Arkansas Administrative Code
Agency 109 - Arkansas Development Finance Authority
Division 03 - Single Family Housing
Rule 109.03.08-001 - HomeTo Own Program Guide

Universal Citation: AR Admin Rules 109.03.08-001

Current through Register Vol. 49, No. 9, September, 2024

CHAPTER 1 - INTRODUCTION

A. About the Program Guide

The Arkansas Development Finance Authority ("ADFA" or the "Authority") has developed this HomeToOwn Program Guide (the "Program Guide") for the use and benefit of any and all parties having an interest in the HomeToOwn Program (the "Single Family Program" or the "Program"). However, we have attempted to target the materials in the Program Guide to the Mortgage Lenders (as defined in Chapter 1, Section G) in order to aid and assist them in complying with the terms and conditions required for participation in the Single Family Program. Mortgage Lenders should familiarize themselves with each and every obligation set out in the Program Guide - the requirements discussed herein are mandatory and the failure of a Mortgage Lender to adhere to the Single Family Program requirements may lead to the termination of such Mortgage Lender's participation in the Single Family Program, as well as triggering possible claims for damages from other parties having a role or an interest in the Program. The terms and conditions set forth in this Program Guide are specifically incorporated by reference into each Mortgage Lender's "Mortgage Origination Agreement" by and among ADFA, the Master Servicer (as defined in Chapter 1, Section G) and the Mortgage Lender.

B. The Arkansas Development Finance Authority

ADFA was created by Act 1062 of 1985, the Arkansas Development Finance Authority Act. This act abolished the former Arkansas Housing Development Agency, whose purpose was to develop safe, decent, sanitary and affordable housing for low and moderate income Arkansans, and transferred all records, funds, property, obligations, debts, functions, powers and duties to ADFA. This newly created Authority was empowered to issue tax-exempt bonds and other debt instruments for housing, manufacturing, export finance, small business, agricultural business enterprises, education, health care, municipalities and infrastructure projects.

The State of Arkansas is not obligated to pay the Bonds (as defined in Chapter 1, Section G) and other debt instruments of the Authority, and neither the faith and credit nor the taxing power of the State of Arkansas is pledged to the payment of the principal or redemption of interest on the Bonds and other debt instruments.

C. The HomeToOwn Program

The HomeToOwn Program, formally known as the Mortgage Revenue Bond Program and referred to herein as the Single Family Program, has been a mainstay of the Authority since its formation and is designed to provide low-cost homebuyer financing for the low- to moderate-income citizens of Arkansas. As a means of providing improved delivery to the marketplace of low-cost Mortgage Loans (as defined in Chapter 1, Section G), ADFA is pleased to provide a "continuous funding" program. What this means to the Mortgage Lender is that ADFA will always have funds available. This will eliminate the peak periods of high demand and the rapid depletion of funds. By simplifying the procedure, the Authority hopes that Mortgage Lenders will soon realize that ADFA is offering an improved product for Eligible Borrowers (as defined in Chapter 1, Section G) that Mortgage Lenders can happily recommend.

D. Mortgage Revenue Bonds

Under the Single Family Program, ADFA accomplishes its public purpose primarily by selling Bonds in the municipal bond market. The interest that Bond holders receive is generally exempt from both Federal and Arkansas state income taxes. Because of this feature, investors are willing to accept a lower interest rate. This lower cost of borrowing enables ADFA to provide financing to Eligible Borrowers at a rate lower than the prevailing market rate. Bond proceeds ultimately are used to purchase Mortgage Loans from participating Mortgage Lenders.

Federal tax law places restrictions on (a) the type and value of property that may qualify; and (b) the persons who may qualify. This Program Guide will explain these various restrictions in later chapters. As an issuer of tax-exempt bond financing, ADFA must make a good faith effort to ensure that all Mortgage Loans comply with the guidelines. This is accomplished by the Mortgage Lenders and the ADFA staff. All Mortgage Lenders must thoroughly review all documents, tax returns, etc., before making any submission of the proposed Mortgage Loan to ADFA.

The consequences of ADFA's acceptance of a Mortgage Loan that does not comply with the Tax Code (as defined in Chapter 1, Section G) could be catastrophic to the Authority. The Bonds issued could become taxable, with interest and penalties, retroactive to the date of Bond sale. Thus, it is imperative that Mortgage Loans are made only to Eligible Borrowers purchasing Qualified Dwellings (all as defined in Chapter 1, Section G).

E. Servicing of Single Family Program Mortgage Loans

The Authority currently utilizes a master servicer to act as servicing agent and to purchase qualified Mortgage Loans from participating Mortgage Lenders. The master servicer (referred to in this Program Guide as the "Master Servicer" or the "Servicer") is:

U.S. Bank Home Mortgage 17500 Rockside Road Bedford, Ohio 44146 Telephone: 800-562-5165

The Master Servicer will pay each participating Mortgage Lender a Servicing Release Fee (as defined in Chapter 1, Section G) in an amount established by the Authority from time to time. The current Servicing Release Fee is posted on the ADFA website.

For information concerning the submission of documents to the Master Servicer, see Chapter 8 of this Program Guide.

