maximum LTV/CLTV is the lesser of the product limit or:

                                  Purchase             Rate/Term            Cash-out Refinance
                                                       Refinance
 Primary                             75%                  75%                        75%
 Second Home                         75%                  75%                        N/A
 Investment                          75%                  75%                        N/A

*Please Note: Eligibility may be restricted for specific products or programs, e.g. No Money
Down
Plus.

FOREIGN NATIONALS


Not allowed

DIPLOMATIC IMMUNITY

Not allowed.

Income Analysis

SELF EMPLOYED BORROWERS

All self-employed Borrowers are required to provide copies of signed individual (and
business if appropriate) tax returns, including all applicable schedules, for the previous two
years.

Year-to-date Income/Expense Statement and Balance Sheet are also required if more than
120 days have lapsed since the last fiscal year end. These financial statements will not be
required when:


•      The LTV/CLTV is less than or equal to 75% on a purchase or rate/term refinance

•      The LTV/CLTV is less than or equal to 65% on a cash-out refinance




Borrower Liquidity

LIQUIDITY REQUIREMENTS

Evidence the borrower meets Direct Mortgage's reserve (post-closing liquidity) requirements for
certain non-conforming programs or parameters must be provided. For Full/Alt Doc processing:



DW0308                                     Page 11 of 20
•      Reserves of at least six months PITI are required for:

       •      Loan amounts greater than $650,000 to $1,000,000

•      Reserves of at least nine months PITI are required for:

       •      Loan amounts greater than $1,000,000 to $1,500,000

       •      All Investment properties

•      Reserves of at least 12 months PITI are required for:

       •      Loan amounts greater than $1,500,000 to $2,000,000

Refer to the matrices for parameters.

Liquid assets verified to meet the reserve (post-closing liquidity) requirements may be in
the form of:

•      Personal funds held in checking accounts, savings accounts, certificates of deposit,
       brokerage or mutual fund accounts, publicly traded stocks or bonds.

•      Proceeds from the sale of real estate.

•      70% of the vested balance of a Borrower's personal IRA, SEP IRA, 401(k), KEOGH,
       403(b) account(s), or other IRS qualified retirement account(s).

•      Cash surrender value of life insurance (less outstanding loans if repayment not
       included in debt ratio calculation).

The following assets are ineligible for purposes of meeting the minimum reserve
requirement:

•      Gift funds

•      Borrowed funds

•      Funds held in business accounts

•      Stock in a closely held corporation

•      Proceeds from a cash-out refinance transaction




DW0308                                       Page 12 of 20
Down Payment

MINIMUM DOWN PAYMENT

The following minimum down payment requirements apply to Non-conforming Loans.
 Occupancy                                   LTV/CLTV           Borrower’s Minimum Down
                                                                          Payment
 Primary                                   >80% < 90%                        5%1
                                               < 80%                         0%2
 Second Home                               >80% < 90%                        5%1
                                               < 80%                         0%2
 Investment                                      All                Entire Down Payment
 1. Gift funds are allowed only after the minimum down payment has been made from the
     Borrower's own funds.
 2. Full down payment may be gifted.

CASH ASSETS FOR DOWN PAYMENT AND CLOSING COSTS

The Client should refer to the Underwriting Guide if not addressed below.

USE OF CREDIT CARD FOR PAYMENT OF FEES

Allowed


GIFT FUNDS

Gift funds are not allowed on Loans with LTV/TLTV greater than 90%. For primary or
second homes
the full down payment may be from a gift when the LTV/TLTV is 80% or less.

Gift funds are not allowed for investment property transactions, regardless of LTV/TLTV.

GROUP SAVINGS

Not allowed.

POOLED FUNDS

Not allowed.

SAVING CASH TO CLOSE

Allowed on new construction with Loan amounts up to $400,000. Not allowed on Reduce
Documentation programs.

INDIVIDUAL DEVELOPMENT ACCOUNT

Not allowed.




DW0308                                   Page 13 of 20
PROCEEDS FROM SECURED LOANS

Subordinate Financing

Subordinate financing, Closed End or HELOC, is allowed subject to the guidelines.

The maximum LTV/TLTV* may not exceed the guideline limits for the product and
occupancy type.

*For non-conforming loans, the TLTV is calculated by adding the first mortgage amount
to all subordinate financing and dividing that sum by the value of the mortgaged premises.
When subordinate financing is a HELOC, the credit line limit – rather than the amount of the
HELOC in use – must be used.

TRADES

Equity from trading a Borrower's existing property is acceptable after the Borrower has
made a 5% cash down payment. The amount of equity is determined by subtracting the
outstanding Loan balance of the property that is being traded, plus any transfer costs, from
the lesser of that property's appraised value or its trade-in value, as agreed to by both
parties.

A separate written appraisal for the property that is being taken in trade is required. A
search of the land records to verify ownership of the property and to document if there are
any existing liens on the property is also required.

SWEAT EQUITY

Not allowed.


1031 TAX DEFERRED EXCHANGES

Allowed for second homes and investment properties. Direct Mortgage Corp does not have
any restrictions if the property Client is using an IRS Tax Code 1031 Exchange as
documented on the Purchase Agreement.

STOCK, BONDS, MUTUAL FUNDS, U.S. GOVERNMENT SECURITIES AND PUBLICLY
TRADED SECURITIES

Allowed


MINIMUM LOAN SCORE REQUIREMENTS

To be eligible for non-conforming conventional financing, Direct Mortgage Corp Funding
requires a minimum Loan Score of at least 620. Clients should refer to guidelines available
when significant inaccurate credit is adversely impacting a borrower’s FICO credit score.

Additionally, for those programs requiring a minimum 620 Loan Score, a housing payment
history (mortgage, rental or combination of the two) covering the most recent 12 months
(minimum) with no late payments must be verified either by the credit bureau or by direct
verification.


DW0308                                   Page 14 of 20
   Higher Credit Standards

   The parameters or programs identified in the following table require greater reliance on the
   borrower's reported credit history and Direct Mortgage requires the credit report to evidence
   compliance with the required minimum Loan Score listed. Applicants whose credit reports
   reflect an insufficient credit history, an invalid score, or significant inaccurate credit
   information are not eligible for these enhanced parameters. The option of documenting an
   alternative or non-traditional credit history is also not permitted with these programs.



    Program                                           Minimum Loan Score

    LTV/TLTV for Standard Non-Conforming                              620-720
    Products
    Loan amount greater than $1,000,000                                  700
    Stated Doc                                                           740
    Interest-Only Feature                                                660


Eligible Transactions

Refinance Requirements


RATE/TERM REFINANCES

Direct Mortgage Corp will consider transactions meeting the following criteria to be Rate/Term
refinances
(additional requirements apply to owner-occupied homestead properties in Texas:
• Payoff of the current mortgage (principal balance plus accrued interest, and any required
    prepayment penalty, only; other costs such as late fees and past-due amounts may not be
    paid with the new loan)
    • If the first mortgage is a Home Equity Line of Credit (HELOC) a copy of the HUD-1
        Settlement Statement from the borrower’s purchase of the subject property, or
        documentation of home improvements* made to the property, must be provided
        evidencing the proceeds were used in their entirety to acquire or improve the subject
        property
• Payoff (as defined above) of any subordinate mortgage lien, used in its entirety to acquire
    or improve* the subject property
• Payoff (as defined above) any other mortgage lien against the subject, provided:
    • The lien has been open at least 12 months, and
    • Total draws in the past 12 months do not exceed 2% of the new first mortgage amount
• Standard loan fees (e.g., closing costs on the new mortgage; prepaids, such as interest,
    taxes and insurance, etc; and points)
• Incidental cash to the borrower not to exceed 1% of the principal balance of the new loan
    amount

* Home improvement costs may include the following:
• Materials
• Architectural fees
• Supplies


   DW0308                                    Page 15 of 20
•   Labor
•   Liability insurance on laboreres
•   Installation costs (water, sewer, well, etc)
•   Permits
•   Non-recurring costs of obtaining financing, including origination fees, discount points, title
    searches, recording fees
•   Temporary buydowns are not allowed

CASH-OUT REFINANCES

Maximum cash-out is based on a graduating LTV/TLTV scale:

LTV/TLTV                     Maximum Cash-out*
Greater than 75%             $250,000
65.01% to 75%                $400,000
50.01% to 65%                $500,000
Less than or equal to 50%    Unlimited

The Client should refer to the specific Product Descriptions for cash-out restrictions.

* Pay off of any subordinate lien not meeting the requirements for a rate/term refinance must
be included when calculating the maximum cash-out permitted at closing.

PAYOFF OF INSTALLMENT LAND CONTRACT OR CONTRACT FOR DEED

The payoff of an installment land contract or contract for deed may be treated as a purchase or
a refinance
transaction.

The appraised value can be used to determine the LTV in a purchase transaction regardless of
the
remaining Loan balance if the land contract or contract for deed has been seasoned for at least
two years.

NEW CONSTRUCTION

Age of credit documents

Information used to make the credit decision must be current.              The maximum age of
documents at closing is:

                               Item                  New Construction
                               Credit Documents      180 days old
                               Credit Report         180 days old
                               Appraisal             180 days old


For new construction, if, at the time of closing, the appraisal will be more than 180 days old,
but less than one year old, DMC requires and appraisal update, from the Appraiser certifying
that the property value has not declined sine the original appraisal date. If the appraisal is
older than one year, a new appraisal is required.




    DW0308                                     Page 16 of 20
NON-ARM’S LENGTH TRANSACTIONS

The Client should refer to the Underwriting Guide.

REO CONTRACTS

Not allowed.

AT RISK MARKETS

At a minimum, the Seller must check DMC’s declining market list for all transactions at
maximum financing. If a subject property is located in an area identified as an Declining
Market the following requirements apply:

•   Soft Markets – The maximum LTV/CLTV is the lesser of that shown on the appropriate LTV
    matrix or 90%.
•   Distressed Markets – The maximum LTV/CLTV is the lesser of that shown on the
    appropriate LTV matrix or 80%
    - DMC’s Stated program is not permitted if the property is in an area identified as a
    Declining Market
•   Severely Declining Markets – The maximum LTV/CLTV is the lesser of that shown on the
    appropriate LTV matrix or 75%.


HIGH RISK TRANSACTIONS

The following additional restrictions apply to non-conforming loans with LTVs greater than 90%:
• No gift funds
• Not available in declining markets
• Non-occupant Co-Borrowers not allowed

Additionally, gift funds are not allowed on any loan with a TLTV greater than 90%.

Settlement Costs

Prepaids


PREPAIDS

Prepaids may be financed in a refinance transaction except on Texas Rate/Term Refis.

Contributions


CONTRIBUTION LIMITS

Primary residence and Second home
All LTVs 6% of the lesser of the sales price or appraised value

Investment property
All LTVs 2% of the lesser of the sales price or appraised value




    DW0308                                   Page 17 of 20
Reduced Documentation Programs

Stated Income Options

DMC’s Stated Income programs offer expedited processing for creditworthy Borrowers. They
are not intended as a means to qualify marginal Borrowers and are not “No Qualifying”
programs. Loans solicited for any Stated Income program on the premise of easier qualification
are not eligible. These programs affect only the documentation of income and/or assets; all
other underwriting requirements apply. All stated income loans must be underwritten in
compliance with the Stated Income Guiding Principles.

The guidelines below apply to all Stated Income program Loans.         Then refer to additional
Stated specific requirements.

Occupancy
• Primary residence
• Second home

Property Types
• Single family detached or attached
• 2-unit, Primary residence only
• Condos, low- and high-rise
• PUDs, attached and detached
• Co-ops, Fixed Rate product only, geographic restrictions apply

Transactions
• Purchase
• Rate/Term refinance
• Cash-out refinance

Evaluating Credit Information

Borrowers who apply for a reduced documentation program must demonstrate an acceptable
credit history which includes compliance with a minimum Loan Score requirement. Refer to
LTV/TLTV matrices for specific requirements.

In addition to the Loan Score requirements:
    • Borrowers with a bankruptcy, foreclosure, deed-in-lieu, short-sale or settled-for-less
       proceeding discharged within the last seven years are not eligible.
    • The most recent 24 month (minimum) housing payment history (mortgage rating, rental
       rating, or combination of the two) with no more than one 30-day late, and no 60-day
       lates must be verified by either the credit bureau or by direct verification.
    • Three trade lines, one with activity in the last 12 months and one with a 24 month
       history.
Acceptable credit is a requirement, it may not be considered as a compensating factor.

Income/Employment
Eliminating verification of income does not eliminate the need to evaluate the Borrower’s ability
and willingness to repay the Mortgage debt. Information reflected on the Loan application,
including the Borrower’s stated income, and credit report are part of that analysis.

Direct Mortgage Corp requires IRS form 4506T executed by the Borrower. However, the
underwriter’s analysis must include a judgment about the reasonableness of the income



   DW0308                                    Page 18 of 20
disclosed at application in relation to the Borrower’s occupation and credit profile. If the
underwriter decides the income reflected on the Loan application is not reasonable given the
Borrower’s occupation and credit history, the Loan is not eligible for any Stated Income
program. See Stated Income Guiding Principles.

Effective for Loans registered or locked on and after November 28, 2007: At least one
borrower must receive income from self-employment

•   If a self-employed borrower also receives W2, passive or unearned income, this income
    must be fully documented.
•   If the borrower is self-employed and the co-borrower receives W2, passive or unearned
    income, this income must be fully documented.

Unearned Or Passive Income
Unearned or passive income includes: dividend/interest, trust income, child support, alimony or
separate maintenance, foster care, unemployment, disability, social security and other
retirement income, rental income, installment sale or land contract income, and any other
income that is not readily verifiable by an outside, independent third party source.

For Loans locked prior to November 28, 2007, the asset or source which generates the
monthly income for the Borrower must be verified either directly, or by a 3rd party source such
as a CPA. If the source of the stated income is not verifiable, it may not be used for
qualification purposes.

For Loans registered or locked on and after November 28, 2007: This income can only
be used for qualifying when fully documented.

Verbal VOE
All Stated Income program Loans, including those to self-employed Borrowers, must contain
satisfactory verbal verification of employment unless employment is verified on the Residential
Mortgage Credit Report (RMCR). If this verification can not be made the Loan is not eligible for
these programs.

For a self-employed Borrower this verification must be obtained via a disinterested third party,
i.e., CPA, regulatory agency or professional organization, or documentation verifying the
existence of the business provided. Examples of supporting documentation include, but are not
limited to:
• Yellow Pages ad
• Copy of business license
• Internet Web sites. Acceptable internet Web sites include the borrower’s business Web site,
     and government, union, or professional association Web sites.

Employed By Family Member
Borrowers employed by a family-owned business, i.e., where the source of income is an
immediate family member, are not eligible for Stated Income programs.


Self-Employed Borrowers
• Self-employed Borrowers must have been self-employed for a minimum of two years in the
   same occupation.
• Self-employed Borrowers must maintain a separate business phone listing.
• For self-employed Borrowers requesting a cash-out refinance, the purpose of the cash-out
   may not be to obtain cash for the business or for business expansion.


    DW0308                                   Page 19 of 20
•   Relocating self-employed Borrowers are not allowed.

Ineligible Transaction Characteristics
• Non-arm’s-length transactions
• Non-occupant co-borrower

Stated Program

The following additional criteria apply to all Stated Loans.

Products
• 40-Year Fixed/Balloon
• 15, 20 and 30 year Fixed Rate
• 6-Month LIBOR ARM
• 1-Year ARM, both LIBOR and Treasury-index
• 3/1 ARM, both LIBOR and Treasury-indexed
• 5/1 ARM, both LIBOR and Treasury-indexed
• 40-Year 5/1 LIBOR ARM/Balloon
• 7/1 ARM, both LIBR and Treasury-indexed
• 10/1 ARM, both LIBOR and Treasury-indexed

Liquidity Requirement
• Evidence the borrower meets Direct Mortgage Corp’s post-closing liquidity/reserve
   requirement must be provided. For Ltd Doc/VOA processing, verify reserves of at least:

Liquid assets verified to meet the post-closing liquidity/reserve requirement may be in the form
of:
• Personal funds held in checking accounts, savings accounts, certificates of deposit,
    brokerage or mutual fund accounts, publicly traded stocks or bonds
• Proceeds from the sale of real estate
• 70% of the vested balance of a Borrower’s personal IRA, SEP IRA, 401(k), KEOGH, 403(b)
    account(s), or other IRS-qualified retirement account
• Cash surrender value of life insurance (less outstanding loans if repayment not included in
    debt ratio calculation)

The following are ineligible for purposes of meeting the minimum reserve requirement:
• Gift funds
• Borrowed funds
• Funds held in business accounts
• Stock in a closely held corporation
• Proceeds from a cash-out refinance transaction




    DW0308                                     Page 20 of 20
                              Direct Mortgage Underwriting Guide
TABLE OF CONTENTS

SECTION I: UNDERWRITING .............................................................................................. 4

CHAPTER 1 - LOAN APPLICATION PACKAGE ............................................................................... 4
   General Underwriting Guidelines .....................................................................................................................4
   Eligible Borrower ..............................................................................................................................................4
   Loan Transaction Types.................................................................................................................................10
   Documentation Types ....................................................................................................................................12
   Documentation Type Verification Requirements............................................................................................15
   Occupancy Types...........................................................................................................................................17

CHAPTER 2 - EMPLOYMENT.......................................................................................................... 19
   Introduction.....................................................................................................................................................19
   General Requirements ...................................................................................................................................19
   Foreign Employment ......................................................................................................................................22

CHAPTER 3 - INCOME..................................................................................................................... 23
   Introduction.....................................................................................................................................................23
   Stability and Continuity of Income ..................................................................................................................23
   Full and Alternative Documentation ...............................................................................................................23
   Acceptable Sources of Income Clarification...................................................................................................23
   Other Income Considerations.........................................................................................................................28
   Stated Income ................................................................................................................................................30
   No Income Disclosure Programs....................................................................................................................31
   No Employment Disclosure Programs ...........................................................................................................31

CHAPTER 4 - ASSETS..................................................................................................................... 32
   Sources of Borrower Funds............................................................................................................................32
   Unacceptable Sources of Funds ....................................................................................................................39
   Down Payment ...............................................................................................................................................40
   Subordinate Financing ...................................................................................................................................40
   Adequacy of Financial Reserves....................................................................................................................41
   Contributions by Interested Parties ................................................................................................................41

CHAPTER 5 - LIABILITIES............................................................................................................... 43
   Monthly Housing Expense..............................................................................................................................43
   Monthly Debt Obligations ...............................................................................................................................43

CHAPTER 6 - CREDIT...................................................................................................................... 47
   Credit Standards.............................................................................................................................................47
   Real Estate Mortgages...................................................................................................................................48
   Derogatory Items ............................................................................................................................................48
   Extenuating Circumstance .............................................................................................................................48
   Financial Mismanagement .............................................................................................................................49
   Credit Quick Reference Guide .......................................................................................................................51
   Prior Housing History .....................................................................................................................................52
   First Time Home Buyers.................................................................................................................................52
   Undisclosed Debts..........................................................................................................................................52
   Inquiries ..........................................................................................................................................................52




                                                                                                                       DW0506                  Page 1 of 95
TABLE OF CONTENTS

CHAPTER 7 - QUALIFYING RATIOS............................................................................................... 53
   Introduction.....................................................................................................................................................53
   Housing Expense Ratio..................................................................................................................................53
   Total Debt Ratio..............................................................................................................................................53

CHAPTER 8 - MORTGAGE INSURANCE ........................................................................................................55
  General Information........................................................................................................................................55
  Borrower Paid Mortgage Insurance (BPMI) ...................................................................................................55
  No Mortgage Insurance..................................................................................................................................55
  Acceptable Primary Mortgage Insurers ..........................................................................................................55

CHAPTER 9 - AUTOMATED UNDERWRITING ............................................................................... 56
   General Information........................................................................................................................................56
   FNMA Desktop Underwriter (DU)...................................................................................................................56
   FHLMC Loan Prospector (LP)........................................................................................................................57


SECTION II: PROPERTY GUIDELINES............................................................................. 59

CHAPTER 1 - APPRAISAL REQUIREMENTS................................................................................. 59
   General Information........................................................................................................................................59
   Appraiser ........................................................................................................................................................59
   Appraisal Report.............................................................................................................................................59

CHAPTER 2 - UNACCEPTABLE PROPERTIES.............................................................................. 67
   All Property Types ..........................................................................................................................................67
   Single Family Properties ................................................................................................................................67
   Investment Properties ....................................................................................................................................67
   Second Homes ...............................................................................................................................................67
   Listed Properties.............................................................................................................................................67
   Superfund Sites ..............................................................................................................................................68
   Unique Properties...........................................................................................................................................68
   Acreage ..........................................................................................................................................................68
   Manufacture Homes .......................................................................................................................................68

CHAPTER 3 - PROPERTY TYPES................................................................................................... 69
   General Information........................................................................................................................................69
   Acceptable Property Types ............................................................................................................................69
   Second Home.................................................................................................................................................70
   Investment Property .......................................................................................................................................70
   Multiple Units/Multi Unit Dwelling (2-4)...........................................................................................................72
   Condominiums, PUDs, and Cooperative Interest ..........................................................................................73
   Kiddy Condos .................................................................................................................................................73
   Unique Properites...........................................................................................................................................73

CHAPTER 4 - PROPERTY CHARACTERISTICS ............................................................................ 74
   Rural Property/Acreage..................................................................................................................................74
   Zoning/Land Use ............................................................................................................................................74
   Land Value/Lot Size Versus Total Size ..........................................................................................................75
   Property Condition..........................................................................................................................................75
   Utilties.............................................................................................................................................................75
   Environmental Hazards ..................................................................................................................................76
   Roof Inspections.............................................................................................................................................78
   Termite Inspections ........................................................................................................................................78
   Escrow Holdbacks ..........................................................................................................................................79
   Leaseholds .....................................................................................................................................................79
   Multiple APN/Tax ID Numbers .......................................................................................................................79
   Second or Third Kitchen in SFD.....................................................................................................................79
   Factory Built Housing .....................................................................................................................................80
   Manufacture Homes .......................................................................................................................................80
   Heating Systems ............................................................................................................................................81

                                                                                                                        DW0506                  Page 2 of 95
TABLE OF CONTENTS
  Functional/External Obsolescence.................................................................................................................81
  Illegal Units .....................................................................................................................................................81
  Mixed Use Properties .....................................................................................................................................81
  Deferred Maintenance....................................................................................................................................82
  Non-permitted Additions.................................................................................................................................82
  Values Greater Than $1 Million......................................................................................................................82
  Time Adjustments...........................................................................................................................................82
  Rebuild Letters ...............................................................................................................................................82
  Private Roads .................................................................................................................................................83
  Layout and Floor Plans ..................................................................................................................................83
  Highest and Best Use.....................................................................................................................................83
  Age Range and Predominant Age..................................................................................................................83
  Price Range and Predominant Price ..............................................................................................................83
  Demand, Supply, and Marketing Time ...........................................................................................................83
  Property Values ..............................................................................................................................................84

CHAPTER 5 - PROJECT STANDARDS........................................................................................... 85
    Unacceptable Projects ...................................................................................................................................85
    Condominium, PUD and Cooperative Project Warranty Form.......................................................................85
    Condominiums................................................................................................................................................85
    Condominium Project Classification...............................................................................................................87
    Non Warrantable Projects ..............................................................................................................................89
    Planned Unit Developments PUDS...........................................................................................................................90

CHAPTER 6 - INSURANCE DOCUMENTS ...................................................................................... 92
    General Information........................................................................................................................................92
    Hazard Insurance ...........................................................................................................................................92
    Rent Loss Insurance ......................................................................................................................................93
    Flood Insurance..............................................................................................................................................93
    Earthquake Insurance ....................................................................................................................................93
    Private Mortgage Insurance ...........................................................................................................................93
    Title Insurance ................................................................................................................................................93
    Closing Attorneys ...........................................................................................................................................95




                                                                                                                      DW0506                 Page 3 of 95
UNDERWRITING

Loan Application Package

     GENERAL UNDERWRITING GUIDELINES
      DMC’s ambitions in underwriting a mortgage loan are to ascertain the ability and willingness of the
      borrower(s) to repay a loan in accordance with its terms and to determine that the subject property
      provides and maintains sufficient value to recover the investment should a loan default occur.
      Generally, no single loan or borrower characteristic automatically affects the worthiness of a loan.
      The borrower’s overall situation is evaluated and, often, compensating factors may be used to offset
      areas of weakness. All loans must be documented according to standard FNMA requirements
      unless otherwise specified in the loan program description or general underwriting guidelines.

     ELIGIBLE BORROWERS
      Direct Mortgage purchases loans to natural persons only. Loans to corporations, partnerships, real
      estate syndication or any other legal entity are not eligible for purchase. The subject property
      must be vested in the name of the borrowers.
     •   All borrowers must have a social security number or be qualified under a Foreign National
             program.
     •   Borrowers with diplomatic immunity status are not eligible for any loan program.
             Non-US Citizens:
              To be eligible for a loan under the same terms – mortgage product, transaction type,
              occupancy status and loan-to-value ratios – that are available to a United States citizen,
              requires non-U.S. citizen borrowers to provide evidence that they:
              • Are lawfully permitted to reside in the United States
              • Have an immigration classification that grants them the right to work in the U.S. The
                   income of a borrower/co-borrower who has not been granted the right to work in
                   the U.S may not be considered as qualifying income.
              • Are classified as and meet requirements for:
                  -   Permanent Resident Alien (a.k.a., Immigrant) or
                  -   Non-Permanent Resident Alien (a.k.a., Non-Immigrant)
              • Meet basic underwriting guidelines with respect to income stability and continuity,
                   credit history and cash reserves.
              • Are employed in the United States.
              • Have a source of income and employment (when the program requires it) that is
                   expected to continue for at least 3 years.
              • Have a two-year credit, income, and residency history in the U.S.
              • Funds for the down payment, closing costs, and prepayments must be on deposit in
                U.S. financial institutions.

                 -    If the funds are transferred prior to closing from a foreign country, then the
                       borrowers’ must present proof of ownership and transfer.
                  -   For No Doc option, a letter from the banking institution confirming relationship is
                      acceptable.




                                                                              DW0506         Page 4 of 95
UNDERWRITING                                                              Loan Application Package
               Permanent Resident Alien
               A Permanent Resident Alien (PRA) is an individual who is granted the right to
               work and live in the United States. The U.S. Citizenship and Immigration Services
               (USCIS) refer to these individuals as “immigrants”.           Refugees and other
               individuals seeking political asylum also fall under the classification of PRA. All
               PRAs that meet the Non-US citizen’s requirements above are entitled to the same
               terms – mortgage product, transaction type, occupancy status and loan-to-value
               ratios – that are available to a U.S. Citizen.
               Evidence a PRA’s legal right to live and work in the U.S. with a processor
               certification (file may not contain copies of their identification) for one of the
               following:
               •   I-151: Alien Registration Receipt Card (Green Card) that does not have an
                   expiration date on the back, or
               •   I-551: Alien Registration Receipt Card (Resident Alien Card/Green Card) that
                   does not have an expiration date on the back, or
               •   I-155: Alien Registration Receipt Card (Conditional Resident Alien Card) that
                   has an expiration date on the back, as long as it is accompanied by a copy of
                   INS form I-751, or
               •   Un-Expired Foreign Passport with an un-expired stamp reading: Processed for
                   I-551 Temporary Evidence of Lawful Admission for Permanent Residence. Valid
                   until mm-dd-yy Employment Authorized.
               In addition to the above, individuals with one of the following special visa
               classifications are also eligible for the same products, programs, and lending
               parameters available to U.S. Citizens. Evidence a refugee and other individuals
               seeking political asylum, legal right to live and work in the U.S with:
               •   Refugees
                   •   Form I-94 stamped with employment authorization; or
                   •   Foreign Passport stamped “ Admission for Permanent Residence” with an
                       un-expired date or an Employment Authorization Document
               •   Asylees
                   •   Form I-94 stamped with employment authorization; or
                   •   Copy of Employment Authorization Document

               Non-Permanent Resident Alien
               A Non-Permanent Resident Alien (NPRA) is an individual who is granted the right
               to live and work in the United States for a fixed period of time and for a specific
               purpose. The U.S. Citizenship and Immigration Services (USCIS) use the word
               “non-immigrant” to describe these individuals.
               Note: Not all NPRA visa classifications are eligible for all products. There are visa
               types that the USCIS may classify as NPRA, however, Direct Mortgage may view
               the classification to present a greater risk under certain circumstances. There are
               also NPRA visa classifications that require an eligible NPRA co-borrower on the
               loan in order to qualify for a program.
               Evidence is required to demonstrate the NPRA’s legal right to live and work in the
               United States. If the 1003 indicates that the borrower is not a U.S. Citizen, and not
               a permanent resident alien the correspondent client is required to complete the
               Direct Mortgage Mortgage Funding, Inc Alien Status ID Certification and submit
               the completed document with the loan file at the time of purchase. This form must
               be completed based on the individual’s review of the following documentation:
               •   Employment Based Immigrant
                   •   A copy of an INS I-94 card or un-expired foreign passport with one of the
                       following visa classifications: H-1A, H-1B, E-1, E-2, L-1, P-1, R-1, TN or

                                                                      DW0506         Page 5 of 95
UNDERWRITING                                                               Loan Application Package
                    •   A copy of an Employment Authorization Document (EAD) as evidenced by I-
                        766, I-688A or I-688B card containing the applicant’s photograph.
               •    Family Sponsored Immigrant & Visa Lottery Winner
                    •   A copy of an INS I-94 card or un-expired foreign passport with one of the
                        following visa classifications: H-1A, H-1B, E-1, E-2, L-1, P-1, R-1, TN or
                    •   A copy of an Employment Authorization Document (EAD).
               •    NACARA (Nicaragua, Cuba, Guatemala, El Salvador) Beneficiaries
                    •   A copy of INS I-465 or INS I-881 card; or
                    •   A copy of INS From 797C as evidence of filing I-485 or I-881; or
                    •   A receipt from a USCIS District Office confirming that INS I-485 or I-881
                        has been filed.
               An NPRA co-borrower whose income is not used to qualify on the loan must
               provide one of the following forms of documentation listed below to be an eligible
               borrower:
               •    Currently legally reside in the United States. There is no minimum length of time
                    required, and
               •    Provide one of the following, as evidence of their legal right to live and work
                    in the U.S.
                    •   A copy of INS I-465 or INS I-881 card; or
                    •   A copy of USCIS From 797C as evidence of filing I-485 or I-881; or
                    •   A receipt from a USCIS District Office confirming that INS I-485 or I-881
                        has been filed.

               •    Refugee/Asylee
                    •   A copy of an I-485 card with a receipt from the local USCIS office; and
                    •   A copy of an I-94 card stamped with “refugee” or “asylee” status.
               •    Family Sponsored Immigrant
                    •   Approval on form 797-C for a form I-130 with a receipt from a local
                        USCIS office or:
                    •   Receipt from a local USCIS office showing the filing of form I-130 & I-
                        485
               •    Visa Lottery Winner
                    •   Confirmation from a local USCIS office that I-485 has been filed; and
                    •   A copy of the State Department letter notifying the borrower of their
                        selection via the Visa Lottery.
                   Required Closing Condition(s): A W-8 Certificate of Foreign Status is to be
                   executed at loan closing and included in the file.
                   Individual Tax Identification Number (ITIN): An Individual Tax Identification
                   Number (ITIN) cannot be used in lieu of a valid Social Security Number to
                   obtain a credit report and FICO credit score when applying for a mortgage credit
                   application.




                                                                       DW0506          Page 6 of 95
UNDERWRITING                                                                    Loan Application Package

 Exhibit A: Immigration Classification Chart

 VISA      RESIDENCY            DESCRIPTION                                                  MORTGAGE
           CLASSIFICATION                                                                    ELIGIBILITY
 A-1/A-2   Non-Permanent        Foreign Diplomatic Personnel                                 Ineligible
                                Individuals in the U.S. as employees of a foreign
                                government (e.g. ambassador, diplomat, and minister).
                                The status typically has diplomatic immunity.
 B1/B2     Non-Permanent        Temporary Visitor for Business or Pleasure                   Ineligible

 A-3       Non-Permanent        Employee of Foreign Government Official                      Ineligible
                                Attendants, servants, or personal employees of foreign
                                government officials.
 E-1       Non-Permanent        Treaty Trader:                                               All DMC
                                Individuals in the U.S. to conduct trade under a treaty      Programs
                                between their country and the U.S., and key
                                employees of companies trading under such treaty.
 E-2       Non-Permanent        Treaty Investor                                              All DMC
                                Individuals in the U.S. to develop or direct the             Programs
                                operations of an enterprise in which they have invested
                                substantial investments. Must be based on a treaty
                                between visa holder’s country and the U.S.
 G-1 - G-4 Non-Permanent        Representative of International Organization:                All DMC
                                Individuals in the U.S. as representatives of an             Programs
                                international organization and their dependents.
 G-5       Non-Permanent        Personal Employee of G-1 throughG-4 Visa Holder              Ineligible
 H-1A      Non-Permanent        Registered Nurse                                             All DMC
                                Individuals in the U.S. to perform professional nursing      Programs
                                services for a specific employer for a specified period of
                                time.
 H-1B      Non-Permanent        Temporary Worker in a Specialty Occupation                   All DMC
                                Individuals in the U.S. to perform professional services     Programs
                                in a specific position for a fixed period of time.
 I         Non-Permanent        Representative of Foreign Information Media                  Ineligible
                                Individuals in the U.S. as journalists or representatives
                                of international media and their dependents.
 K-1       Non-Resident         Fiancé/Fiancée of a U.S. Citizen                             All DMC
                                                                                             Programs ONLY
                                                                                             if U.S. Citizen is
                                                                                             also on loan.
 L-1       Non-Permanent        Intra-company Transferee                                     All DMC
                                Individuals in the U.S. who have been transferred from a Programs
                                subsidiary, affiliate, or branch office overseas to the U.S.
                                to work in an executive, managerial. or specialist
                                capacity.
 L-2       Non-Permanent        Dependent of L-1 Visa Holder                                 All DMC
                                                                                             Programs ONLY
                                                                                             if L-1 is also on
                                                                                             loan.
 P-1       Non-Permanent        Internationally Recognized Athlete, Entertainment            All DMC
                                Group, or Essential Support Personnel                        Programs




                                                                            DW0506           Page 7 of 95
UNDERWRITING                                                                      Loan Application Package

 Exhibit A (continued): Immigration Classification Chart

 P-4       Non-Resident          Dependents of P-1, P-2 or P-3 Visa Holder                     All DMC
                                                                                               Programs
                                                                                               ONLY if P-1 is
                                                                                               also on loan.
 R-1       Non-Permanent         Religious Worker                                              All DMC
                                                                                               Programs
 R-2       Non-Permanent         Dependent of an R-1 Visa Holder                               All DMC
                                                                                               Programs
                                                                                               ONLY if R-1 is
                                                                                               also on loan.
 TN        Non-Permanent         Trade NAFTA                                                   All DMC
                                 Professional from Canada or Mexico who enters the             Programs
                                 U.S. under the NAFTA agreements. Individuals in the
                                 U.S. to perform professional services for a sponsoring
                                 employer in a specific position for a fixed period of time.
 TD        Non-Permanent         Dependents of TN Visa Holder                                  All DMC
                                                                                               Programs
                                                                                               ONLY if TN is
                                                                                               also on loan.
 NACARA Non-Permanent            Cuba, El Salvador, Guatemala, and Nicaragua                   All DMC
                                 beneficiaries seeking permanent residency                     Programs
                                 Individuals from these countries have Congressional
                                 approval to apply for their green card without going
                                 through the normal
                                         l/ i                   i d f h NPRA
              Non-Occupant Co-Borrower
              •   Occupant borrower
                  -   Must meet 5% down payment requirement from their personal funds
                  -   Demonstrates ability and willingness to make payment and maintain ownership
              •   Non-occupant co-borrower must
                  -   Be an immediate family member (parent, child, brother, sister), or unrelated person
                      who can demonstrate an established personal relationship.
                  -   Add strength by offsetting weaknesses of occupying borrowers’
                      •   Limited financial reserves
                      •   Limited credit history
                      •   Higher-than-normal qualifying ratio
                  -   Cannot offset occupying borrowers’
                      •   Significant or recent major derogatory credit
                      •   Inability to make mortgage payment without regular and significant assistance
                  -   Cannot be an interested party to the transaction.
              •   The Note and Security Instrument must be signed by both occupant and non-occupant
                  borrowers.
              •   Full Documentation and Stated Income programs only.
              •   Program specific requirements must be met




                                                                              DW0506           Page 8 of 95
UNDERWRITING                                                                    Loan Application Package

          Non-Purchasing Spouse
           A married individual may purchase a property without involving their spouse provided:
          •    The non-purchasing spouse signs the security instrument or other documentation to
               evidence the spouse is relinquishing all rights to the property as governed by state law.
          •    Borrower is qualified for debt on the property, their individual and joint debts. Income, non-
               joint debts and credit history of the non-borrowing spouse is not considered.

          •    A subsequent transfer of any interest in the property to the non-purchasing spouse
               WITHOUT PRIOR WRITTEN CONSENT may be deemed to be default under the
               Due on Sale provision of the security instrument.
          •    Program specific requirements must be met

          Non Applicant Borrower in Title (Accommodation Mortgagor)
           Individuals in Title that are not our applicant borrowers will be considered provided that
           when the person is not the borrower’s spouse the Client must review the situation closely
           and provide information and applicable documentation in the loan file to support acceptable
           relationship exists between the individuals

          Non-Arm’s Length Transaction
           A non-arm’s length transaction occurs when a personal or business relationship exists between
           the borrowers and the builder or seller. These transactions include:
          •  Family sales or transfers
          •  Corporate sales or transfers
          •  Mortgagors employed in the real estate or construction trades who are involved in the
             construction, financing, or sale of the subject property
          • Some transactions involving principals or a seller or other vendor (such as an appraiser,
             settlement agent, title company, and so on) who is involved in the lending process of the
             subject property
          Note: Non-arm’s length transactions may require additional documentation depending on our
          underwriter’s assessment of risk.

               Purchasing from a Builder
               If borrowers are purchasing a property from a builder who is purchasing the borrower’s
               existing residence, it is considered a non-arm’s length transaction and is not permitted.

               Transactions with Non-Family Members
               Non-arm’s length transactions with non-family members will be considered only if they are
               bona fide sales transactions and the borrowers will occupy the property as their primary
               residence.

               Transactions with Family Members
               Non-arm’s length with a family member are generally acceptable if:
               • The family member or relative is the borrowers’ spouse, child, parent, or any other
                  individual related to the borrowers by blood, adoption, or legal guardianship.
               • An executed purchase or sales agreement between the purchaser and the family
                  member is in the loan file.
               • The source and ownership of funds for the down payment, closing costs, and reserves
                  are well documented in the loan file.
               • The appraised value of the property is well supported, particularly for gifts of equity or
                  gifts of more than 20% of the LTV.
               • Gifts are not allowed for second home and investment properties.




                                                                            DW0506          Page 9 of 95
UNDERWRITING                                                                      Loan Application Package
                •   Gifts are allowed for owner-occupied transactions if they meet the normal gifting
                    guidelines as follows:
                    - The borrowers must have 5% of their own funds as a down payment; however, if
                       the LTV/CLTV is less than or equal to 80% then the entire down payment may be a
                       gift.
                    - Gifts of equity are acceptable if verified by an appraisal and gift letter.
                    - A signed gift letter and verification of the receipt of the funds are provided.

                Borrower is Interested Party
                This type of transaction is not allowed if the builder and/or property seller is a company
                owned by the borrower or where the borrower is a registered agent, sales agent, or
                partner for the builder or property seller.

                A borrower may act as an interested party to a sales transaction for the subject property;
                however, the borrower may not use any payment for services rendered from the sales
                transaction of the subject party towards the down payment, closing costs, or reserves
                requirements.

                Payment for services rendered means payment for, but is not limited to:
                • Realtor commissions
                • Broker commissions
                • Sales associate commissions

     LOAN TRANSACTION TYPES
     DMC provides mortgages for purchases, cash out and rate and term refinances.             See specific
     program guidelines for restrictions.
            Purchase
            A purchase money transaction is a loan in which the proceeds are used to finance the
            purchase of the property. LTV/CLTV is based on lower of appraised value or acquisition
            cost.

            Refinance
            A refinance is a mortgage transaction on a property for which the borrower already has
            ownership.
            •   Rate and Term (Note: Payoff home improvement costs, leasehold interests, or buyout
                of equity are considered cash out if paid from subject loan.)
                -   Payoff 1st mortgage
                -   Reasonable closing costs
                -   Cash back limited to the lessor of 2% or $2000.
                -   Junior lien in borrowers name
                    •   Subordinated
                    •   Payoff subordinate financing if:
                        •   Documented full amount was used to purchase subject property or
                        •   On non-conforming loans with LTV to 80%, see specific guidelines to
                            determine if they allow classification as rate & term when lien is
                            documented to have 12 Months seasoning. (And if they allow for equity
                            line to be documented with no draws for the past 12 months over the
                            greater of $2000 or 5% of line amount.)
            •   Buyout of Equity
                -   Buying out another title holder is classified as cash out




                                                                                DW0506      Page 10 of 95
UNDERWRITING                                                                      Loan Application Package
           •    Cash Out
                -   Maximum LTV/CLTV, cash out guidelines and limits are determined by specific
                    program parameters.
                -   Cumulative cash out: cash out in the past 12 months is included in the calculation for
                    maximum cash out.
                -   Cash out transactions include but are not limited to:
                    •   Payoff of any unseasoned loan
                    •   Debt payoff
                    •   Payoff junior lien
                    •   Payoff lien not in borrowers name
                    •   Buyout of other title holder (e.g.: buyout of equity)
                    •   Payoff home improvement costs

                    •   Payoff leasehold interest

                -   For any property acquired through inheritance or grant deed within 12 months of
                    the application, value is based off the appraisal and internal desk review. Maximum
                    cash out is limited to 75% CLTV with a 12 month mortgage history on the subject
                    property reflecting no late payments. This applies to all occupancy types.

     Construction to Permanent

            Construction-to-Perm loans are allowed on all programs. However, an owner/builder
            transaction will only be permitted on full documentation files. Construction-to-Perm
            financing allows the transaction to be treated as either a purchase money transaction, rate
            and term refinance or cash out refinance.
           •   Purchase: LTV/CLTV based on the lower of the documented acquisition cost or
               appraised value. Acquisition cost calculation:
                -   Documented cost of improvements and
                -   Lot value based on the purchase date
                    •   Owned less than 12 months, the lesser of the purchase price or appraised value
                    •   Owned at least 12 months, appraised value
           •   Refinance – Rate & Term or Cash-out: LTV/CLTV is based on the following:
                -   Owned less than 12 months, the lesser of documented acquisition cost or appraised
                    value
                -   Owned at least 12 months, appraised value
            Note: Document source of funds on lots purchased less than 3 months prior to application.
            A Certificate of Occupancy is required.

           Lease Purchase (or rent with option to purchase)

            The transaction is always considered a purchase and as such the lesser of the appraised
            value or the purchase price is used to determine the loan-to-value.
            The seller may give the purchaser credit toward the down payment for a portion of previous rent
            payments the purchaser made under a documented rental purchase agreement that had
            a minimum original term of at least 12 months—in an amount up to the difference between the
            market rent and the actual rent that was paid.
           •   The property appraiser must determine “market” rent.


                                                                                DW0506     Page 11 of 95
UNDERWRITING                                                                   Loan Application Package
           •    The purchaser does not have to make a minimum cash down payment from his or her
                own funds in order for the rental payments to be credited toward the down payment.
            •   The file must include a copy of the rental purchase agreement and canceled checks or
                money order receipts to document the rental payments for the last 12 months.

            Land Contracts and Contracts for Deed
             The land contract or contract for deed documents should be reviewed and concur with the
             treatment of the mortgage as either a purchase or refinance and to validate the transaction as
             being legitimate and arms length. Regardless of transaction type for underwriting purposes, the
             loan should be closed as a refinance to meet regulatory requirements.
            •   Purchase Transaction: A Land Contract or Contract for Deed that was executed less
                than 12 months preceding the date of the loan application will be treated as a purchase
                 in order to pay off the outstanding balance of the existing liens recorded against the
                 subject property. The LTV/CLTV will be calculated using the lesser of the contract
                 sales price, plus any documented cost of improvements (acquisition cost) or the current
                 appraised value.
            •   Rate and Term Refinance: A borrower may apply for a limited cash-out refinance to
                payoff the outstanding balance of the existing liens and any costs involved in the
                refinance transaction when the land contract or contract for deed has been seasoned for
                12 months or more. The LTV/CLTV will be calculated by using the current appraised
                value.


            •   Cash-Out Transactions: A borrower may apply for a cash-out refinance when the land
                contract or contract for deed has been seasoned for 12 months or more. The
                LTV/CLTV will be calculated on the current appraised value.
            •   Required Documentation:
                 -   Copy of the original Land Contract
                 -   Copy of the Preliminary Title Report verifying the Land Contract
                 -   Copy of canceled check verifying earnest money deposit – purchase transaction
                     only
                 -   Satisfactory VOM/VOR or canceled checks covering the most recent 12-month
                     period. Note: this may include previous residency history if Land Contract is less
                     than 12 months old.

     DOCUMENTATION TYPES
     DMC currently offers different options of income and asset documentation.     Not all options are
     available on all programs. Refer to the Loan Program description for the allowable documentation
     types.
     It is not acceptable to go from a document type that requires more information/documentation to a
     documentation type that requires less information/documentation.     It is acceptable to switch to a
     documentation type that requires more information/documentation, provided the borrower resigns
     the 1003 to acknowledge the changes and/or additions from the original information provided.
     The following documentation types are currently offered.

            Full Documentation
             Standard FNMA fully completed documentation requirements.
            •   VOE - Verification of Employment for salaried employees. Self-employed borrowers must
                have two (2) consecutive years of employment documented via filed tax returns
            •   VOD - Verification of Deposit,
            •   VOM/VOR - Verification of Mortgage/Rent forms.
            •   Standard FNMA quality control procedures must be adhered to by the submitting
                entity.

                                                                            DW0506        Page 12 of 95
UNDERWRITING                                                                      Loan Application Package

          Alternative Documentation
           FNMA standard acceptable forms of alternatives to standard verification forms are as
           follows:
          •    VOE - Certified copies of previous 2 years W-2’s and a full months most recent
               computer generated pay stubs with YTD figures.
          •    VOD – Most recent statements for two (2) consecutive months.
          •    VOM/VOR – Certified copies of the past twelve (12) months canceled checks to
               evidence timely repayment of a mortgage/rent.

          Stated Income Documentation*
          •    Does not require verification of income.
          •    Qualifying ratios are calculated based on the information disclosed on the loan
               application.
          •    Liabilities and assets are verified according to full or alternative documentation
               requirements.
          •    Income documentation should not be included in the file documentation.
          •    Stated income should be reasonable for the line of work.
          •    Employment must be verified.
          •    Altered applications are unacceptable.

          No Ratio Documentation*
          •    Does not require the calculation of the applicants’ debt ratios.
          •    Income should not be disclosed on the loan application or in the file documentation.
          •    Application must be complete as to liabilities, assets, schedule of REO, and all other
               documentation.
          •    Employment must be verified.
          •    Altered applications are unacceptable.

          No Income/No Assets (NINA)*
          •    Does not require the calculation of qualifying ratios.
          •    Income should not be disclosed on the application or in the file documentation.
          •    Assets should not be disclosed on the application or in the file documentation.
          •    Employment must be verified.
          •    Altered applications are unacceptable.

          No Income Disclosure/Asset Verification (VISA)*
          •    Does not require the calculation of qualifying ratios.
          •    Income should not be disclosed on the application or in the file documentation.
          •    Assets are stated on the application, not verified or included in the file documentation.
          •    Employment must be verified. Altered applications are unacceptable.

           Stated Income/ Stated Asset Documentation (SISA)*
          •    Does not require verification of income and assets.
          •    Qualifying ratios are calculated based on information disclosed on the loan application.
          •    Income, assets and employment should be disclosed on the application.

                                                                            DW0506          Page 13 of 95
UNDERWRITING                                                                    Loan Application Package
            •    Income & assets documentation should not be in the file documentation.
            •    Stated income should be reasonable for the line of work.
            •    Employment must be verified
            •    Altered applications are unacceptable.

            No Doc With Asset*
            •    Does not require the calculation of qualifying ratios.
            •    Income should not be disclosed on the application or in the file documentation.
            •    Employment should not be disclosed on the application or in the file documentation.
            •    Application must be complete as to liabilities, assets, schedule of REO, and all other
                 documentation.
            •    Altered applications are unacceptable.

             No Doc Without Asset/True No Doc*
            •    Does not require the calculation of qualifying ratios.
            •    Income should not be disclosed on the application or in the file documentation.
            •    Employment should not be disclosed on the application or in the file documentation.
            •    Assets should not be disclosed on the application or in the file documentation.
            •    Altered applications are unacceptable.
     *NOTE: Non-arms length transactions are allowed only on full documentation files. Exceptions granted on
      a case-by-case basis only.




                                                                             DW0506         Page 14 of 95
UNDERWRITING                                                                   Loan Application Package

     DOCUMENTATION TYPE VERIFICATION REQUIREMENTS
          Documentation Types

                                              VERIFICATION
              DOC TYPE           Income Employment Assets Housing COMMENTS
              Full                  X            X           X         X      Standard FNMA fully
                                                                              completed
                                                                              documentation.
              Alternative           X            X           X         X      Standard FNMA
                                                                              alternative forms of
                                                                              documentation.
              Stated Income       Stated On 1003/ verbal     X         X      Debt ratios based on
                                 on 1003   by client *                        stated income.
              No Ratio            None On 1003/ verbal       X         X      No income stated, debt
                                         by client *                          ratios not calculated.
              NINA                None On 1003/ verbal None            X      No income or assets
                                         by client *                          stated, debt ratios not
                                                                              calculated.
              Stated/Stated       Stated On 1003/ verbal Stated        X      Debt ratios & asset
              (SISA)             on 1003   by client *    on                  requirements based on
                                                         1003                 stated amounts.
              VISA                None On 1003/ verbal Stated              No income stated, debt
                                           by client *    on               ratios not calculated.
                                                         1003              Asset requirement based
                                                                           on stated amount.
            No Doc With         None        None         X         X       No income or
            Asset Verification                                             employment stated or
                                                                           verified.
            No Doc Without      None        None        None       X       No Doc (income,
                                                                           employment & assets not
            Asset Verification                                             stated or verified.)
           * Self-employed borrowers need to produce 2 year’s business license or CPA letter

          Credit Reports (required on all documentation types)
          •      RMCR: Comprehensive residential mortgage credit report
          •      In-File Credit Report: Credit report that provides credit reported by three different
                 repositories. Credit repositories:
                 -   Must indicate credit and public records information for each locality that the
                     borrower lived in during the last two-year period.
                 -   If it does not include a current reference for each significant debt the borrower
                     reported on the loan application, then client is to obtain a separate written
                     verification for each unreported (or unrated) debt.
                 -   Must include a current reference that the account has been checked with the
                     creditor within 90 days of the date of the “in-file” credit report.




                                                                           DW0506         Page 15 of 95
UNDERWRITING                                                                     Loan Application Package
          •    Merged In-File Credit Report: Automated “merged” reports that
               -   Electronically combine the information from the “in-file” credit reports from three
                   different repositories into a single report,
               -   Are provided by a consumer reporting agency that is not affiliated with the client in
                   any way.
               -   The reports must be prepared in accordance with the following:
                   •   The report must include all three credit repositories “in-file” credit reports
                   •   The report must identify the repositories that were used for the “in-file” credit
                       reports

          Appraisal Reports (required on all documentation types)
           Acceptable Formats (see Appraisal Section V-1 for details and required exhibits):
          •    Standard Appraisals:
               -   Uniform Residential Appraisal Report (FNMA Form 1004/ FHLMC Form 70 rev.
                   03/05). This appraisal is designed for:
                   •   one-family properties
                   •   units in planned unit developments
                   •   Also acceptable for units in condominium projects that
                       •   consist solely of detached dwellings
                       •   do not have common area improvements other than greenbelts, private
                           streets, and parking areas, and if
                       •   the appraiser provides an adequate description of the project and
                           information about the owner’s association fees and the quality of the
                           project maintenance.
                   •   Acceptable for properties that have a second unit that is incidental to the
                       overall value and appearance of the subject property. Examples of this include a
                       house with a unit above a detached garage, a guest unit, or a basement unit.
               -   Small Residential Income Property Appraisal Report (FNMA Form 1025/FHLMC Form
                   72 rev. 03/05) is required for (2-4) two-four unit properties.
               -   Individual Condominium Unit Appraisal Form (FNMA Form 1073/FHLMC Form 465
                   rev. 03/05) is required for single family properties that are units in
                   condominium projects
               -   Single Family Homes: Underwritten by DU. FNMA Form 2055 (with interior
                   inspections) rev. 03/05 may be used for equity lines and fixed rate second
                   mortgages.
          Credit Documentation Expiration
           Credit documents can be no more than 120 days old on the date the note is signed. The
           exception is for new construction when credit documents are valid for 180 days.
          •    Appraisal documentation
               -   Appraisal
                   •   12 months, with an update of value required at 120 days
                   •   180 days for new construction, with an update of value required at 120 days
               -   Updates of Value after four (4) Months, provided requirements in appraisal report are
                   met and appraisal is not expired.
          •    Credit reports: 120 days, if expired a new Credit Report is required
          •    Preliminary Title Report: 120 days, if expired updated report is required

                                                                              DW0506          Page 16 of 95
UNDERWRITING                                                                       Loan Application Package
            •   Verbal Verification of Employment (VVOE): 30 days, must be written and in file.
            •   Verification of Assets (VOA): 120 days, if expired updated written verification is
                required.
            •   Verification of Employment (VOE): 120 days, if expired updated written verification is
                required.
            •   Verification of Income (VOI): 120 days, if expired updated written verification is
                required.
            •   Verification of Mortgage (VOM): 120 days, if expired updated written verification is
                required.
            •   Verification of Rent (VOR): 120 days, if expired updated written verification is
                required.

     OCCUPANCY TYPES
     Direct Mortgage Mortgage (DMC) currently offers financing on owner-occupied, second homes and
     non-owner occupied properties.
            Owner Occupied
            Primary residence – The owner occupancy of a property can be an issue when reviewing an
            application for a refinance or a purchase transaction. It is the Client’s responsibility to question
            the borrower/broker and document the loan file when occupancy is an issue on a specific
            loan transaction.
            Occupancy Red Flags
            •   Property is located far from employment – commute unreasonable
            •   Buying down in property size and value
            •   Moving from SFR to units
            •   Borrower’s name not disclosed on the purchase contract or Borrower and/or Assignees on
                purchase contract
            •   Non-borrowing purchaser
            •   Name/address on earnest money deposit/check different than borrower(s)
            •   Individuals on title deeding interest in property (refinance)
            •   Documentation in file with different mailing address than subject property (refinance)
            •   Appraisal indicates that subject property is “Tenant Occupied” or “Vacant” (refinance)
            •   Photos disclose furniture covered with sheets or possible “Staged” home. (refinance)
            •   Borrower is a real estate investor
            •   Non-Arms Length Transactions (NAL)

            •   Hazard insurance policy includes rent loss coverage (not standard homeowner’s policy).
            If it is determined that an occupancy issue exists:
            •   File should contain additional proof that subject property is their primary residence.
                Documentation may include current utility bills, bank statements, credit card
                statements, monthly mortgage statements, etc., which support owner occupancy.
            •   Occupancy issues should be resolved prior to the loan being submitted for purchase.
            •   The loan will be subject to a satisfactory post closing occupancy inspection within 60
                days after the close of escrow.




                                                                                DW0506         Page 17 of 95
UNDERWRITING                                                                Loan Application Package

          Second Home Occupancy
           All second homes must be suitable for year round occupancy and available for the
           exclusive use of the borrower(s). The property must not be subject to any rental pools or
           give a management firm control over the occupancy of the property.

          Non-owner Occupied/Investment Property
           Investment Properties must meet standard FNMA guidelines.
          •    We will consider financing up to 4 non-owner occupied properties (8 loans 1st & 2nd pigs)
               to one borrower or $2,000,000 in aggregate loans to one borrower.
          •    When considering financing for multiple non-owner occupied properties generally we
               will not finance in excess of 50% of the applicant’s real estate portfolio, except as
               described below *
          •    We reserve the right to limit the number of properties purchased or refinanced within
               one building, neighborhood, and to one borrower. Exceptions will be considered on a
               case-by-case basis.
          •    Model homes leased back to the builder are not acceptable.

         * DMC may finance up to 4 properties (8 loans 1st and 2nd PIGs) for an applicant without an
           exception involved for the percentage of the NOO real estate portfolio that these 4
           properties represent. For example, if the 4 properties represent 100% of the borrowers’
           total NOO portfolio, an exception is not necessary.

         * Note: Requirements may vary on some programs, see program guidelines. Exceptions will be
           considered on a case-by-case basis.




                                                                        DW0506         Page 18 of 95
Employment

     INTRODUCTION
     It is the client's responsibility to properly verify and document the applicant’s employment, to be
     certain the employment history is adequate to qualify for the loan and meet the requirements of the
     specific programs.

     GENERAL REQUIREMENTS
     For files with employment required:
     •   Borrowers must have a history of receiving stable income from employment or other sources
         and a reasonable expectation that the income will continue to be received in the foreseeable
         future. Income must be reasonably expected to continue for at least 3 years, based on the source
         and documentation required to verify it.
     •   Employment must be disclosed on the signed 1003 covering at least a two-year period.
             Full / Alternative Documentation Programs
             In addition the following conditions apply:
             •   All employment documentation delivered in the loan submission must be provided by an
                 independent, unrelated source.
             •   Salaried applicants must have two (2) continuous years of employment with the same
                 employer or be employed in a position in the same line of work deemed to be an
                 advancement in career.
                 -   Borrowers with frequent job changes for advancement within their field are
                     acceptable, but recent transfers between fields or frequent job changes without
                     advancement may indicate instability.
                 -   Borrowers who have recently entered the work force may be considered by
                     evaluating career education and training and the potential for future earnings.
                 -   Any employment gaps of thirty (30) days or longer must be satisfactorily addressed by
                     the applicant.
             •   Self-employed borrowers must have operated the same business for at least two (2)
                 consecutive years, documented via filed tax returns whenever:
                 -   Borrower has a 25% or greater ownership interest in a business or
                 -   Schedule C income (i.e. income reported on a form 1099 regardless of percentage of
                     business owned). File must contain a written analysis of the self-employed
                     borrower’s individual and business tax returns. FNMA worksheets or any other format
                     that includes the analyzing underwriter’s conclusion is acceptable.
                 -   Exceptions for length of ownership of the business less than 2 years are made on a
                     case-by-case basis only. At a minimum for consideration the new business must
                     have:
                     •   At least one year of operation
                     •   Latest federal income tax returns reflect 12-month period of income.

                     •   Documentation that supports employment and income in a field that provides the
                         same products or services as the current business
                     •   Previous job history supports similar responsibilities to those of the current
                         business
                     •   Borrower has a history of receiving income at the same or greater level
                     •   Borrower has maintained excellent personal and business credit histories




                                                                            DW0506         Page 19 of 95
UNDERWRITING                                                                             Employment
           •   Two (2) consecutive years of employment documented via filed personal tax returns is also
               required for a borrower who:
               -   Earns 25% or more of income from commissions
               -   Receives rental income from investment property
               -   Has unreimbursed business expenses
               -   Receives income from periodic employment or employment that is subject to time
                   limits (i.e., a contract employee or a tradesperson)
               -   Receives non-W-2 income from a partnership or corporation in which they have less
                   than 25% ownership (Note: If a salaried or commissioned employee has a
                   25% or more ownership interest in a business entity other than the one for which
                   they are primarily employed, the client should document and underwrite the loan
                   application using the requirements for self-employed borrowers)
               -   Receives income from capital gains, royalties, real estate or other miscellaneous
                   non-employment earnings
               -   Receives income that cannot otherwise be verified by an independent and
                   knowledgeable source.
               -   Is a member of the clergy
               -   Is employed by an interested party to the transaction
               -   Is involved in a non-arms length transaction
               -   Is employed by a family member

          Stated Income Programs
           Stated Income and Stated/Stated Documentation (SISA). In addition to requirements under
           Documentation Types the following conditions apply:
          •    Qualifying ratios are calculated on the basis of income figures obtained from the loan
               application. The income must be reasonable for the occupation stated. One must be able
               to determine the reasonableness of the income based on the information provided. For
               example, the borrower is John Smith whose business is John Smith, Inc. and whose
               income is $30K/mo. Listing the occupation as “owner” is unacceptable. The occupation
               should clearly identify or clarify how the borrower generates his income, e.g. Realtor,
               Lawyer, Doctor, etc.
          •    Most programs allow salaried, self employed, and retired borrowers.

          •    All income sources must be itemized on the signed 1003.
          •    Salaried borrowers must have 2 continuous years of employment with the same
               employer or be employed in a position in the same line of work. Verbal VOE to verify
               current employment prior to close.
          •    Self-employed borrowers must have operated the same business for at least two (2)
               consecutive years.
               -   Business name and address must be listed on the application and
               -   Business license verifying two years existence of the business or
               -   Letter from the borrower’s Certified Public Accountant, certified tax preparer, or tax
                   attorney (when allowed by individual loan program).
               -   Exceptions to this standard are considered on a case-by-case basis.
          •    Retired borrowers (when allowed by program) typically should be of retirement age
          •    Full income documentation may be required if:
               -   The initial application is altered, incomplete or missing from the submission
                   package.

                                                                           DW0506         Page 20 of 95
UNDERWRITING                                                                                 Employment
               -   Loan request is not commensurate with the borrower’s credit profile.
               -   Property is unique or otherwise has limited marketability
               -   File contains documentation, which suggests borrower’s income is not accurately
                   stated on the signed 1003 (i.e., bank statements showing payroll direct deposits, or
                   income documentation is in the file).
               -   Files do not have valid usable credit scores.
               -   File is restricted to full documentation due to:
                   •   Interested party to the transaction
                   •   Non-arms length transaction

                   •   Family Employment

          No Income Disclosure Programs
           No Ratio, No Income/No Asset (NINA), and VISA. The following conditions apply:
          •    Qualifying ratios are not calculated.
          •    Most programs allow salaried, self employed, and retired borrowers.
          •    Salaried borrowers must have 2 continuous years of employment with the same
               employer or be employed in a position in the same line of work. Verbal VOE to verify
               current employment prior to close.
          •    Self-employed borrowers must have operated the same business for at least two (2)
               consecutive years.
               -   Business name and address must be listed on the application and
               -   Business license verifying two years existence of the business or

               -   Letter from the borrower’s Certified Public Accountant, certified tax preparer, or tax
                   attorney.
               -   Exceptions to this standard are considered on a case-by-case basis.
          •    Retired borrowers (when allowed by program) typically should be of retirement age.
          •    Full income documentation may be required if:
               -   The initial application is altered, incomplete or missing from the submission
                   package.
               -   Loan request is not commensurate with the borrower’s credit profile.
               -   Property is unique or otherwise has limited marketability
               -   File contains income documentation (i.e., bank statements showing payroll direct
                   deposits, or income documentation is in the file).
               -   Files do not have valid usable credit scores.
               -   File is restricted to full documentation due to:
                   •   Interested party to the transaction
                   •   Non-arms length transaction
                   •   Family Employment

          No Employment Disclosures Programs
           No Income/No Employment Disclosure (NID/NED) and No Income/No Employment/No
           Asset Disclosure (NID/NED/NAD)
          •    No disclosure of employment is required



                                                                          DW0506          Page 21 of 95
UNDERWRITING                                                                                  Employment
           •    Full income documentation may be required if:
                 -   The initial application is altered, incomplete or missing from the submission
                     package.
                 -   Loan request is not commensurate with the borrower’s credit profile.
                 -   Property is unique or otherwise has limited marketability
                 -   File contains income documentation (i.e., tax returns, bank statements showing payroll
                     direct deposits or other income documentation).
                 -   File does not have valid usable credit scores.
                 -   File is restricted to full documentation due to:
                     •   Interested party to the transaction
                     •   Non-arms length transaction
                     •   Family Employment


     FOREIGN EMPLOYMENT
     DMC does not allow foreign income sources to be used for qualification. In the following
     instances for income to be used for qualification it must be paid in U.S. dollars:
     •   From employment by a U.S. company located in a foreign country
     •   From employment in the U.S. from a foreign owned company




                                                                            DW0506          Page 22 of 95
Income

     INTRODUCTION
     It is the client's responsibility to properly verify and document the applicant’s income, to be certain it is
     adequate to qualify for the loan and meet the requirements of the specific programs.
     A 4506 is required to be signed at closing whenever:
     •   A borrower is self-employed on a full documentation loan.
     •   A 1040 tax return is part of the credit package.

     STABILITY AND CONTINUITY OF INCOME
     Applicants must have a demonstrated history of receiving stable income from employment or other
     sources and a reasonable expectation the income will continue to be received in the foreseeable
     future. Income must be reasonably expected to continue for at least 3 years, based on the source and
     documentation required to verify it.
     When applicable, non-employment income sources will be closely reviewed for reasonableness. If
     reasonableness cannot be determined, DMC reserves the right to require documentation to support
     the reasonableness (i.e., DMC may require: recent account statement to support assets
     available after closing to generate stated interest income, evidence an income-generating property
     is owned free and clear, etc.).

     FULL AND ALTERNATIVE DOCUMENTATION
     •   Income must have a history of being stable and durable.
     •   Income must be verified and meet the requirements of FNMA for acceptable income sources,
         unless otherwise indicated in the Loan Program Description.
     •   All income documentation delivered in the loan package must be provided by an outside
         independent source.

     ACCEPTABLE SOURCES OF INCOME CLARIFICATION
     Income from any source that cannot be verified is unacceptable for qualification purposes. Other
     sources of income as listed below can be used for qualification as per standard FNMA
     underwriting, unless otherwise indicated or specified in program guidelines.

     •   Automobile Allowances and Expense Account Payments                 •   Rental Income
     •   Child Support or Alimony                                           •   Retirement or Pension
     •   Commission                                                         •   Salary
     •   Foster Care                                                        •   Self Employment
     •   Interest and Dividends                                             •   Social Security
     •   Military                                                           •   Trust Income
     •   Mortgage Differential Payments                                     •   Unemployment
     •   Notes Receivable (unless loan is to a foreign diplomat)            •   VA Benefits
     •   Overtime and Bonus                                                 •   Welfare Benefits
     • Rent received from a boarder who is a family member –                •   Part-time, Second and
       acceptable by exception only on full doc, SFR property                   Seasonal Job
       with documentation to verify receipt of rent for the past 12
       months




                                                                                 DW0506           Page 23 of 95
UNDERWRITING                                                                                       Income
     Automobile Allowances and Expense Account Payments
             Automobile allowances and expense account payments are included in income if:
            •   Received for two (2) years
            •   Typical for occupation
            •   Verified by employer
            •   Cash flow approach declared on 1040 (2106 or Sch C)
                 -   Allowance in excess of expenses is added to income
                 -   Expenses in excess of allowance is added to debts. Adjusted for actual lease
                     payment expenses when 2106 is provided for actual expenses versus
                     standard mileage rate.
            •   Income and debt approach not declared on 1040 (2106 or Sch C)
                 -   Allowance is added to income
                 -   Full amount of lease or financing expense for automobile is added to debt

            Child Support or Alimony
             Child support or alimony can be used for qualification when the following documentation
             is provided:
            •   Copy of divorce decree, separation agreement or court order
                 -   3-6 months canceled checks, or
                 -   Other alternative documentation, to show receipt of income.
                 -   Document income is likely to continue for the next two (2) years.
                 -   Shorter duration of continuance is allowable via exception.
            Commission
             The following are to be included in the income calculations if using commission income to
             qualify:
            •   Average income for the past two (2) years
            •   Deduct non-reimbursed business expenses

            •   Two (2) years 1040’s required if commission income over 25% of borrower income

            Foster Care
             Foster Care is allowable:
            •   From a recognized state or county foster care
            •   When a two (2) year history of receipt is available
            •   If expected to continue for 3 years
                 -   Less than two (2) years receipt of this type of income is acceptable with
                     compensating factors.
                 -   For 12 month history, foster care income is allowed when it represents less than
                     30% of the totalgross income
            •   When verified with any of the following documents:
                 -   Letters from the organization(s) providing income
                 -   Deposit slips
                 -   Bank statements
                 -   1040 Tax Returns


                                                                            DW0506        Page 24 of 95
UNDERWRITING                                                                                             Income
           Interest and Dividends
             Interest and dividend income is allowable for qualification purposes when:
             •       Income is expected to continue for at least three (3) years
             •       1040 Tax Returns, 1099s, or bank statements are provided for two (2) years
             •       Income is verified for the past two (2) years
             •       Ownership of assets used to derive income is documented
             •       Income is adjusted for any assets that will be used for down payment or closing costs

             Military
             Military personnel may be entitled to different types of pay in addition to their base pay. The
             following additional pay can be included if documented likely to continue:

                 •   Flight                               •   Proficiency
                 •   Hazard                               •   Rations
                 •   Quarters’ allowance                  •   Clothing allowance
                 •   Hardship
             Military reservist’s income, while fulfilling reserve obligations, is acceptable if it meets the same
             stability and continuity test as a second-job income. Non-taxable pay can be added to gross
             income.

             Mortgage Differential Payments
             DMC will allow inclusion in income calculations provided documentation and requirements
             meet standard FNMA guidelines. An employer may subsidize an employee’s mortgage
             payments by paying all or part of the interest differential between the employee’s present
             and proposed mortgage payments. These payments can be considered as acceptable
             stable income if the borrower’s employer verifies its subsidy in writing stating the amount and
             the duration of the payments. These payments must continue for at least three years from
             the date of the mortgage application. The differential payments should be added to the
             borrower’s gross income when calculating the qualifying ratio. They cannot be used to
             directly offset the mortgage payment, even if the employer pays them to the mortgage
             client (rather than to the borrower).

             Note Receivable
             A note receivable is allowed under the following circumstances:
             •       The loan is not to a foreign diplomat
             •       Evidence of receipt of income for 3-6 months is provided. (Canceled checks are not
                     necessary to show receipt if alternative documentation is available.)
             •       Evidence is provided that income stream will continue for two (2) years duration. Shorter
                     periods are allowable on a case-by-case basis.

             Overtime and Bonus
             In order to include overtime and bonus in the income calculations the following conditions
             must apply:
             •       The income derived from overtime and bonus must be averaged for the past two (2)
                     years. YTD can be included if consistent with historical amount
             •       Proof of a two (2) year history of receipt
             •       Supported by W2’s and current pay stub
             •       The employer confirms the overtime/bonus income is likely to continue




                                                                                   DW0506       Page 25 of 95
UNDERWRITING                                                                                         Income
           Part-time, Second, and Seasonal Job
             In order to include earnings from part-time, second, and seasonal jobs in the income
             calculations, the following must apply:
             •   The income derived from part-time, second, and seasonal jobs must be averaged for the
                 past two (2) years.
             •   Proof of a two (2) year history of receipt
             •   The part-time, second, and seasonal job income is likely to continue
             •   The verification of employment is in the file. Verification must indicate that the income
                 is likely to continue and/or there is reasonable expectation that the applicant will be
                 rehired next season if employment is seasonal.
             •   Supported with W2’s
             •   There is no change in overall employment status that might jeopardize continuance of
                 income from second job. Example: A new primary job is obtained while continuing part
                 time at the prior job and there is no history of the ability to handle two jobs on a
                 continuing basis.
             Less than a two (2) year history can be considered for loan programs on a case-by- case basis
             with the following strong compensating factors:
             •   A minimum 12 month history
             •   Strong likelihood of continuance
             •   Client can calculate an average of part-time income. Examples:
                 -   Two borrowers: one always full-time and one recently returned to work on a part- time
                     basis
                 -   A full-time employee took a second, part-time job to offset loss of income from
                     overtime that is no longer available from primary employment.

             Rental Income
             Rental income from the subject property or other real estate owned must meet the following
             requirements to be used:
             •   24 month history of managing rental property*
             •   6 months reserves
             •   Operating income statement form 216
                 -   Owner Occupied 2-4 units
                     •   Use 75% of gross rent as income.
                     •   Debt service full PITI
                 -   Non-owner occupied: Use 75% of gross rents less PITI
                     •   Negative add to liability
                     •   Positive add to income
             *When a borrower does not meet the 24-month history of managing properties an
             exception to utilize rental income to qualify can be considered on DMC products only on a
             case -by-case basis. This applies to both full and stated income documentation types.




                                                                             DW0506         Page 26 of 95
UNDERWRITING                                                                                         Income
           Other Real Estate Owned
             Other real estate owned is to be included in income/debt calculations as follows. (Rental
             income from in-law units, units over a garage, basement units and/or guest apartments are
             not eligible. Exceptions are considered on a case-by-case basis.)
            •   Average 2 year history from 1040 Schedule E, add back depreciation or
            •   75% of gross rents less PITI from current lease agreement may be used when:
                 -   Property recently purchased
                 -   New construction
                 -   Current primary residence that is changing to a rental
            •   Add negative rents to liabilities
            •   Add positive rents to income

            Retirement or Pension
             The client must meet the following requirements to use retirement or pension income:
            •   Confirm regular receipt of payments. These payments are verified by:
                 -   Letters from organization providing income
                 -   Award letter
                 -   1040 Tax Returns
            •   For monthly annuity, 401(k), IRA or Keogh distribution support 3 years continuance

            Salary
             Income from a salaried employee requires:
            •   Most recent pay stubs covering a 30 day period, with YTD earnings
            •   Last 2 years W-2’s
            •   Verbal VOE to verify current employment prior to close.
            •   Document any recent increase, if being used to qualify
            •   Any change from part time to full time position is documented by employer

            Self Employment
             The following documentation is required for full or alternate documentation loan
             submissions where self employment income is used:
            •   Current two (2) years signed individual federal income tax return forms, and all
                schedules for:
                 -   Sole proprietorship: 1040 with Schedule C
                 -   Limited Partnership: 1040 & K1
            •   Current two (2) years signed federal individual and business income tax return forms and
                all schedules for:
                 -   Corporation: 1040 & 1120
                 -   S-Corporation: 1040, 1120S & K1
                 -   General Partnership: 1040, 1065 & K1

            Social Security
             The following documentation is required when using income from social security.
            •   An award letter
            •   Two (2) months bank statements, 1040 Tax Returns, or W2s/1099s.

                                                                              DW0506        Page 27 of 95
UNDERWRITING                                                                                            Income
          •    Non-retirement benefits support continuance for three (3) years.

          Trust Income
           The following requirements apply when using trust income:

               -   3-6 months evidence of receipt of income.
               -   A minimum 2 years continuance
               -   Applicable pages of the trust agreement to show the applicant is entitled to the
                   income, or
               -   Alternative verification (letter from trust administrator) to same effect.

          Unemployment
           Income from unemployment can be included provided the following requirements are met:
          •    A two (2) year history is available
          •    The income is predictable and likely to continue for three (3) years
          •    The income can be supported with two (2) years 1040 Tax Returns
          •    The income is averaged with W2 earnings for two (2) years

          VA Benefits
          Income from VA Benefits can be used when supported by a letter or distribution form from
          the VA supporting the amount and duration. It can be included as income provided it is likely to
          continue for three (3) years and not an education benefit.

          Welfare Benefits
          Income from welfare benefits can be supported with letters from the agency reflecting the
          amount, frequency, duration, and that it is likely to continue for three (3) years.


     OTHER INCOME CONSIDERATIONS
          Adult Family Homes
          Income from an adult family home is not allowed on the subject property. For other
          property, an average two (2) year history from personal and/or business Tax Returns is
          required.

          Boarder Income
           Boarder income from the subject property is restricted by program type. (See each
           program guideline for specifics).
          •    Acceptable by exception if from a family member
          •    Full Documentation
          •    SFR property
          •    Receipt of rental income for the past 12 months is documented.

          Capital Gains
           Capital gains are generally not considered for income qualification. DMC will consider it
           on a case-by-case with two (2) years of 1040 Tax Returns. The following must also be
           provided:
          •    A two (2) year history with capital gains and losses reflected on Schedule D
          •    Income is averaged for past two (2) year history



                                                                              DW0506            Page 28 of 95
UNDERWRITING                                                                                         Income
          •    Evidence supports ability of additional property or assets to be sold to generate like
               kind capital gain income.

          Disability Benefits
           Income from disability is allowed provided that:
          •    It is permanent or has at least a three (3) year continuance
          •    It is documented with a disability policy or benefits statement
          •    The file contains a statement from payer to confirm eligibility

          Maternity or Family Leave
          Regular monthly income prior to maternity or family leave is allowed for qualifying
          purposes when a letter is provided from the borrower’s employer that states the date of
          return to work and the leave of absence does not exceed 12 weeks.

          Family Employment
           Income from employment by relatives or closely held family business is allowed provided the
           file contains:
          •    2 years 1040 Tax Returns with all schedules and attachments
          •    Verification of Employment form
          •    Documentation for inclusion of any recent increase is supported with receipt and
               provided it is reasonable for the line of work

          Land Contracts/Installment Sales
           In order to include land contracts and/or installment sales income the following apply:
          •    Copy of note
          •    Document at least three (3) years continuance
          •    Document receipt for 12 months with deposit slips, 1040 Tax Returns, or bank
               statements

          Non-taxable Income
          Non-taxable income can be grossed up by an amount that is reasonable for the tax bracket
          but not over 25%. Adjusted grossed up income is then used for qualification provided it is
          verified as a non-taxable source and nontaxable status is likely to continue.

          Raises
           A forthcoming raise can be considered provided that:
          •    The employer verifies amount and effective date
          •    The effective date is no later than the first payment on the mortgage
          •    The amount is typical for the borrower’s occupation

          Royalty Payments
           Royalty payments require the following to be included in income:
          •    A 12 month history of receipt
          •    At least three (3) years continuance
          •    Two (2) years of 1040 Tax Returns with Supplemental Income and Loss statement
               (Schedule E)




                                                                              DW0506       Page 29 of 95
UNDERWRITING                                                                                         Income
           Trailing Spouse Income
              DMC will allow trailing secondary wage earner income under the following circumstances:
              •   Must be a relative or domestic partner of the primary wage earner.
                  -   Relative: spouse, child, or other dependent or other individual related by blood,
                      marriage, adoption or legal guardianship.

                  -   Domestic partners: in a committed relationship showing financial interdependence
                      and joint responsibility for each other’s common welfare, are not related by blood,
                      reside in the same household, and intend to reside together indefinitely.
                  -   Relocation is in connection with employment with a company that is providing
                      official relocation program benefits to the employee borrower.
                  -   Documentation from the employer describes the relocation program and evidence of
                      the borrower’s eligibility for the relocation benefits.
                  -   For underwriting purposes, the secondary wage earner’s income is averaged for the
                      previous two (2) years and 100% of the secondary wage earner’s documented
                      income can be used to qualify as long as the secondary wage earner’s income does
                      not exceed 33% of the total qualifying income. If it does exceed 33%, only 50% of
                      his or her income can be used for qualifying purposes. The secondary wage
                      earner’s income must be verified and documented in accordance with standard
                      underwriting guidelines. .
              •   Owner occupied purchase
              •   One-unit SFR, unit in condominium, or planned unit development
              •   Maximum ratios 28%/36%. Exceptions to this standard are granted only on a case-by-
                  case basis with appropriate documented compensating factors.
              •   The secondary wage earner must have been a salaried or commissioned employee in
                  the same occupation for the two (2) years immediately preceding the transfer and must
                  provide a written statement indicating his or her intention to obtain employment in the
                  new location. Income from a secondary wage earner who was self employed cannot be
                  considered for qualification.
              •   Written statement from trailing spouse of intent to obtain employment in the new area.
              •   The borrowers must have cash reserves or other liquid assets that are easily converted
                  to cash after the purchase of the new home, equal to at least six (6) months of payments
                  for all housing costs and all other recurring debt obligations. In determining these
                  reserves, housing costs include not only the cost of housing in the new area, but also
                  other payments that are being made in any unsold previous residences of investment
                  properties (in cases where such payments are not being paid by the employer of the
                  relocating borrower).
              •   Underwriter determines the probability of obtaining similar employment in the new area
                  is good.
              •   Mortgage cannot have temporary buydowns

      STATED INCOME
      Stated Income and Stated Income/Stated Asset Documentation (SISA) require the following in
      order to be used for qualification:
      •   Income must have a history of being stable and durable based on the employment history
          disclosed on the loan application.
      •   Retired individuals are allowed.
      •   Stated income must be reasonable for their occupation.




                                                                             DW0506         Page 30 of 95
UNDERWRITING                                                                                Income
     NO INCOME DISCLOSURE PROGRAMS
     No Income Disclosure (NID), No Income Disclosure/No Asset Disclosure (NID/NAD), and No
     Income Disclosure/No Asset Verification (NID/NAV). Although income is not disclosed on this
     program the viability and stability of income is considered based on history of employment.
     Retired individuals are allowed.

     NO EMPLOYMENT DISCLOSURE PROGRAMS
     No Income Disclosure/No Employment Disclosure (NID/NED), No Income Disclosure/No
     Employment Disclosure/No Asset Disclosure (NID/NED/NAD). Retired individuals are allowed.




                                                                      DW0506        Page 31 of 95
Assets

     SOURCES OF BORROWER FUNDS
     All sources of funds must meet FNMA guidelines. The following is a list of the more common sources of
     funds (see specific section for more details):
     •   Checking and Savings Accounts
     •   Business Accounts (Requirements may vary on some programs, see program guidelines.
         Exceptions will be considered on a case-by-case basis.)
     •   Retirement Accounts IRA/Keogh/401K Accounts
     •   Stocks, Bonds and Mutual Funds
     •   Bridge (Swing) Loans
     •   Loans Secured by Assets
     •   1031 Tax Deferred Exchanges
     •   Sale of Assets

     Acceptable Sources of Assets – Client must substantiate that the borrower has sufficient cash
     deposits and other assets available to complete the mortgage transaction, as well as
     adequate reserves after closing. See the individual program descriptions for the current asset /
     cash reserve requirements. In genera, funds must meet the following requirements:
     •   Include a documented two (2) month history of funds for the two (2) month period prior to the date
         of the loan application.
     •   Any substantial changes in account balances must have:
         -   An explanation from the Mortgagor and
         -   Acceptable source documentation in the file.
     Asset information detailed below can be used to qualify when requirements are met in accordance
     with FNMA guidelines or program specific requirements.
     Note: Any bank statement or other alternate documentation that reflects direct deposits of income will
     not be acceptable for Stated Income loans. If any income is reflected on verifications submitted
     to Direct Mortgage, file must be processed under a full documentation program.
             Checking and Savings Accounts
             Borrower’s accounts can be verified with any of the following:
             •   A Verification of Deposit (VOD

             •   2 Months consecutive bank statements that include:
                 -   Name of the institution
                 -   Name of the account owners/holders
                 -   Account Number

                 -   All deposit and withdrawal transactions for depository account or all purchase and sale
                     transactions for a financial portfolio account
                 -   Time period covered by the statement
                 -   Ending balance




                                                                              DW0506        Page 32 of 95
UNDERWRITING                                                                                   Assets
           •   Computer generated forms including on-line account or portfolio statements that the
               borrower obtained through the internet that include the following:
               -   Name of account owner/holder
               -   Account number
               -   Time period covered by the statement
               -   Lists all deposit and withdrawal transactions
               -   Reflects ending balance.
               If the latest 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 acceptable. On an exception basis, documenting a file with only the
               first page of the borrower’s bank statement for the most recent two (2) month period
               may be acceptable as long as there is no significant balance increase from month-to-
               month.

          Business Accounts
           Business accounts are generally not acceptable as they are not representative of
           an applicant’s savings history, and the funds are typically required to meet current
           overhead and future capital requirements of the business. DMC will consider the use of
           business accounts for down payment, closing cost or reserves on a case-by-case basis
           subject to:

          •    Business is a Schedule C, Sole Proprietor
          •    Withdrawal and the use of the funds will not detrimentally affect the ongoing operation of
               the business
          •    The borrower should not be using all the funds available and the remaining funds
               should be sufficient to continue to run the business based on the analysis of the
               Schedule C expenses
          •    CPA letter supporting the use of the business funds will not adversely impact the
               business

          Retirement and Keogh Accounts
           These account types may be considered toward down payment, closing costs, and reserves
           under the following conditions:
          •    Funds are verified to be accessible to the applicant.
          •    Only 70% of vested funds are considered, to allow for penalties and tax withholding.

          •    Documentation from the account holder verifying the applicable withdrawal penalties to
               calculate the net amount is required when funds are being liquidated.
          •    Evidence of liquidation of funds is not required.
          •    Retirement accounts that cannot be accessed by the borrower prior to retirement (i.e.
               PERS – Public Employee Retirement System) may not be considered towards down
               payment, closing costs and fees.

          Stocks, Bonds and Mutual Funds
           Stocks, bonds, mutual funds or other investment accounts must be verified by the account
           holder or by a copy of the certificate evidencing ownership.
          •    Stocks must be from a publicly traded company to be utilized for assets.
          •    Two (2) months’ recent statements from the brokerage house confirming the current
               value, type of the security, and detailing the activity on the account.
          •    If stock certificate provided, document value with recent newspaper stock list.


                                                                           DW0506          Page 33 of 95
UNDERWRITING                                                                                      Assets
           •   For stock options determine gain that would be realized if exercised, discount this by
               50% or more to cover taxes and market uncertainty. Document liquidation if funds are
               being used to close.
          •    For government bonds value is based on purchase price unless redemption value is
               documented.

          Bridge (Swing) Loans
           A bridge (or swing) loan is acceptable provided that:
          •    It is collateralized by the borrower’s present home, which is for sale and
          •    It is not cross-collateralized against the new property
          •    The bridge loan payment nor the payments on the borrower's existing home have to be
               counted as part of the long-term debt provided the loan file contains:
               -   A copy of the executed sales contract for the property that is the security for the
                   bridge loan.
               -   A copy of the loan commitment the property purchaser received (and accepted)
                   from the client that will be providing the financing for that property if the executed
                   sales contract includes a "financing contingency."
               -   Documentation supporting cash reserves equal to six months’ of payments for any
                   outstanding liens against that property, in addition to cash reserves that are required in
                   connection with the purchase of the new home.
               -   If the sales contract is not available and/or the reserves are not adequate, borrower
                   must qualify inclusive of:
                   •   All new home debt
                   •   All payments on current home
                   •   The payment on the bridge loan
                   •   All other obligations

          Loans Secured by Assets
           Borrowed funds secured by borrower’s assets are acceptable under the following
           conditions:
          •    Verify both the terms of the loan and the fact that it is a secured loan
          •    The party providing the loan may not be a party to the sale or financing of the property
          •    Document the transfer of the funds to the borrower
          •    If the assets are financial assets (savings accounts, certificates of deposit, stocks, bonds,
               401(k)), then payment on loan does not need to be included in the debt
          •    If the assets are other than financial (automobiles, art work, collectibles, etc.), then the
               payment on the loan must be included in the debt
          •    To use the same asset to satisfy our cash reserve requirements, reduce the value of the
               asset by the amount of the secured loan and any related fees.

          1031 Tax Deferred Exchanges
           To qualify for 1031 treatment, three basic tests must be met:
          •    Both the original and replacement properties must have been used for investment or
               business purposes before the exchange and must continue to be used solely for
               investment or business purposes after the exchange. This requirement eliminates the
               inclusion of personal residences in 1031 exchanges.




                                                                             DW0506          Page 34 of 95
UNDERWRITING                                                                                           Assets
           •   Both properties must be like-kind properties. Generally, the exchange of any type of
               real property will meet the like-kind requirement. Residential rental property,
               commercial property, industrial property, or land, can all be traded within the definition
               of like kind so long as they are used for investment or business purposes. However,
               trading real property for other types of property (such as personal property) would not
               meet the like kind test.
          •    The replacement property must be found and acquired within a specified time period.
               The seller must identify a property to be acquired within 45 days after the sale of the
               first property. The seller has up to 180 days after the sale of the first property to receive
               the replacement property, as long as that date is no later than the due date for filing
               federal income tax returns for the year in which the exchange took place.
           Although not stated in the code, it is generally agreed that:
          •    The investor must clearly establish that the intent behind selling the property is the
               subsequent acquisition of another property
          •    The seller/investor must never have access to or control over the money paid for the
               initial property
          •    A link must be established between the sale of the initial property and the acquisition of the
               replacement property.
           Exchange Transactions that are acceptable to DMC may involve more than two parties;
           however, generally, they may involve no more than two properties. Transactions with more
           than two properties make it difficult to determine the real equity in each property.
           The primary risk with a tax-free exchange transaction is being able to verify the equity
           position in each trade property. That risk is magnified in our style of lending due to the
           extreme importance we place on the value of our collateral. Consequently, we must make
           sure that the equity position in our collateral is adequate and sound.
           Tax-free exchanges can be categorized as either simultaneous or deferred
           transactions. Two-way exchanges are the most common version of the simultaneous
           exchange. In this case, both parties already own property and are willing to trade it
           with one another. Transactions in which three or more parties are involved could also
           be simultaneous exchanges, although the majority of these transactions are deferred
           exchanges. The following requirements apply for transactions involving simultaneous
           exchanges:
          •    Any credit level/LTV asset verification requirements must still be met as per the
               appropriate Loan Program Description. In other words, if the down payment is a
               combination of equity and cash on a loan that requires asset verification, the cash
               portion must be verified as per the Loan Program Description.
          •    Appraisals will be required on both properties in the exchange to establish the value and
               equity involved.
          •    The ownership and lien status of the exchange (selling) property must be determined.
               This can be accomplished either by obtaining a copy of the HUD-1 or a copy of the
               title search.
           Transactions involving deferred exchanges will be treated as a separate sale and
           purchase transaction. Although deferred exchanges may be considered trades for
           income tax purposes, they have characteristics of sale/purchase transactions. These
           characteristics include money changing hands when it is received on behalf of the
           seller/investor for the first property, nothing being exchanged for the first property at the time
           of its delivery, and
           a cash consideration being paid to acquire the replacement property (instead of exchanging
           another property). Consequently, our requirements for considering a deferred exchange as a
           sale/purchase transaction will not include the need for obtaining appraisals for any of the
           properties other than the one we are financing. Instead, the equity in the other properties
           can be determined by verifying the amount of money that changed hands. This can be
           accomplished by obtaining copies of HUD-1’s or verifying in writing the amount of funds that
           changed hands with third party escrow agents or intermediaries.



                                                                             DW0506          Page 35 of 95
UNDERWRITING                                                                                           Assets
           Deposit on Sales Contract/Earnest Money
             In order to include amounts over 2% of the sales price in the verified assets, verify receipt,
             source and history of funds with a cancelled check and a VOD or bank statements that
             support the average balance was sufficient to cover the deposit.

             Personal Gifts
             Gift funds can be used to pay part of the closing costs and supplement reserves or down
             payment. They are permitted on owner occupied and second home transactions under the
             following conditions:
             •   Meets program specific guidelines.
                 -    Related Donor or immediate family member
                 -    Domestic partner (who has lived with applicant for last 12 months and they will use
                      the home as their principal residence)
                 -    Fiancé, or fiancée (as long as both individuals will use the home as their principal
                      residence)

             •   No repayment is required
             •   Borrower has 5% of own funds or
                 -    LTV/CLTV/HLTV is 80% or less and gift funds cover the entire down payment, or
                 -    Meets FNMA requirements for pooled funds with gift from relative or domestic
                      partner that has lived with them for the last 12 months or from a fiancé or fiancée as
                      long as they will use the home as their principal residence.
             •   Disclosed on 1003
             •   Gift letter with:
                 -    Donor’s name, relationship and mailing address
                 -    Amount of the gift
                 -    Property location
                 -    Signed and dated by the donor
             •   Document funds either in donor’s account or transferred to borrower’s account with:
                 -    A copy of the donor’s cancelled check or withdrawal slip and borrower’s deposit slip
                      with bank stamp or acknowledgement.
                 -    If not transferred prior to close, document receipt by closing agent with any of the
                      following:
                     •    Certified check
                     •    Cashier’s check
                     •    Other Official check
                     •    Copy of donor’s check to closing agent and settlement statement showing
                          receipt from donor.
             Non-Related Donor gifts that meet FNMA guidelines are acceptable (on programs that do not
             restrict gift funds to be from a related donor) provided:
             •   It is from borrower’s employer, a municipality, non-profit religious or community
                 organization
             •   Evidence donor has a formal gift program
             •   Funds are a gift or grant with no repayment
             •   Documentation supports funds were received by the borrower


                                                                             DW0506          Page 36 of 95
UNDERWRITING                                                                                 Assets
           •   Documentation from donor that identifies the donor, donor’s mailing address, and
               amount of gift.
          •    Seller-funded gift programs (such as Nehemiah) are not acceptable.

          Gifts of Land
           Gifts of Land follow the same guidelines as the Gift of Equity.

          Gift of Equity
           Gift Equity is allowed under the following circumstances:
          •    The equity is not included as part of the down payment, but must be included on the
               HUD-1
          •    Signed gift letter is in the file
          •    Borrower must contribute 5% of own funds or LTV/CLTV is limited to 80%
          •    LTV/CLTV is based on the lower of the sales price or appraised value
          •    Maximum LTV/CLTV is subject to program cash out guidelines (no 80/100 programs)
          •    Primary residence, 1-unit property only
          •    Non-Arms length transactions require an exception (unless buyer and seller are family
               members).
          •    12 months, previous mortgage payment history is required to support no bail out

          Sale of Assets
          •    Proceeds from the sale of a home are documented with a Fully Executed Final
               Settlement Statement (HUD 1)
          •    Proceeds from the sale of other personal assets (i.e., automobile, coins, art, or
               antiques), where ownership and value can be established, are acceptable provided:
               -    The individual purchasing the asset is not a party to the sale or mortgage financing
                    transaction.
               -    Borrower can document ownership of the asset
               -    Value of the asset is determined by an independent and reputable source
               -    Transfer of owners is documented (bill of sale or statement from purchaser)
               -    Receipt of proceeds of sale is documented
               -    Example: The sale of an automobile requires the copy of title (pink slip), the value
                    (“blue book” price), transfer of ownership (a bill of sale), and receipt of proceeds
                    (deposit slip or bank statement and a copy of purchaser’s check)
          •    Assets from a yard sale or other various personal items are not acceptable.

          Land Equity
           Land Equity follows the same requirements as for Construction to Permanent.

          Rent Credit
           When purchasing a home under a lease-option agreement, credit for excess rent from the
           seller is acceptable provided:
          •    Credit is for the amount that the monthly rent paid exceeded the market rent at the time the
               contract was signed (market rents must be determined by a property appraiser).
          •    12 months canceled checks support rent was paid
          •    File contains a copy of the rental/purchase that had a term of 12 months or more




                                                                             DW0506        Page 37 of 95
UNDERWRITING                                                                                         Assets
           Trade Equity
            Proceeds from a property trade-in by borrower may be used if:
            •   Borrower contributes at least 5% of own funds
            •   Copy of the trade-in agreement is provided
            •   True-value is supported by an appraisal for the property being traded
            •   A land records search is provided to verify ownership of the property and determine
                what liens are on the property.
            •   The borrower’s equity is determined by subtracting liens and transfer costs from lessor of
                the current appraised value or the trade-in-value.
            •   Proof of title transfer and satisfaction of liens is provided
            •   Transfer deed must be recorded

            Trust Accounts
            To be considered, the file must contain the trust agreement, or a letter from the trustee,
            which verifies the following:
            •   Identify the trustee including name, address, telephone number and an individual
                contact. The trustee must be an independent party that typically handles trust accounts
                (trust company, financial institution, CPA, lawyer).
            •   Identify the borrower as the beneficiary
            •   Show that the borrower has access to all or a certain specific amount of the funds
            •   Show that the trust has the assets to disburse funds to the borrower
            •   Document the affect (if any) that withdrawal of funds from the account will have on any
                trust income that was used to qualify the borrower.
            •   Lump-sum distributions may be used for the downpayment and must be verified with a
                copy of the check or trustee’s letter.

            Cash Value of Life Insurance
            When using the cash value of life insurance, the file must contain evidence of cash value,
            receipt of funds, and that no repayment is required (or qualified as Loans Secured by Assets)

            Donations from Entities
            Funds donated by church, municipality, nonprofit organization (excluding credit union), or
            public agency that meet FNMA guidelines are acceptable provided:
            •   The program does not restrict gift funds to be from a related donor.
            •   Owner occupied property
            •   Gift or grant to pay part of the closing costs or supplement reserves.
            •   Borrower contributes 5% of their own funds for down payment or maximum 80%
                LTV/CLTV.
            •   Letter awarding the gift or grant or copy of legal agreement specifying terms and
                conditions is provided. The letter must include:
                -   Language indicating no repayment expected.
                -   Indication of how funds will be transferred (to borrower, the client or closing
                    agent)
            •   Transfer of funds is documented (such as donor’s canceled check or settlement
                statement showing receipt of check)




                                                                                DW0506     Page 38 of 95
UNDERWRITING                                                                                              Assets
           Disaster Relief
              A state or federal agency (including the Federal Emergency Management Agency), grant or
              loan for housing assistance to individuals displaced due to uninsured property losses from
              widespread natural disaster that affected their locality. The following is in accordance with
              FNMA guidelines:
              •   Lump-sum disaster relief grant or loan can be used to satisfy down payment
                  requirement and
              •   Borrower does not have to make a minimum cash down payment from their own funds.

              Employer Assistance
              Employer assistance can be in the form of mortgage payment assistance; grant; or a direct
              fully repayable, forgivable, or deferred payment second mortgage or unsecured loan. It is
              acceptable under FNMA guidelines to pay closing costs, supplement financial reserves or
              supplement down payment, subject to:
              •   Documentation that assistance is a secured by a second mortgage. The transaction must
                  meet eligibility criteria for mortgages subject to subordinate financing
              •   Any scheduled payment to be included in ratios. (When secured second mortgage does
                  not require regular payments of either principal and interest or interest only, calculation of
                  an equivalent payment is not required).
              •   Owner occupied property
              •   5% of borrower’s own funds for down payment.
              •   The supporting documentation is as follows:
                   -   An established company program, not just an accommodation developed for an
                       individual employee.
                   -   Terms of any loan agreement and other employee assistance being offered (such as
                       relocation benefits or gifts).
                   -   Written verification of the dollar amount of assistance.
                   -   Borrower’s receipt of funds, if funded before settlement.
                   -   Assistance came directly from the employer; it cannot be provided by a company-
                       affiliated credit union.

      UNACCEPTABLE SOURCES OF FUNDS
      The following funds are not acceptable sources to complete the mortgage transaction or for
      supporting adequate reserves after closing.

      •   Signature loans
      •   Stocks, notes, loans from privately held companies
      •   Collectible (coins, stamps, etc, unless sold & meets asset sale requirements in Section IV-4-
          401.12)
      •   Unsecured lines of Credit
      •   Overdraft Protection on any account
      •   Personal or business unsecured loans
      •   Cash advances on revolving charge/credit cards
      •   Cash on Hand
      •   Sweat equity
      •   Gift or grant which requires repayment in full or part.
      •   Credit card payment for fees etc.

                                                                                  DW0506        Page 39 of 95
UNDERWRITING                                                                                           Assets
     • Commission income from real estate commission sale, when the buyer is the agent.
       •   Any funds that cannot be verified or source of funds documented
       •   Unvested stock options

       DOWN PAYMENT
       Borrower’s down payment funds must be verified and seasoned for 2 months.                    Source
       documentation is required for substantial increases in the past 90 days. Refer to the guidelines for
       each specific program for the use of Gift Funds
       When program requires a down payment it must be from borrower’s own funds. Except when
       program allows funds to be from other parties, and requirements are met in accordance with FNMA
       guidelines or program specific requirements.

       SUBORDINATE FINANCING
       Subordinating financing is acceptable within LTV/CLTV/HLTV guidelines under the following conditions:
       •   File must contain a copy of the note and deed of trust and any modifications or amendments.
           -   Refinance: must be subordinate to the first lien
           -   Purchase: must meet purchase criteria
       •   DMC piggyback programs do not allow any additional subordinate financing behind DMC 1st and
           2nd
       •   Must follow standard FNMA guidelines.
           -   Non-HELOC
               •   Repayment terms must meet the following requirements:
                   •   No prepayment penalties
                   •   Payment must cover at least the interest due

                   •   Term must be for at least 5 years and have no balloon or call provision within 5
                       years unless balloon payment is minimal and verified assets are sufficient to cover the
                       balloon payment.
               •   Variable rates permitted if:
                   •   First mortgage has no temporary buy down.
                   •   Payment is constant for each 12-month period.
                   •   Maximum of 1% interest rate change at each adjustment.
               •   Below market financing from seller is treated as seller concession whenever financing is
                   2% or more below posted yield.
           -   HELOC
               •   LTV/CLTV/HLTV is based on total available line of credit
               •   Refinance:
                   •   Debt ratio is based on current indebtedness
                   •   Current statement is required to reflect line amount, current balance and payment
                       amount
                   •   If no payment is required, then no payment is included in debt ratio.
               •   Purchase:
                   •   Include payment as determined by Client in ratios.
                   •   If no payment is required, then no payment is included in debt ratio.




                                                                               DW0506          Page 40 of 95
UNDERWRITING                                                                                        Assets
     ADEQUACY OF FINANCIAL RESERVES
     Reserves on all DMC loans must demonstrate that the applicant has an acceptable savings history
     equivalent to the reserve requirements of the individual loan programs. See individual program
     description for the required reserve position.
            Reserve Requirements
            Unless otherwise noted in the specific individual program guidelines, reserve requirements
            are based on the PITI for the subject property. Refer to the program’s individual guidelines
            for specific cash reserve requirements. In addition, specific situations may require
            additional cash reserves (i.e. bridge loans, trailing spouse income). Acceptable sources
            follow standard FNMA guidelines except:
            •   Cash out proceeds acceptable for cash reserve requirements on:
                -   Owner occupied transactions when guideline specific credit score is met
                -   File has no exceptions.
            •   Business funds may be considered to meet the reserve requirement on an exception
                basis.
            •   Reserve requirements apply to all transaction types including rate & term refinances.
            •   Exceptions can be considered for high credit quality applicants who do not meet the
                specified reserve requirements.

            •   Loans with exceptions to guidelines may require additional reserves as compensating
                factors.

            * Note: Requirements may vary on some programs, see program guidelines. Exceptions will
              be considered on a case-by-case basis.

            In addition the following apply:
            •   Stated Income: The liquid assets for stated income loans must support the income level
                claimed on the application (i.e., the overall file must make sense). In considering
                reasonableness of the stated income high debt usage, limited reserves and
                unreasonable income for stated occupation would be considered.          An acceptable
                explanation or full income documentation might be required.
            •   Recently purchased properties: Additional reserves may be required on the current
                transaction if the borrower has acquired additional property or properties within the
                past 12 months. Plus client must ensure that funds were verified after the property
                closed or assets are sufficient to cover funds required for both previous properties
                acquired and the subject transaction.

     CONTRIBUTIONS BY INTERESTED PARTIES
     An interested party is anyone (other than the purchaser) with a financial interest or ability to
     influence the terms, sale or transfer of the property. They include but not limited to seller,
     builder/developer (or affiliate), real estate agent or broker. Contributions are allowed toward
     closing costs per FNMA guidelines, unless restricted by program guidelines. See maximum limits
     under Maximum Allowable Contributions.
            Types of Contributions
            The following types of contributions are allowed up to the maximum limits under Maximum
            Allowable Contributions:
            •   Any cost normally paid by the property purchaser that is paid by someone else.
                -   Closing costs
                -   Prepaid settlement costs (covering any period after the settlement date) include
                    interest charges, real estate taxes, hazard insurance premiums, and any
                    escrow accruals for renewal of mortgage insurance



                                                                           DW0506         Page 41 of 95
UNDERWRITING                                                                                     Assets
           •   Funds for a planned temporary buydown (unless provided by client not affiliated with the
               sale or purchase).
           The following types of contributions are not allowed:
          •     Contributions for down payment or reserve requirements.
          •     Decorator’s up-grade or repair allowances.
          •     Contributions in excess of the maximum allowable

          Maximum Allowable Contributions
           The maximum allowable percent (%) of the contribution is based on the lesser of the
           property's sales price or appraised value for a mortgage, and apply according to transaction
           type and LTV/CLTV (unless lower contributions are restricted by program).
           Exhibit A: Maximum Allowable Contributions

              Maximum %       LTV/CLTV                       Occupancy
              9%              To 75%                         OO or 2nd home
              6%              >75% to 90%                    OO or 2nd home
              3%              >90% to 100%                   OO or 2nd home
              2%              All                            NOO

           * Note: Requirements may vary on some programs, see program guidelines. Exceptions will
             be considered on a case-by-case basis.

          Undisclosed Seller Contributions
           Undisclosed seller contributions are not allowed. These types of contributions are often given
           to the homebuyer outside of the loan closing. The client is responsible to ensure all
           appropriate staff is knowledgeable on how to detect undisclosed contributions. These types
           of contributions include but are not limited to:
          •    Moving Expenses
          •    Payment of various fees on borrower’s behalf
          •    Silent second mortgages held by the seller
          •    Principal and Interest abatements
          •    Any other contribution not disclosed on the HUD-1 uniform settlement statement

          Sales Concessions
           Sales concessions are always subtracted from the purchase price prior to calculating
           LTV/CLTV/HLTV. They include but are not limited to contributions in excess of limits,
           vacations, automobiles, and furniture giveaways.




                                                                          DW0506         Page 42 of 95
Liabilities

       MONTHLY HOUSING EXPENSE
       Monthly housing expense is calculated using the monthly payments on all mortgages, hazard
       insurance, property taxes, flood insurance, mortgage insurance, and homeowner’s dues (PITI
       payment) for the borrower’s primary residence.
       Payment Shock – Payment Shock should be considered in the overall risk assessment particularly on
       first time homebuyers. Some programs restrict payment shock to 50%. See specific guidelines for
       restrictions. Payment shock is calculated as follows:


           (proposed payment – current payment) / current payment = payment shock
           Result is then converted to a percentage.


       MONTHLY DEBT OBLIGATIONS
       •     Owner Occupied total monthly debt includes:
              -   PITI housing expense described above
              -   Total of all long-term obligations including any PITI payments on second homes and
                  negative cash flow on any investment properties owned.
       •     Second Home total monthly debt includes:
              -   PITI monthly housing expense for the borrower’s primary residence.
              -   The PITI payment for the subject second home
              -   Total payments for all long-term obligations including negative cash flow on any
                  investment properties owned.
       •     Investment Property total monthly debt includes:
              -   PITI monthly housing expense for the borrower’s primary residence.
              -   Full PITI from subject investment property or
              -   If borrower has a 2 year history of managing rental properties use negative cash flow from the
                  subject investment property.
              -   Total payments for all long-term obligations including any negative cash flow on any other
                  investment properties owned and PITI payment for any second home owned.

                  Debts Paid at or Prior to Close
                  DMC follows standard FNMA guidelines for debt payoff and installment loans with less than
                  10 months remaining.

                  Long-term Debts
                  For all other liabilities the client must determine the unpaid balance, terms and borrower’s
                  payment history. This information is generally on the credit report, however client must
                  verify any that are not on the report. The following liabilities are included in the debt ratio
                  per standard FNMA guidelines:

                            Installment Loans
                            Not all installment debts are secured by financial assets. Loans secured by other
                            than financial assets and unsecured loans require the monthly obligation to be
                            included in debt calculation, unless there are ten (10) or less months remaining
                            and it would not significantly affect the borrower’s ability to meet their credit
                            obligations.




                                                                                    DW0506          Page 43 of 95
UNDERWRITING                                                                             Liabilities
               Revolving

               •   Revolving accounts with outstanding balances and payments over 10 months
                   remaining that are not paid at closing are included in the debt calculation.
               •   If credit report does not reflect a minimum payment, 5% of the outstanding
                   balance is included in the debt calculation.
               •   When credit report reflects less than ten (10) months remaining it does not
                   have to be included provided it would not significantly affect the borrower’s
                   ability to meet their credit obligations.
               •   When the payment reflected is artificially low, for example a $10 payment on
                   a high balance revolving account offered as a promotion or incentive for
                   transfer, a 5% payment should be used.

               Child Support, Alimony or Maintenance Payments
               Payments required by a divorce decree, separation agreement, or other written
               legal agreement with over 10 months remaining are included in debt calculation.
               Voluntary payments do not need to be taken into consideration.

               Contingent Liabilities
               A contingent liability is one that may not have to be paid. Not every contingent
               liability will have to be taken into consideration. The following are the most
               common types of contingent liabilities where the debt will not have to be
               included provided the stated conditions are met per standard FNMA
               requirements:
               •   Co-signed Accounts: Borrower co-signs for a loan to enable another party
                   (the primary obligor) to obtain credit.
                   -   12 month history of primary obligor
                   -   No delinquent payments
               •   Property Settlement “Buyout”: Borrower’s interest in a property is “bought- out
                   by another co-owner of the property (generally in a divorce settlement), but
                   the client does not release the borrower from liability. Documentation is
                   required confirming the transfer of title to the property.
               •   Mortgage Assumption: Borrower sells a mortgaged property and the
                   purchaser assumes the outstanding mortgage without a release of liability.
                   Documentation is required evidencing the transfer of ownership, a copy of
                   the formal, executed assumption agreement, and credit report indicating 12
                   month history of purchaser making regular and timely payments.

               •   Court-ordered Assignment of Debt: Outstanding debt was assigned to
                   another party by court order (generally in a divorce decree or separation
                   agreement) and creditor does not release the borrower from liability
                   (payment before the assignment has to be evaluated, however payment
                   history after the assignment does not). Documentation is required to support
                   transfer of ownership (if applicable) and applicable pages from the court
                   order.
               •   Bridge (or Swing) Loan: Loan collateralized by present home for funds to
                   purchase the new home. See Bridge (Swing) Loans for requirements.
               •   Loan Secured by Financial Assets: Borrower uses their financial assets as
                   security for a loan. See Loans Secured by Assets for requirements.




                                                                   DW0506         Page 44 of 95
UNDERWRITING                                                                                  Liabilities
                   Auto Leases
                   Are included in debt calculations regardless of the number of months remaining,
                   unless documentation supports borrower has fully bought out the existing lease
                   and sufficient assets are verified in addition to all other assets required in the
                   mortgage loan transaction.

                   Lease Payments on Rental Housing
                   Are included in debt calculations regardless of the number of months remaining,
                   unless documentation supports borrower has been fully released of the lease
                   obligation or has fully bought out the existing lease obligation and sufficient
                   assets are verified in addition to all other assets required in the mortgage loan
                   transaction.

                   Negative Cash Flow
                   Negative cash flow is included in monthly debt calculation. See Rental Income for
                   calculation information.

                   Student Loans
                   Obligation is included in debt calculation, even if deferred. If the credit report does
                   not reflect a payment amount obtain a copy of the borrower’s payment letter
                   to determine what payment to use in the debt calculation.

                   Forbearance
                   Loans in forbearance are included in the debt calculation. If the credit report does
                   not reflect a payment amount obtain a copy of the borrower’s forbearance
                   agreement to determine what payment to use in the debt calculation.

                   Real Estate Mortgages
                   PITI payments are included in the debt calculation for all non-rental property
                   owned by the applicant. See Rental Income for calculation on rental property
                   owned.

                   Business Debt in Borrower’s Name
                   Business debt in the borrower’s name can be excluded from the borrower’s
                   personal debt provided:
                   •   There are 12 months of checks available to support the business pays
                   •   Client’s cash flow analysis of the business supporting the payment
                       obligation has been taken into consideration
                   •   There is no history of delinquency on the account
                   If any of the above is not met the payment must be included in the borrower’s
                   individual debt calculation. In cases where the cash flow analysis supports the
                   business was making payments, adjustments will need to be made to the net
                   income to ensure the payment is not counted twice against the applicant.

          Excluded Long-term Debts
          To exclude loans on debts with ten (10) or less months remaining see requirements in
          Installment Loans. Deferred student loans are included in debt calculations. See Student
          Loans for details.




                                                                        DW0506          Page 45 of 95
UNDERWRITING                                                                                      Liabilities
           Payoff at Close
             DMC follows standard FNMA guidelines for debt payoff and installment loans with less than
             ten (10) months remaining. The borrower should make the decision on whether or not to payoff
             or pay down debt, but DMC discourages the pay off or pay down of debt for the sole purpose
             of improving qualifying ratio. The following are debts that are required by FNMA to be paid at or
             prior to closing:
             •   Open 30-day charge accounts
                 -   If applicant does not have the assets to cover the balance or
                 -   Is unable to support reimbursement of the charges will come from their employer
             •   Collections, charge-offs, judgments, garnishments and liens
                 -   Unless the amount on an individual account is $250 or less and
                 -   The total of all amounts is less than $1,000.




                                                                            DW0506          Page 46 of 95
Credit

         CREDIT STANDARDS
         Exclusive of credit requirements as outlined in the program descriptions, the borrower’s overall
         credit history should demonstrate the ability to meet monthly obligations in a timely manner.
         Derogatory credit that demonstrates a pattern of slow payment history will be taken into
         consideration in addition to the specific credit requirements within the last 24 months.

                Credit Scores
                It is extremely important that the client examine the credit report closely. To assure the
                validity of the score the borrower’s credit file needs to include complete and accurate
                information.
                Credit reports must meet Agency standard requirements to be used to determine the
                qualifying credit score. DMC requires a minimum of 2 credit scores. Exceptions will be
                considered for 1 score on a case-by-case basis. Refer to the program guidelines for credit
                score requirements for each program.
                The credit score is determined by the lowest score if two repositories were accessed and the
                middle score if three repositories were accessed. When two (2) of the three (3) scores are
                identical, one of the identical scores is considered the middle score.
                Use the primary wage earner score for qualification, unless otherwise specified in the
                program description. When the primary wage earner cannot be determined, the middle
                score of each borrower is noted and the lowest of those scores will be used as the
                representative scores. Example: A Husband and wife jointly own a sole proprietorship
                business. All income is reported on Schedule C; therefore specific portions of income are
                not attributable to either party.
                •   Qualifying credit scores less than 620 will not be eligible for our “A” paper products.
                •   Borrowers & Co-Borrowers must meet FNMA credit requirements for loan eligibility.
                    -   Co-Borrowers minimum credit score is 620 (unless higher is required by program).
                    -   When program permits co-borrowers with unacceptable credit history are allowed
                        provided:
                        •   Income not used to qualify
                        •   Contribute no assets for downpayment, closing costs, or cash reserves
                        •   Add no separate liabilities in the form of liens, judgments, or the like

                Trade Lines
                An established credit history is determined by the number of tradelines required. Specific
                programs may require different numbers of tradelines. When not addressed in the program
                guidelines the following applies:
                •   Minimum of four (4) open & active tradelines as reported by the credit repositories. An
                    exception would be needed for VOR as one of the tradelines and one (1) of the four (4)
                    tradelines may be closed if six (6) months or less.
                •   Minimum of two (2) year credit history for each tradeline.


                Non-traditional Credit
                When the program guidelines allow the use of non-traditional credit, a minimum of four (4)
                credit references, with at least one of them being housing-related, is required.
                •   Non-traditional references may be used for up to three (3) of the four (4) references
                •   Three (3) of the four (4) references must have been active in the 24 months proceeding
                    the date of the mortgage application.



                                                                                  DW0506          Page 47 of 95
UNDERWRITING                                                                                          Credit


             • The payment schedule must have payment intervals of three (3) months or less.
             • A consumer reporting agency should verify non-traditional trades and reflect
               information on a non-traditional credit report in accordance with FNMA guidelines.
               The Client can develop non-traditional credit history with a combination of written
               credit references directly by the creditor and the borrower’s bank (provided the format
               of reporting meets FNMA standards). If supporting documentation describes the terms
               of debt repayment, then 24 months cancelled checks, bank statements or bills marked
               paid can be used.
             Preferred sources for non-traditional trades are utility payments (electricity, gas, water,
             cable television and telephone). If these sources cannot be developed other sources can
             be considered (e.g. insurance such as medical, automobile, life, and renter’s), local stores
             (department, furniture, appliance, etc.), medical bills, tuition, childcare, etc. Alternative
             sources that are payroll deducted are not acceptable.

            International Credit Report
             If the client’s credit report contains the required credit scores but does not have the depth
             of credit history needed we can use an international credit report to supplement the report
             to obtain the required number of trades. The combined information on both reports can be
             used to make an informed credit decision.
             If the borrower has not established credit in the US, an international credit report can be
             used if it contains the required credit score. However there must be evidence that the
             client ordered a credit report in order to document that the borrower has not established
             credit in the US.
             Note: DMC requires a minimum of 2 scores. Exceptions will be considered for 1 score on
             a case-by-case basis.

     REAL ESTATE MORTGAGES
     Real estate mortgage ratings, for applicants that own multiple properties, are required on all
     mortgages for their primary residence, any second home property owned, and subject property if
     refinancing an investment property. All mortgages reflected in the file must be matched to the
     corresponding property. For the remaining financed properties the following minimum number of
     mortgage verifications applies:

                              NUMBER OF                  MINIMUM NUMBER TO
                              MORTGAGES                        VERIFY
                                    7 to                             5
                                   11 to                             8
                                More than 20                         1
                                                                     0
     DEROGATORY ITEMS
     All significant derogatory items must be fully explained, including the reason for the problem and
     how it was resolved. Detailed review of installment and revolving may not be required if credit
     score is over 660. However individual evaluation is required on the following regardless of the
     score: Bankruptcy; Foreclosure; Deed in lieu; Mortgage lates within the past 12months, or
     Collections; Judgments; Liens; and Charge-offs over $250 or $1000 combined.

     EXTENUATING CIRCUMSTANCE
     FNMA classifies extenuating circumstances as a non-recurring or isolated circumstance, which was
     beyond the borrower’s control and created a significant financial strain, such as illness or death of
     the primary wage earner. Divorce or temporary/short-term job lay-offs are not extenuating
     circumstances.




                                                                            DW0506          Page 48 of 95
UNDERWRITING                                                                                              Credit
     If the underwriter determines an extenuating circumstances was the cause of the borrower’s
     financial problems, credit may be deemed acceptable if:
     •   Not restricted by program guidelines.
     •   The financial problems have been gone for at least 2 years.
     •   The file must contain:
         -   A written explanation from the borrower regarding the cause of the financial difficulties.
         -   Third party verification to support borrower’s explanation.
     Review of credit history must indicate:
     •   Credit history prior to the extenuating circumstances was acceptable.
     •   Credit has been re-established for the most recent 2-year period and meets the minimum
         requirements as outlined in Re-established credit. A minimum 660 credit score is required.

     FINANCIAL MISMANAGEMENT
     If extenuating circumstances did not cause financial problems, the cause will be considered as
     financial mismanagement.
     •   Review of credit history must indicate:
         -   Credit history prior to the financial mismanagement was acceptable.
         -   Credit has been re-established for the most recent four (4) 7 year period (two years if
             Chapter 13) and meets the minimum requirements as outlined in re-established credit.
     •   A minimum 660 credit score is required.
     •   Not restricted by program guidelines.
             Late Payments
             When late payments have occurred, credit will be analyzed over the past 24 months.
             •   Non-mortgage: Late payments that demonstrate a pattern of slow payment history will
                 be taken into consideration in addition to the specific credit requirements within the last
                 24 months. Borrowers & Co-Borrowers must meet FNMA credit requirements for loan
                 eligibility.

             •   Mortgage: Mortgage lates in the past year are not allowed unless specifically provided
                 for in program guidelines.

             Bankruptcy and Foreclosure
             The following guidelines apply in cases of bankruptcy and foreclosure:
             •   If bankruptcy was within the last 7 years file must contain:
                 -   Copies of all bankruptcy paperwork (petition, schedule of debts and discharge).
                 -   Evidence that all debt not satisfied by the bankruptcy has been and is being paid as
                     agreed.
                 -   Sufficient evidence borrower has re-established acceptable credit.
                 -   A letter of explanation, addressing all derogatory credit associated with the
                     bankruptcy.
             •   An acceptable time period must have elapsed from the date of the discharge (or
                 completion if Chapter 13) to allow the borrower to reestablish credit and prove to be an
                 acceptable credit risk.    Time frames depend on whether the cause was due
                 to Extenuating Circumstances or Financial Mismanagement, and must conform to
                 time frames established by specified program guidelines.




                                                                                DW0506         Page 49 of 95
UNDERWRITING                                                                                 Credit
           For programs that do not specifically address time frame requirements, the following
           general time frame requirements will apply:
              •   Chapter 7 or 11: Bankruptcies must be discharged for 4 years unless extenuating
                  circumstances can be documented and then an exception may be granted as long as
                  at least 2 years has elapsed since discharge.
              •   Chapter 13: Bankruptcies must be discharged for 2 years unless extenuating
                  circumstances can be documented and then an exception may be granted as long as
                  at least 12 months has elapsed since discharge.
              •   Foreclosure: Foreclosures and Deed-in-Lieu must be cleared at least 4 years prior to the
                  application date. Exceptions may be granted on a case-by-case basis.
              Review the cause to determine if the result is from an Extenuating Circumstances or
              Financial Mismanagement and refer to applicable topic addressed previously.

              Re-established Credit
              Re-established credit requirements are as follows:
              •   The credit file should include a minimum of 4 credit references with at least one of
                  them being housing-related (non-traditional references may be used for up to 3 of the 4
                  references if DMC program guidelines allow the use of non-traditional credit).
                  -   If tradelines were included in a bankruptcy, at least 1 tradeline must be part of the
                      re-established credit references.
                  -   3 of the 4 references must have been active in the 24 months proceeding the date of
                      the mortgage application.
                  -   No more than 2 x 30 on installment or revolving accounts in the last 24 months.
                  -   No installment or revolving payments 60 or more days past due since the
                      discharge.
              •   No housing payments past due since the discharge. Housing must be verified for the
                  last 12 months.
              •   No new public records, judgments, collections, etc. have been opened since the
                  financial problems occurred.
              •   All accounts must be current as of the date of the mortgage application.

              Judgments, Liens and Garnishments
              All judgments, liens and garnishments must be paid in full, prior to or at closing (including tax
              liens). Payment plans are not acceptable.

              Collections
              Collections do not have to be paid off at or before loan closing if:
              •   The account will not affect our lien position and
              •   The balance of each individual account does not exceed $250 and
              •   The aggregate amount of all open collections and charge-offs does not exceed $1,000
                  in total (limit may be exceeded for borrowers with strong credit history and financial
                  assets).
              •   Unless more or less restrictive in specific program guidelines.




                                                                                DW0506         Page 50 of 95
UNDERWRITING                                                                                         Credit
           Charge-off
              Charge-off accounts must be paid at or prior to closing unless:
             •       The account will not affect our lien position and
             •       The balance of each individual account does not exceed $250 and
             •       The aggregate amount of all-open collections and charge-offs do not exceed $1,000 in
                     total (limit may be exceeded for borrowers with strong credit history and financial
                     assets), and
             •       Specific program guidelines do not require payoff.

             Consumer Credit Counseling
              Direct Mortgage Mortgage views consumer credit counseling as a weakness in the
              borrower’s credit profile. The borrower(s) must have completed their consumer credit
              counseling plan. Exceptions may be made on a case-by-case basis.

      CREDIT QUICK REFERENCE GUIDE
      If credit meets the following requirements it will generally be acceptable, provided program
      guidelines do not have higher standards. For any credit outside of these guidelines refer to program
      guidelines, specific issue as addressed above, or FNMA guidelines (in that order) for clarification
      and to determine acceptability.

      Exhibit A: Credit Quick Reference Guide

       CREDIT TYPE             GENERAL CREDIT REQUIREMENTS
                               •   4 open tradelines
       Trade Lines             •   Active in past 12 months
                               •   24 month history
                               •   0X30 in past 12 months
       Mortgage/Housing        •   0X60 in past 24 months
                               •   0X90 in past 4 years
                               •   1X30 in past 12 months
       Installment
                               •   2X30 in past 24 months
                               •   2X30 in past 12 months
       Revolving
                               •   0X60 in past 24 months
                               Credit re-established and no 60-day lates since discharge.
       Bankruptcy              •   Chapter 7 or 11: Discharged 4 years
                               •   Chapter 13: Discharged 2 years
                               •   Cleared at least 4 years
       Foreclosure             •   Credit re-established
                               •   No 60 day lates since foreclosure
                               Collections, charge-offs, liens, judgments over $250 or
       Major Derogatory
                               $1,000 combined.

      * Note: Requirements may vary on some programs, see program guidelines. Exceptions will be
        considered on a case-by-case basis.




                                                                                DW0506      Page 51 of 95
UNDERWRITING                                                                                            Credit
     PRIOR HOUSING HISTORY
     Verification of previous housing history (mortgage or rent) covering the previous 12 months is
     required on all loan programs unless:
     •   Program specifically allows for less than a 12-month housing history or
     •   Program requires a full 24-month housing history or
     •   First time homebuyer, which requires a 24-month housing history.
     If previous mortgage or rent payments are not verified on the credit report, we require the rating to
     be from a disinterested third party:
     •   Verification of Rent signed by the landlord, or Verification of Mortgage signed by the
         mortgagee (for all liens on primary residence), or
         -   Cancelled checks for the past 12* months (required if the individual signing the verification
             is not a disinterested third party) or program specific guides if more restrictive
         -   Bank statements can be used if supporting documentation verifies the amount of the
             payment due.
     •   Previous housing history must support 0X30 in the past 12* months (unless program
         specifically allows for mortgage lates).
     •   For refinance or account transfer transactions, a combination of payment performance from
         multiple clients for the same collateral may be used to complete the 12* month history
         requirement.
     •   All mortgages must be current at closing. An update may be required.
    *24 months if required by program.

     FIRST TIME HOME BUYERS
     A first-time homebuyer is defined by the following characteristics:
     • Purchaser of the subject property.
     • Will reside in the subject property.
     • Has had no ownership interest (sole or joint) in a residential property during the three-year period
          preceding the date of purchase of the subject property.
     • A displaced homemaker or single parent will be considered a first-time homebuyer if he/she have
          had no ownership interest in a principal residence (other than joint ownership with a spouse)
          during the preceding three year period.

     * Note: Requirements vary by program – see individual program guidelines for specifics.

     UNDISCLOSED DEBTS
     With the exception of minor omissions, undisclosed debts that appear on the credit report must be
     explained in writing by the borrower.

     INQUIRIES
     All inquiries occurring within 90 days of the credit report must:
     •   Be explained in writing by the borrower.
     •   Indicate whether new accounts were established, and
     •   Be verified for terms and included in the borrower’s overall obligations.
     •   Be confirmed by the Client that the loan does not represent unsecured financing for the down
         payment, closing cost, or prepaid items.




                                                                              DW0506          Page 52 of 95
Qualifying Ratios

      INTRODUCTION
      Qualifying ratio varies by specific product. Be sure to refer to the individual program’s guidelines for
      specific requirements.

      HOUSING EXPENSE RATIO
      Monthly housing expense described below is divided by the borrower’s total stable monthly income
      to arrive at the Housing Expense Ratio. Monthly housing expense is the sum of the monthly:
      •   Principal and interest installment for the mortgage that is secured by the borrower’s principal
          residence (or interest only payment if applicable. See below for considerations in calculating of
          this payment);
      •   Payments for hazard, flood, and mortgage insurance premiums, real estate taxes, ground rent, or
          special assessments;
      •   Owners’ associations dues (including utility charges that are attributable to the common areas, but
          excluding any master utility charges that apply to the individual unit);
      •   Cooperative corporation fee (less the pro rata share of the master utility charges for servicing
          individual units that is attributable to the borrower’s unit); and
      •   Payments actually required to be made for subordinate financing.

      TOTAL DEBT RATIO
      The total debt ratio includes the borrower’s liabilities as described in long-term debt.
              Owner Occupied
              Total monthly debt includes PITI housing expense as described above plus:
              •   Totals of all long-term obligations from Long-term Debts.
              •   PITI payment on any second home owned.
              •   Negative cash flow from other investment properties
              •   Divide the total by the borrower’s total stable monthly gross income to arrive at the
                  Total Debt Ratio.
              •   The total debt ratio should be 36%. However most DMC programs will allow debt
                  ratios to 40% or higher, see program for specific ratio requirement.
              •   Loans with a high debt ratio should contain a condition for the maximum allowable
                  interest rate.

              Second Home
              Total monthly debt includes PITI housing expense described above plus:
              •   Totals of all long-term obligations from Long-term Debts.
              •   Payment on second home, and
              •   Negative cash flow from investment properties.

              •   Divide total by the borrower’s total stable monthly gross income to arrive at the Total
                  Debt Ratio.
              •   The total debt ratio should be 36%. However most DMC programs will allow debt
                  ratios to 40% or higher, see program for specific ratio requirement.
              •   Loans with a high debt ratio should contain a condition for maximum allowable interest rate.




                                                                               DW0506            Page 53 of 95
UNDERWRITING                                                                            Qualifying Ratios
           Investment Property
             Total monthly debt includes PITI housing expense described above plus:
            •   Totals of all long-term obligations from Long-term Debts,
            •   PITI payment on any second home owned,
                Negative cash flow from other investment properties. See Rental Income for calculation.
            •   PITI from subject investment property, see Rental Income for calculation, or
            •   Negative cash flow from subject investment property if income qualifies for inclusion. To
                use income from the subject property for qualification, the file must contain
                documentation supporting a least a 2-year history of managing rental property.
            •   Divide total by the borrower’s total stable monthly gross income to arrive at the Total
                Debt Ratio.
            •   The total debt ratio should be 36%. However most DMC programs will allow debt
                ratios to 40% or higher, see program for specific ratio requirement.
            •   Loans with a high debt ratio should contain a condition for maximum allowable interest rate.
            •   Loans to an applicant with multiple investment properties should contain
                documentation to support experience and ability to manage all their real estate
                holdings, especially when they have acquired or are acquiring property at the following
                rate:
                -   Two (2) within the past six (6) months or
                -   Four (4) within the past two (2) years.
             DMC reserves the right to request documentation to evidence the borrower had the funds
             required to purchase any property acquired with the last 12 months and /or sufficient
             verified assets to provide adequate reserves for the investment portfolio.




                                                                            DW0506        Page 54 of 95
Mortgage Insurance

     GENERAL INFORMATION
     All loans over 80% LTV do not require a mortgage insurance (MI) program or borrower-paid
     mortgage insurance (BPMI). See program guidelines for type and amount of coverage.
     •     Not all MI companies are able to insure loans underwritten to these guidelines. Client should
           contact their local MI Company for guidance.
     •     New York Properties: For the purpose of determining if mortgage insurance is required, value will
           be the current appraised value. Some programs restrict coverage to BPMI only.

     BORROWER PAID MORTGAGE INSURANCE (BPMI)
     Loan amount, credit score and number of units vary by loan program on borrower Paid MI. See
     program guidelines for details.

     NO MORTGAGE INSURANCE
     The loan amount, credit score, and number of units vary by loan program on No Mortgage
     Insurance programs and No MI option programs. See program guidelines for details.

     ACCEPTABLE PRIMARY MORTGAGE INSURERS
     Mortgage Insurance must be obtained in the amount required by the program guidelines from one
     of the following companies:
     Exhibit A: Mortgage Insurance Companies

         Radian                                        Triad Guaranty Insurance
         8 Penn Center                                 101 South Stratford Road
         Philadelphia, PA 19103                        Winston-Salem, North Carolina
         PMI Mortgage Insurance Company                UGI
         601 Montgomery Street                         230 N. Elm Street
         San Francisco, CA 94111                       Greensboro, NC 27401
         Mortgage Guaranty Insurance Company
         (MGIC)
         MGIC Plaza
         250 East Kilbourne Avenue




                                                                             DW0506         Page 55 of 95
Automated Underwriting

     GENERAL INFORMATION
     Specific programs will allow automated underwriting engines provided that the following criteria apply:
     •   Loan meets the requirements for the applicable program.
     •   The data submitted to the AU system must be true, complete, accurate and supported by the
         documentation in the file.
         -   Including the AU approval recommendation, all reports, feedback certificates, and
             summaries and/or analyses.
         -   Copy of AU credit report, if applicable
         -   Documentation supporting all AU conditions are met.
     DMC automated underwriting program guidelines will specify which automated underwriting
     engine can be used:
     •   Loan Prospector (LP): the FHLMC electronic underwriting system or
     •   Desktop Underwriter® (DU): the FNMA electronic underwriting system.
     •   Conditions for LP loans must meet LP provisions only, and Desktop Underwriter must meet
         DU provisions only
     •   Agency specifications are exclusive and cannot be intermingled.
     Note: DMC requires a full appraisal on all files regardless of automated finding requirements.
     LP or DU determines acceptability of credit and debts, however regardless of findings, program
     guideline restrictions must be followed for example: Generally DMC programs require a maximum
     debt ratio of 50% and minimum credit score as set by the program.

     FNMA DESKTOP UNDERWRITER (DU)
     The desktop Underwriter Findings Report requires an “Approved” recommendation. The following
     DU documentation must be submitted with the loan file:
     •   The Underwriting Findings report
     •   The Underwriting Analysis report
     •   Any other DU report considered pertinent
     •   The Credit Summary, if applicable.
     Conditions for Desktop Underwriter must meet DU provisions. The loan must be resubmitted to
     DU if:
     •   The initial information was untrue, incomplete or inaccurate
     •   The documents have expired
     •   The following interest rate issues apply:
         -   Fixed Rate loans: Feedback indicates that the interest rate is above the maximum approved.

         -   ARM’s: Increases in the interest rate affect the total expense ratio by more than 2%.

     * Note: Requirements may vary on some programs, see program guidelines. Exceptions will be
       considered on a case-by-case basis.




                                                                             DW0506         Page 56 of 95
UNDERWRITING                                                                          Automated Underwriting
     Debts/income are as follows:
           -   If verified income is less than income on 1003 by >5% of the borrower’s total income
           -   DU detects undisclosed debts or discrepancies and the debt difference affects the total
               expense ratio by more than 2%
       •   Any information changed unless the actual interest rate decreases from that used to underwrite
           the loan.

       DU findings of expanded approval (EA) determinations (I, II, III or IV) are not acceptable.

       FHLMC LOAN PROSPECTOR (LP)
       Loan Prospector Feedback Certificate requires a credit risk class of “Accept” or “Accept Plus”. The
       following LP documentation must be submitted with the loan file:
       •   Complete Feedback Certificate with all sections.
       •   The Credit Report
       Loan must be resubmitted to LP if:
       •   The initial information was untrue, incomplete or inaccurate
       •   The documents have expired
       •   Any information changed unless one or more of the following is present:
           -   Debts/Income
               •    Monthly debt decreases.
               •    Monthly income increases.
               •   Income decreases and/or debts increase and DTI change is less than or equal to 3% and
                   the initial DTI is less than or equal to 45%.
           -   Assets/Reserves:
               •    Verified assets increase.
               •    Verified reserves increase.
               •    Decrease in verified assets if <=10%
           -   A refinance with a loan amount decrease less than or equal to 1% and a change in loan
               amount does not affect MI coverage amount, if applicable. MI certification must be
               updated to match new loan amount.




                                                                                DW0506          Page 57 of 95
UNDERWRITING                                                                      Automated Underwriting
           Layering of Risk
             The underwriter must determine that each component (credit reputation, capacity and
             collateral) is acceptable and that the overall layering of risk is acceptable; analyze all risk
             factors present in the file.

             The table below is an example of risk layering that would be considered unacceptable (the
             following table which should be read horizontally):
             Exhibit A: Risk Layering Examples

                  CREDIT REPUTATION                       CAPACITY                     COLLATERAL
             Adverse or derogatory              Excess housing                    Low equity/downpayment
             credit information                 payment-to-income ratio
             High balances-to-limits            Excess debt                       Maximum financing
                                                payment-to-income ratio
             High overall utilization of        Excess debt-to-                   Investment property
             revolving credit                   housing gap ratio
             Credit history of short duration   Cash-out refinance                2-4 unit property
             Significant change in              No reserves                       Manufactured Home
             Borrower’s credit history
             Several inquiries                  Adjustable-Rate Mortgage          Condominium unit




                                                                             DW0506         Page 58 of 95
PROPERTY GUIDELINES

Appraisal Requirements

     GENERAL INFORMATION
      The following are Direct Mortgage Mortgage’s (DMC) general requirements for appraisers and appraisal
      reports.

     APPRAISER
      DMC will accept appraisals by any appraiser meeting the following criteria:
     •   Must be currently licensed or certified by the state in which the property is located and be in
         good standing.
     •    Must have current E&O insurance coverage in an amount equal to or greater than $250,000 or
          be granted an exception by company policy. If a company employs the appraiser and the E&O
          policy is in the company’s name, the individual appraiser’s name must be listed within the
          policy.
     •   The appraiser may only perform appraisals on properties located in a state in which they are
         currently licensed to do business. The appraiser must also be familiar with the market area and
         property type being appraised.
     •    The appraiser must be on Direct Mortgage’s Approved Appraiser List.
      The appraiser is defined as the individual who actually performs and signs off on the appraisal. The
      following requirements apply:
     •    The individual may be the person who inspected the property or
     •   The Supervisory Appraiser who signs on the right side of the report and accepts full
         responsibility for the appraisal report.
     •   If an appraiser trainee is involved in the completion of the report, at a minimum, the licensed
         appraiser should inspect the property and must supervise the completion of the appraisal.

     APPRAISAL REPORT
      DMC requires an appraisal report on all loans. The report can be dated no more than 12 months
      prior to the date of the note and mortgage and after 4 months, an updated value is required. Many
      loans also require a Field Review. Specific appraisal and appraisal review requirements vary by
      program and all loan program descriptions outline the necessary appraisal requirements for each
      individual loan product. The following is a general overview of the necessary formats that DMC
      will accept, and the necessary exhibits for each format, followed by a list of exhibits required.
     •   Uniform Residential Appraisal Report (FNMA Form 1004/ FHLMC Form 70 Rev. 03/05): This
         format is designed for one-family properties and units in planned unit developments. Beginning
         with property inspections on 11/1/2005, all condominiums, including Site Condos, must be
         reported on the 1073 form Rev. 03/05.
     •    Small Residential Income Property Appraisal Report. FNMA Form 1025/FHLMC Form 72
          Rev. 03/05): This format is required for two four-unit properties. See requirements under
          Investment Property for investment properties.
     •    Individual Condominium Unit Appraisal Form (FNMA Form 1073/FHLMC Form 465 Rev.
          03/05): This format is required for single family properties that are units in condominium
          projects. Site condominiums can be completed utilizing this form or FNMA Form
          1004/FHLMC Form 70 Rev. 03/05). See Project Standards for condominium requirements.
     •   Individual Cooperative Interest Appraisal Report (FNMA Form 2090). This format is required for
         single family properties that are units in a cooperative interest project.




                                                                             DW0506         Page 59 of 95
PROPERTY GUIDELINES                                                                Appraisal Requirements
     • Required Exhibits for the Above Stated Appraisal Forms:
           -   A street map that clearly shows the location of the subject property and of the all
               comparables that the appraiser has chosen to support value.
           -   Most recent three (3) year sales and listing history on the subject property (purchase and
               refinance transactions). All comparables must have at least a one (1) year transaction
               history noted.
           -   Clear descriptive photographs, either in color or black and white, showing the front, rear,
               and a street scene of the subject property. Photographs must be properly identified and
               should be originals produced either by standard photography or electronic imaging.
           -   An exterior building sketch of the improvements that indicates the dimensions. For units in
               condominium projects, the sketch of the unit must indicate interior perimeter unit
               dimensions rather than the exterior building dimensions.
           -   Calculations to show how they arrived at the estimate of the gross living area. For
               condominiums, the appraiser may rely on the dimensions for living area as shown on the
               plat. Sketch of the unit is not required provided they include a copy of the plat with the
               report.
           -   However, a floor plan sketch that indicates the dimensions is required instead of the
               exterior building or unit sketch if the floor plan indicates any functional obsolescence that
               may result in a negative market impact.
           -   Clear descriptive photographs, either in color or black and white that show the front, back,
               and a street scene of the subject property, and that are properly identified. Interior photos
               required for property with values => $1,000,000.
           -   These photographs must be originals produced either by standard photography or electronic
               imaging.

           -   Clear descriptive photographs, either in color or black and white, which shows the front of
               each comparable sale and are properly identified. Photographs of comparable listings and
               rentals are not required.
           -   Certificate of completion and update of value, as required.
           -   Operating Income Statement, known as a Form 216, is required if the subject property is an
               investment property, including a 2-4 unit property in which the applicant will occupy one
               unit as a principal residence. Freddie Mac is the only investor who provides document
               relief of Form 216 NOO guidelines state that the requirement for the 216 can be waived in
               the event that the borrower qualifies with 100% proposed PITI from the subject property.
               The Form 216 is required on all 2-4 unit OO properties unless property has been owned for
               at least 1 year and is reported on Schedule E. Refer to Investment Property & 2-4 Owner
               Occupied Property Requirements for specifics.
           -   A Single Family Comparable Rent Survey, known as a Form 1007, if the subject property
               is a single family investment property. Refer to Investment Property & 2-4 Owner
               Occupied Property Requirements for specifics.
           -   Any other data, in the form of attachments or addendum’s to the appraisal report necessary
               to support the estimation of market value.

           -   Signed Statement of Limiting Conditions and Appraiser’s Certification (Form 1004B 6-93).

      DMC will accept both the FNMA Form 2055 and FHLMC Form 2055 for certain loan programs. The
      individual loan programs state clearly which type of appraisal is necessary for each program and
      also indicates at what LTV and/or loan amount a review appraisal is required.




                                                                             DW0506          Page 60 of 95
PROPERTY GUIDELINES                                                                Appraisal Requirements
           General Requirements
            DMC guidelines incorporate FNMA guidelines, investor guidelines and requirements as set
            forth in the Uniform Standards of Professional Appraisal Practice. DMC requires an
            appraisal report on all loans. Many loans also require a Field Review. Specific appraisal
            and appraisal review requirements vary by program and all loan program descriptions
            outline the necessary appraisal requirements for each individual loan product.
            All appraisals must conform to the following:
            •   The appraisal must be completed on the proper form as indicated above and conform to
                DMC guidelines.
            •   The appraisal must be signed by a state licensed/certified appraiser, either as the
                inspecting appraiser or as the supervisory appraiser. An appraiser’s stamped signature
                 is not acceptable.
            •   The inspecting appraiser should sign on the left side of the report.
            •   If a trainee completes an appraisal, the supervisory appraiser must sign on the right
                hand side of the appraisal form.
            •   Appraisal should reflect the name of the originating broker. The originating company
                that requested the appraisal must be stated on the appraisal and be the same
                company that has submitted the loan application to the Client. Appraisers may not
                transfer/readdress report from one client to another. Document transfers are not
                allowed without prior written approval or an acceptable assignment letter has been
                included in the file.
            In addition, DMC requires that:
            •   All properties exhibiting deferred maintenance or in need of repairs should be
                supplemented with a detailed analysis and photos of all such items.
                -   Comments should address how this issue impacts the subject’s value.
                -   Properties must be at least average condition to be considered acceptable collateral.
                -   Any property requiring significant repairs or which has major health/safety items
                    should be evaluated by a qualified trade/craftsman. The appraisal should be made
                    subject to such an inspection.
            •   Photographs of any internal or external influencing factors of value (i.e., pool, view,
                expressway traffic, bad plumbing, etc.).
            •   For properties with appraised values above $1,000,000, a discussion, addendum format,
                concerning marketing time must be added.
                -   Include an analysis of properties in the neighborhood that are currently listed for
                    sale,
                -   their length of market exposure,
                -   sales dates (if appropriate), etc., as well as
                -   the subject’s marketing history.
            •   When program requires two appraisals on a single property, the appraisal reports must
                be completed by appraisers that do not work for the same appraisal firm or are
                affiliated in any way.
            •   On Site Amenities/Outbuildings: These items must be addressed as follows
                -   Are they allowable under current zoning and can be rebuilt if destroyed?
                -   Are super-adequacies, over-improvements, or typical for this market?
                -   Appraiser must provide at least one comparable sale with similar amenity(s).




                                                                             DW0506        Page 61 of 95
PROPERTY GUIDELINES                                                        Appraisal Requirements
           • Sales Concessions, Personal Property, Non-Arms Length Transaction: If any of these
              items are present, or any other unusual condition is noted in the contract of sale or
              known to the appraiser, the items must be addressed within the report and appropriate
              adjustments to the comparables made in the Sales Comparison Approach. Appraiser
              must include a statement that he/she has reviewed the pending sales contract and
              has noted all concessions.
              •   Special Assessment Districts: Otherwise known as Special Tax Districts or Municipal
                  Utility District (typically water or sewer systems).
                  -   Appraiser must report on any special assessment that affects the property.
                  -   If the district is experiencing any financial difficulty, appraiser must comment on if the
                      difficulty has any effect on value or marketability of the subject property by
                      considering current and expired listings, pending sales, and closed sales.
                  -   Comparables must be from the same district. If outside comps are included, the
                      appraiser must address the lack of closed sales and provide an explanation for
                      obtaining a reliable opinion of value for properties inside this district.

              •   Market Value: Most probable price a property should bring in a competitive and open
                  market under a fair sale. Buyer and seller acting prudently, knowledgeable and
                  assuming price is not affected by undue stimulus. Implicit in this is consummation of a
                  sale:
                  -   Buyers and sellers are typically motivated
                  -   Both are well informed or advised, and acting in own best interest
                  -   Reasonable exposure time to open market
                  -   Payment in terms of US dollars (cash or financing)
                  -   Price represents normal consideration for the property unaffected by special or
                      creative financing or sales concessions granted by anyone associated with the sale.
                  -   Comparables must bracket subject price/value. Adjustments to comparables:
                      •   Must be made for special or creative financing or sales concessions.
                      •   No adjustment is needed for costs normally paid by seller as a result of
                          tradition or law.
                      •   Adjustments are made based on market reaction (not on a dollar for dollar cost)
                      •   Adjustments should not exceed: Line 10%, net 15%, gross 25%
              •   Unacceptable Appraisal Practices: The following list includes examples of appraisal
                  practices that are considered unacceptable:
                  -   Development of and/or reporting an opinion of value that is not supported by
                      market data or may be construed as misleading to a reader of the report.
                  -   Development of a valuation conclusion that is based on (partially or completely)
                      sex, race, color, religion, handicap, national origin, or familial status of the
                      prospective owners, present owners, or occupants of the properties in the vicinity
                      of the subject property, or other factors that may be designated as discriminatory.
                  -   Inclusion of inaccurate data about the subject neighborhood, site, improvement, or
                      comparable sales.
                  -   Failure to comment on negative factors with respect to the subject neighborhood,
                      subject property, or proximity of the subject property to adverse influences.
                  -   Failure to analyze and report any current agreement of sale, option, or listing of the
                      subject and prior sales of the subject and comparable sales.




                                                                               DW0506           Page 62 of 95
PROPERTY GUIDELINES                                                     Appraisal Requirements
              - Selection and use of inappropriate comparable sales or the failure to use
                 comparable sales that are locationally and physically the most similar to the
                 subject.
                 -   Creation of comparable sales by combining vacant land sales with the contract
                     purchase price of improvements to be built.
                 -   Use of comparable sales in the valuation process that the appraiser has not
                     physically inspected by at least driving by them.
                 -   Lack of appropriate data sources to develop a credible valuation.
                 -   Use of adjustments to the comparable sales that do not reflect the market’s reaction
                     to the differences or failure to make adjustments when they are clearly indicated.

                 -   Use of data (particularly comparable sale data) that was provided by parties who
                     have a financial interest in the sale or financing of the subject property without the
                     appraiser’s verification of the information from a disinterested source.
                 -   Development of and/or reporting an appraisal in a manner or direction that favors
                     either the cause of the client or any related party, the final opinion of value, the
                     attainment of a specific result, or the occurrence of a subsequent event in order to
                     receive compensation and/or employment or future assignments.
                 -   Submission of appraisal reports not developed and reported by an appraiser who
                     has the local market knowledge and expertise to complete the assignment
                     competently.
                 -   Rendering an opinion of value in a careless or negligent manner, such as making a
                     series of errors that, although individually might not significantly affect the results
                     of an appraisal, in the aggregate do affect the credibility of those results.
                 -   In the development of and/or reporting of an opinion of value, not employing
                     recognized methods and techniques necessary to produce a credible appraisal.
                 -   Plagiarizing another appraiser’s work, including verbatim reporting.
                 -   DMC will not allow appraisers to include only 5 or 10 acres of a larger site and
                     compare to properties with site sizes of only 5 or 10 acres.
             •   Appraiser (or Property Inspection) Documentation: Client must disclose to the
                 appraiser any and all information about the subject property that it is aware of, if the
                 information could affect either the marketability or the property or appraiser’s opinion
                  of the market value of the property. The client must provide the appraiser with:
                 -   Appropriate financing data;
                 -   Sales concessions that have been or will be granted;
                 -   Settlement charges;
                 -   Loan fees or charges;
                 -   Discounts to the sales price;
                 -   Payment of condominium/PUD fees;
                 -   Interest rate buydowns, or other below-market-rate financing;
                 -   Credits or refunds of the borrower’s expenses;
                 -   Absorption of monthly payment;
                 -   Assignment of rent payments; and
                 -   Non-realty items that were included in the transaction.
             •   Status of Construction: DMC requires the subject properties to be fully completed; all
                 needed repairs made, and is in average or better condition. Any appraisal completed
                 subject to must have a certification of completion (appraisal form 442) and photos;
                 supporting work has been fully completed.

                                                                               DW0506        Page 63 of 95
PROPERTY GUIDELINES                                                              Appraisal Requirements

           Updates of Value
           Updates of Value are required when the original appraisal is over 120 days old, but less
           than one year.
           •   An update of value must occur within the four months that precede the date of the note
               and mortgage.
           •   An update of value can be reported by: a new appraisal, letter format, addenda format,
               or a prepared computer generated format.
           •   An Update of Value is considered a new assignment for an appraiser, not an extension
               of an existing assignment.
           •   The new report format must indicate if the update was completed by either:
               -   Incorporating by reference, the original appraisal report:
                   •   Can only be completed by the original appraiser and the client must be the
                       same as indicated in the original report.
                   •   The following items must be specifically identified in the update form: Subject
                       Property, Client and any other intended users, Intended Use, Appraiser(s),
                       Effective date of value (original report and update), Date of report (original
                       report and update) and the Interest(s) being appraised.
                   •   Exterior inspection of the subject must be completed and new front photo
                       provided.
                   •   The appraiser must provide any new information and/or analyses on the subject
                       property, market conditions, highest & best use, and all approaches to value.
               -   Incorporating by attachment, the original appraisal report:
                   •   The update must specify the portions of the original appraisal that are being
                       incorporated into the update.
                   •   Exterior inspection of the subject must be completed and new front photo
                       provided.
                   •   The appraiser must provide any new information and/or analyses on the subject
                       property, market conditions, highest & best use, and all approaches to value.
                   •   A copy of the original appraisal report must be attached to the update format.
               -   Without any incorporation of the original appraisal a new complete appraisal report
                   in summary format must be provided with all applicable attachments and
                   addendums as required for all complete appraisals.
           •   If the value decreases, we will require a new appraisal.
           •   If the value increases and we are using the increased value for lending purposes, we
               will also require a new appraisal.
           •   All updates must conform to AO-3 of Uniform Standard of Professional Appraisal
               Practice.




                                                                            DW0506        Page 64 of 95
PROPERTY GUIDELINES                                                               Appraisal Requirements

             Natural Disasters
             For properties located in a disaster area as determined by FEMA, a re-inspection by the
             original appraiser or, if not available, another licensed appraiser must be provided. No
             exceptions. The appraiser must provide the following commentary/evidence:
             Exhibit A: Appraisal re-inspection requirements

       PRIVATE ASSISTANCE                       PUBLIC ASSISTANCE
       • Property is free from damage and Property must be re-inspected by the original
         the disaster had no effect on value appraiser or acceptable inspection source (nationally
         or marketability.                   recognized field company or local professional
       • If the re-inspection indicates      licensed inspector). The appraiser/property inspector
         damage, the extent of the damage must provide the following commentary/evidence:
         must be addressed. Completion of • Property is free from damage and the disaster had no
         repairs is required as evidenced        effect on value or marketability
         by Form 442, Satisfactory           • If the re-inspection indicates damage, the extent of the
         Completion Certificate, with            damage must be addressed. Completion of repairs is
         photos, prior to Direct Mortgage’s      required as evidenced by Form 442, Satisfactory
         purchase of the loan.                   Completion Certificate, with photos, prior to Direct
       • Physical inspection of property         Mortgage’s funding or purchase of the loan.
          and neighborhood evidenced by         • Physical inspection of property and neighborhood
          completion of Direct Mortgage’s       • Photos: exterior and neighborhood
          Natural Disaster Appraiser
          Certification form                    • Written inspection certification statement or completion
       • Photos: interior, exterior               of Direct Mortgage’s Natural Disaster Appraiser
                                                  Certification
         and neighborhood


             Exhibit B: Standard Appraisal re-inspection requirements

       APPRAISAL       INDIVIDUAL ASSISTANCE                      PUBLIC ASSISTANCE
       Standard        Appraisal must include written             Appraisal must include written certification
       Appraisal       certification by the appraiser that:       by the appraiser that:
       Performed        • Property is free from damage and         • Property is free from damage
       After              the disaster has had no effect on          and the disaster has had no
       Disaster           value or marketability.                    effect on value or marketability
       Declaration
                        • If the appraisal indicates damage,       • If the appraisal indicates damage, the
                          the extent of the damage must be           extent of the damage must be
                          addressed. Completion of repairs is        addressed. Completion of repairs is
                          required as evidenced by Form 442,         required evidenced by Form 442,
                          Satisfactory Completion Certificate,       Satisfactory Completion Certificate,
                          with photos, prior to Direct               with photos, prior to Direct
                          Mortgage’s purchase of the loan.           Mortgage’s purchase of loan.
                        • In addition to property, physical        • In addition to property,
                          inspection of neighborhood as              physical inspection of
                          evidenced by completion of Direct          neighborhood
                          Mortgage’s Natural Disaster              • Photos: exterior and neighborhood
                          Appraiser Certification form
                        • Photos: interior, exterior and
                          neighborhood




                                                                            DW0506          Page 65 of 95
PROPERTY GUIDELINES                                                           Appraisal Requirements
           Field Reviews
            •   The appraisal and field review must be from separate appraisal companies.
            •   Correspondents may select their own review appraisal company for programs that
                require a field review provided that the program does not require a DMC ordered field
                review, in which case DMC will order the review according to program requirements.
            •   In addition to Field Review requirements set forth in the program guidelines a field
                review may be required at the discretion of a DMC underwriter.

            Two Appraisals
            When there is a program requirement for two appraisals on a single property, the appraisal
            reports should be completed by different DMC-registered appraisers. These appraisers must
            NOT work for the same appraisal firm or be affiliated in any way.




                                                                         DW0506         Page 66 of 95
Unacceptable Properties

     ALL PROPERTY TYPES
     •   Multi-Family dwellings containing more than 4 units
     •   Limited Use Properties
     •   Properties with a high potential or evidence of environmental defects. See Environmental
         Hazard for restrictions.
     •   Adult Care, group homes, etc.: DMC will not finance non-owner occupied properties that are
         currently or may be used as adult care homes, group homes, etc. This is considered commercial
         use of the property and is not acceptable. See Adult Care Homes for consideration on
         owner occupied properties.
      SINGLE FAMILY PROPERTIES
     •   Properties that do not comply with zoning regulations, with the exception of one illegal unit in
         a single family attached or detached property. See Zoning/Land Use.
          Single Family Homes that have been grandfathered into a use or zoning change and are not
          permitted to be rebuilt as single family homes if destroyed. (See Zoning/Land Use for requirements
          on properties that can be rebuilt).
     •   Working Farms including:
          -   Tenant farms                         -   Sod farms
          -   Christmas tree farms                 -    Agricultural product farms

          -   Dairy or livestock farms             -    Horse breeding/training/stabling facilities
     •   Houseboat projects
     •   Dome Homes
     •   Earth Sheltered Housing
     •   New construction model homes that are being leased back to the builder
     •   Fly-in communities with limited access.
          Condominiums, Cooperatives and PUD. See Unacceptable Projects.

     INVESTMENT PROPERTIES
      Model homes leased back to the builder are not acceptable.

     SECOND HOMES
     •   Not suitable for year round occupancy, or
     •   Not available for the exclusive use of the borrower(s), or
     •   Subject to any rental pools, or
     •   Give a management firm control over the occupancy of the property.

     LISTED PROPERTIES
      Properties that are listed at the time of application are not eligible for financing by DMC. DMC
      may purchase a loan on a property that has been listed in the last 12 months. For properties with a
      listing that expired or was canceled:
     •   6 months ago the file must contain:
          -   An explanation letter of why the property was listed and why the listing was
              cancelled/expired




                                                                                 DW0506          Page 67 of 95
PROPERTY GUIDELINES                                                    Unacceptable Properties
        - A paper trail that documents when the property was listed and when the listing was
           cancelled/expired
      •    Less than 6 months ago
           -   Are considered on a exception basis on:
               •   No cash out transactions (rate & term) only
               •   Non-assumable program.
           -   File must be sent in for prior approval and must:
               •   Contain an explanation letter of why the property was listed and why the listing was
                   cancelled/expired
               •   Contain a paper trail that documents when the property was listed and when the listing
                   was cancelled/expired
               •   Have strong compensating factors
               •   Meet the reasonable test as to reasons for listing the property.

      SUPERFUND SITES
       Any property within one mile of a site declared a superfund site by the United States Environmental
       Protection Agency will not be eligible for purchase. The appraiser should provide full disclosure of
       these sites.

      UNIQUE PROPERTIES
       “Unique” property types as listed below are generally not acceptable. These types generally
       include, but are not limited to:

       •   Geodesic domes                    •   Historically Registered Homes
       •   Log Houses                        •   Straw Bale Construction
       •   Earth Sheltered homes
       See Unique Properties for possible exception.

      ACREAGE
       Properties with acreage are considered on a case-by-case basis see Rural Property/Acreage for
       consideration requirements.

      MANUFACTURED HOMES
       DMC will not lend on Manufactured Homes on any of our loan programs. The definition of a
       Manufactured Home is any dwelling unit built on a permanent chassis and attached to a permanent
       foundation system. See Acceptable Property Types for requirements on auxiliary unit consideration.
       DMC does not currently provide financing on manufactured homes.




                                                                               DW0506       Page 68 of 95
Property Types

     GENERAL INFORMATION
      Direct Mortgage Mortgage Funding, Inc. (DMC) lends on owner occupied, non-owner occupied and
      second home residential properties only.

     ACCEPTABLE PROPERTY TYPES
      Acceptable property types include single-family residences (SFR), Condominiums, planned unit
      developments (PUD), and 1-4 unit properties.
     •   Acceptable property types for each loan program are provided in the individual loan program
         descriptions.
     •   The Client needs to determine that the subject property is an eligible property for DMC
         lending purposes and review the individual loan program descriptions to ensure that the
         property conforms to the program.
      All eligible properties must be supported by an appraisal that documents market acceptance of the
      property type and property value. See DMC Appraisal Requirements for details of appraisal
      report content and property specific requirements.
      Dwelling units of any type according to the individual loan program guideline should have
      sufficient living area to be acceptable to typical purchasers or tenants in the subject market area
      demonstrated by comparable sales with similar square footage.
     •   Single Family Detached: A dwelling that is designed for occupancy by one family. No side of the
         dwelling unit is attached to another dwelling unit.
     •   Single Family Attached: A single family dwelling with party walls that is designed for
         occupancy by one family. At least one side of the dwelling unit is attached to another dwelling
         unit. In some cases two, three, or four sides of the unit share walls with other dwelling units.
         This property type includes, but is not limited to, townhouses, patio homes, row homes, zero lot
         line homes, duplexes, triplexes, and quad units.
     •   Condominiums: DMC lends on condominium units in projects that have formal Fannie Mae
         approval (Form 1028) or that exhibit the necessary documented characteristics that allow DMC
         underwriters to warrant that the project meets or exceeds FNMA requirements.
     •   PUDs: A planned Unit Development (PUD) is a project or subdivision that includes common
         property and improvements that are owned and maintained by an owners’ association for the
         benefit and use of individual PUD owners. Each unit owner’s membership in the owners’
         association must be automatic and nonseverable and the payments of assessments related to
         the unit for the common elements must be mandatory.
     •   Multi-Unit Dwelling (2-4): One building composed of two, three, or four dwelling units,
         usually with common access, service systems and land use. Properties include duplexes,
         triplexes, and quads.

     •   Cooperative ShareProjects: A form of ownership in which each owner of stock in a
         cooperative apartment building or housing corporation receives a proprietary lease on a specific
         unit. Each owner is obligated to pay a monthly maintenance charge that represents the
         proportionate share of operating expenses and debt service on the underlying mortgage that is
         paid by the corporation. This proportionate share is based on the proportion of the total stock
         owned. The mortgage is actually against the shares of stock owned by the individual.     DMC
         will lend in Cooperative share projects that meet FNMA Type 1 and FNMA Type 2 project
         standards with evidence of formal unexpired FNMA approval – Form 1028 to the current
         maximum loan amount offered by FNMA for 1 –unit properties. Cooperate share loans are not
         allowed on all products. Please refer to specific loan program descriptions for eligibility.




                                                                           DW0506         Page 69 of 95
PROPERTY GUIDELINES                                                                            Property Types
     SECOND HOME
      In addition to standard property requirements, the following must also be met:
      •    1-unit property only
      •    All second homes must be suitable for year round occupancy and available for the exclusive
           use of the borrower(s). *
      •    The property must not be subject to any rental pools or give a management firm control over the
           occupancy of the property.
      •    The home must be a remote distance, time or travel from the borrower’s primary residence and
           must be located where such properties are typical and customary.
     *The following property characteristics should be applied to determine if the subject property is
      suitable for year-round occupancy: Permanent heat source, permanent windows and doors, two
      burner stove or greater, and accessible by road that is open year round.

      INVESTMENT PROPERTY
      Investment Properties must meet standard FNMA guidelines. Direct Mortgage will consider financing
      up to 4 non-owner occupied properties (8 loans 1st & 2nd pigs) to one borrower or
      $2,000,000 in aggregate loans to one borrower. When Direct Mortgage is considering financing
      multiple non-owner occupied properties generally we will not finance in excess of 50% of the
      applicant’s real estate portfolio, with exception to this item below* Direct Mortgage reserves the
      right to limit the number of properties purchased or refinanced within one building,
      neighborhood, and to one borrower. Requirements may vary on some programs, see program
      guidelines. Exceptions will be considered on a case-by-case basis. Model homes leased back to the
      builder are not acceptable.

     *DMC may finance up to 4 properties (8 loans 1st & 2nd) for an applicant without exception involved
      for the percentage of the NOO real estate portfolio that those properties represent. For example, if
      the 4 properties represent 100% of the borrowers total NOO portfolio, an exception is not
      necessary.
      The Matrix below breaks down the different requirements for agency and non-agency investment
      properties and 2-4 unit owner occupied property transactions. Client must meet the requirements in
      the matrix below when underwriting investment property or 2-4 unit owner occupied transactions.
      •    When a borrower does not meet the 24 month history of managing properties an exception to
           utilize rental income to qualify can be considered Onlyon a case-by-case basis.

           Exhibit A: Investment Property & 2-4 Owner Occupied Property Requirements

          TOPIC               FANNIE MAE                 FREDDIE MAC                NON-AGENCY LOANS
                               CRITERIA                    CRITERIA                 FULL/STATED INCOME
 Number of Financed      Limited to ten (10)         Limited to ten (10)           Program specific, please
 Properties              financed 1-4 Unit           financed 1-4 Unit             refer to individual program
                         Properties.                 Properties.                   description.

 History of Managing     Borrower must have a        Borrower must have a          Borrower must have a 24-
 Investment Property     24- month history of        24- month history of          month history of managing
                         managing investment         managing investment           investment property in
                         property in order to use    property in order to use      order to use net rental
                         net rental income to        net rental income to          income to qualify. This
                         qualify. This requirement   qualify. This required is     requirement is waived if
                         is waived if borrower is    waived if borrower is         borrower is qualified with
                         qualified with 100% of      qualified with 100% of        100% of Proposed PITI.**
                         Proposed PITI.              Proposed PITI.




                                                                                 DW0506        Page 70 of 95
PROPERTY GUIDELINES                                                                        Property Types

Exhibit A (Continued): Investment Property & 2-4 Owner Occupied Property Requirements

       TOPIC               FANNIE MAE                 FREDDIE MAC               NON-AGENCY LOANS
                            CRITERIA                    CRITERIA                FULL/STATED INCOME

 Documentation        Two years Federal Tax       If borrower qualifies with   Full doc: transactions two
 Requirements for     Returns (1040’s} are        100% proposed PITI           years Federal Tax Returns
 Subject Property     required if borrower has    plus operating               (1040’s} are required if
                      a history of receiving      expenses no further          borrower has a history of
                      rental income on the        calculation of rental        receiving rental income on
                      subject property.           income is required. If not   the subject property.
                                                  then two years Federal       Stated Income: CPA
                                                  Tax Returns (1040’s) are     Certification verifying
                                                  required if borrower has     Schedule E Income for 24-
                                                  a history of receiving       months, VOM or Credit
                                                  rental income on the         Report verifying 24-month
                                                  subject property or          mortgage history on
                                                  utilize the income           subject property.
                                                  approach from the
                                                  appraisal and a copy of
                                                  the fully executed
                                                  rental/lease agreement
                                                  on the subject property.

 Documentation        Two years Federal Tax       Two years Federal Tax        Two years Federal Tax
 Requirements for     Returns (1040’s) or 75%     Returns (1040’s) or 75%      Returns (1040’s) or 75% of
 “Other” property     of gross rental income      of gross rental income       gross rental income from
                      from current rental/lease   from current rental/lease    current rental/lease
                      agreements from other       agreements from other        agreements from other
                      investment property         investment property          investment property
                      owned is acceptable to      owned is acceptable to       owned is acceptable to
                      established net rental      established net rental       established net rental
                      income.                     income.                      income. For Stated
                                                                               Income utilize 75% net
                                                                               rental calculation based on
                                                                               Schedule of Real Estate
                                                                               Own on application.
 Cash Reserves        Cash Reserves = 6           Cash Reserves = 6            Cash Reserves = 6
                      Months                      months                       months
                      PITI      bj t        t     PITI      bj t        t      PITI      bj t        t
 Gift Funds           Gift Funds – Not Allowed    Gift Funds – Not Allowed     Gift Funds – Not Allowed
 Seller Concessions   2% maximum seller           2% maximum seller            2% maximum seller credit
 2-4 Unit OO          75% of gross rental         75% of gross rental          75% of gross rental
 Property Net         Income from the NOO         Income from the NOO          Income from the NOO
 Rental Income        units should be added to    units should be added to     units should be added to
                      income for qualifying       income for qualifying        income for qualifying
                      purposes.                   purposes.                    purposes.




                                                                           DW0506         Page 71 of 95
PROPERTY GUIDELINES                                                                             Property Types

 Exhibit A (Continued): Investment Property & 2-4 Owner Occupied Property Requirements

        TOPIC                  FANNIE MAE                  FREDDIE MAC               NON-AGENCY LOANS
                                CRITERIA                     CRITERIA                FULL/STATED INCOME
 2-4 Unit OO             Cash Reserves = 2            Cash Reserves = 6             Cash Reserves = 2
 Property Cash           months PITI on subject       months PITI on subject        months PITI on subject
 Reserves                property                     property.                     property.

 Rent Loss               Rent Loss Insurance is       Rent Loss Insurance is        SFR NOO – if rental
 Insurance               required on the subject      required on the subject       income is needed to
                         property, unless the         investment property,          qualify or doc type is less
                                                      including 2-4 unit OO
                         borrower can qualify with    transactions when rental      than Full Doc Rent Loss
                         100% of the proposed         income will be used to        Insurance is required.
                         PITI. Rent Loss              qualify the borrower. In      Rent loss insurance is
                         Insurance must be equal      the event that Rent Loss      required on all 2-4- unit
                         to 6 months of gross         Insurance must be equal       NOO properties. Rent
                         monthly rent.                to 6 months of gross          Loss Insurance must be
                                                      monthly rent. In the          equal to 6 months of gross
                                                      event that the borrower       monthly rent.
                                                      qualifies with 100% of
                                                      the proposed PITI rent
                                                      loss insurance is not
                                                      required.
 Operating Income        Operating Income             Operating Income              Operating Income
 Statement Form 216      Statement Form 216           Statement Form 216 – is       Statement Form 216 – is
                         required                     not required if borrower      not required if borrower is
                                                      is qualified w/100% of        qualified w/100% of
                                                      Proposed PITI. The 216        Proposed PITI.
                                                      is required on all 2-4 unit
                                                      OO properties unless
                                                      property has
                                                      been owned for at least
                                                      1 year & is reported on
                                                      Schedule E.
 Single Family           Required on Single           Required on Single            Required on Single Family
 Comparable Rent         Family Residential, PUD      Family Residential, PUD       Residential, PUD & Condo
 Schedule Form           & Condo properties.          & Condo properties            properties
 1007                    This form is also
                         required to establish
                         market rents when the
                         borrower intends to
                         purchase a new
                         primary residence &
                         rent his/her current
                         home.
 **Please note: When a borrower does not meet the 24 month history of managing properties an exception
   to utilize rental income to qualify can be considered on a case-by-case basis on DMC Products.

      MULTIPLE UNITS/MULTI-UNIT DWELLING (2-4)
       Property composed of two, three, or four dwelling units, usually with common access, service
       systems, and land use. Property types include duplexes, triplexes, and quads. The properties can
       be either in one building or separate buildings, with one APN/Tax number assigned. The site
       could have more than one lot listed under the legal description, but the property has only one
       APN number. The properties have site dimensions that include the total building (all family units).
       There
       is no site division line along the party/shared wall. A survey will show site lines and dimensions.
              Duplex
               A duplex is two family units with the characteristics described above.

                                                                                DW0506          Page 72 of 95
PROPERTY GUIDELINES                                                                         Property Types

              Triplex
              A triplex is three family units with the characteristics described above.

              Quadruplex
              A quadruplex is four family units with the characteristics described above.

     CONDOMINIUMS, PUDS, AND COOPERATIVE INTEREST PROJECTS
     All condominium, planned unit developments and cooperative interest projects must meet DMC
     standards and guidelines and be warranted by the seller per requirements under Project Standards.

     KIDDY CONDOS
     “Kiddy condos” are generally purchased by parents for children who are students in a local college.
     They will be treated as investment properties with no income. The unemployed student will be
     allowed to be vested in title.

     UNIQUE PROPERTIES
     “Unique” property types as listed below are generally not acceptable.                Exceptions may be
     considered on a case-by-case basis with stated income or full documentation and are not available
     on all programs. See specific program guidelines for additional information. All exceptions are
     subject to additional pricing. These types generally include, but are not limited to:

      •   Geodesic domes                       •   Historically Registered Homes
      •   Log Houses                           •   Straw Bale Construction
      •   Earth Sheltered homes
     Unique Property Designs and/or Construction Materials:
     •    The appraiser must provide extensive detail concerning
          -   The functionality of any unique floor plan and/or
          -   The use of atypical exterior building materials. Exterior residential building materials
              considered atypical would include, but are not limited to glass, logs, plastic, metal and
              concrete. Typical residential building materials include: brick, stone, masonry stucco, wood
              siding, vinyl siding and aluminum siding.
     •    The appraiser must provide at least two comparables of similar design and/or construction in
          order to establish marketability of the subject property.
     Dwelling units of any type according to the individual loan program guideline should have
     sufficient living area to be acceptable to typical purchasers or tenants in the subject market area
     demonstrated by comparable sales with similar square footage.




                                                                                DW0506      Page 73 of 95
Property Characteristics

      RURAL PROPERTY/ACREAGE
      The word “rural” as used in mortgage lending relates to the country or anything beyond the
      suburban area, which exhibits relatively slow growth and is typically less than 25% developed. The
      appraisal will indicate whether the property is rural. However, there are several tests that may be
      used to indicate that a property is rural even if the appraiser has not designated it as such:
      •   Large lot size: Subject lot size must be comparable for the area.
      •   Long distances to comps: this may indicate sparse development
      •   Comps are working farms, ranches, or orchards
      •   Zoning is agricultural
      •   Land value is higher than 30% of total value
      •   Neighborhood description is rural in nature
      •   Significant outbuildings
      A mortgage must be secured by a property that is residential in nature, based on the characteristics
      of the subject property, zoning, and the present land use. DMC does not secure mortgages on
      agricultural-type properties (such as farms, orchards, or ranches), or on undeveloped land, or on
      land development-type properties. The client must review the appraisal report for properties that
      have sites larger than those typical for residential properties in the area. Properties with acreage are
      considered on a case-by-case basis. The following general guidelines will apply:
      •   Properties with minimal outbuildings, such as a small barn or stable that are of relatively
          insignificant value in relation to the total appraised value of the subject property are acceptable
          if they are typical of other residential properties in the subject area. If value is given to
          outbuildings, comparable sales should be provided which have a similar amenity, and the
          appraiser must:
          -   Address if they are allowable under current zoning and can be rebuilt if destroyed.
          -   Address if they are super-adequacies, over-improvements, or typical for this market.
      •   All properties must be readily accessible by roads that meet local standards, and must have
          adequate utilities available and in service.
      •   Loans with mortgage insurance should be limited to 10-25 acre parcels.
      •   Acreage on all loan programs must be supported with comps of similar acreage and with no
          farm usage.
          -   Land use cannot be for commercial or agricultural purposes.
          -   Properties must be appraised on the total site. An appraiser is not permitted to include only
              5 or 10 acres of a larger site and compare to properties with site sizes of only 5 or 10 acres.
          -   Over 10 Acres:
              •   Loans on all other programs for properties, which exceed 20 acres, will be considered
                  an exception and will be subject to additional pricing.

      ZONING/LAND USE
      Properties must comply with zoning regulations. Zoning and land use classifications:
      •   Legal use is acceptable for financing.
      •   Legal but non-conforming (grandfathered), acceptable for financing on:
          -   1-4 family or unit in PUD project provided appraiser addresses any adverse effect the non-
              conforming use has on value and marketability.




                                                                               DW0506          Page 74 of 95
PROPERTY GUIDELINES                                                                Property Characteristics
         -   Condominium, if the improvements can be rebuilt to current density in the event of their
             partial or full destruction. A copy of applicable zoning regulations or letter from local
             zoning authority that authorizes reconstruction to current density must be included in the
             file.
     •   Illegal use is not acceptable for financing. Exception being the presence of one (1) illegal unit
         (mother-in-law, mother-daughter, or granny unit).
         -   Use conforms to neighborhood and market
         -   Appraised in conformity with legal use, one-family property.
         -   Appraiser must report the improvements represent an illegal use and demonstrate they are
             typical for the market with at least 3 comparables with the same illegal use.
         -   Client must make sure the unit will not jeopardize any future hazard insurance claim.
         -   Borrower qualifies with no income from illegal unit.
         -   1 unit owner occupied property only. No 2-4 family properties that includes an illegal
             accessory apartment.
     •   No local zoning is acceptable for financing if property is typical for the area and represents no
         illegal use.
     •   Land-use regulations such as coastal tideland, wetland laws, etc., that create setback lines or
         other provisions that prevent the reconstruction or maintenance of property improvements are
         not acceptable.
     Zoning Certifications: Should there be a question as to the subject’s property current allowable
     zoning, a letter from the local zoning authority may be requested unless the appraiser confirms
     zoning by other means.

     LAND VALUE/LOT SIZE VERSUS TOTAL SIZE
     Properties must be appraised on the total site. An appraiser is not permitted to include only 5 or 10
     acres of a larger site and compare to properties with site sizes of only 5 or 10 acres. See rural
     property/acreage for other requirements.

     PROPERTY CONDITION
     Properties must be fully completed; any needed repairs completed and in at least average condition
     to be considered acceptable collateral. The appraiser must:
     •   Report any detrimental condition that may affect the value or marketability of the subject
         property.
     •   Note any needed repairs
     Any corrections or clearances needed for work should be from a professional tradesman.

     UTILITIES
     For a mortgage to be eligible for purchase, the utilities of the property must meet community
     standards and be adequate, in service, and accepted generally by area residents. If public
     sewer and/or water facilities – those that are supplied and regulated by the local government –
     are not available, then community or private well and septic facilities must be available and utilized
     by the subject property.
     If there is market resistance to an area because of environmental hazards or any other conditions
     that affect well, septic, or public water facilities, the appraiser must comment on the effect of the
     hazards on the marketability and value of the subject property.
             Non-public Utilities
             Non-public utilities may require additional information and documentation. The following are
             the requirements on some of the more common types of non-public utilities.




                                                                             DW0506          Page 75 of 95
PROPERTY GUIDELINES                                                                  Property Characteristics
           Community or Private Water and Septic
              If community facilities are used, the owners of the subject property must have the right to
              access those facilities, which must be viable on an ongoing basis. For community or private
              systems that transfer ownership through shares rather than water rights running with the
              land, DMC will require the stock certificate along with an assignment to be included in the
              loan file. Generally, private well or septic facilities must be located on the subject site.
              However, off-site private facilities are acceptable if the inhabitants of the subject property
              have the right to access them and if there is an adequate, legally binding agreement for their
              access and maintenance.

              Well and Septic Reports
              A potability report will be required for properties that have wells and a septic clearance will
              be required for properties that have septic systems when the appraiser recommends
              a report, the purchase agreement requires a report, or at the underwriter’s
              discretion. Clearances must be completed by a licensed inspection company or by local
              County/City Authority. Cleared reports five years old or less will be accepted.

      ENVIRONMENTAL HAZARDS
      A list of potential environmental hazards includes but is not limited to the following. Examples of
      potential environmental conditions include but are not limited to:
      •   On-site potential environmental hazards:
          -   Abandoned automobiles, tires, batteries, oil cans
          -   Asbestos-insulating wraps, flooring, roofing, sprayed fireproofing (used in homes prior to
              1979)
          -   Buried oil or gasoline tanks
          -   Erosion of beach front homes, coastal bluffs, lakeshores
          -   Expansive soils such as marine clay
          -   Geotechnical issues: sinking foundation, substantial cracks in the foundation, walls,
              porches, driveways or garages. Minor settlement cracks (hairline and small cracks along
              outside stairs, porches, basement walls and floors, garage floors) may be common and are
              not considered geotechnical issues.

          -   Hydrocarbons including methane gas, oils, greases, and pesticides in modern construction
              (do not typically impact value or marketability)
          -   Lead pipes (used in homes prior to 1930) or lead soldering (used in some homes prior to
              1988)
          -   Lead paint (used in homes prior to 1978)
          -   Mold in total area greater than 10 square feet (typically a sign of a moisture/water problem)
          -   Non-vented gasoline or kerosene heaters can produce formaldehyde (a colorless gas
              categorized as a probable carcinogen)
          -   Radon – very unpredictable, cannot be determined by visual inspection
          -   Piles of debris may include batteries, auto parts, paint cans, gasoline cans, etc.
          -   Slope movement such as landslides
          -   Urea-formaldehyde Insulation
      •   Off-site potential environmental hazards:
          -   Petroleum Products
          -   Power Lines
          -   Power Plants


                                                                               DW0506          Page 76 of 95
PROPERTY GUIDELINES                                                               Property Characteristics
        - Proximity to gas station or other environmentally sensitive properties.
            -   Slope movement such as landslides
            -   Erosion
            -   Expansive soils
            -   Buried oil or gasoline tanks
            -   Commercial gasoline facilities such as tank farms, gas stations, gas lines
            -   Commercial landfills
            -   Commercial/industrial/manufacturing facilities
            -   Other toxic substances and hazardous wastes existing in, on, or in the vicinity of the
                subject.
        Discovery of a potential environmental risk can occur:
       •   During the application process when the applicant(s) reveal information indicating that one may
           exist.
       •   In the appraisal/inspection process when the appraiser is making an on-site inspection of the
           property.
       •    During the home inspection process.
     Any information relative to potential environmental hazard risks must be relayed to the appraiser for
     further investigation. The appraiser is not expected or required to be an expert when dealing with
     potential environmental hazards but has the responsibility to note in the appraisal report any adverse
     conditions that were observed during the inspection of the subject property. Appraisers
     must include in their report:
       •    Any adverse environmental conditions observed during their inspection.
       •   The extent of the condition and/or contamination as known to the appraiser by visual
           inspection.
       •   Any information garnered from the owner, listing or selling agent about the condition and/or
           contamination.
       •    The effect and impact on value and/or marketability.
       •   The report must be objective and informative as to its observations during the course of the
           inspection.
       •   These observations would include but not be limited to physical characteristics of the subject site
           (dead vegetation, debris, standing or discolored water, odors), the subject improvement
           (peeling paint, friable asbestos, oil tanks or other storage vessels), and all contiguous parcels
           (overhead power lines, warehouses, gas stations, etc.).
       •   The appraiser must then make any appropriate adjustments to market value and comment on the
           impact of the hazards to the property’s marketability.
        The presence or possibility of an environmental hazard risk on property that abuts or is adjacent to
        the subject property will generally be considered to have the same effect as if it were on the subject
        property. When the environmental hazard risk is on property that does not abut or adjoin but is in
        close proximity, DMC will make a determination as to its effect and influence on the subject after
        considering all location factors.
        A recognized environmental condition is defined as the presence or likely presence of any
        hazardous substance or petroleum product on a property under conditions that indicate an existing
        release, a past release, or a material threat of a release of any hazardous substances or
        petroleum products into structures on the property or into the ground, groundwater, or surface
        water of the property.




                                                                                DW0506        Page 77 of 95
PROPERTY GUIDELINES                                                            Property Characteristics
     All environmental issues require the appraisal (and a copy of the home inspection, and any other
     applicable reports) to be reviewed by DMC to determine if collateral is acceptable. Additional
     inspections may be required. If so, a properly licensed professional who can inspect and
     recommend must perform the inspection. Upon receipt of the inspection report, the DMC will:
       •   Conclude that the risk is non-existent or acceptable and accept the property,
       •   Require corrections to eliminate or mitigate the risk, or
       •   Decline the property as unacceptable. If the loan request is denied due to an environmental
           hazard related to the property, the borrower must submit evidence that the condition has been
           corrected before the property can be reconsidered.
       •   There will be no postponed escrow alternative to correct any problem involving real or
           potential environmental hazards.
       Specific Lead Based Paint Issue: Appraisers cannot determine if lead based paint is present on the
       interior and/or exterior of a home. They can only report if the property was built prior to 1978 and
       has the potential for lead-based paint and/or the problems noted such as chipping or peeling and the
       specific location. If appraiser notes that a property has repairs necessary and the potential for lead
       based paint exist, DMC would require the following:
       •   Lead based paint inspection and risk assessment performed by an inspector certified to deal
           with lead based paint.

       •   If the risk assessment report confirms lead exposure, lead based paint abatement procedures
           must be completed by a qualified professional.
       •   Evidence of completion of this work must be provided from the appropriate professional.
       •   Once abatement is completed, dust cleanup activities must be repeated until testing indicates
           lead dust levels below the guidelines specified by HUD.
       A borrower can elect not to complete the Paint Inspection and Risk Assessment (above) but other
       items would still be required. DMC must have copies of the lead based paint inspection, risk
       assessment, completion certification, and final testing.
       Note: Abatement procedures must be completed prior to completion of the loan process. DMC does not
       allow escrows for lead based paint inspection or abatement.
       Should there be lead paint violations of record against a property, or should assessment disclose a
       hazardous lead paint condition, the Company will require that either the violations of record be
       dismissed or that the noted condition be abated consistent with any local ordinances established for
       that abatement. Proof of such must be submitted with the application and there will be no escrow
       alternative in lieu of the above.
               Superfund Sites
               For Superfund Sites see previous Superfund Sites.

               Oil Tanks
               See requirements regarding Environmental Hazards.

       ROOF INSPECTIONS
       Roof inspection and certification by a licensed roofing contractor is required when noted in the
       purchase contract or escrow instructions, when recommended by the appraiser, when the appraisal
       reflects roof damage or extensive wear, or when deemed appropriate by underwriting.        If an
       inspection is required, the resulting report must indicate that the roof has a minimum two-year
       remaining economic life.

       TERMITE INSPECTIONS
       A copy of a termite report and clearance will be required only in those instances in which the
       appraiser recommends one or at the underwriter’s discretion. A licensed termite inspection
       company must complete report and clearance.



                                                                              DW0506         Page 78 of 95
PROPERTY GUIDELINES                                                                 Property Characteristics
     ESCROW HOLDBACKS
     DMC does not fund loans that are subject to holdback agreements. Holdback funds disbursed with
     appropriate clearance provided prior to purchase by DMC is generally acceptable.

     LEASEHOLDS
     All lease documents must be reviewed and approved by DMC. The following items must be
     submitted with the package:
     •   Preliminary Title report with all attachments and schedules.
     •   Current Appraisal on the subject project.
     •   Copies of the Master, Business, or Ground Lease.
     •   Copies of all Sublease agreements, memorandums of lease or sublease, and all assignments of
         the lease and/or sublease.
     Leaseholds are not allowed on all products. This is an overview of the general lease requirements
     and not a complete list.
     •   The leasehold documentation must adhere to standard Fannie Mae requirements.
     •   The leasehold form of ownership must be acceptable in the subject market.
     •   The leasehold estate and the improvements must constitute real property, be subject to the
         mortgage lien, and be insured by the client’s title policy.
     •   The term of the estate should run for at least five years beyond the maturity date of the
         mortgage. This requirement does not apply if fee simple title will vest in the borrower or an
         owners association, at an earlier date.
     •   The leasehold estate must:
         -   Be assignable or transferable.
         -   Contain no default provisions that could give rise to forfeiture or termination of the lease
             except for non-payment of the lease rents, and should guarantee DMC the right to receive
             notice of any default by the borrower and to cure the default.
         -   Include provisions to protect the mortgagee’s interests in the event of a property
             condemnation.
     •   Prior to closing, all lease rents, other payments, or assessments that have become due must
         be paid, and the borrower must not be in default under any other provision of the lease - nor
         may such a default have been claimed by the lessor. In all respects, the lease must be valid, in
         good standing, and in full force and effect.
     •   The lease must provide:
         -   That the borrower will pay taxes, insurance, and owners’ association dues related to the
             land - in addition to those he or she is paying on the improvements.
         -   For the borrower to retain voting rights in any owners’ association.
         -   That the leasehold can be transferred, mortgaged, and sublet an unlimited number of times
             either without restriction or on payment of a reasonable fee and delivery of reasonable
             documentation to the lessor.

     MULTIPLE APN/TAX ID NUMBERS
     DMC will only permit more than one APN/Tax ID number on a mortgage if the housing unit sits on one
     lot and the second lot only includes amenities (extra garage, barn, etc.)or is vacant land.

     SECOND OR THIRD KITCHEN IN SFD
     The appraiser must address zoning permission and/or conformance of kitchen(s).
     Interior access between all rooms and floors must be present and addressed within the report.
     The appraiser must provide at least one comparable with the same amenity.


                                                                              DW0506        Page 79 of 95
PROPERTY GUIDELINES                                                                Property Characteristics
     FACTORY BUILT HOUSING

     Direct Mortgage Mortgage (DMC) will lend on specific types of factory built housing that are considered
     comparable to single family stick built homes, meet local zoning and building codes, and are
     market accepted. Modular, prefabricated, or panelized housing are not considered manufactured
     and should be coded and treated as Single Family Residence. These types of factory built housing
     need to assume the characteristics of site built housing and must meet local zoning and building
     codes.
     DMC’s definition of factory built housing refers to a single-family residential unit that is partially
     produced at a factory and then transported to the site and assembled. Factory production could
     include flat subassemblies (individual wall, floor, or roof panels); factory cut building materials,
     and/or room sections that are assembled in a factory. DMC’s definition of factory built does not
     include any manufactured home or section of home that is built on a chassis entirely in a factory
     and under the federal building code administered by the U.S. Department of Housing and Urban
     Development (HUD). DMC does not loan on manufactured homes often described as a singlewide,
     doublewide, and/or triple-wide.
     •   Modular Homes
         -   Modular homes are factory built, in accordance with state and local building codes,
             typically in flat subassemblies or room subassemblies.
         -   These subassemblies are then transported to the building site and erected in accordance
             with state and local building codes.
         -   A modular home may be transported on a steel undercarriage, but the undercarriage
             (chassis) is not a structural component of the unit and is removed when the unit is placed on its
             permanent foundation.
         -   Modular homes are built to the same code specifications as a site built or stick built home.
         -   Modular homes have typical rooflines and can be 1, 1.5, or 2 story designs.
     •   Panelized/Prefabricated/Pre-cut Homes
         -   Panelized/prefabricated homes consist of a package of factory built components –
             individual wall, floor, roof subassemblies, or factory cut building materials that are
             transported to the site for final assembly.
         -   These homes must also meet state and local building codes.
         -   Another term for this type of housing is a “kit” home and often includes log homes and post
             & beam homes.
         -   This type of home most closely resembles a site built or stick built home.
         -   Care must be taken to distinguish between manufactured, modular, and panelized homes so
             the loan can be properly underwritten and priced according to the following guidelines.
     •   Appraisal Requirements
         -   The appraiser should include comments on the sufficiency of the living area of the unit,
             interior room size, storage, and compatibility of exterior finish.
         -   The appraiser should use as comparable sales similar manufactured housing units. If comps
             of a similar style and design are not readily available, the property should be rejected since no
             evidence of market acceptance is available.

         -   If there is a preference for site built housing over manufactured housing in an area, the
             appraiser must make appropriate and reasonable adjustments to reflect the market reaction,
             if any, to the manufactured unit as compared to site built homes.

     MANUFACTURED HOMES
     As of July 7, 2003, DMC will no longer accept and purchase Manufactured Homes on any of our
     loan programs. The definition of a Manufactured Home is any dwelling unit built on a permanent
     chassis and attached to a permanent foundation system.


                                                                              DW0506         Page 80 of 95
PROPERTY GUIDELINES                                                                 Property Characteristics

     HEATING SYSTEMS
     •   FNMA/FHLMC indicate that un-heated area cannot be included in gross living calculations.
     •   We require that all homes have a permanent heat source, vented to the outside, and operated by
         typical heating fuels: oil, natural gas, and electricity. Propane gas will be accepted on a
         permanent installed central heating system. Exceptions for no heat are permitted in market
         areas where no heat homes are typical (Example: the Florida Keys). However, the appraiser
         must supply at least 1 comparable with no heat source and discuss the impact on value and
         marketability as a result of no heat source.
     •   We permit geo-thermal heated homes as long as the appraiser provides at least one comparable
         with the same heat type.
     •   Non permanent heating systems are not acceptable: space heaters, free standing propane
         or wood-burning heating systems, fireplaces, wood stove inserts, pellet stoves, free standing
         coal stoves and/or plug-in baseboard heaters.

     FUNCTIONAL/EXTERNAL OBSOLESCENCE
     Functional depreciation (i.e.: functional obsolescence) is a loss of value that is caused by defects in
     design of structure or changes in market preferences. External depreciation (i.e.: economic
     obsolescence) is a loss of value that is caused by negative influences that are outside of the site.
     •   A description of the problem, possible resolution, and impact on value and/or marketability must
         be addressed in narrative form and included in all approaches to value when necessary
     •   Functional issues should be reflected on the sketch/floor plan as applicable.
     •   Photos of internal or external factors should be included in the report

     ILLEGAL UNITS
     Illegal units will only be considered on single family properties.
     •   The appraiser must denote the specific zoning classification, legality of the unit and if the unit can
         be rebuilt.
     •   Use conforms to neighborhood and the market.
     •   The additional unit’s effect on value and/or marketability must be analyzed.
     •   The appraiser must supply at least 2 comparables with the same or similar illegal unit.
     •   Property must be appraised in conformity with its legal use, that of a one-family property.
     •   No income from the illegal unit can be used to qualify.

     MIXED USE PROPERTIES
     Such as property with space set aside for a day care facility, a beauty or barber shop, a doctor’s
     office, a small neighborhood grocery or specialty store, etc. Mixed-use properties will be
     considered subject to:
     •   Property being owner occupied
     •   One unit family dwelling
     •   Borrower must be both owner of the individual unit and operator of the business.
     •   Represents a legal, permissible use of the property under local zoning requirements.
     •   Primarily residential in nature.
     •   The market value of the property must be primarily a function of its residential characteristics
         rather than a business or any special use modification that was made to the property.
     •   The appraiser must address the mixed-use and the effect on marketability and/or value of the
         subject.




                                                                              DW0506          Page 81 of 95
PROPERTY GUIDELINES                                                                  Property Characteristics
     DEFERRED MAINTENANCE
     Appraisals on properties with deferred maintenance must include:
     •   A detailed analysis of necessary repairs, completed repairs, and/or renovations.
     •   Remodeling costs and denote source of costs (receipts, contract, etc.).
     •   Information on any repair items present a health or safety issue.
     •   Any property requiring significant repairs or which has major health/safety items should be
         evaluated by a qualified trade/craftsman.
     •   Cost to cure or subject appraisal to a qualified contractor’s estimate.
     •   Information on how it impacts the subject’s value
     Deferred maintenance that exceeds 2.5% of the property value or affects its basic habitability will
     require a Satisfactory Completion Certificate (Form 442) with photos even if an appraisal is
     completed “AS IS”. Properties must be at least average condition to be considered acceptable
     collateral.

     NON-PERMITTED ADDITIONS
     Properties with non-permitted additions are acceptable, per program LTV and guidelines, provided:
     •   Value is not given to these additions.
     •   A cost-to-cure adjustment is used, either by the appraiser or the reviewer, to bring the property
         back to its original utility.

     VALUES GREATER THAN $1 MILLION
     Properties with a value in excess of $1,000,000 require:

     •   Extensive description of the subject property outlining the layout, décor, quality, materials,
         workmanship, upgrades, and options must be included in the report.
     •   Interior photos of the subject reflecting the quality, condition, and/or upgrades.
     •   Discussion, in addendum format, concerning the marketing time of the subject and comparables
         sales, including properties currently listed for sale in the subject neighborhood.
     •   Market data, in addendum format, on land sales utilized in estimating the subject’s site value, to
         include dates of sale, sale price, and on & off site improvements, when available.
     When program requires two appraisals on a single property, the appraisal reports must be
     completed by appraisers that do not work for the same appraisal firm or are affiliated in any way.

     TIME ADJUSTMENTS
     When time adjustments are used for market areas experiencing significant fluctuations in property
     values the following requirements must be met:
     •   Analysis and discussion in narrative format on comparable contract sales, current and expired
         listings, and closed sales.
     •   Appraiser must include at least 1 closed sale without a time adjustment – may be a 4th or 5th
         comparable.
     •   Trend data must be included in the report to support positive or negative time adjustments.

     REBUILD LETTERS
     •   DMC does require a rebuild letter on one-family properties that are grandfathered or have
         an illegal use.
     •   An appraiser should comment on whether the property can be rebuilt if the current zoning is
         grandfathered or an illegal use.
     •   See Zoning/Land use for details and FNMA requirements on condominium


                                                                               DW0506         Page 82 of 95
PROPERTY GUIDELINES                                                                  Property Characteristics
     PRIVATE ROADS
     Private roads require a permanent easement for ingress and egress (unless state law protects ingress
     and egress) with provisions for road maintenance.
     •   A private road maintenance agreement is required when the property is located on a privately
         owned or community-owned road.
     •   The agreement may be waived if the property is in a well-established neighborhood and the
         appraiser verifies the streets are well maintained, normal and customary, and do not adversely
         affect the marketability or value of the property.

     LAYOUT AND FLOOR PLANS
     Dwellings with unusual layouts, peculiar floor plan, or inadequate equipment or amenities are
     unacceptable if the comparable sales do not have the same inadequacies and the appraiser
     notes they will result in market resistance.

     HIGHEST AND BEST USE
     Appraisers highest and best use analysis should consider the property as it is improved. DMC will
     only purchase loans on which the improvements represent the highest and best use of the site.
     AGE RANGE AND PREDOMINANT AGE
     •   Age range reflects the oldest and newest ages for similar properties.
     •   Predominant price is that which is most common or frequently found in the neighborhood.
     •   Properties that fall outside of the range must receive special consideration.
     •   Unless there is evidence of long-term neighborhood stability, a new dwelling in an old
         neighborhood will carry some marginal risk.
     •   Conversely, an old dwelling in a newly developed area is generally acceptable if renovation will
         result in its conforming to the neighborhood.

     PRICE RANGE AND PREDOMINANT PRICE
     •   Price range reflects the high and low prevailing prices for similar properties.
     •   Predominant price is that which is most common or frequently found in the neighborhood.
     •   When a property falls outside of the range the appraiser must explain why the property is an
         over or under improvement.
         -   Over improvement: Sales price (or value) exceed upper price range
             •   Mortgage terms should be more conservative as the property may not be acceptable to
                 typical buyers.
             •   The client should consider if a property is an urban area that is being renovated, where
                 there is strong demand that is supported by the existence of comparable properties. The
                 property then should not be regarded as an over-improvement.
         -   Under improvement: Sales price (or value) is less than the lower price range

     DEMAND, SUPPLY, AND MARKETING TIME
     •   Over-supply is not desirable as it indicates properties are selling slowly with a lot of
         competition. Whether it is a neighborhood wide or citywide problem the appraiser must
         comment on the reason and its effect on value.
     •   Marketing time is the average time it takes for a reasonably priced property to sell. When
         marketing time is over 6 months, the appraiser must comment on the reason for the extended
         marketing period and its effect on the value of the property.




                                                                               DW0506        Page 83 of 95
PROPERTY GUIDELINES                                                            Property Characteristics
     PROPERTY VALUES
     The appraiser must indicate whether property values in the subject neighborhood are “increasing”,
     “stable” or “declining”. Maximum financing is generally not available when property values are
     declining.




                                                                          DW0506         Page 84 of 95
Project Standards

      UNACCEPTABLE PROJECTS
      The following characteristics or property types will not be considered eligible for purchase:
      •   Condotels or Condotel conversions (condominium hotels). Projects that have rental desks,
          short-term occupancy, and cleaning services. Unless qualified under Condotels.
      •   New construction condominiums that do not meet requirements under Projects Less than 1
          Year and current FNMA Project Approval guidelines and/or documentation requirements.
      •   Any project for which the owner’s association corporation is named as a party to current
          litigation
      •   Any project that has not been turned over to the association or corporation, for which the
          project sponsor or developer is named as a party to current litigation that relates to the project
      •   Timeshare or segmented ownership projects
      •   Houseboat projects
      •   Condominiums that represent a legal but non-conforming use of the land, which zoning
          regulators prohibit rebuilding the improvements to current density in the event of their partial or full
          destruction
      •   Condominium projects in which taxes have not been segregated to individual unit owners
      •   Cooperatives of any form are not eligible for financing.
      •   Properties located on Indian Reservations are not eligible for financing.
      •   Condominium projects with manufactured homes.
      •   PUD and Condo project must not include any multi-dwelling units (1-4 units) that represent the
          security for a single mortgage. (Exceptions may be considered on a case-by-case basis)

      CONDOMINIUM, PUD AND COOPERATIVE PROJECT WARRANTY FORM
      The FNMA/FHLMC Condo Warranty Form must be included in the file for all condominiums,
      attached PUDs and cooperative interest projects. Complete the project type code on the form and
      the1008. Any FNMA project waivers must be attached to the form.

      CONDOMINIUMS
      Condominium is a form of fee simple ownership for detached units or units within multi-unit
      buildings in which persons hold fee simple title to individual units and an undivided interest in
      common areas. DMC generally follows FNMA/FHLMC eligibility requirements. Individual
      program guidelines vary in regards to requirements, acceptability of limited project review and
      acceptance of properties in a condominium project, see specific guidelines for possible variations to
      standard guidelines. In addition the following DMC requirements apply to all loans unless
      specifically noted in this chapter or program guidelines.
              Attached Condominium Requirements
              •    DMC will not finance more than 10% of the total units in the project.
              •    Legal documentation for Small Condominium Projects with 10 or fewer dwelling units
                   must include a binding arbitration agreement (the binding arbitration agreement is not
                   required on California properties).
                   All projects with present or past environmental issues, disclosed by the seller, owner or
                   appraiser, must be reviewed and accepted according to Environmental Hazards.
              •   We require proof of liability coverage for a minimum of $1,000,000 and proof of
                  fidelity bond coverage if available.




                                                                                 DW0506          Page 85 of 95
PROPERTY GUIDELINES                                                                      Project Standards
           Mid and High Rise Condominiums
            Mid rise condominiums are defined as projects between 5-8 stories and high rise
            condominiums are defined as projects over 8 stories. Both must be typical for the area and
            warrantable to FNMA/FHLMC.

            Site Condominiums
            Ownership may include the site or footprint on which the unit sits and may include a site
            size and dimensions. The property is a detached unit. A survey is available and will show
            site lines and dimensions.

            Small Projects
            Small Projects are defined as projects with 2-4 units. The Client must warrant that:
            •   Appraisal report demonstrates marketability for two-four unit condominium projects in the
                subject’s market area.
            •   All units, common areas, and facilities must have been completed
            •   Control over the homeowners’ association does not have to have been turned over to
                the unit purchasers.
            •   At least one unit of a two-unit project must have been sold and closed, or be under
                contract to be sold, to a purchaser who is occupying the unit as a principal residence or
                second home; at least two units of a three-unit project must have been sold and closed,
                or be under contract to be sold, to purchasers who are occupying their units as a
                principal residence or second home; and at least three units of a four-unit project must
                have been sold and closed, or be under contract to be sold, to purchasers who
                are occupying their units as a principal residence or second home.
            •   No single entity (the same individual, investor group, partnership, or corporation) may own
                more than one unit.
            •   The units in the project must be owned in fee simple (unless DMC has approved the use
                of leasehold estates in the project) and the unit owners must have the sole ownership
                interest in, and rights to the use of the project’s facilities, common elements, and
                limited common elements once control of the homeowners’ association is turned over
                to them.
            •   The project must be covered by the required liability insurance of $1MM (if only 2
                units, $500,000 is acceptable) for two-four unit projects.
            •   Commercial use of the project cannot exceed 20% of the total square footage of the
                entire project.

            Projects Less than 1 Year
            Direct Mortgage Mortgage Funding, Inc. (DMC) does not lend in projects less than one year
            old unless file meets all FNMA/FHLMC requirements and is supported by documentation
            in file.

            New Construction Condominium Properties
            •   Must include at least two closed sales from outside the subject’s project. If no closed
                sales exist within the project, at least 2 comparables that are contract/pending and
                included as fourth and fifth comparables.
            •   Must include at least one closed sale from inside the project. If no closed sales exist
                within the project, at least 2 comparables that are contract/pending and included as
                fourth and fifth comparables. Note: DMC will not be the first closing in new
                construction condominium project.
            •   Full compliance with FNMA guidelines and documentation is required to be
                considered a FNMA warrantable condominium.




                                                                            DW0506          Page 86 of 95
PROPERTY GUIDELINES                                                                    Project Standards
           Litigation
            DMC does not lend in projects that have current litigation against the contractor or for
            structural deficiencies.

      CONDOMINIUM PROJECT CLASSIFICATIONS
            New Projects
            Less than 90 percent of the total units have been conveyed to the unit purchasers or are not
            fully complete, such as proposed construction, new construction, or the proposed or
            incomplete conversion of an existing building to a condominium.

            Established Projects
            90 percent or more of the total units have been conveyed to the unit purchasers, and the
            project is complete. Condominium conversions < 3 years old that meet all of the
            requirements for Established Attached Condominium Projects > 4 units qualify as
            warrantable.

            FNMA Condominium Classifications
            View the table of FNMA Condominium Classifications below (Exhibit A)
            •   Type P & Q Requirements: Limited Review – New, Established or Two-Unit to Four- Unit
                Project. Client warrants as per requirements Exhibit A.
                -   Includes non-FMNA approved new condominium projects consisting of 5 units or
                    more and condominium conversions that are not gut rehabilitation (gut
                    rehabilitation refers to the renovation of a property down to the shell with
                    replacement of all HVAC and electrical components).
            •   Type S Requirements: Manual UW – Established or 2-4 Unit Project. Client manually
                underwrites project and additionally warrants:
                -   50 percent of the total units are conveyed to principal residence or second home
                    purchasers when the loan is secured by an investment property. For 2-4 unit
                    condominium projects, all but one unit must have been sold to principal residence
                    or second home purchasers
                -   No single entity (the same individual, investor group, partnership, or corporation)
                    owns more than 10 percent of the total units in the project.
                -   All units, common elements, and facilities are complete including those owned by any
                    master association.
                -   Project is not subject to additional phasing or annexation.
                -   Control of the homeowners' association has been turned over to the unit purchasers
                    unless it is a 2-4 unit condominium project.
                -   The units in the project are owned in fee simple or leasehold
                -   Unit owners are the sole owners of and have rights to the use of the project's
                    facilities, common elements, and limited common elements.
            •   Type T Requirements: FNMA Review – New Project
                -   FNMA 1028 comprehensive review and acceptance is required unless eligible for
                    Limited Review.




                                                                            DW0506        Page 87 of 95
PROPERTY GUIDELINES                                                                        Project Standards


     Exhibit A: FNMA Condominium Classifications

         PROJECT TYPE CODE:                                        REQUIREMENTS
       PROJECT ACCEPTANCE
              REVIEW TYPE                          Review Specifications                  Current within
      P - Limited Review – New                         Occupancy LTV/CLTV
           Project1-4
      Q - Limited Review –                             OO            All
                                       Manual UW                                     3 Months
           Established or 2-4 unit                     2nd Home      < 75%
           Project1-4
                                                       NOO           Not allowed
      S - Manual Underwriting          Manual UW                                     1 Year
          Review – Established or 2-
          4 unit Project1-4
      T - Fannie Mae Review4           FNMA approved list or 1028                    3 Months
      U - FHA-approved                    FHA-approval                             Not expired
           Project1,2,4,5
      The client warrants that FNMA:
       1
         The project is not an ineligible project (see Section V.501 Unacceptable Projects)
       2
       3
         The mortgage is not secured by a manufactured home
         The units, common areas, and facilities within the subject legal phase have been completed
       4
         The project is covered by the required insurance
       5
         All FHA conditions are met
      Note: Type R or S-Expedited Review using FNMA Condo Project Manager is not acceptable for
      purchase by DMC as it is not transferable.


             FHLMC Condominium Classifications
                       FHLMC Streamline Project Review
                       •   Condominium Only (PUD not allowed)
                       •   Primary Residence with LTV to 75%
                       •   No subordinate financing
                       •   Project is not an ineligible project.
                       •   Subject meets FHLMC property and appraisal guidelines.
                       •   The units, common areas, and facilities in the project must be complete.
                       •   Project cannot be currently involved in litigation.

                       FHLMC Class III – Projects > 1 year
                       •   Homeowners must have controlled the HOA for at least 1 year.
                       •   Project, including all units and common elements must be complete.
                       •   Project is not subject to additional phasing or additions that are incomplete.
                       •   Presale requirement = 90% of total units purchased by individuals other than
                           the developer.  Multiple units purchased by one owner are counted as one
                           sale.
                       •   Owner Occupancy Ratio = 60% - No Cash Out Refinance TLTV >90%;
                           Cash Out TLTV >75% or NOO transactions.
                       •   Commercial use of the project cannot exceed 20% of the total square footage of
                           the entire project.

                       FHLMC Class II – Projects < 1 year
                       •   Homeowners must have controlled the HOA
                       •   Project including all units and common elements must be complete.

                                                                                 DW0506       Page 88 of 95
PROPERTY GUIDELINES                                                                       Project Standards
                     •   Presale requirement NOO properties = 50% of total units purchased by
                         individuals other than the developer. Multiple units purchased by one owner
                         are counted as one sale. No presale requirement for OO or 2nd home
                         transactions.
                     •    Project is not subject to additional phasing or additions that are incomplete.
                     •    No single entity owns more than 10% of total units
                     •   Commercial use of the project cannot exceed 20% of the total square footage of
                         the entire project.
                     •    Owner Occupancy Ratio = 70%

                     FHLMC Class I – New Projects
                     •   Presale requirement o= 70% of total units purchased by individuals other
                         than the developer. Presale requirement can be calculated by Phase or by
                         total units. Multiple units purchased by one owner are counted as one sale.
                     •   Commercial use of the project cannot exceed 20% of the total square footage of
                         the entire project.
                     •    Owner Occupancy Ratio = 70%

           Detached Site Condominiums
           FNMA/FHLMC Detached Condominium (Site Condo) Requirements
           •   Appraiser must complete condominium form 1073 Rev. 03/05 and include comments on
               buyer resistance to this type of condo and any impact on market value.

           •   Property is covered by hazard (and flood, if applicable) insurance.
           •   Title Insurance policy must include an Alta Form 4, Condominium Endorsement, or its
               equivalent.
           •   Homeowners Association letter. Alternative to HOA Certification letter would be a
               certification from HOA that project is not currently involved in any type of litigation.
           •   ALTA 5 Title Endorsement – Condominium Association.

     NON-WARRANTABLE CONDOMINIUMS
           Under certain circumstances, loans can be originated in condominium projects that do not
           comply with the standard condominium warranties for minimum pre-sale requirements or
           maximum investor concentrations.

           * Note: Requirements may vary on some programs, see program guidelines. Exceptions will
             be considered on a case-by-case basis.

           Occupancy
           Owner-occupied, second homes or investment property.

           Eligible Projects
           An eligible project must meet the conditions outlined in this section with the following
           exceptions:
           • Minimum pre-sale requirement is 33% of a legal phase.
           • 50% of the total number of units must be complete.
           • 50% of the common area and facilities within the project must be completed.
           • Investors may own no more than:
               - 70% of the units sold if the LTV is 80% or below.
               - 40% of the units sold if the LTV is above 80%.
           •   No one entity may own more than 25% of the total number of units in the project.
           •   Countrywide limits its participation to 25% of the total number of units within a project.


                                                                             DW0506          Page 89 of 95
PROPERTY GUIDELINES                                                                         Project Standards
           Additional condo projects include:

               Condo Projects with Inactive Homeowners’ Associations – Typically include two-to-four unit
               condo projects but may include larger projects that have no real common areas and in some
               cases the owners have obtained their own insurance (even though the common areas include
               exterior walls and roof lines), and in some cases the projects do have proper condominium
               insurance policies.

               Ineligible Projects
               A non-warrantable condo project is ineligible under the following conditions:
               •   Condotel
               •   Houseboat project
               •   Kiddie condominium
               •   “Live-work” type condominiums. Usually used for artist’s studio, workshops, factories, or
                   galleries.
               •   Multi-dwelling unit condominium. A condominium project that permits an individual to hold
                   title to more than one dwelling unit with ownership of all units evidenced by a single deed of
                   trust or mortgage.
               •   Non-conforming zone project
               •   OWN YOUR OWN property. This type of property can be identified by the legal description.
                   Generally an ‘Own Your Own’ legal description will give the borrower the right to occupy a
                   given unit, instead of actual ownership of the unit.
               •   Project is in litigation
               •   Timeshare or segmented ownership project

               * Note: Requirements may vary on some programs, see program guidelines. Exceptions will
                 be considered on a case-by-case basis.


       PLANNED UNIT DEVELOPMENTS PUDS
       A planned unit development (PUD) is a project or subdivision that includes common property and
       improvements that are owned and maintained by an owners’ association for the benefit and use of
       the individual PUD owners. Each unit owner’s membership in the owners association must be
       automatic and nonseverable and the payment of assessments related to the unit for the common
       elements must be mandatory.
       •   Must be FNMA warrantable.
       •   Attached or Detached units are eligible.
       •   Zoning is not a basis for classifying a project or subdivision as a PUD.

               Attached PUD Units
               •   Type F PUDs – New Attached: Still under control of the developer
                   -   No 2-4 unit dwellings under 1 mortgage
                   -   Sufficient number of units sold to support the homeowners association for 2 years
                   -   No conversions
                   -   No single width manufactured homes
                   -   Association has adequate insurance
                   -   Fee simple ownership
                   -   Unit owners have sole ownership interest in, and rights to the use of, the project’s
                       facilities once control of the owner’s association has been turned over to them;




                                                                                DW0506         Page 90 of 95
PROPERTY GUIDELINES                                                                    Project Standards
              - The following documents need to be reviewed by client:
                      •   HOA certification letter.
                      •   Current Budget to show adequate reserves.
                     • Liability Insurance of $ 1 million.
              •   Type E PUDs – Established: Control of the association has been turned over to the unit
                  owners.

              Detached Units
              •   Type E or F PUD: Review of project is not required




                                                                           DW0506         Page 91 of 95
Insurance Documents

    GENERAL INFORMATION
     Specific insurance requirements are dependent on the individual loan. The Client is responsible for
     meeting insurance requirements applicable for their loan file.

    HAZARD INSURANCE
     Hazard insurance is required on all loans. The insurance company must be rated a B or higher by
     Best’s guide or whatever is currently accepted by FNMA. Deductibles shall not exceed the greater
     of 1% or $1,000.00 whichever is higher. The amount of coverage must equal the loan amount or
     have extended replacement cost coverage. In addition, the policy must contain the following 438
     BFU endorsement:
     Exhibit A: 438 BFU Endorsement

      DIRECT MORTGAGE CORP
      ITS SUCCESSORS AND/OR ASSIGNS
      6955 South Union Park Center # 540
      SLC, UT 84047


             Condominium & Cooperative Interest Unit Insurance
             A copy of the Master Policy is required on all condominium and PUD projects.
            •    DMC does not accept individual insurance policies for a condominium unit.
            •    We must be able to verify that the coverage is in force for the entire project.
            •    The owners' association must maintain a "master" or "blanket" type of policy, with
                 premiums being paid as a common expense.
            •    The policy should cover 100% of the insurable replacement cost of the project
                 improvements, including the individual units, and must cover all of the general and
                 limited common elements that are normally included in coverage. These include
                 fixtures, building service equipment, and common personal property and supplies
                 belonging to the owners' association.
            •    Unless a higher maximum is required by state law, the maximum deductible for
                 common areas is the lesser of $10,000 or 1% of the face amount of the policy. The
                 maximum deductible for individual units is the higher of $1,000 or 1% of the unit
                 replacement cost.
            •    We also require proof of liability coverage for a minimum of $1,000,000.
            •    If project is a cooperative unit in a building with an elevator liability insurance must be
                 at least $3,000,000.
             For Purchase transactions, an insurance binder with 30-90 days coverage along with a
             receipt showing the premium has been paid in full for one year or an original Hazard
             Insurance Policy is required when submitting a loan for purchase.          For Refinance
             transactions, an original Hazard Insurance Policy is required and it must have at least 90
             days of coverage remaining at time of purchase by DMC.

             Fidelity Insurance

            •    An amount equal to 3 months maintenance fees
            •    Fidelity insurance may be waived when: the project has 20 units or less, or the project
                 is professionally manage




                                                                               DW0506          Page 92 of 95
PROJECT GUIDELINES                                                                       Insurance Documents

     RENT LOSS INSURANCE
      Rent loss insurance covers rental losses that are incurred during the period that a property is being
      rehabilitated following a casualty. DMC requires the coverage for a minimum of six months’ gross
      rent loss. Rent loss insurance is required as follows:
     •     SFR non-owner occupied properties if rental income is needed to qualify the applicant or if
           documentation type is less than full documentation.
     •     All 2-4 units, non-owner occupied properties (even if rental income is not used to qualify).


     FLOOD INSURANCE
      Sellers must provide flood certifications for each loan, with life of loan determination provided by a third-
      party firm.
      Flood insurance is required if the property is located in:
     •     Zones A, AE, AH, AO, A1-30, A-99, V, VE, or V1-30.
     •     Proof of Flood Insurance should be in the form of a completed application signed by the agent
              or a copy of the old policy with a change endorsement. The amount of coverage must equal:
     •     The loan amount or combined loan amounts, or
     •     The maximum coverage available under the appropriate National Flood Insurance
           Administration (NFIA).
      In addition the policy must contain the following loss payee endorsement:
     Exhibit B: Loss Payee Endorsement

         DIRECT MORTGAGE CORP
         ITS SUCCESSORS AND/OR ASSIGNS
         6955 South Union Park Center # 540
         SLC, UT 84047


     EARTHQUAKE INSURANCE
      Refer to Loan Program Guidelines and obtain insurance if required.

     PRIVATE MORTGAGE INSURANCE
      Mortgage Insurance must be obtained by the seller in the specified amount required by the program
      guidelines. The mortgage insurance company must be one of the approved companies referenced in
      this guide. The mortgage insurance certificate along with a copy of the transfer letter should be
      submitted with the purchase package. The address to be provided to the mortgage insurer for
      servicing transfer is as follows:

     Exhibit C: MI Servicing Transfer Address
         DIRECT MORTGAGE CORP
         INSURANCE DEPARTMENT
         6955 South Union Park Center # 540
         SLC, UT 84047


     TITLE INSURANCE
      Loans purchased by Direct Mortgage Corp must be covered by a mortgage title insurance policy
      or another approved form of evidence of title that has been paid in full, is valid and binding,
      remains in full force and effect, and complies with the following requirements.
               Title Insurer
               The title insurance policy must be issued by a title insurer that is acceptable to FNMA and
               who is qualified to do business in the state where the mortgaged premises is located.


                                                                                DW0506           Page 93 of 95
PROJECT GUIDELINES                                                                   Insurance Documents

           Form
           The title insurance policy must be written on the current standard form of the American
           Land Title Association (ALTA) or other form currently acceptable to FNMA.

           Acceptable Minimum Coverage
           The acceptable minimum title insurance coverage must at least equal to the current
           principal balance of the Loan. Loans with negative amortization must have title insurance
           coverage equal to the highest possible balance of the loan.
           Exhibit D: Minimum Title Insurance Coverage

            NAME                                WHEN REQUIRED
            Environmental Protection            All Loans
            Condominium                         For all Loans secured by a Condominium unit
            PUD Endorsement                     For all Loans secured by a PUD unit
            Variable Rate Mortgage              For all ARM Loans
            Negative Amortization               For all ARM Loans with potential Negative amortization
            Manufactured Home                   For all Manufactured Homes (not currently offered by
            Leasehold Endorsement               For all Leasehold Properties
            Balloon Endorsement                 For all Loans with a Balloon payment
            Comprehensive Endorsement           For all Loans where surveys are not customary
            Location Endorsement                For all Loans where surveys are not customary

           Survey Requirements
           The title insurance policy must insure against loss or damage by any violation, variation,
           encroachment or adverse circumstance that an accurate survey would have disclosed. Note
           that a survey is not required for condominium units. The survey must be dated within one
           year from the date of the issuance of the title insurance policy. A survey more than one year
           old must be re-certified by a licensed civil engineer or a registered surveyor within the past
           year.

           Effective Date
           The effective date of the title insurance policy must be no earlier than the date on which the
           Security Instrument was recorded

           Vesting
           Title is to be held in the individual borrower(s) name or revocable trusts.

           Beneficiary
           The protection and benefits from the title insurance policy must insure the Mortgagee of the
           Loan and all successors and assigns.

           Lien Requirement for First Mortgages
           The title insurance policy must insure that the Security Instrument creates a valid first lien
           on the Mortgaged Premises. The policy must list any subordinate financing and state that the
           lien is in a subordinate position to the lien of the First Mortgage.




                                                                             DW0506        Page 94 of 95
PROJECT GUIDELINES                                                                      Insurance Documents
            Lien Requirement for Second Mortgages
             •   Simultaneous Originations: A copy of the first mortgagee title insurance policy or
                 binder is required for a Home Equity Loan (HELOC and Closed End Second)
                 originated at the same time as the first mortgage with sufficient insurance to cover both
                 1st and 2nd loan amounts or separate policies are acceptable. If the underlying first
                 mortgage has a negative amortization feature, the amount of insurance must be
                 sufficient to cover the amount of the negative amortization and must include an
                 endorsement for negative amortization.
             •   Subsequent Origination: A policy or binder is required on a Home Equity Loan
                 (HELOC and Closed End Second) originated subsequent to a first mortgage. A short
                 or flag policy is acceptable up to $200,000.

             •   Lien Requirement: A title insurance policy binder or title search must be obtained to
                 determine that the Home Equity Loan (HELOC and Closed End Second) Security
                 Instrument creates a valid first lien or second lien subordinate only to the lien of the
                 holder of the first mortgage loan on the Mortgaged Premises.
             •   Home Equity Loans (HELOC and Closed End Second) greater than $200,000: A
                 mortgagee title insurance policy in conformance with Section VIII. 306 is required for
                 all Home Equity Loans (HELOC and Closed End Second) where the Credit Limit on
                 the Loan amount exceeds $200,000. Coverage of the title insurance policy must be
                 sufficient to cover the maximum amount of the Home Equity Loan (HELOC and
                 Closed End Second).
             •   Additional Title Endorsement: Bringdown endorsement is required on loan amounts up
                 to $200,000 to supplement the flag policy. A revolving credit line endorsement is
                 required on all Home Equity Loans (HELOC and Closed End Second) greater than
                 $200,000 as an endorsement to the title insurance policy.


      CLOSING ATTORNEYS
      Correspondents who do business in states that use closing attorneys must provide the following
      exhibits:
             •   If the attorney is affiliated with a FNMA approved title insurer, a Closing Protection
                 Letter must be provided.
             •   If the attorney is not affiliated with a FNMA approved title insurer, the following exhibits
                 must be provided:
                 -   Errors and Omissions Insurance
                 -   Attorney’s License
                 -   Fidelity Bond




                                                                               DW0506          Page 95 of 95
                                    PREPAYMENT NOTE ADDENDUM
                                           (Multi-State)

                                                                                Loan Number: 100092




    This Prepayment Note Addendum is made this 15th day of October 2004 and is
incorporated into and shall be deemed to amend and supplement the Note of the same date
(the “Note”) made by the undersigned (the "Borrower") to evidence indebtedness to Direct
Mortgage Corporation (the “Lender”), which debt is secured by a Mortgage or Deed of Trust or
comparable security instrument (the “Security Instrument”) of the same date and covering the
property described in the Security Instrument and located at:

                                    1234 Main St.; Salt Lake City, UTAH 84111
                                                 (the “Property”).

     Additional Covenants. Notwithstanding anything to the contrary set forth in the Note or
Security Instrument, Borrower and Lender covenant, and agree, that the provisions of the
section of the Note entitled “BORROWER’S RIGHT TO PREPAY” are amended to read as
follows:

          Subject to the Prepayment penalty provided below, I have the right to make payments
      of Principal at any time before they are due. A payment of Principal only is known as a
      “Prepayment.” A “Full Prepayment” is the prepayment of the entire unpaid Principal due
      under the Note. A payment of only part of the unpaid Principal is known as a “Partial
      Prepayment.” When I make a Prepayment, I will tell the Note Holder in writing that I am
      doing so. I may not designate a payment as a Prepayment if I have not made all the
      monthly payments due under the Note.

          If, within the -year period beginning with the date I execute the Note (the
      “Penalty Period”), I make a Full Prepayment, or Partial Prepayment in any twelve
      (12)-month period that exceeds 20% of the original Principal loan amount, I will pay
      a Prepayment charge as consideration for the Note Holder’s acceptance of such
      Prepayment. The Prepayment charge will equal the amount of interest that would
      accrue during a six (6)-month period on the amount prepaid that exceeds 20% of the
      original Principal balance of the Note, calculated at the rate of interest in effect
      under the terms of the Note at the time of the Prepayment, unless otherwise
      prohibited by applicable law or regulation. No Prepayment charge will be assessed
      for any Prepayment occurring after the Penalty Period.

         Notwithstanding the foregoing, in the event of a Full Prepayment concurrent with a
      bona fide sale of the Property to an unrelated third party no Prepayment penalty will be
      assessed. In that event, I agree to provide the Note Holder with evidence acceptable to the
      Note Holder of such sale.


MultiState Note Addendum Soft PPP
FORM 603B1 - (01/01)                                                      *93948-2-1*
                                                                                 DirectWare Docs (866) 225-5765
                                                    Page 1 of 2                              www.DirectWare.net
          The Note Holder will apply all Prepayments to reduce the amount of Principal that I
      owe under the Note. However, the Note Holder may apply my Prepayment to the accrued
      and unpaid interest on the Prepayment amount, before applying my Prepayment to reduce
      the Principal amount of the Note. If I make a Partial Prepayment, there will be no change
      in the due dates of my monthly payments unless the Note Holder agrees in writing to those
      changes.

           If my Note is an Adjustable Rate Note, Partial Prepayments may reduce the amount of
      my monthly payment after the first interest rate Change Date following the Partial
      Prepayment. However, any reduction due to my Partial Prepayment may be offset by an
      interest rate increase.

           The Note Holder’s failure to collect a Prepayment charge at the time a Prepayment is
      received shall not be deemed a waiver of such charge. Any Prepayment charge not
      collected at the time the Prepayment is received shall be payable on demand.


All other provisions of the Note are unchanged and remain in full force and effect.

                                         NOTICE TO BORROWER

     Do not sign this Addendum before you read it. This Addendum provides for the
payment of a Prepayment charge if you wish to repay the loan prior to the date provided
for repayment in the Note.



WITNESS THE HAND(S) AND SEAL(S) OF THE UNDERSIGNED:




Sample Borrower                                Date      Sample Co-Borrower                                Date




MultiState Note Addendum Soft PPP
FORM 603B1 - (01/01)                                                       *93948-2-2*DirectWare Docs (866) 225-5765
                                                  Page 2 of 2                                     www.DirectWare.net
MIN: 1002075-0000100092-4                                                                       Loan Number 100092




                                           InterestFirst SM NOTE
October 15, 2004

                                                    Salt Lake City, UTAH

                                       1234 Main St., Salt Lake City, UTAH, 84111
                                                      [Property Address]



1.   BORROWER’S PROMISE TO PAY
     In return for a loan that I have received, I promise to pay U .S. $300,000.00 (this amount is called
“Principal”), plus interest, to the order of the Lender. The Lender is Direct Mortgage Corporation. I will
make all payments under this Note in the form of cash, check or money order.

     I understand that the Lender may transfer this Note. The Lender or anyone who takes this Note by
transfer and who is entitled to receive payments under this Note is called the “Note Holder.”

2.   INTEREST
     Interest will be charged on unpaid principal until the full amount of Principal has been paid. I will pay
interest at a yearly rate of 5.875%.

    The interest rate required by this Section 2 is the rate I will pay both before and after any default
described in Section 6(B) of this Note.

3.  PAYMENTS
    (A) Time and Place of Payments
    I will make a payment every month. This payment will be for interest only for the first             (0) months, and
then will consist of principal and interest.

      I will make my monthly payment on the 1st day of each month beginning on December 2004. I will
make these payments every month until I have paid all of the principal and interest and any other charges
described below that I may owe under this Note. Each monthly payment will be applied as of its
scheduled due date, and if the payment includes both principal and interest it will be applied to interest
before Principal. If, on November 01, 2034, I still owe amounts under this Note, I will pay those amounts
in full on that date, which is called the “Maturity Date.”

     I will make my monthly payments at Direct Mortgage Corporation, 6955 South Union Park Center,
Suite 540, Salt Lake City, UT 84047 or at a different place if required by the Note Holder.

     (B) Amount of Monthly Payments
     My monthly payment will be in the amount of U.S. $1,468.75 for the first (0) months of this Note, and
thereafter will be in the amount of U.S. $1,774.61. The Note Holder will notify me prior to the date of
change in monthly payment.

4.   BORROWER’S RIGHT TO PREPAY
     I have the right to make payments of Principal at any time before they are due. A payment of


Borrower Initials: ______    ______        ______    ______      ______    ______   ______   ______

MULTISTATE InterestFirst FIXED RATE NOTE
Form 3271 (01/01) DW1105                                                            *83468-4-1*
                                                         Page 1 of 4                                DirectWare Docs (866) 225-5765
                                                                                                                www.DirectWare.net
MIN: 1002075-0000100092-4                                                                            Loan Number 100092

Principal only is known as a “Prepayment.” When I make a Prepayment, I will tell the Note Holder in
writing that I am doing so. I may not designate a payment as a Prepayment if I have not made all the
monthly payments due under the Note.

    I may make a full Prepayment or partial Prepayments without paying a Prepayment charge. The Note
Holder will use my Prepayments to reduce the amount of Principal that I owe under this Note. However,
the Note Holder may apply my Prepayment to the accrued and unpaid interest on the Prepayment
amount, before applying my Prepayment to reduce the Principal amount of the Note. If I make a partial
Prepayment, there will be no changes in the due date of my monthly payment unless the Note Holder
agrees in writing to those changes. However, if the partial Prepayment is made during the period when
my monthly payments consist only of interest, the amount of the monthly payment will decrease for the
remainder of the term when my payments consist only of interest as well as during the time that my
payments consist of principal and interest. If the partial Prepayment is made during the period when my
payments consist of principal and interest, the amount of my monthly payment will not decrease;
however, the principal and the interest required under this Note will be paid prior to the Maturity Date.

5.   LOAN CHARGES
     If a law, which applies to this loan and which sets maximum loan charges, is finally interpreted so that
the interest or other loan charges collected or to be collected in connection with this loan exceed the
permitted limits, then: (a) any such loan charge shall be reduced by the amount necessary to reduce the
charge to the permitted limit; and (b) any sums already collected from me which exceeded permitted
limits will be refunded to me. The Note Holder may choose to make this refund by reducing the Principal I
owe under this Note or by making a direct payment to me. If a refund reduces Principal, the reduction will
be treated as a partial Prepayment.

6.   BORROWER’S FAILURE TO PAY AS REQUIRED
     (A) Late Charge for Overdue Payments
     If the Note Holder has not received the full amount of any monthly payment by the end of 15 calendar
days after the date it is due, I will pay a late charge to the Note Holder. The amount of the charge will be
5.00% of my overdue payment of interest and/or principal and interest. I will pay this late charge promptly
but only once on each late payment.

     (B) Default
     If I do not pay the full amount of each monthly payment on the date it is due, I will be in default.

     (C) Notice of Default
     If I am in default, the Note Holder may send me a written notice telling me that if I do not pay the
overdue amount by a certain date, the Note Holder may require me to pay immediately the full amount of
Principal which has not been paid and all the interest that I owe on that amount. That date must be at
least 30 days after the date on which the notice is mailed to me or delivered by other means.

    (D) No Waiver By Note Holder
    Even if, at a time when I am in default, the Note Holder does not require me to pay immediately in full
as described above, the Note Holder will still have the right to do so if I am in default at a later time.

     (E) Payment of Note Holder’s Costs and Expenses
     If the Note Holder has required me to pay immediately in full as described above, the Note Holder will
have the right to be paid back by me for all of its costs and expenses in enforcing this Note to the extent
not prohibited by applicable law. Those expenses include, for example, reasonable attorneys’ fees.


Borrower Initials: ______     ______       ______   ______      ______     ______      ______      ______

MULTISTATE InterestFirst FIXED RATE NOTE
Form 3271 (01/01) DW1105                                                             *83468-4-2*
                                                         Page 2 of 4                                   DirectWare Docs (866) 225-5765
                                                                                                                   www.DirectWare.net
MIN: 1002075-0000100092-4                                                                  Loan Number 100092

7.   GIVING OF NOTICES
     Unless applicable law requires a different method, any notice that must be given to me under this
Note will be given by delivering it or by mailing it by first class mail to me at the Property Address above
or at a different address if I give the Note Holder a notice of my different address.

     Any notice that must be given to the Note Holder under this Note will be given by delivering it or by
mailing it by first class mail to the Note Holder at the address stated in Section 3(A) above or at a different
address if I am given a notice of that different address.

8.   OBLIGATIONS OF PERSONS UNDER THIS NOTE
     If more than one person signs this Note, each person is fully and personally obligated to keep all of
the promises made in this Note, including the promise to pay the full amount owed. Any person who is a
guarantor, surety or endorser of this Note is also obligated to do these things. Any person who takes over
these obligations, including the obligations of a guarantor, surety or endorser of this Note, is also
obligated to keep all of the promises made in this Note. The Note Holder may enforce its rights under this
Note against each person individually or against all of us together. This means that any one of us may be
required to pay all of the amounts owed under this Note.

9.  WAIVERS
    I and any other person who has obligations under this Note waive the rights of Presentment and
Notice of Dishonor. “Presentment” means the right to require the Note Holder to demand payment of
amounts due. “Notice of Dishonor” means the right to require the Note Holder to give notice to other
persons that amounts due have not been paid.

10. UNIFORM SECURED NOTE
     This Note is a uniform instrument with limited variations in some jurisdictions. In addition to the
protections given to the Note Holder under this Note, a Mortgage, Deed of Trust, or Security Deed (the
“Security Instrument”), dated the same date as this Note, protects the Note Holder from possible losses
which might result if I do not keep the promises which I make in this Note. That Security Instrument
describes how and under what conditions I may be required to make immediate payment in full of all
amounts I owe under this Note. Some of those conditions are described as follows:




          If all or any part of the Property or any Interest in the Property is sold or transferred (or if
     Borrower is not a natural person and a beneficial interest in Borrower is sold or transferred) without
     Lender’s prior written consent, Lender may require immediate payment in full of all sums secured
     by this Security Instrument. However, this option shall not be exercised by Lender if such exercise
     is prohibited by Applicable Law.

          If Lender exercises this option, Lender shall give Borrower notice of acceleration. The notice
     shall provide a period of not less than 30 days from the date the notice is given in accordance with
     Section 15 within which Borrower must pay all sums secured by this Security Instrument. If
     Borrower fails to pay these sums prior to the expiration of this period, Lender may invoke any
     remedies permitted by this Security Instrument without further notice or demand on Borrower.




Borrower Initials: ______    ______        ______   ______    ______   ______   ______   ______

MULTISTATE InterestFirst FIXED RATE NOTE
Form 3271 (01/01) DW1105                                                        *83468-4-3*
                                                       Page 3 of 4                          DirectWare Docs (866) 225-5765
                                                                                                        www.DirectWare.net
MIN: 1002075-0000100092-4                                                          Loan Number 100092


WITNESS THE HAND(S) AND SEAL(S) OF THE UNDERSIGNED




                                               (Seal)                                                    (Seal)
Sample Borrower                            - Borrower         Sample Co-Borrower                  - Borrower



                                                                                    [Sign Original Only]

               PAY TO THE ORDER OF



                WITHOUT RECOURSE
             Direct Mortgage Corporation




NAME:
TITLE:




MULTISTATE InterestFirst FIXED RATE NOTE
Form 3271 (01/01) DW1105                                                    *83468-4-4*
                                                    Page 4 of 4                     DirectWare Docs (866) 225-5765
                                                                                                www.DirectWare.net
                                  INTEREST-ONLY ADDENDUM
                            TO ADJUSTABLE RATE PROMISSORY NOTE


LOAN NUMBER: 100092


PROPERTY ADDRESS: 1234 Main St.; Salt Lake City, UTAH 84111




THIS ADDENDUM is made this 15th day of October 2004, and is incorporated into and intended to form a
part of the Adjustable Rate Note (the “Note”) dated the same date as this Addendum executed by the
undersigned and payable to Direct Mortgage Corporation (the Lender).

THIS ADDENDUM supersedes Sections 3(A), 3(B), 4(C) and 7(A) of the Note. None of the other
provisions of the Note are changed by this Addendum.

3.  PAYMENTS
    (A) Time and Place of Payments
    I will pay interest by making payments every month for the first 0 payments (the “Interest-Only
Period”) in the amount sufficient to pay interest as it accrues. I will pay principal and interest by making
payments every month thereafter for the next 360 payments in an amount sufficient to fully amortize the
outstanding principal balance of the Note at the end of the Interest -Only Period over the remaining term of
the Note in equal monthly payments.

     I will make my monthly payments on the first day of each month beginning on December 01, 2004. I
will make these payments every month until I have paid all of the principal and interest and any other
charges described below that I may owe under this Note. Each monthly payment will be applied as of its
scheduled due date and will be applied to interest before principal. If, on November 01, 2034, I still owe
amounts under this Note, I will pay those amounts in full on that date, which is called the “Maturity Date.”

     I will make my payments at Direct Mortgage Corporation, 6955 South Union Park Center, Suite 540,
Salt Lake City, UT 84047, or at a different place if required by the Note Holder.

    (B) Amount of My Initial Monthly Payments
    Each of my initial monthly payments will be in the amount of U .S. $1,468.75. This payment amount is
based on the original principal balance of the Note. This payment amount may change.

4.   INTEREST RATE AND MONTHLY PAYMENT CHANGES
     (C) Calculation of Changes
     Before each Change Date, the Note Holder will calculate my new interest rate by adding Two and
One Quarter percentage point(s) (2.250%) to the Current Index for such Change Date. The Note Holder
will then round the result of this addition to the nearest one -eighth of one percentage point (0.125%).
Subject to the limits stated in Section 4(D), this rounded amount will be my new interest rate until the next
Change Date.

   During the Interest-Only Period, the Note Holder will then determine the amount of the monthly
payment that would be sufficient to repay accrued interest. This will be the amount of my monthly
payment until the earlier of the next Change Date or the end of the Interest-Only Period unless I make a


Interest Only Addendum                                                     *83538-2-1*
Form 603E (03/03/03)                                                                      DirectWare Docs (866) 225-5765
                                                Page 1 of 2                                           www.DirectWare.net
voluntary prepayment of principal during such period. If I make a voluntary prepayment of principal during
the Interest-Only Period, my payment amount for subsequent payments will be reduced to the amount
necessary to pay interest at the then current interest rate on the lower principal balance. At the end of the
Interest-Only Period and on each Change Date thereafter, the Note Holder will determine the amount of
the monthly payment that would be sufficient to repay in full the unpaid principal that I am expected to
owe at the end of the Interest-Only Period or Change Date, as applicable, in equal monthly payments over
the remaining term of the Note. The result of this calculation will be the new amount of my monthly
payment. After the end of the Interest-Only Period, my payment amount will not be reduced due to
voluntary prepayments.

7.   BORROWER’S FAILURE TO PAY AS REQUIRED
     (A) Late Charge for Overdue Payments
     If the Note Holder has not received the full amount of any monthly payment by the end of 15 calendar
days after the date it is due, I will pay a late charge to the Note Holder. The amount of the charge will be
5.00% of my overdue payment of interest during the interestonly period, 5.00% of my overdue payment of
principal and interest thereafter. I will pay this late charge promptly but only once on each late payment.


I/We acknowledge receipt of this document by signing below.




Sample Borrower                                  Date       Sample Co-Borrower                                 Date




Interest Only Addendum                                                      *83538-2-2*
Form 603E (03/03/03)                                                                      DirectWare Docs (866) 225-5765
                                                  Page 2 of 2                                         www.DirectWare.net
MIN: 1002075-0000100092-4                                                                           Loan Number 100092

                                               ADJUSTABLE RATE NOTE
                                         (6-Month LIBOR Index - Rate Caps)
                  (Assumable during Life of Loan) (First Business Day of Preceding Month Lookback)

THIS NOTE CONTAINS PROVISIONS ALLOWING FOR CHANGES IN MY INTEREST RATE AND MY
MONTHLY PAYMENT. THIS NOTE LIMITS THE AMOUNT MY INTEREST RATE CAN CHANGE AT
ANY ONE TIME AND THE MAXIMUM RATE I MUST PAY.

October 15, 2004

                                                        Salt Lake City, UTAH

                                        1234 Main St., Salt Lake City, UTAH, 84111
                                                             [Property Address]



1.   BORROWER'S PROMISE TO PAY
     In return for a loan that I have received, I promise to pay U .S. $300,000.00 (this amount is called
"Principal"), plus interest, to the order of the Lender. The Lender is Direct Mortgage Corporation. I will
make all payments under this Note in the form of cash, check or money order.
     I understand that the Lender may transfer this Note. The Lender or anyone who takes this Note by
transfer and who is entitled to receive payments under this Note is called the "Note Holder."

2.   INTEREST
     Interest will be charged on unpaid principal until the full amount of Principal has been paid. I will pay
interest at a yearly rate of 5.875%. The interest rate I will pay will change in accordance with Section 4 of
this Note.
     The interest rate required by this Section 2 and Section 4 of this Note is the rate I will pay both before
and after any default described in Section 7(B) of this Note.

3.   PAYMENTS
     (A) Time and Place of Payments
     I will pay principal and interest by making a payment every month.
     I will make my monthly payment on the 1st day of each month beginning on December 01, 2004. I will
make these payments every month until I have paid all of the principal and interest and any other charges
described below that I may owe under this Note. Each monthly payment will be applied as of its
scheduled due date and will be applied to interest before Principal. If, on November 01, 2034 I still owe
amounts under this Note, I will pay those amounts in full on that date, which is called the "Maturity Date."
     I will make my monthly payments at Direct Mortgage Corporation, 6955 South Union Park Center,
Suite 540, Salt Lake City, UT 84047 or at a different place if required by the Note Holder.
     (B) Amount of My Initial Monthly Payments
     Each of my initial monthly payments will be in the amount of U .S. $1,468.75. This amount may
change.
     (C) Monthly Payment Changes
     Changes in my monthly payment will reflect changes in the unpaid principal of my loan and in the
interest rate that I must pay. The Note Holder will determine my new interest rate and the changed
amount of my monthly payment in accordance with Section 4 of this Note.

Borrower Initials: ______         ______       ______       ______      ______    ______   ______   ______

MULTISTATE ADJUSTABLE RATE NOTE-6-Month LIBOR
Index (Assumable during Life of Loan) (First Business Day                                  *69185-5-1*
Lookback)—Single Family--Freddie Mac
                                                                                                       DirectWare Docs (866) 225-5765
UNIFORM INSTRUMENT Form 5520 3/04                                                                                  www.DirectWare.net
                                                                Page 1 of 5
4.   INTEREST RATE AND MONTHLY PAYMENT CHANGES
     (A) Change Dates
     The interest rate I will pay may change on the first day of November 2005, and may change on that
day every sixth month thereafter. Each date on which my interest rate could change is called a "Change
Date."
     (B) The Index
     Beginning with the first Change Date, my interest rate will be based on an Index. The "Index" is the
six month London Interbank Offered Rate ("LIBOR") which is the average of interbank offered rates for
six-month U.S. dollar-denominated deposits in the London market, as published in The Wall Street
Journal. The most recent Index figure available as of the first business day of the month immediately
preceding the month in which the Change Date occurs is called the "Current Index."
     If the Index is no longer available, the Note Holder will choose a new index which is based upon
comparable information. The Note Holder will give me notice of this choice.
     (C) Calculation of Changes
     Before each Change Date, the Note Holder will calculate my new interest rate by adding Two and
One Quarter percentage points (2.250%) to the Current Index. The Note Holder will then round the result
of this addition to the nearest one-eighth of one percentage point (0.125%). Subject to the limits stated in
Section 4(D) below, this rounded amount will be my new interest rate until the next Change Date.
     The Note Holder will then determine the amount of the monthly payment that would be sufficient to
repay the unpaid principal that I am expected to owe at the Change Date in full on the Maturity Date at my
new interest rate in substantially equal payments. The result of this calculation will be the new amount of
my monthly payment.
     (D) Limits on Interest Rate Changes
     The interest rate I am required to pay at the first Change Date will not be greater than 10.875% or
less than 2.750%. Thereafter, my interest rate will never be increased or decreased on any single
Change Date by more than Two percentage points (2.000%) from the rate of interest I have been paying
for the preceding Six (6) months. My interest rate will never be greater than 11.875%.
      (E) Effective Date of Changes
      My new interest rate will become effective on each Change Date. I will pay the amount of my new
monthly payment beginning on the first monthly payment date after the Change Date until the amount of
my monthly payment changes again.
      (F) Notice of Changes
      The Note Holder will deliver or mail to me a notice of any changes in my interest rate and the amount
of my monthly payment before the effective date of any change. The notice will include information
required by law to be given to me and also the title and telephone number of a person who will answer
any question I may have regarding the notice.

5.   BORROWER'S RIGHT TO PREPAY
     I have the right to make payments of Principal at any time before they are due. A payment of
Principal only is known as a "Prepayment." When I make a Prepayment, I will tell the Note Holder in
writing that I am doing so. I may not designate a payment as a Prepayment if I have not made all the
monthly payments due under the Note.
     I may make a full Prepayment or partial Prepayments without paying a Prepayment charge. The Note
Holder will use my Prepayments to reduce the amount of Principal that I owe under this Note. However,
the Note Holder may apply my Prepayment to the accrued and unpaid interest on the Prepayment
amount before applying my Prepayment to reduce the Principal amount of the Note. If I make a partial
Prepayment, there will be no changes in the due dates of my monthly payment unless the Note Holder
agrees in writing to those changes. My partial Prepayment may reduce the amount of my monthly

Borrower Initials: ______         ______       ______       ______    ______   ______   ______   ______

MULTISTATE ADJUSTABLE RATE NOTE-6-Month LIBOR
Index (Assumable during Life of Loan) (First Business Day                               *69185-5-2*
Lookback)—Single Family--Freddie Mac
                                                                                                    DirectWare Docs (866) 225-5765
UNIFORM INSTRUMENT Form 5520 3/04                                                                               www.DirectWare.net
                                                               Page 2 of 5
payments after the first Change Date following my partial Prepayment. However, any reduction due to my
partial Prepayment may be offset by an interest rate increase.

6.   LOAN CHARGES
     If a law, which applies to this loan and which sets maximum loan charges, is finally interpreted so that
the interest or other loan charges collected or to be collected in connection with this loan exceed the
permitted limits, then: (a) any such loan charge shall be reduced by the amount necessary to reduce the
charge to the permitted limit; and (b) any sums already collected from me which exceeded permitted
limits will be refunded to me. The Note Holder may choose to make this refund by reducing the Principal I
owe under this Note or by making a direct payment to me. If a refund reduces Principal, the reduction will
be treated as a partial Prepayment.

7.   BORROWER'S FAILURE TO PAY AS REQUIRED
     (A) Late Charges for Overdue Payments
     If the Note Holder has not received the full amount of any monthly payment by the end of 15 calendar
days after the date it is due, I will pay a late charge to the Note Holder. The amount of the charge will be
5.000% of my overdue payment of principal and interest. I will pay this late charge promptly but only once
on each late payment.
     (B) Default
     If I do not pay the full amount of each monthly payment on the date it is due, I will be in default.
     (C) Notice of Default
     If I am in default, the Note Holder may send me a written notice telling me that if I do not pay the
overdue amount by a certain date, the Note Holder may require me to pay immediately the full amount of
Principal which has not been paid and all the interest that I owe on that amount. That date must be at
least 30 days after the date on which the notice is mailed to me or delivered by other means.
     (D) No Waiver By Note Holder
     Even if, at a time when I am in default, the Note Holder does not require me to pay immediately in full
as described above, the Note Holder will still have the right to do so if I am in default at a later time.
     (E) Payment of Note Holder's Costs and Expenses
     If the Note Holder has required me to pay immediately in full as described above, the Note Holder will
have the right to be paid back by me for all of its costs and expenses in enforcing this Note to the extent
not prohibited by applicable law. Those expenses include, for example, reasonable attorneys' fees.

8.   GIVING OF NOTICES
     Unless applicable law requires a different method, any notice that must be given to me under this
Note will be given by delivering it or by mailing it by first class mail to me at the Property Address above
or at a different address if I give the Note Holder a notice of my different address.
     Any notice that must be given to the Note Holder under this Note will be given by delivering it or by
mailing it by first class mail to the Note Holder at the address stated in Section 3(A) above or at a different
address if I am given a notice of that different address.

9.   OBLIGATIONS OF PERSONS UNDER THIS NOTE
     If more than one person signs this Note, each person is fully and personally obligated to keep all of
the promises made in this Note, including the promise to pay the full amount owed. Any person who is a
guarantor, surety or endorser of this Note is also obligated to do these things. Any person who takes over
these obligations, including the obligations of a guarantor, surety or endorser of this Note, is also
obligated to keep all of the promises made in this Note. The Note Holder may enforce its rights under this
Note against each person individually or against all of us together. This means that any one of us may be
required to pay all of the amounts owed under this Note.

Borrower Initials: ______         ______       ______       ______    ______   ______   ______   ______

MULTISTATE ADJUSTABLE RATE NOTE-6-Month LIBOR
Index (Assumable during Life of Loan) (First Business Day                               *69185-5-3*
Lookback)—Single Family--Freddie Mac
                                                                                                    DirectWare Docs (866) 225-5765
UNIFORM INSTRUMENT Form 5520 3/04                                                                               www.DirectWare.net
                                                               Page 3 of 5
10. WAIVERS
    I and any other person who has obligations under this Note waive the rights of Presentment and
Notice of Dishonor. "Presentment" means the right to require the Note Holder to demand payment of
amounts due. "Notice of Dishonor" means the right to require the Note Holder to give notice to other
persons that amounts due have not been paid.

11. UNIFORM SECURED NOTE
     This Note is a uniform instrument with limited variations in some jurisdictions. In addition to the
protections given to the Note Holder under this Note, a Mortgage, Deed of Trust, or Security Deed (the
"Security Instrument"), dated the same date as this Note, protects the Note Holder from possible losses
which might result if I do not keep the promises which I make in this Note. That Security Instrument
describes how and under what conditions I may be required to make immediate payment in full of all
amounts I owe under this Note. Some of those conditions are described as follows:

          Transfer of the Property or a Beneficial Interest in Borrower. As used in this Section 18,
     "Interest in the Property" means any legal or beneficial interest in the Property, including, but not
     limited to, those beneficial interests transferred in a bond for deed, contract for deed, installment
     sales contract or escrow agreement, the intent of which is the transfer of title by Borrower at a
     future date to a purchaser.
          If all or any part of the Property or any Interest in the Property is sold or transferred (or if
     Borrower is not a natural person and a beneficial interest in Borrower is sold or transferred )
     without Lender's prior written consent, Lender may require immediate payment in full of all sums
     secured by this Security Instrument. However, this option shall not be exercised by Lender if such
     exercise is prohibited by Applicable Law. Lender also shall not exercise this option if: ( a)
     Borrower causes to be submitted to Lender information required by Lender to evaluate the
     intended transferee as if a new loan were being made to the transferee; and (b) Lender
     reasonably determines that Lender's security will not be impaired by the loan assumption and
     that the risk of a breach of any covenant or agreement in this Security Instrument is acceptable to
     Lender.
          To the extent permitted by Applicable Law, Lender may charge a reasonable fee as a
     condition to Lender's consent to the loan assumption. Lender may also require the transferee to
     sign an assumption agreement that is acceptable to Lender and that obligates the transferee to
     keep all the promises and agreements made in the Note and in this Security Instrument .
     Borrower will continue to be obligated under the Note and this Security Instrument unless Lender
     releases Borrower in writing.
          If Lender exercises the option to require immediate payment in full, Lender shall give
     Borrower notice of acceleration. The notice shall provide a period of not less than 30 days from
     the date the notice is given in accordance with Section 15 within which Borrower must pay all
     sums secured by this Security Instrument. If Borrower fails to pay these sums prior to the
     expiration of this period, Lender may invoke any remedies permitted by this Security Instrument
     without further notice or demand on Borrower.




Borrower Initials: ______         ______       ______       ______    ______   ______   ______   ______

MULTISTATE ADJUSTABLE RATE NOTE-6-Month LIBOR
Index (Assumable during Life of Loan) (First Business Day                               *69185-5-4*
Lookback)—Single Family--Freddie Mac
                                                                                                    DirectWare Docs (866) 225-5765
UNIFORM INSTRUMENT Form 5520 3/04                                                                               www.DirectWare.net
                                                               Page 4 of 5
WITNESS THE HAND(S) AND SEAL(S) OF THE UNDERSIGNED




                                                            (Seal)                                                   (Seal)
Sample Borrower                                     - Borrower             Sample Co-Borrower                 - Borrower



                                                                                                 [Sign Original Only]

                 PAY TO THE ORDER OF



                  WITHOUT RECOURSE
               Direct Mortgage Corporation




NAME:
TITLE:




MULTISTATE ADJUSTABLE RATE NOTE-6-Month LIBOR
Index (Assumable during Life of Loan) (First Business Day                                *69185-5-5*
Lookback)—Single Family--Freddie Mac
                                                                                                DirectWare Docs (866) 225-5765
UNIFORM INSTRUMENT Form 5520 3/04                                                                           www.DirectWare.net
                                                                 Page 5 of 5
AFTER RECORDING RETURN TO:
Direct Mortgage Corporation
6955 South Union Park Center, Suite 540,
Salt Lake City, UT 84047

PREPARED BY:
Direct Mortgage Corporation
6955 South Union Park Center, Suite 540,
Salt Lake City, UT 84047
(801) 924-2300




        ------------------------------------[Space Above This Line For Recording Data]-----------------------------------
MIN: 1002075-0000100092-4                                                           Loan Number: 100092

                                             ADJUSTABLE RATE RIDER
                                        (6-Month LIBOR Index -- Rate Caps)
                 (Assumable during Life of Loan) (First Business Day of Preceding Month Lookback)


     THIS ADJUSTABLE RATE RIDER is made this 15th day of October 2004, and is incorporated
into and shall be deemed to amend and supplement the Mortgage, Deed of Trust, or Security Deed (the
"Security Instrument") of the same date given by the undersigned (the "Borrower") to secure Borrower's
Adjustable Rate Note (the "Note") to Direct Mortgage Corporation (the "Lender") of the same date
and covering the property described in the Security Instrument and located at:


                                       1234 Main St., Salt Lake City, UTAH, 84111
                                                         [Property Address]


THE NOTE CONTAINS PROVISIONS ALLOWING FOR CHANGES IN THE INTEREST RATE AND
THE MONTHLY PAYMENT. THE NOTE LIMITS THE AMOUNT THE BORROWER'S INTEREST RATE
CAN CHANGE AT ANY ONE TIME AND THE MAXIMUM RATE THE BORROWER MUST PAY.

ADDITIONAL COVENANTS. In addition to the covenants and                                agreements       made     in     the     Security
Instrument, Borrower and Lender further covenant and agree as follows:
A. INTEREST RATE AND MONTHLY PAYMENT CHANGES
     The Note provides for an initial interest rate of 5.875%. The Note provides for changes in the
interest rate and the monthly payments as follows:
     4. INTEREST RATE AND MONTHLY PAYMENT CHANGES
          (A) Change Dates
          The interest rate I will pay may change on the first day of November 2005, and on that day
     every sixth month thereafter. Each date on which my interest rate could change is called a "Change
     Date."
          (B) The Index
          Beginning with the first Change Date, my interest rate will be based on an Index. The "Index" is
     the sixth month London Interbank Offered Rate ("LIBOR") which is the average of interbank offered
     rates for six-month U.S. dollar-denominated deposits in the London market, as published in The Wall
     Street Journal. The most recent Index figure available as of the first business day of the month
     immediately preceding the month in which the Change Date occurs is called the "Current Index."
          If the Index is no longer available, the Note Holder will choose a new index which is based upon
     comparable information. The Note Holder will give me notice of this choice.
          (C) Calculation of Changes
          Before each Change Date, the Note Holder will calculate my new interest rate by adding Two
     and One Quarter percentage points ( 2.250%) to the Current Index. The Note Holder will then

Borrower(s) Initials: ______        ______     ______     ______       ______     ______      ______       ______

MULTISTATE ADJUSTABLE RATE RIDER—6-Month
LIBOR Index (Assumable during Life of Loan) (First                                         *69214-3-1*
Business Day Lookback)—Single Family--Freddie Mac                                                             DirectWare Docs (866) 225-5765
                                                                                                                          www.DirectWare.net
UNIFORM INSTRUMENT Form 5120 3/04                            Page 1 of 3
     round the result of this addition to the nearest one -eighth of one percentage point (0.125%). Subject
     to the limits stated in Section 4(D) below, this rounded amount will be my new interest rate until the
     next Change Date.
         The Note Holder will then determine the amount of the monthly payment that would be sufficient
     to repay the unpaid principal that I am expected to owe at the Change Date in full on the maturity
     date at my new interest rate in substantially equal payments. The result of this calculation will be the
     new amount of my monthly payment.
         (D) Limits on Interest Rate Changes
          The interest rate I am required to pay at the first Change Date will not be greater than 10.875%
     or less than 2.750%. Thereafter, my interest rate will never be increased or decreased on any single
     Change Date by more than Two percentage points (2.000%) from the rate of interest I have been
     paying for the preceding six months. My interest rate will never be greater than 11.875%.
          (E) Effective Date of Changes
          My new interest rate will become effective on each Change Date. I will pay the amount of my new
     monthly payment beginning on the first monthly payment date after the Change Date until the amount
     of my monthly payment changes again.
          (F) Notice of Changes
          The Note Holder will deliver or mail to me a notice of any changes in my interest rate and the
     amount of my monthly payment before the effective date of any change. The notice will include
     information required by law to be given to me and also the title and telephone number of a person
     who will answer any question I may have regarding the notice.

     B.   TRANSFER OF THE PROPERTY OR A BENEFICIAL INTEREST IN BORROWER
          Section 18 of the Security Instrument is amended to read as follows:


                      Transfer of the Property or a Beneficial Interest in Borrower. As used in this
                 Section 18, "Interest in the Property" means any legal or beneficial interest in the
                 Property, including, but not limited to, those beneficial interests transferred in a bond
                 for deed, contract for deed, installment sales contract or escrow agreement, the
                 intent of which is the transfer of title by Borrower at a future date to a purchaser.
                      If all or any part of the Property or any Interest in the Property is sold or
                 transferred (or if Borrower is not a natural person and a beneficial interest in
                 Borrower is sold or transferred) without Lender's prior written consent, Lender may
                 require immediate payment in full of all sums secured by this Security Instrument .
                 However, this option shall not be exercised by Lender if such exercise is prohibited
                 by Applicable Law. Lender also shall not exercise this option if: ( a) Borrower causes
                 to be submitted to Lender information required by Lender to evaluate the intended
                 transferee as if a new loan were being made to the transferee; and (b) Lender
                 reasonably determines that Lender's security will not be impaired by the loan
                 assumption and that the risk of a breach of any covenant or agreement in this
                 Security Instrument is acceptable to Lender.
                      To the extent permitted by Applicable Law, Lender may charge a reasonable fee
                 as a condition to Lender's consent to the loan assumption. Lender may also require
                 the transferee to sign an assumption agreement that is acceptable to Lender and
                 that obligates the transferee to keep all the promises and agreements made in the
                 Note and in this Security Instrument. Borrower will continue to be obligated under
                 the Note and this Security Instrument unless Lender releases Borrower in writing.
                      If Lender exercises the option to require immediate payment in full, Lender shall
                 give Borrower notice of acceleration. The notice shall provide a period of not less
                 than 30 days from the date the notice is given in accordance with Section 15 within
                 which Borrower must pay all sums secured by this Security Instrument. If Borrower
                 fails to pay these sums prior to the expiration of this period, Lender may invoke any
                 remedies permitted by this Security Instrument without further notice or demand on
                 Borrower.

Borrower(s) Initials: ______       ______      ______   ______     ______   ______    ______   ______

MULTISTATE ADJUSTABLE RATE RIDER—6-Month
LIBOR Index (Assumable during Life of Loan) (First                                   *69214-3-2*
Business Day Lookback)—Single Family--Freddie Mac                                               DirectWare Docs (866) 225-5765
                                                                                                            www.DirectWare.net
UNIFORM INSTRUMENT Form 5120 3/04                        Page 2 of 3
BY SIGNING BELOW, Borrower accepts and agrees to the terms and covenants contained in this
Adjustable Rate Rider.



                                                         (Seal)                                                   (Seal)
Sample Borrower                                      - Borrower         Sample Co-Borrower                 - Borrower




MULTISTATE ADJUSTABLE RATE RIDER—6-Month
LIBOR Index (Assumable during Life of Loan) (First                                    *69214-3-3*
Business Day Lookback)—Single Family--Freddie Mac                                            DirectWare Docs (866) 225-5765
                                                                                                         www.DirectWare.net
UNIFORM INSTRUMENT Form 5120 3/04                             Page 3 of 3
After Recording Return To:
Direct Mortgage Corporation
6955 So. Union Park Ctr., Ste 540,
Salt Lake City, UT    84047

This Instrument was Prepared By:
Direct Mortgage Corporation
6955 So. Union Park Ctr., Ste 540,
Salt Lake City, UT    84047
(801) 924-2300

         --------------------------------------------------------[Space Above This Line For Recording Data]----------------------------------------------------
MIN: 1002075-0000100092-4                                                                                                                 Loan Number: 100092

                                           ADDENDUM TO ADJUSTABLE RATE RIDER

    This addendum is made October 15, 2004 and is incorporated into and deemed to amend and
supplement the Adjustable Rate Rider of the same date.

The property covered by this addendum is described in the Security Instrument and located at:

                                                  1234 Main St.; Salt Lake City, UTAH 84111

AMENDED PROVISIONS
    In addition to the provisions and agreements made in the Security Instrument, I /we further covenant
and agree as follows:

ADJUSTABLE INTEREST RATE AND MONTHLY PAYMENT CHANGES
     Limits on Interest Rate Changes
     The interest rate I am required to pay at the first Change Date will not be greater than 10.875% or
less than 2.750%. Thereafter, my adjustable interest rate will never be increased or decreased on any
single Change Date by more than Two percentage point(s) (2.000%) from the rate of interest I have been
paying for the preceding six (6) months. My interest rate will never be greater than 11.875%. My interest
rate will never be less than 2.750%.

TRANSFER OF THE PROPERTY OR A BENEFICIAL INTEREST IN BORROWER

    Uniform Covenant 18 of the Security Instrument is amended to read as follows:

     Transfer of the Property or a Beneficial Interest in Borrower. As used in this Section 18, “Interest
in the Property” means any legal or beneficial interest in the Property, including, but not limited to, those
beneficial interests transferred in a bond for deed, contract for deed, installment sales contract or escrow
agreement, the intent of which is the transfer of title by Borrower at a future date to a purchaser.

     If all or any part of the Property or any Interest in the Property is sold or transferred (or if Borrower is
not a natural person and a beneficial interest in Borrower is sold or transferred) without Lender ’s prior
written consent, Lender may require immediate payment in full of all sums secured by this Security
Instrument. However, this option shall not be exercised by Lender if such exercise is prohibited by
Applicable Law.

     If Lender exercises this option, Lender shall give Borrower notice of acceleration. The notice shall
provide a period of not less than 30 days from the date the notice is given in accordance with Section 15
within which Borrower must pay all sums secured by this Security Instrument. If Borrower fails to pay
these sums prior to the expiration of this period, Lender may invoke any remedies permitted by this
Security Instrument without further notice or demand on Borrower.




         Borrower Initials: ______                 ______          ______           ______          ______          ______          ______           ______

LIBOR Addendum to Rider
Form 1202 (01/01) DW0106                                                                                             *84515-2-1*
                                                                                                                                              DirectWare Docs (866) 225-5765
                                                                             Page 1 of 2                                                                  www.DirectWare.net
In Witness Thereof, Trustor has executed this addendum.


Witness




Sample Borrower                                  Date      Sample Co-Borrower                        Date




LIBOR Addendum to Rider
Form 1202 (01/01) DW0106                                                   *84515-2-2*
                                                                                DirectWare Docs (866) 225-5765
                                                    Page 2 of 2                             www.DirectWare.net
                                            ADDENDUM TO NOTE

                                                                                                Loan Number: 100092

    This addendum is made October 15, 2004 and is incorporated into and deemed to amend and
supplement the Adjustable Rate Note of the same date.

The property covered by this addendum is described in the Security Instrument and located at:

                                    1234 Main St.; Salt Lake City, UTAH 84111

AMENDED PROVISIONS
     In addition to the provisions and agreements made in the Note, I /we further covenant and agree as
follows:

ADJUSTABLE INTEREST RATE AND MONTHLY PAYMENT CHANGES
     Limits on Interest Rate Changes
     The interest rate I am required to pay at the first Change Date will not be greater than 10.875% or
less than 2.750%. Thereafter, my adjustable interest rate will never be increased or decreased on any
single Change Date by more than Two percentage point (s) (2.000%) from the rate of interest I have been
paying for the preceding six (6) months. My interest rate will never be greater than 11.875%. My interest
rate will never be less than 2.750%.

UNIFORM SECURED NOTE
     This Note is a uniform instrument with limited variations in some jurisdictions. In addition to the
protections given to the Note Holder under this Note, a Mortgage, Deed of Trust, or Security Deed (the
“Security Instrument”), dated the same date as this Note, protects the Note Holder from possible losses
that might result if I do not keep the promises that I make in this Note. That Security Instrument describes
how and under what conditions I may be required to make immediate payment in full of all amounts I owe
under this Note. Some of those conditions read as follows:

     Transfer of the Property or a Beneficial Interest in Borrower. As used in this Section 18, “Interest
in the Property” means any legal or beneficial interest in the Property, including, but not limited to, those
beneficial interests transferred in a bond for deed, contract for deed, installment sales contract or escrow
agreement, the intent of which is the transfer of title by Borrower at a future date to a purchaser.

     If all or any part of the Property or any Interest in the Property is sold or transferred (or if Borrower is
not a natural person and a beneficial interest in Borrower is sold or transferred) without Lender ’s prior
written consent, Lender may require immediate payment in full of all sums secured by this Security
Instrument. However, this option shall not be exercised by Lender if such exercise is prohibited by
Applicable Law.

     If Lender exercises this option, Lender shall give Borrower notice of acceleration. The notice shall
provide a period of not less than 30 days from the date the notice is given in accordance with Section 15
within which Borrower must pay all sums secured by this Security Instrument. If Borrower fails to pay
these sums prior to the expiration of this period, Lender may invoke any remedies permitted by this
Security Instrument without further notice or demand on Borrower.




LIBOR Addendum to Note
Form 1201 (01/01)                                                               *83472-2-1*
                                                                                                 DirectWare Docs (866) 225-5765
                                                   Page 1 of 2                                               www.DirectWare.net
In Witness Thereof, Trustor has executed this addendum.


Witness


Sample Borrower                                  Date      Sample Co-Borrower                        Date




LIBOR Addendum to Note
Form 1201 (01/01)                                                          *83472-2-2*
                                                                                DirectWare Docs (866) 225-5765
                                                 Page 2 of 2                                www.DirectWare.net
WHEN RECORDED, MAIL TO:
Direct Mortgage Corporation
6955 South Union Park Center, Suite 540 ,
Salt Lake City, UT 84047

THIS INSTRUMENT WAS PREPARED BY:
Direct Mortgage Corporation
6955 South Union Park Center, Suite 540 ,
Salt Lake City, UT 84047

Loan Number: 100092


          --------------------------------------------------------[Space Above This Line For Recording Data]----------------------------------------------------


                                                        INTEREST-ONLY ADDENDUM
                                                        TO ADJUSTABLE RATE RIDER

LOAN NUMBER: 100092

PROPERTY ADDRESS: 1234 Main St.; Salt Lake City, UTAH 84111

THIS ADDENDUM is made this 15th day of October 2004, and is incorporated into and intended to form a
part of the Adjustable Rate Rider (the “Rider”) dated the same date as this Addendum executed by the
undersigned and payable to Direct Mortgage Corporation (the Lender).

THIS ADDENDUM supersedes Section 4(C) of the Rider. None of the other provisions of the Note are
changed by this Addendum.

4.   INTEREST RATE AND MONTHLY PAYMENT CHANGES
     (C) Calculation of Changes
     Before each Change Date, the Note Holder will calculate my new interest rate by adding Two and One
Quarter percentage point(s) (2.250%) to the Current Index for such Change Date. The Note Holder will
then round the result of this addition to the nearest one -eighth of one percentage point (0.125%). Subject
to the limits stated in Section 4(D), this rounded amount will be my new interest rate until the next Change
Date.

     During the Interest-Only Period, the Note Holder will then determine the amount of the monthly
payment that would be sufficient to repay accrued interest. This will be the amount of my monthly payment
until the earlier of the next Change Date or the end of the Interest -Only Period unless I make a voluntary
prepayment of principal during such period. If I make a voluntary prepayment of principal during the
Interest-Only Period, my payment amount for subsequent payments will be reduced to the amount
necessary to pay interest at the then current interest rate on the lower principal balance. At the end of the
Interest-Only Period and on each Change Date thereafter, the Note Holder will determine the amount of
the monthly payment that would be sufficient to repay in full the unpaid principal that I am expected to owe
at the end of the Interest-Only Period or Change Date, as applicable, in equal monthly payments over the
remaining term of the Note. The result of this calculation will be the new amount of my monthly payment .
After the end of the Interest-Only Period, my payment amount will not be reduced due to voluntary
prepayments.


Sample Borrower                                                           Date         Sample Co-Borrower                                                           Date




Interest Only Rider Addendum
Form 603F (01/01)
                                                                                                                      *83541-1-1*              DirectWare Docs (866) 225-5765
                                                                           Page 1 of 1                                                                     www.DirectWare.net
 MIN: 1002075-0000100092-4                                                              Loan Number 100092
                                                   NOTE


October 15, 2004



                                 1234 Main St., Salt Lake City, UTAH, 84111
                                                [Property Address]



1.   BORROWER'S PROMISE TO PAY
     In return for a loan that I have received, I promise to pay U .S. $300,000.00 (this amount is called
"Principal"), plus interest, to the order of the Lender. The Lender is Direct Mortgage Corporation. I will
make all payments under this Note in the form of cash, check or money order.
     I understand that the Lender may transfer this Note. The Lender or anyone who takes this Note by
transfer and who is entitled to receive payments under this Note is called the "Note Holder."

2.   INTEREST
     Interest will be charged on unpaid principal until the full amount of Principal has been paid. I will pay
interest at a yearly rate of 5.875%.
     The interest rate required by this Section 2 is the rate I will pay both before and after any default
described in Section 6(B) of this Note.

3.   PAYMENTS
     (A) Time and Place of Payments
     I will pay principal and interest by making a payment every month. I will make my monthly payment
on the 1st day of each month beginning on December 01, 2004. I will make these payments every month
until I have paid all of the principal and interest and any other charges described below that I may owe
under this Note. Each monthly payment will be applied as of its scheduled due date and will be applied to
interest before Principal. If, on November 01, 2034 I still owe amounts under this Note, I will pay those
amounts in full on that date, which is called the "Maturity Date."
     I will make my monthly payments at Direct Mortgage Corporation, 6955 South Union Park Center,
Suite 540, Salt Lake City, UT 84047 or at a different place if required by the Note Holder.
     (B) Amount of Monthly Payments
     My monthly payment will be in the amount of U.S. $1,468.75.

4.   BORROWER'S RIGHT TO PREPAY
     I have the right to make payments of Principal at any time before they are due. A payment of
Principal only is known as a "Prepayment." When I make a Prepayment, I will tell the Note Holder in
writing that I am doing so. I may not designate a payment as a Prepayment if I have not made all the
monthly payments due under the Note.
     I may make a full Prepayment or partial Prepayments without paying a Prepayment charge. The Note
Holder will use my Prepayments to reduce the amount of Principal that I owe under this Note. However,
the Note Holder may apply my Prepayment to the accrued and unpaid interest on the Prepayment
amount, before applying my Prepayment to reduce the Principal amount of the Note. If I make a partial
Prepayment, there will be no changes in the due date or in the amount of my monthly payment unless the
Note Holder agrees in writing to those changes.


Borrower Initials: ______   ______     ______   ______     ______    ______   ______    ______

MULTISTATE FIXED RATE NOTE—Single Family
Fannie Mae/Freddie Mac UNIFORM INSTRUMENT                                         *204-3-1*
Form 3200 1/01                                     Page 1 of 3                             DirectWare Docs (866) 225-5765
                                                                                                       www.DirectWare.net
5.   LOAN CHARGES
     If a law, which applies to this loan and which sets maximum loan charges, is finally interpreted so that
the interest or other loan charges collected or to be collected in connection with this loan exceed the
permitted limits, then: (a) any such loan charge shall be reduced by the amount necessary to reduce the
charge to the permitted limit; and (b) any sums already collected from me which exceeded permitted
limits will be refunded to me. The Note Holder may choose to make this refund by reducing the Principal I
owe under this Note or by making a direct payment to me. If a refund reduces Principal, the reduction will
be treated as a partial Prepayment.

6.   BORROWER'S FAILURE TO PAY AS REQUIRED
     (A) Late Charge for Overdue Payments
     If the Note Holder has not received the full amount of any monthly payment by the end of 15 calendar
days after the date it is due, I will pay a late charge to the Note Holder. The amount of the charge will be
5.000% of my overdue payment of principal and interest. I will pay this late charge promptly but only once
on each late payment.
     (B) Default
     If I do not pay the full amount of each monthly payment on the date it is due, I will be in default.
     (C) Notice of Default
     If I am in default, the Note Holder may send me a written notice telling me that if I do not pay the
overdue amount by a certain date, the Note Holder may require me to pay immediately the full amount of
Principal which has not been paid and all the interest that I owe on that amount. That date must be at
least 30 days after the date on which the notice is mailed to me or delivered by other means.
     (D) No Waiver By Note Holder
     Even if, at a time when I am in default, the Note Holder does not require me to pay immediately in full
as described above, the Note Holder will still have the right to do so if I am in default at a later time.
     (E) Payment of Note Holder's Costs and Expenses
     If the Note Holder has required me to pay immediately in full as described above, the Note Holder will
have the right to be paid back by me for all of its costs and expenses in enforcing this Note to the extent
not prohibited by applicable law. Those expenses include, for example, reasonable attorneys' fees.

7.   GIVING OF NOTICES
     Unless applicable law requires a different method, any notice that must be given to me under this
Note will be given by delivering it or by mailing it by first class mail to me at the Property Address above
or at a different address if I give the Note Holder a notice of my different address.
     Any notice that must be given to the Note Holder under this Note will be given by delivering it or by
mailing it by first class mail to the Note Holder at the address stated in Section 3(A) above or at a different
address if I am given a notice of that different address.

8.   OBLIGATIONS OF PERSONS UNDER THIS NOTE
     If more than one person signs this Note, each person is fully and personally obligated to keep all of
the promises made in this Note, including the promise to pay the full amount owed. Any person who is a
guarantor, surety or endorser of this Note is also obligated to do these things. Any person who takes over
these obligations, including the obligations of a guarantor, surety or endorser of this Note, is also
obligated to keep all of the promises made in this Note. The Note Holder may enforce its rights under this
Note against each person individually or against all of us together. This means that any one of us may be
required to pay all of the amounts owed under this Note.

9.   WAIVERS
     I and any other person who has obligations under this Note waive the rights of Presentment and


Borrower Initials: ______    ______    ______     ______      ______   ______     ______     ______

MULTISTATE FIXED RATE NOTE—Single Family
Fannie Mae/Freddie Mac UNIFORM INSTRUMENT                                             *204-3-2*
Form 3200 1/01                                        Page 2 of 3                               DirectWare Docs (866) 225-5765
                                                                                                            www.DirectWare.net
Notice of Dishonor. "Presentment" means the right to require the Note Holder to demand payment of
amounts due. "Notice of Dishonor" means the right to require the Note Holder to give notice to other
persons that amounts due have not been paid.

10. UNIFORM SECURED NOTE
     This Note is a uniform instrument with limited variations in some jurisdictions. In addition to the
protections given to the Note Holder under this Note, a Mortgage, Deed of Trust, or Security Deed (the
"Security Instrument"), dated the same date as this Note, protects the Note Holder from possible losses
which might result if I do not keep the promises which I make in this Note. That Security Instrument
describes how and under what conditions I may be required to make immediate payment in full of all
amounts I owe under this Note. Some of those conditions are described as follows:

         If all or any part of the Property or any Interest in the Property is sold or transferred (or if
    Borrower is not a natural person and a beneficial interest in Borrower is sold or transferred )
    without Lender's prior written consent, Lender may require immediate payment in full of all sums
    secured by this Security Instrument. However, this option shall not be exercised by Lender if such
    exercise is prohibited by Applicable Law.
         If Lender exercises this option, Lender shall give Borrower notice of acceleration. The notice
    shall provide a period of not less than 30 days from the date the notice is given in accordance
    with Section 15 within which Borrower must pay all sums secured by this Security Instrument. If
    Borrower fails to pay these sums prior to the expiration of this period, Lender may invoke any
    remedies permitted by this Security Instrument without further notice or demand on Borrower.

WITNESS THE HAND(S) AND SEAL(S) OF THE UNDERSIGNED



                                                (Seal)                                                         (Seal)
Sample Borrower                             - Borrower         Sample Co-Borrower                       - Borrower



                                                                                          [Sign Original Only]
              PAY TO THE ORDER OF



               WITHOUT RECOURSE
            Direct Mortgage Corporation




NAME:
TITLE:




MULTISTATE FIXED RATE NOTE—Single Family
Fannie Mae/Freddie Mac UNIFORM INSTRUMENT                                           *204-3-3*
Form 3200 1/01                                       Page 3 of 3                          DirectWare Docs (866) 225-5765
                                                                                                      www.DirectWare.net
Parcel Identification Number: 27-14-102-004

WHEN RECORDED, MAIL TO:
Direct Mortgage Corporation
6955 South Union Park Center, Suite 540 ,
Salt Lake City, UT 84047

THIS INSTRUMENT WAS PREPARED BY:
Direct Mortgage Corporation
6955 South Union Park Center, Suite 540 ,
Salt Lake City, UT 84047

Loan Number: 100092
Order Number: 55510102255

                                                 [Space Above This Line For Recording Data]
                                                                                                       MIN: 1002075-0000100092-4

                                                     DEED OF TRUST

DEFINITIONS
Words used in multiple sections of this document are defined below and other words are defined in
Sections 3, 11, 13, 18, 20 and 21. Certain rules regarding the usage of words used in this document are
also provided in Section 16.
(A) "Security Instrument" means this document, which is dated October 15, 2004, together with all
Riders to this document.
(B)   "Borrower"         is        Sample     Borrower      and     Sample        Co-Borrower,       husband       and       wife        as
joint tenants

Borrower is the trustor under this Security Instrument.
(C) "Lender" is Direct Mortgage Corporation

Lender is a Corporation organized and existing under the laws of UTAH.
Lender's     address          is    6955 South      Union      Park      Center,      Suite   540,      Salt   Lake         City,       UT
84047.

(D) "Trustee" is Affiliated First Title, 309 East State Street, Orem, UTAH, 84057

(E) "MERS" is Mortgage Electronic Registration Systems, Inc. MERS is a separate corporation that
is acting solely as a nominee for Lender and Lender's successors and assigns. MERS is the
beneficiary under this Security Instrument. MERS is organized and existing under the laws of
Delaware, and has an address and telephone number of P.O. Box 2026, Flint, MI 48501-2026, tel.
(888) 679-MERS.
(F) "Note" means the promissory note signed by Borrower and dated October 15, 2004. The Note
states   that Borrower owes Lender Three Hundred Thousand Dollars and 00/100 (U.S.
$300,000.00) plus interest. Borrower has promised to pay this debt in regular Periodic Payments and
to pay the debt in full not later than November 01, 2034.
(G) "Property" means the property that is described below under the heading "Transfer of Rights in the
Property."
(H) "Loan" means the debt evidenced by the Note, plus interest, any prepayment charges and late
charges due under the Note, and all sums due under this Security Instrument, plus interest.




Borrower Initials: ______            ______    ______      ______       ______      ______    ______      ______

UTAH—Single Family
Fannie Mae/Freddie Mac UNIFORM INSTRUMENT                                                      *205-14-1*
Form 3045 1/01                                                  Page 1 of 14                                   DirectWare Docs (866) 225-5765
                                                                                                                           www.DirectWare.net
(I) "Riders" means all Riders to this Security Instrument that are executed by Borrower. The following
Riders are to be executed by Borrower [check box as applicable]:

      Adjustable Rate Rider                      Condominium Rider                     Planned Unit Development Rider

      Balloon Rider                              Biweekly Payment Rider            X Other(s) [specify]: [Prepayment

      1-4 Family Rider                           Second Home Rider
                                                                                       Penalty Rider]

(J) "Applicable Law" means all controlling applicable federal, state and local statutes, regulations,
ordinances and administrative rules and orders (that have the effect of law) as well as all applicable final,
non-appealable judicial opinions.
(K) "Community Association Dues, Fees, and Assessments" means all dues, fees, assessments and
other charges that are imposed on Borrower or the Property by a condominium association, homeowners
association or similar organization.
(L) "Electronic Funds Transfer" means any transfer of funds, other than a transaction originated by
check, draft, or similar paper instrument, which is initiated through an electronic terminal, telephonic
instrument, computer, or magnetic tape so as to order, instruct, or authorize a financial institution to debit
or credit an account. Such term includes, but is not limited to, point -of-sale transfers, automated teller
machine transactions, transfers initiated by telephone, wire transfers, and automated clearinghouse
transfers.
(M) "Escrow Items" means those items that are described in Section 3.
(N) "Miscellaneous Proceeds" means any compensation, settlement, award of damages, or proceeds
paid by any third party (other than insurance proceeds paid under the coverages described in Section 5)
for: (i) damage to, or destruction of, the Property; (ii) condemnation or other taking of all or any part of the
Property; (iii) conveyance in lieu of condemnation; or (iv) misrepresentations of, or omissions as to, the
value and/or condition of the Property.
(O) "Mortgage Insurance" means insurance protecting Lender against the nonpayment of, or default on,
the Loan.
(P) "Periodic Payment" means the regularly scheduled amount due for (i) principal and interest under
the Note, plus (ii) any amounts under Section 3 of this Security Instrument.
(Q) "RESPA" means the Real Estate Settlement Procedures Act (12 U.S.C. §2601 et seq.) and its
implementing regulation, Regulation X (24 C.F.R. Part 3500), as they might be amended from time to
time, or any additional or successor legislation or regulation that governs the same subject matter. As
used in this Security Instrument, "RESPA" refers to all requirements and restrictions that are imposed in
regard to a "federally related mortgage loan" even if the Loan does not qualify as a "federally related
mortgage loan" under RESPA.
(R) "Successor in Interest of Borrower" means any party that has taken title to the Property, whether
or not that party has assumed Borrower's obligations under the Note and/or this Security Instrument.

TRANSFER OF RIGHTS IN THE PROPERTY

The beneficiary of this Security Instrument is MERS (solely as nominee for Lender and Lender's
successors and assigns) and the successors and assigns of MERS . This Security Instrument secures to
Lender: (i) the repayment of the Loan, and all renewals, extensions and modifications of the Note; and (ii)
the performance of Borrower's covenants and agreements under this Security Instrument and the Note .
For this purpose, Borrower irrevocably grants, conveys and warrants to Trustee, in trust, with power of
sale, the following described property located in the

                            County                              of                        Salt Lake                                    :
                  [Type of Recording Jurisdiction]                               [Name of Recording Jurisdiction]



All of Lot 17, Plat 4, Tanner's Subdivision No. 3 According to the official Austin
County records.    This is a really long legal description.         It would be common to find
with a metes and bounds legal description. We need to test if the text will grow on

Borrower Initials: ______       ______       ______    ______        ______   ______     ______        ______

UTAH—Single Family
Fannie Mae/Freddie Mac UNIFORM INSTRUMENT                                                   *205-14-2*
Form 3045 1/01                                             Page 2 of 14                                     DirectWare Docs (866) 225-5765
                                                                                                                        www.DirectWare.net
top of another text box, or if we have the Group Headers properly established.           I
need more things to say.        Mary had a little lamb, Mary had a little lamb, Mary had a
little lamb whose fleece was white as snow.

And everywhere that Mary went, Mary went, Mary went, and everywhere that Mary
went the Lamb was sure to go.            Humpty Dumpty sat on a wall.      Humpty Dumpty
had a great fall.        All the King’s horses and all the King’s men couldn’t put Humpty
together again.       London Bridge is falling down, falling down, falling down.   London
bridge is falling down, my fair Lady-‘O.

A.P.N. #: 27-14-102-004

which currently has the address of 1234 Main St.
                                       [Street]

            Salt Lake City                                 Utah                             84111
                  [City]                                   [State]                         [Zip Code]

("Property Address"):

     TOGETHER WITH all the improvements now or hereafter erected on the property, and all
easements, appurtenances, and fixtures now or hereafter a part of the property. All replacements and
additions shall also be covered by this Security Instrument. All of the foregoing is referred to in this
Security Instrument as the "Property." Borrower understands and agrees that MERS holds only legal title
to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or
custom, MERS (as nominee for Lender and Lender's successors and assigns) has the right: to exercise
any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to
take any action required of Lender including, but not limited to, releasing and canceling this Security
Instrument.
     BORROWER COVENANTS that Borrower is lawfully seised of the estate hereby conveyed and has
the right to grant, convey and warrant the Property and that the Property is unencumbered, except for
encumbrances of record. Borrower further warrants and will defend generally the title to the Property
against all claims and demands, subject to any encumbrances of record.
     THIS SECURITY INSTRUMENT combines uniform covenants for national use and non -uniform
covenants with limited variations by jurisdiction to constitute a uniform security instrument covering real
property.

UNIFORM COVENANTS. Borrower and Lender covenant and agree as follows:

     1. Payment of Principal, Interest, Escrow Items, Prepayment Charges, and Late Charges.
Borrower shall pay when due the principal of, and interest on, the debt evidenced by the Note and any
prepayment charges and late charges due under the Note. Borrower shall also pay funds for Escrow
Items pursuant to Section 3. Payments due under the Note and this Security Instrument shall be made in
U.S. currency. However, if any check or other instrument received by Lender as payment under the Note
or this Security Instrument is returned to Lender unpaid, Lender may require that any or all subsequent
payments due under the Note and this Security Instrument be made in one or more of the following
forms, as selected by Lender: (a) cash; (b) money order; (c) certified check, bank check, treasurer's
check or cashier's check, provided any such check is drawn upon an institution whose deposits are
insured by a federal agency, instrumentality, or entity; or (d) Electronic Funds Transfer.
     Payments are deemed received by Lender when received at the location designated in the Note or at
such other location as may be designated by Lender in accordance with the notice provisions in Section
15. Lender may return any payment or partial payment if the payment or partial payments are insufficient

Borrower Initials: ______    ______   ______      ______       ______   ______   ______   ______

UTAH—Single Family
Fannie Mae/Freddie Mac UNIFORM INSTRUMENT                                         *205-14-3*
Form 3045 1/01                                       Page 3 of 14                             DirectWare Docs (866) 225-5765
                                                                                                          www.DirectWare.net
to bring the Loan current. Lender may accept any payment or partial payment insufficient to bring the
Loan current, without waiver of any rights hereunder or prejudice to its rights to refuse such payment or
partial payments in the future, but Lender is not obligated to apply such payments at the time such
payments are accepted. If each Periodic Payment is applied as of its scheduled due date, then Lender
need not pay interest on unapplied funds. Lender may hold such unapplied funds until Borrower makes
payment to bring the Loan current. If Borrower does not do so within a reasonable period of time, Lender
shall either apply such funds or return them to Borrower. If not applied earlier, such funds will be applied
to the outstanding principal balance under the Note immediately prior to foreclosure. No offset or claim
which Borrower might have now or in the future against Lender shall relieve Borrower from making
payments due under the Note and this Security Instrument or performing the covenants and agreements
secured by this Security Instrument.

     2. Application of Payments or Proceeds. Except as otherwise described in this Section 2, all
payments accepted and applied by Lender shall be applied in the following order of priority: ( a) interest
due under the Note; (b) principal due under the Note; (c) amounts due under Section 3. Such payments
shall be applied to each Periodic Payment in the order in which it became due. Any remaining amounts
shall be applied first to late charges, second to any other amounts due under this Security Instrument,
and then to reduce the principal balance of the Note.
     If Lender receives a payment from Borrower for a delinquent Periodic Payment which includes a
sufficient amount to pay any late charge due, the payment may be applied to the delinquent payment and
the late charge. If more than one Periodic Payment is outstanding, Lender may apply any payment
received from Borrower to the repayment of the Periodic Payments if, and to the extent that, each
payment can be paid in full. To the extent that any excess exists after the payment is applied to the full
payment of one or more Periodic Payments, such excess may be applied to any late charges due .
Voluntary prepayments shall be applied first to any prepayment charges and then as described in the
Note.
     Any application of payments, insurance proceeds, or Miscellaneous Proceeds to principal due under
the Note shall not extend or postpone the due date, or change the amount, of the Periodic Payments.

     3. Funds for Escrow Items. Borrower shall pay to Lender on the day Periodic Payments are due
under the Note, until the Note is paid in full, a sum (the "Funds") to provide for payment of amounts due
for: (a) taxes and assessments and other items which can attain priority over this Security Instrument as
a lien or encumbrance on the Property; (b) leasehold payments or ground rents on the Property, if any;
(c) premiums for any and all insurance required by Lender under Section 5; and (d) Mortgage Insurance
premiums, if any, or any sums payable by Borrower to Lender in lieu of the payment of Mortgage
Insurance premiums in accordance with the provisions of Section 10. These items are called "Escrow
Items." At origination or at any time during the term of the Loan, Lender may require that Community
Association Dues, Fees, and Assessments, if any, be escrowed by Borrower, and such dues, fees and
assessments shall be an Escrow Item. Borrower shall promptly furnish to Lender all notices of amounts
to be paid under this Section. Borrower shall pay Lender the Funds for Escrow Items unless Lender
waives Borrower's obligation to pay the Funds for any or all Escrow Items. Lender may waive Borrower's
obligation to pay to Lender Funds for any or all Escrow Items at any time. Any such waiver may only be
in writing. In the event of such waiver, Borrower shall pay directly, when and where payable, the amounts
due for any Escrow Items for which payment of Funds has been waived by Lender and, if Lender
requires, shall furnish to Lender receipts evidencing such payment within such time period as Lender
may require. Borrower's obligation to make such payments and to provide receipts shall for all purposes
be deemed to be a covenant and agreement contained in this Security Instrument, as the phrase
"covenant and agreement" is used in Section 9. If Borrower is obligated to pay Escrow Items directly,
pursuant to a waiver, and Borrower fails to pay the amount due for an Escrow Item, Lender may exercise
its rights under Section 9 and pay such amount and Borrower shall then be obligated under Section 9 to
repay to Lender any such amount. Lender may revoke the waiver as to any or all Escrow Items at any
time by a notice given in accordance with Section 15 and, upon such revocation, Borrower shall pay to
Lender all Funds, and in such amounts, that are then required under this Section 3.
     Lender may, at any time, collect and hold Funds in an amount (a) sufficient to permit Lender to apply
the Funds at the time specified under RESPA, and (b) not to exceed the maximum amount a lender can

Borrower Initials: ______   ______    ______   ______    ______   ______   ______     ______

UTAH—Single Family
Fannie Mae/Freddie Mac UNIFORM INSTRUMENT                                    *205-14-4*
Form 3045 1/01                                    Page 4 of 14                           DirectWare Docs (866) 225-5765
                                                                                                     www.DirectWare.net
require under RESPA. Lender shall estimate the amount of Funds due on the basis of current data and
reasonable estimates of expenditures of future Escrow Items or otherwise in accordance with Applicable
Law.
     The Funds shall be held in an institution whose deposits are insured by a federal agency,
instrumentality, or entity (including Lender, if Lender is an institution whose deposits are so insured) or in
any Federal Home Loan Bank. Lender shall apply the Funds to pay the Escrow Items no later than the
time specified under RESPA. Lender shall not charge Borrower for holding and applying the Funds,
annually analyzing the escrow account, or verifying the Escrow Items, unless Lender pays Borrower
interest on the Funds and Applicable Law permits Lender to make such a charge. Unless an agreement
is made in writing or Applicable Law requires interest to be paid on the Funds, Lender shall not be
required to pay Borrower any interest or earnings on the Funds. Borrower and Lender can agree in
writing, however, that interest shall be paid on the Funds. Lender shall give to Borrower, without charge,
an annual accounting of the Funds as required by RESPA.
     If there is a surplus of Funds held in escrow, as defined under RESPA, Lender shall account to
Borrower for the excess funds in accordance with RESPA. If there is a shortage of Funds held in escrow,
as defined under RESPA, Lender shall notify Borrower as required by RESPA, and Borrower shall pay to
Lender the amount necessary to make up the shortage in accordance with RESPA, but in no more than
12 monthly payments. If there is a deficiency of Funds held in escrow, as defined under RESPA, Lender
shall notify Borrower as required by RESPA, and Borrower shall pay to Lender the amount necessary to
make up the deficiency in accordance with RESPA, but in no more than 12 monthly payments.
     Upon payment in full of all sums secured by this Security Instrument, Lender shall promptly refund to
Borrower any Funds held by Lender.

      4. Charges; Liens. Borrower shall pay all taxes, assessments, charges, fines, and impositions
attributable to the Property which can attain priority over this Security Instrument, leasehold payments or
ground rents on the Property, if any, and Community Association Dues, Fees, and Assessments, if any .
To the extent that these items are Escrow Items, Borrower shall pay them in the manner provided in
Section 3.
      Borrower shall promptly discharge any lien which has priority over this Security Instrument unless
Borrower: (a) agrees in writing to the payment of the obligation secured by the lien in a manner
acceptable to Lender, but only so long as Borrower is performing such agreement; (b) contests the lien in
good faith by, or defends against enforcement of the lien in, legal proceedings which in Lender's opinion
operate to prevent the enforcement of the lien while those proceedings are pending, but only until such
proceedings are concluded; or (c) secures from the holder of the lien an agreement satisfactory to
Lender subordinating the lien to this Security Instrument. If Lender determines that any part of the
Property is subject to a lien which can attain priority over this Security Instrument, Lender may give
Borrower a notice identifying the lien. Within 10 days of the date on which that notice is given, Borrower
shall satisfy the lien or take one or more of the actions set forth above in this Section 4.
      Lender may require Borrower to pay a one-time charge for a real estate tax verification and /or
reporting service used by Lender in connection with this Loan.

     5. Property Insurance. Borrower shall keep the improvements now existing or hereafter erected on
the Property insured against loss by fire, hazards included within the term "extended coverage," and any
other hazards including, but not limited to, earthquakes and floods, for which Lender requires insurance .
This insurance shall be maintained in the amounts (including deductible levels) and for the periods that
Lender requires. What Lender requires pursuant to the preceding sentences can change during the term
of the Loan. The insurance carrier providing the insurance shall be chosen by Borrower subject to
Lender's right to disapprove Borrower's choice, which right shall not be exercised unreasonably. Lender
may require Borrower to pay, in connection with this Loan, either: ( a) a one-time charge for flood zone
determination, certification and tracking services; or (b) a one-time charge for flood zone determination
and certification services and subsequent charges each time remappings or similar changes occur which
reasonably might affect such determination or certification. Borrower shall also be responsible for the
payment of any fees imposed by the Federal Emergency Management Agency in connection with the
review of any flood zone determination resulting from an objection by Borrower.
     If Borrower fails to maintain any of the coverages described above, Lender may obtain insurance

Borrower Initials: ______   ______    ______   ______    ______   ______     ______    ______

UTAH—Single Family
Fannie Mae/Freddie Mac UNIFORM INSTRUMENT                                      *205-14-5*
Form 3045 1/01                                    Page 5 of 14                             DirectWare Docs (866) 225-5765
                                                                                                       www.DirectWare.net
coverage, at Lender's option and Borrower's expense. Lender is under no obligation to purchase any
particular type or amount of coverage. Therefore, such coverage shall cover Lender, but might or might
not protect Borrower, Borrower's equity in the Property, or the contents of the Property, against any risk,
hazard or liability and might provide greater or lesser coverage than was previously in effect. Borrower
acknowledges that the cost of the insurance coverage so obtained might significantly exceed the cost of
insurance that Borrower could have obtained. Any amounts disbursed by Lender under this Section 5
shall become additional debt of Borrower secured by this Security Instrument. These amounts shall bear
interest at the Note rate from the date of disbursement and shall be payable, with such interest, upon
notice from Lender to Borrower requesting payment.
     All insurance policies required by Lender and renewals of such policies shall be subject to Lender's
right to disapprove such policies, shall include a standard mortgage clause, and shall name Lender as
mortgagee and/or as an additional loss payee. Lender shall have the right to hold the policies and
renewal certificates. If Lender requires, Borrower shall promptly give to Lender all receipts of paid
premiums and renewal notices. If Borrower obtains any form of insurance coverage, not otherwise
required by Lender, for damage to, or destruction of, the Property, such policy shall include a standard
mortgage clause and shall name Lender as mortgagee and/or as an additional loss payee.
     In the event of loss, Borrower shall give prompt notice to the insurance carrier and Lender. Lender
may make proof of loss if not made promptly by Borrower. Unless Lender and Borrower otherwise agree
in writing, any insurance proceeds, whether or not the underlying insurance was required by Lender,
shall be applied to restoration or repair of the Property, if the restoration or repair is economically feasible
and Lender's security is not lessened. During such repair and restoration period, Lender shall have the
right to hold such insurance proceeds until Lender has had an opportunity to inspect such Property to
ensure the work has been completed to Lender's satisfaction, provided that such inspection shall be
undertaken promptly. Lender may disburse proceeds for the repairs and restoration in a single payment
or in a series of progress payments as the work is completed. Unless an agreement is made in writing or
Applicable Law requires interest to be paid on such insurance proceeds, Lender shall not be required to
pay Borrower any interest or earnings on such proceeds. Fees for public adjusters, or other third parties,
retained by Borrower shall not be paid out of the insurance proceeds and shall be the sole obligation of
Borrower. If the restoration or repair is not economically feasible or Lender's security would be lessened,
the insurance proceeds shall be applied to the sums secured by this Security Instrument, whether or not
then due, with the excess, if any, paid to Borrower. Such insurance proceeds shall be applied in the order
provided for in Section 2.
     If Borrower abandons the Property, Lender may file, negotiate and settle any available insurance
claim and related matters. If Borrower does not respond within 30 days to a notice from Lender that the
insurance carrier has offered to settle a claim, then Lender may negotiate and settle the claim. The 30
-day period will begin when the notice is given. In either event, or if Lender acquires the Property under
Section 22 or otherwise, Borrower hereby assigns to Lender (a) Borrower's rights to any insurance
proceeds in an amount not to exceed the amounts unpaid under the Note or this Security Instrument, and
(b) any other of Borrower's rights (other than the right to any refund of unearned premiums paid by
Borrower) under all insurance policies covering the Property, insofar as such rights are applicable to the
coverage of the Property. Lender may use the insurance proceeds either to repair or restore the Property
or to pay amounts unpaid under the Note or this Security Instrument, whether or not then due.

     6. Occupancy. Borrower shall occupy, establish, and use the Property as Borrower's principal
residence within 60 days after the execution of this Security Instrument and shall continue to occupy the
Property as Borrower's principal residence for at least one year after the date of occupancy, unless
Lender otherwise agrees in writing, which consent shall not be unreasonably withheld, or unless
extenuating circumstances exist which are beyond Borrower's control.

    7. Preservation, Maintenance and Protection of the Property; Inspections. Borrower shall not
destroy, damage or impair the Property, allow the Property to deteriorate or commit waste on the
Property. Whether or not Borrower is residing in the Property, Borrower shall maintain the Property in
order to prevent the Property from deteriorating or decreasing in value due to its condition. Unless it is
determined pursuant to Section 5 that repair or restoration is not economically feasible, Borrower shall
promptly repair the Property if damaged to avoid further deterioration or damage. If insurance or

Borrower Initials: ______   ______    ______   ______     ______    ______    ______     ______

UTAH—Single Family
Fannie Mae/Freddie Mac UNIFORM INSTRUMENT                                       *205-14-6*
Form 3045 1/01                                     Page 6 of 14                             DirectWare Docs (866) 225-5765
                                                                                                        www.DirectWare.net
condemnation proceeds are paid in connection with damage to, or the taking of, the Property, Borrower
shall be responsible for repairing or restoring the Property only if Lender has released proceeds for such
purposes. Lender may disburse proceeds for the repairs and restoration in a single payment or in a
series of progress payments as the work is completed. If the insurance or condemnation proceeds are
not sufficient to repair or restore the Property, Borrower is not relieved of Borrower's obligation for the
completion of such repair or restoration.
     Lender or its agent may make reasonable entries upon and inspections of the Property. If it has
reasonable cause, Lender may inspect the interior of the improvements on the Property. Lender shall
give Borrower notice at the time of or prior to such an interior inspection specifying such reasonable
cause.

    8. Borrower's Loan Application. Borrower shall be in default if, during the Loan application
process, Borrower or any persons or entities acting at the direction of Borrower or with Borrower's
knowledge or consent gave materially false, misleading, or inaccurate information or statements to
Lender (or failed to provide Lender with material information) in connection with the Loan. Material
representations include, but are not limited to, representations concerning Borrower's occupancy of the
Property as Borrower's principal residence.

     9. Protection of Lender's Interest in the Property and Rights Under this Security Instrument.
If (a) Borrower fails to perform the covenants and agreements contained in this Security Instrument, (b)
there is a legal proceeding that might significantly affect Lender's interest in the Property and /or rights
under this Security Instrument (such as a proceeding in bankruptcy, probate, for condemnation or
forfeiture, for enforcement of a lien which may attain priority over this Security Instrument or to enforce
laws or regulations), or (c) Borrower has abandoned the Property, then Lender may do and pay for
whatever is reasonable or appropriate to protect Lender's interest in the Property and rights under this
Security Instrument, including protecting and/or assessing the value of the Property, and securing and /or
repairing the Property. Lender's actions can include, but are not limited to: ( a) paying any sums secured
by a lien which has priority over this Security Instrument; (b) appearing in court; and (c) paying
reasonable attorneys' fees to protect its interest in the Property and /or rights under this Security
Instrument, including its secured position in a bankruptcy proceeding. Securing the Property includes, but
is not limited to, entering the Property to make repairs, change locks, replace or board up doors and
windows, drain water from pipes, eliminate building or other code violations or dangerous conditions, and
have utilities turned on or off. Although Lender may take action under this Section 9, Lender does not
have to do so and is not under any duty or obligation to do so. It is agreed that Lender incurs no liability
for not taking any or all actions authorized under this Section 9.
     Any amounts disbursed by Lender under this Section 9 shall become additional debt of Borrower
secured by this Security Instrument. These amounts shall bear interest at the Note rate from the date of
disbursement and shall be payable, with such interest, upon notice from Lender to Borrower requesting
payment.
     If this Security Instrument is on a leasehold, Borrower shall comply with all the provisions of the
lease. If Borrower acquires fee title to the Property, the leasehold and the fee title shall not merge unless
Lender agrees to the merger in writing.

     10. Mortgage Insurance. If Lender required Mortgage Insurance as a condition of making the Loan,
Borrower shall pay the premiums required to maintain the Mortgage Insurance in effect. If, for any
reason, the Mortgage Insurance coverage required by Lender ceases to be available from the mortgage
insurer that previously provided such insurance and Borrower was required to make separately
designated payments toward the premiums for Mortgage Insurance, Borrower shall pay the premiums
required to obtain coverage substantially equivalent to the Mortgage Insurance previously in effect, at a
cost substantially equivalent to the cost to Borrower of the Mortgage Insurance previously in effect, from
an alternate mortgage insurer selected by Lender. If substantially equivalent Mortgage Insurance
coverage is not available, Borrower shall continue to pay to Lender the amount of the separately
designated payments that were due when the insurance coverage ceased to be in effect. Lender will
accept, use and retain these payments as a non -refundable loss reserve in lieu of Mortgage Insurance .
Such loss reserve shall be non-refundable, notwithstanding the fact that the Loan is ultimately paid in full,

Borrower Initials: ______   ______    ______   ______    ______   ______    ______    ______

UTAH—Single Family
Fannie Mae/Freddie Mac UNIFORM INSTRUMENT                                     *205-14-7*
Form 3045 1/01                                    Page 7 of 14                            DirectWare Docs (866) 225-5765
                                                                                                      www.DirectWare.net
and Lender shall not be required to pay Borrower any interest or earnings on such loss reserve. Lender
can no longer require loss reserve payments if Mortgage Insurance coverage (in the amount and for the
period that Lender requires) provided by an insurer selected by Lender again becomes available, is
obtained, and Lender requires separately designated payments toward the premiums for Mortgage
Insurance. If Lender required Mortgage Insurance as a condition of making the Loan and Borrower was
required to make separately designated payments toward the premiums for Mortgage Insurance,
Borrower shall pay the premiums required to maintain Mortgage Insurance in effect, or to provide a
non-refundable loss reserve, until Lender's requirement for Mortgage Insurance ends in accordance with
any written agreement between Borrower and Lender providing for such termination or until termination is
required by Applicable Law. Nothing in this Section 10 affects Borrower's obligation to pay interest at the
rate provided in the Note.
     Mortgage Insurance reimburses Lender (or any entity that purchases the Note) for certain losses it
may incur if Borrower does not repay the Loan as agreed. Borrower is not a party to the Mortgage
Insurance.
     Mortgage insurers evaluate their total risk on all such insurance in force from time to time, and may
enter into agreements with other parties that share or modify their risk, or reduce losses. These
agreements are on terms and conditions that are satisfactory to the mortgage insurer and the other party
(or parties) to these agreements. These agreements may require the mortgage insurer to make
payments using any source of funds that the mortgage insurer may have available (which may include
funds obtained from Mortgage Insurance premiums).
     As a result of these agreements, Lender, any purchaser of the Note, another insurer, any reinsurer,
any other entity, or any affiliate of any of the foregoing, may receive (directly or indirectly) amounts that
derive from (or might be characterized as) a portion of Borrower's payments for Mortgage Insurance, in
exchange for sharing or modifying the mortgage insurer's risk, or reducing losses. If such agreement
provides that an affiliate of Lender takes a share of the insurer's risk in exchange for a share of the
premiums paid to the insurer, the arrangement is often termed "captive reinsurance." Further:
     (a) Any such agreements will not affect the amounts that Borrower has agreed to pay for
Mortgage Insurance, or any other terms of the Loan. Such agreements will not increase the
amount Borrower will owe for Mortgage Insurance, and they will not entitle Borrower to any
refund.
     (b) Any such agreements will not affect the rights Borrower has - if any - with respect to the
Mortgage Insurance under the Homeowners Protection Act of 1998 or any other law. These rights
may include the right to receive certain disclosures, to request and obtain cancellation of the
Mortgage Insurance, to have the Mortgage Insurance terminated automatically, and/or to receive a
refund of any Mortgage Insurance premiums that were unearned at the time of such cancellation
or termination.

     11. Assignment of Miscellaneous Proceeds; Forfeiture. All Miscellaneous Proceeds are hereby
assigned to and shall be paid to Lender.
     If the Property is damaged, such Miscellaneous Proceeds shall be applied to restoration or repair of
the Property, if the restoration or repair is economically feasible and Lender's security is not lessened .
During such repair and restoration period, Lender shall have the right to hold such Miscellaneous
Proceeds until Lender has had an opportunity to inspect such Property to ensure the work has been
completed to Lender's satisfaction, provided that such inspection shall be undertaken promptly. Lender
may pay for the repairs and restoration in a single disbursement or in a series of progress payments as
the work is completed. Unless an agreement is made in writing or Applicable Law requires interest to be
paid on such Miscellaneous Proceeds, Lender shall not be required to pay Borrower any interest or
earnings on such Miscellaneous Proceeds. If the restoration or repair is not economically feasible or
Lender's security would be lessened, the Miscellaneous Proceeds shall be applied to the sums secured
by this Security Instrument, whether or not then due, with the excess, if any, paid to Borrower. Such
Miscellaneous Proceeds shall be applied in the order provided for in Section 2.
     In the event of a total taking, destruction, or loss in value of the Property, the Miscellaneous
Proceeds shall be applied to the sums secured by this Security Instrument, whether or not then due, with
the excess, if any, paid to Borrower.
     In the event of a partial taking, destruction, or loss in value of the Property in which the fair market
Borrower Initials: ______   ______    ______   ______    ______   ______    ______    ______

UTAH—Single Family
Fannie Mae/Freddie Mac UNIFORM INSTRUMENT                                     *205-14-8*
Form 3045 1/01                                    Page 8 of 14                            DirectWare Docs (866) 225-5765
                                                                                                      www.DirectWare.net
value of the Property immediately before the partial taking, destruction, or loss in value is equal to or
greater than the amount of the sums secured by this Security Instrument immediately before the partial
taking, destruction, or loss in value, unless Borrower and Lender otherwise agree in writing, the sums
secured by this Security Instrument shall be reduced by the amount of the Miscellaneous Proceeds
multiplied by the following fraction: (a) the total amount of the sums secured immediately before the
partial taking, destruction, or loss in value divided by (b) the fair market value of the Property immediately
before the partial taking, destruction, or loss in value. Any balance shall be paid to Borrower.
     In the event of a partial taking, destruction, or loss in value of the Property in which the fair market
value of the Property immediately before the partial taking, destruction, or loss in value is less than the
amount of the sums secured immediately before the partial taking, destruction, or loss in value, unless
Borrower and Lender otherwise agree in writing, the Miscellaneous Proceeds shall be applied to the
sums secured by this Security Instrument whether or not the sums are then due.
     If the Property is abandoned by Borrower, or if, after notice by Lender to Borrower that the Opposing
Party (as defined in the next sentence) offers to make an award to settle a claim for damages, Borrower
fails to respond to Lender within 30 days after the date the notice is given, Lender is authorized to collect
and apply the Miscellaneous Proceeds either to restoration or repair of the Property or to the sums
secured by this Security Instrument, whether or not then due. "Opposing Party" means the third party that
owes Borrower Miscellaneous Proceeds or the party against whom Borrower has a right of action in
regard to Miscellaneous Proceeds.
     Borrower shall be in default if any action or proceeding, whether civil or criminal, is begun that, in
Lender's judgment, could result in forfeiture of the Property or other material impairment of Lender's
interest in the Property or rights under this Security Instrument. Borrower can cure such a default and, if
acceleration has occurred, reinstate as provided in Section 19, by causing the action or proceeding to be
dismissed with a ruling that, in Lender's judgment, precludes forfeiture of the Property or other material
impairment of Lender's interest in the Property or rights under this Security Instrument. The proceeds of
any award or claim for damages that are attributable to the impairment of Lender's interest in the
Property are hereby assigned and shall be paid to Lender.
     All Miscellaneous Proceeds that are not applied to restoration or repair of the Property shall be
applied in the order provided for in Section 2.

     12. Borrower Not Released; Forbearance By Lender Not a Waiver. Extension of the time for
payment or modification of amortization of the sums secured by this Security Instrument granted by
Lender to Borrower or any Successor in Interest of Borrower shall not operate to release the liability of
Borrower or any Successors in Interest of Borrower. Lender shall not be required to commence
proceedings against any Successor in Interest of Borrower or to refuse to extend time for payment or
otherwise modify amortization of the sums secured by this Security Instrument by reason of any demand
made by the original Borrower or any Successors in Interest of Borrower. Any forbearance by Lender in
exercising any right or remedy including, without limitation, Lender's acceptance of payments from third
persons, entities or Successors in Interest of Borrower or in amounts less than the amount then due,
shall not be a waiver of or preclude the exercise of any right or remedy.

     13. Joint and Several Liability; Co-signers; Successors and Assigns Bound. Borrower
covenants and agrees that Borrower's obligations and liability shall be joint and several. However, any
Borrower who co-signs this Security Instrument but does not execute the Note (a "co-signer"): (a) is
co-signing this Security Instrument only to mortgage, grant and convey the co -signer's interest in the
Property under the terms of this Security Instrument; (b) is not personally obligated to pay the sums
secured by this Security Instrument; and (c) agrees that Lender and any other Borrower can agree to
extend, modify, forbear or make any accommodations with regard to the terms of this Security Instrument
or the Note without the co-signer's consent.
     Subject to the provisions of Section 18, any Successor in Interest of Borrower who assumes
Borrower's obligations under this Security Instrument in writing, and is approved by Lender, shall obtain
all of Borrower's rights and benefits under this Security Instrument. Borrower shall not be released from
Borrower's obligations and liability under this Security Instrument unless Lender agrees to such release
in writing. The covenants and agreements of this Security Instrument shall bind (except as provided in
Section 20) and benefit the successors and assigns of Lender.

Borrower Initials: ______   ______    ______   ______    ______   ______     ______    ______

UTAH—Single Family
Fannie Mae/Freddie Mac UNIFORM INSTRUMENT                                      *205-14-9*
Form 3045 1/01                                    Page 9 of 14                             DirectWare Docs (866) 225-5765
                                                                                                       www.DirectWare.net
     14. Loan Charges. Lender may charge Borrower fees for services performed in connection with
Borrower's default, for the purpose of protecting Lender's interest in the Property and rights under this
Security Instrument, including, but not limited to, attorneys' fees, property inspection and valuation fees .
In regard to any other fees, the absence of express authority in this Security Instrument to charge a
specific fee to Borrower shall not be construed as a prohibition on the charging of such fee. Lender may
not charge fees that are expressly prohibited by this Security Instrument or by Applicable Law.
     If the Loan is subject to a law which sets maximum loan charges, and that law is finally interpreted so
that the interest or other loan charges collected or to be collected in connection with the Loan exceed the
permitted limits, then: (a) any such loan charge shall be reduced by the amount necessary to reduce the
charge to the permitted limit; and (b) any sums already collected from Borrower which exceeded
permitted limits will be refunded to Borrower. Lender may choose to make this refund by reducing the
principal owed under the Note or by making a direct payment to Borrower. If a refund reduces principal,
the reduction will be treated as a partial prepayment without any prepayment charge (whether or not a
prepayment charge is provided for under the Note). Borrower's acceptance of any such refund made by
direct payment to Borrower will constitute a waiver of any right of action Borrower might have arising out
of such overcharge.

    15. Notices. All notices given by Borrower or Lender in connection with this Security Instrument must
be in writing. Any notice to Borrower in connection with this Security Instrument shall be deemed to have
been given to Borrower when mailed by first class mail or when actually delivered to Borrower's notice
address if sent by other means. Notice to any one Borrower shall constitute notice to all Borrowers unless
Applicable Law expressly requires otherwise. The notice address shall be the Property Address unless
Borrower has designated a substitute notice address by notice to Lender. Borrower shall promptly notify
Lender of Borrower's change of address. If Lender specifies a procedure for reporting Borrower's change
of address, then Borrower shall only report a change of address through that specified procedure. There
may be only one designated notice address under this Security Instrument at any one time. Any notice to
Lender shall be given by delivering it or by mailing it by first class mail to Lender's address stated herein
unless Lender has designated another address by notice to Borrower. Any notice in connection with this
Security Instrument shall not be deemed to have been given to Lender until actually received by Lender .
If any notice required by this Security Instrument is also required under Applicable Law, the Applicable
Law requirement will satisfy the corresponding requirement under this Security Instrument.


     16. Governing Law; Severability; Rules of Construction. This Security Instrument shall be
governed by federal law and the law of the jurisdiction in which the Property is located. All rights and
obligations contained in this Security Instrument are subject to any requirements and limitations of
Applicable Law. Applicable Law might explicitly or implicitly allow the parties to agree by contract or it
might be silent, but such silence shall not be construed as a prohibition against agreement by contract. In
the event that any provision or clause of this Security Instrument or the Note conflicts with Applicable
Law, such conflict shall not affect other provisions of this Security Instrument or the Note which can be
given effect without the conflicting provision.
     As used in this Security Instrument: (a) words of the masculine gender shall mean and include
corresponding neuter words or words of the feminine gender; (b) words in the singular shall mean and
include the plural and vice versa; and (c) the word "may" gives sole discretion without any obligation to
take any action.

    17. Borrower's Copy. Borrower shall be given one copy of the Note and of this Security Instrument.

     18. Transfer of the Property or a Beneficial Interest in Borrower. As used in this Section 18,
"Interest in the Property" means any legal or beneficial interest in the Property, including, but not limited
to, those beneficial interests transferred in a bond for deed, contract for deed, installment sales contract
or escrow agreement, the intent of which is the transfer of title by Borrower at a future date to a
purchaser.
     If all or any part of the Property or any Interest in the Property is sold or transferred (or if Borrower is
not a natural person and a beneficial interest in Borrower is sold or transferred) without Lender's prior

Borrower Initials: ______   ______    ______    ______     ______    ______    ______      ______

UTAH—Single Family
Fannie Mae/Freddie Mac UNIFORM INSTRUMENT                                     *205-14-10*
Form 3045 1/01                                     Page 10 of 14                               DirectWare Docs (866) 225-5765
                                                                                                           www.DirectWare.net
written consent, Lender may require immediate payment in full of all sums secured by this Security
Instrument. However, this option shall not be exercised by Lender if such exercise is prohibited by
Applicable Law.
     If Lender exercises this option, Lender shall give Borrower notice of acceleration. The notice shall
provide a period of not less than 30 days from the date the notice is given in accordance with Section 15
within which Borrower must pay all sums secured by this Security Instrument. If Borrower fails to pay
these sums prior to the expiration of this period, Lender may invoke any remedies permitted by this
Security Instrument without further notice or demand on Borrower.

     19. Borrower's Right to Reinstate After Acceleration. If Borrower meets certain conditions,
Borrower shall have the right to have enforcement of this Security Instrument discontinued at any time
prior to the earliest of: (a) five days before sale of the Property pursuant to any power of sale contained in
this Security Instrument; (b) such other period as Applicable Law might specify for the termination of
Borrower's right to reinstate; or (c) entry of a judgment enforcing this Security Instrument. Those
conditions are that Borrower: (a) pays Lender all sums which then would be due under this Security
Instrument and the Note as if no acceleration had occurred; (b) cures any default of any other covenants
or agreements; (c) pays all expenses incurred in enforcing this Security Instrument, including, but not
limited to, reasonable attorneys' fees, property inspection and valuation fees, and other fees incurred for
the purpose of protecting Lender's interest in the Property and rights under this Security Instrument; and
(d) takes such action as Lender may reasonably require to assure that Lender's interest in the Property
and rights under this Security Instrument, and Borrower's obligation to pay the sums secured by this
Security Instrument, shall continue unchanged. Lender may require that Borrower pay such reinstatement
sums and expenses in one or more of the following forms, as selected by Lender: ( a) cash; (b) money
order; (c) certified check, bank check, treasurer's check or cashier's check, provided any such check is
drawn upon an institution whose deposits are insured by a federal agency, instrumentality or entity; or (d)
Electronic Funds Transfer. Upon reinstatement by Borrower, this Security Instrument and obligations
secured hereby shall remain fully effective as if no acceleration had occurred. However, this right to
reinstate shall not apply in the case of acceleration under Section 18.

     20. Sale of Note; Change of Loan Servicer; Notice of Grievance. The Note or a partial interest in
the Note (together with this Security Instrument) can be sold one or more times without prior notice to
Borrower. A sale might result in a change in the entity (known as the "Loan Servicer") that collects
Periodic Payments due under the Note and this Security Instrument and performs other mortgage loan
servicing obligations under the Note, this Security Instrument, and Applicable Law. There also might be
one or more changes of the Loan Servicer unrelated to a sale of the Note. If there is a change of the Loan
Servicer, Borrower will be given written notice of the change which will state the name and address of the
new Loan Servicer, the address to which payments should be made and any other information RESPA
requires in connection with a notice of transfer of servicing. If the Note is sold and thereafter the Loan is
serviced by a Loan Servicer other than the purchaser of the Note, the mortgage loan servicing obligations
to Borrower will remain with the Loan Servicer or be transferred to a successor Loan Servicer and are not
assumed by the Note purchaser unless otherwise provided by the Note purchaser.
     Neither Borrower nor Lender may commence, join, or be joined to any judicial action (as either an
individual litigant or the member of a class) that arises from the other party's actions pursuant to this
Security Instrument or that alleges that the other party has breached any provision of, or any duty owed
by reason of, this Security Instrument, until such Borrower or Lender has notified the other party (with
such notice given in compliance with the requirements of Section 15) of such alleged breach and afforded
the other party hereto a reasonable period after the giving of such notice to take corrective action. If
Applicable Law provides a time period which must elapse before certain action can be taken, that time
period will be deemed to be reasonable for purposes of this paragraph. The notice of acceleration and
opportunity to cure given to Borrower pursuant to Section 22 and the notice of acceleration given to
Borrower pursuant to Section 18 shall be deemed to satisfy the notice and opportunity to take corrective
action provisions of this Section 20.

    21. Hazardous Substances. As used in this Section 21: (a) "Hazardous Substances" are those
substances defined as toxic or hazardous substances, pollutants, or wastes by Environmental Law and

Borrower Initials: ______   ______    ______   ______     ______   ______   ______     ______

UTAH—Single Family
Fannie Mae/Freddie Mac UNIFORM INSTRUMENT                                   *205-14-11*
Form 3045 1/01                                    Page 11 of 14                            DirectWare Docs (866) 225-5765
                                                                                                       www.DirectWare.net
the following substances: gasoline, kerosene, other flammable or toxic petroleum products, toxic
pesticides and herbicides, volatile solvents, materials containing asbestos or formaldehyde, and
radioactive materials; (b) "Environmental Law" means federal laws and laws of the jurisdiction where the
Property is located that relate to health, safety or environmental protection; (c) "Environmental Cleanup"
includes any response action, remedial action, or removal action, as defined in Environmental Law; and
(d) an "Environmental Condition" means a condition that can cause, contribute to, or otherwise trigger an
Environmental Cleanup.
     Borrower shall not cause or permit the presence, use, disposal, storage, or release of any Hazardous
Substances, or threaten to release any Hazardous Substances, on or in the Property. Borrower shall not
do, nor allow anyone else to do, anything affecting the Property (a) that is in violation of any
Environmental Law, (b) which creates an Environmental Condition, or (c) which, due to the presence,
use, or release of a Hazardous Substance, creates a condition that adversely affects the value of the
Property. The preceding two sentences shall not apply to the presence, use, or storage on the Property of
small quantities of Hazardous Substances that are generally recognized to be appropriate to normal
residential uses and to maintenance of the Property (including, but not limited to, hazardous substances
in consumer products).
     Borrower shall promptly give Lender written notice of (a) any investigation, claim, demand, lawsuit or
other action by any governmental or regulatory agency or private party involving the Property and any
Hazardous Substance or Environmental Law of which Borrower has actual knowledge, (b) any
Environmental Condition, including but not limited to, any spilling, leaking, discharge, release or threat of
release of any Hazardous Substance, and (c) any condition caused by the presence, use or release of a
Hazardous Substance which adversely affects the value of the Property. If Borrower learns, or is notified
by any governmental or regulatory authority, or any private party, that any removal or other remediation of
any Hazardous Substance affecting the Property is necessary, Borrower shall promptly take all necessary
remedial actions in accordance with Environmental Law. Nothing herein shall create any obligation on
Lender for an Environmental Cleanup.

    NON-UNIFORM COVENANTS. Borrower and Lender further covenant and agree as follows:

     22. Acceleration; Remedies. Lender shall give notice to Borrower prior to acceleration
following Borrower's breach of any covenant or agreement in this Security Instrument (but not
prior to acceleration under Section 18 unless Applicable Law provides otherwise). The notice
shall specify: (a) the default; (b) the action required to cure the default; (c) a date, not less than 30
days from the date the notice is given to Borrower, by which the default must be cured; and (d)
that failure to cure the default on or before the date specified in the notice may result in
acceleration of the sums secured by this Security Instrument and sale of the Property. The notice
shall further inform Borrower of the right to reinstate after acceleration and the right to bring a
court action to assert the non-existence of a default or any other defense of Borrower to
acceleration and sale. If the default is not cured on or before the date specified in the notice,
Lender at its option may require immediate payment in full of all sums secured by this Security
Instrument without further demand and may invoke the power of sale and any other remedies
permitted by Applicable Law. Lender shall be entitled to collect all expenses incurred in pursuing
the remedies provided in this Section 22, including, but not limited to, reasonable attorneys' fees
and costs of title evidence.
     If the power of sale is invoked, Trustee shall execute a written notice of the occurrence of an
event of default and of the election to cause the Property to be sold and shall record such notice
in each county in which any part of the Property is located. Lender or Trustee shall mail copies of
such notice in the manner prescribed by Applicable Law to Borrower and to the other persons
prescribed by Applicable Law. In the event Borrower does not cure the default within the period
then prescribed by Applicable Law, Trustee shall give public notice of the sale to the persons and
in the manner prescribed by Applicable Law. After the time required by Applicable Law, Trustee,
without demand on Borrower, shall sell the Property at public auction to the highest bidder at the
time and place and under the terms designated in the notice of sale in one or more parcels and in
any order Trustee determines (but subject to any statutory right of Borrower to direct the order in

Borrower Initials: ______   ______    ______   ______     ______   ______   ______    ______

UTAH—Single Family
Fannie Mae/Freddie Mac UNIFORM INSTRUMENT                                   *205-14-12*
Form 3045 1/01                                    Page 12 of 14                           DirectWare Docs (866) 225-5765
                                                                                                      www.DirectWare.net
which the Property, if consisting of several known lots or parcels, shall be sold). Trustee may in
accordance with Applicable Law, postpone sale of all or any parcel of the Property by public
announcement at the time and place of any previously scheduled sale. Lender or its designee may
purchase the Property at any sale.
     Trustee shall deliver to the purchaser Trustee's deed conveying the Property without any
covenant or warranty, expressed or implied. The recitals in the Trustee's deed shall be prima facie
evidence of the truth of the statements made therein. Trustee shall apply the proceeds of the sale
in the following order: (a) to all expenses of the sale, including, but not limited to, reasonable
Trustee's and attorneys' fees; (b) to all sums secured by this Security Instrument; and (c) any
excess to the person or persons legally entitled to it or to the county clerk of the county in which
the sale took place.

     23. Reconveyance. Upon payment of all sums secured by this Security Instrument, Lender shall
request Trustee to reconvey the Property and shall surrender this Security Instrument and all notes
evidencing debt secured by this Security Instrument to Trustee. Trustee shall reconvey the Property
without warranty to the person or persons legally entitled to it. Such person or persons shall pay any
recordation costs. Lender may charge such person or persons a fee for reconveying the Property, but
only if the fee is paid to a third party (such as the Trustee) for services rendered and the charging of the
fee is permitted under Applicable Law.

    24. Substitute Trustee. Lender, at its option, may from time to time remove Trustee and appoint a
successor trustee to any Trustee appointed hereunder. Without conveyance of the Property, the
successor trustee shall succeed to all the title, power and duties conferred upon Trustee herein and by
Applicable Law.

    25. Request for Notices. Borrower requests that copies of the notices of default and sale be sent to
Borrower's address which is the Property Address.

BY SIGNING BELOW, Borrower accepts and agrees to the terms and covenants contained in this
Security Instrument and in any Rider executed by Borrower and recorded with it.



                                                (Seal)                                                        (Seal)

Sample Borrower                             - Borrower         Sample Co-Borrower                      - Borrower


Witness:                                                       Witness:




UTAH—Single Family
Fannie Mae/Freddie Mac UNIFORM INSTRUMENT                                  *205-14-13*
Form 3045 1/01                                      Page 13 of 14                        DirectWare Docs (866) 225-5765
                                                                                                     www.DirectWare.net
                               [Space Below This Line For Acknowledgement]

State of Utah                                             )
                                                          )       SS.
County of Salt Lake                                       )

    The foregoing instrument was acknowledged before me this ____________________                    ________ ,
__________ (date), by Sample Borrower, Sample Co-Borrower.




                                                          Signature of Person Taking Acknowledgment



                                                          Title:

                                                          Residing at:



                          (Seal)                          My commission expires:




UTAH—Single Family
Fannie Mae/Freddie Mac UNIFORM INSTRUMENT                                    *205-14-14*
Form 3045 1/01                                    Page 14 of 14                            DirectWare Docs (866) 225-5765
                                                                                                       www.DirectWare.net
WHEN RECORDED, MAIL TO:
Direct Mortgage Corporation
6955 South Union Park Center, Suite 540 ,
Salt Lake City, UT 84047

THIS INSTRUMENT WAS PREPARED BY:
Direct Mortgage Corporation
6955 South Union Park Center, Suite 540 ,
Salt Lake City, UT 84047

Loan Number: 100092

          --------------------------------------------------------[Space Above This Line For Recording Data]----------------------------------------------------

                                                               PREPAYMENT RIDER
                                                                  (Multi-State)
     This Prepayment Rider is made this 15th day of October 2004 and is incorporated into and shall be
deemed to amend and supplement the Mortgage, Deed of Trust or Security Deed (the “Security
Instrument”) of the same date given by the undersigned (the “Borrower”) to secure Borrower’s Note (the
“Note”) to Direct Mortgage Corporation (the “Lender”) of the same date and covering the property
described in the Security Instrument and located at

                                                    1234 Main St.; Salt Lake City, UTAH 84111
                                                                 (the “Property”).

     Additional Covenants. Notwithstanding anything to the contrary set forth in the Note or Security
Instrument, Borrower and Lender further covenant and agree as follows:


            Borrower has the right to make payments of principal at any time before they are due. A payment
       of principal only is known as a “prepayment.” A “full prepayment” is the prepayment of the entire
       unpaid principal due under the Note. A payment of only part of the unpaid principal is known as a
       “partial prepayment.”

           If, within the -year period beginning with the date Borrower executes the Note (the
       “Penalty Period”), Borrower makes a full prepayment, or partial prepayment in any twelve (12)
       -month period that exceeds 20% of the original principal loan amount, Borrower will pay a
       prepayment charge as consideration for the Note Holder’s acceptance of such prepayment.
       The prepayment charge will equal the amount of interest that would accrue during a six (6)
       -month period on the amount prepaid that exceeds 20% of the original principal balance of
       the Note, calculated at the rate of interest in effect under the terms of the Note at the time of
       the prepayment, unless otherwise prohibited by applicable law or regulation. No prepayment
       charge will be assessed for any prepayment occurring after the Penalty Period.

            Notwithstanding the foregoing, in the event of a full prepayment concurrent with a bona fide sale
       of the Property to an unrelated third party no prepayment penalty will be assessed. In that event,
       Borrower agrees to provide the Note Holder with evidence acceptable to the Note Holder of such
       sale.




MultiState PrePayment Rider Soft PPP
FORM 603B2 - (11/15/99)                                                                                              *93949-2-1*               DirectWare Docs (866) 225-5765
                                                                              Page 1 of 2                                                                  www.DirectWare.net
By signing below, Borrower accepts and agrees to the terms and covenants contained in
this Prepayment Rider.




Sample Borrower                                  Date      Sample Co-Borrower                                Date




MultiState PrePayment Rider Soft PPP
FORM 603B2 - (11/15/99)                                                      *93949-2-2*DirectWare Docs (866) 225-5765
                                                    Page 2 of 2                                     www.DirectWare.net

								
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