F. Term of the Mortgage Loans

Currently, the Single Family Program features a 30-year, fixed-rate Mortgage Loan. The purpose of the mortgage can be either a Purchase Money Mortgage or a Refinance transaction. The interest rate on qualified Mortgage Loans is typically 50-75 basis points below the prevailing "conventional" rate for similar term, fixed-rate mortgage loans. With the implementation of continuous funding, ADFA will periodically adjust the Mortgage Loan interest rate. Remember, we want to eliminate peaks and valleys in the availability of funds. In addition, ADFA must offer other products from time to time. ADFA will notify each Mortgage Lender via facsimile transmission, email transmission, or otherwise, in the event that the loan rate is raised or lowered or new products are offered; also, current loan rate and other Single Family Program information will be posted on the ADFA website.

ADFA is authorized to establish new loan products to meet the mortgage needs of low-to-moderate income Arkansans. The interest rates on the various loan products that ADFA offers can vary depending on the level of risk for each type of loan.

G. Definitions

The following words and phrases shall have the following meanings:

Acquisition Cost means the total cost of acquiring a residence from a Seller as a completed residential unit and more fully described in Exhibit 5-B, Borrower's Application Affidavit and Certification. The meaning of Acquisition Cost is set forth in further detail in Chapter 2, Section C.1.c. of this Program Guide.

Affidavit of Seller shall have the same meaning as "Seller's Certificate," as defined below.

Annual Household Income means, for purposes of determining the qualifications of proposed borrowers under the income limitations of the Single Family Program, the current household income of a proposed borrower determined pursuant to Exhibit 5-A, Borrower's Certification as to Income, and shall in any event include the current gross income of all persons who reside or intend to reside with such borrower in the same residence (other than persons under age 18 who are not primarily or secondarily liable on the Mortgage Note), but exclusive of the income of any co-signer of a Mortgage Note who does not reside or intend to reside in the residence, as evidenced by documentation satisfactory to the Authority. The concept of Annual Household Income is further described in Chapter 2, Section B of the Program Guide.

Application Agreement means the "Application for ADFA Approved Mortgage Lender" which proposed mortgage lenders must submit to ADFA for approval prior to the execution of any Mortgage Origination Agreement.

Assignment of Mortgage Note and Mortgage/Deed of Trust means the instrument substantially in the form of Exhibit 7-O, completed and executed by the Mortgage Lender, in recordable form, and pursuant to which a Mortgage Lender assigns and delivers the related Mortgage and endorses the Mortgage Note to the Master Servicer in connection with the purchase of the related Mortgage Loan by the Master Servicer.

Average Area Purchase Price means the purchase price amounts, respectively, for (i) residences not previously occupied ("new residences") and (ii) residences previously occupied ("existing residences"), for the State as specified in Schedule II hereto or such other amounts as may from time to time be determined by the Authority or published by the United States Department of the Treasury as the average area purchase price for the State. An Average Area Purchase Price is not provided for new residences for three- and four-family homes because multi-unit dwellings, other than duplexes, may not be financed with the proceeds of the Bonds.

Bonds mean any of the Authority's Home Mortgage Revenue Bonds authorized under the General Resolution and issued pursuant to a Home Mortgage Revenue Bond Series Resolution.

Builder means a person or firm regularly engaged in the construction of residential property within the State.

Business Day means any day other than a Saturday or Sunday or a day on which the principal trust office of the Trustee, Master Servicer or the banks in the City of New York are authorized to be open for regular business.

Buyer shall have the same meaning as borrower as used within this Program Guide.

Certificate of Compliance means the Authority's Certificate, substantially in the form of Exhibit 6-H, in which the Authority must certify to certain investigations made with respect to each Mortgage Loan approved for purchase by the Master Servicer. A Certificate of Compliance shall cover each Mortgage Loan and must be issued prior to Mortgage Loan Closing.

Closing and Closing Date mean the funding of the Mortgage Loan by the Mortgage Lender and the execution and delivery by the Borrower of all documents in connection therewith and the date on which such Closing occurs.

Commit or Commitment means a binding written commitment by the Mortgage Lender, in the form customarily used by the Mortgage Lender in its owner-occupied home lending practice or in a form customarily used in the mortgage lending industry, as may be specified by the Master Servicer, to a particular Eligible Borrower to finance the purchase of a particular Qualified Dwelling with a Mortgage Loan, which Commitment shall specify a stated expiration date, a stated principal amount and an interest rate equal to the Loan Rate.

Compliance Package or Preliminary Approval and Compliance Package means the documents listed in Exhibit 6-G.

Condominium Unit means a single family unit in a multi-unit housing development (i) which has been subject to a recorded declaration pursuant to the Condominium Property Act, and (ii) in which ownership of the units includes the ownership in fee of a specified residential unit together with an undivided pro rata interest in appurtenant real estate and any improvements thereon. A loan made on a condominium unit must be eligible for insurance by FHA, VA, USDARD, or the PMI insurer and Fannie Mae.

Cure Period shall mean the period of [thirty (30)] days from the earlier of the time the Mortgage Lender discovers a Defect or the Mortgage Lender receives notice of such Defect from the Authority or the Master Servicer.

Deed of Trust shall have the same meaning as the term "Mortgage", as set forth below. Default means one or more of the following events:

a. Any representation or warranty of a Mortgage Lender to the Authority and the Master Servicer shall be false in any material respect;

b. Failure of a Mortgage Lender to duly observe or perform any other covenant, condition or agreement in the Mortgage Origination Agreement or the Program Guide to be observed or performed by such Mortgage Lender in any material respect for a period of thirty (30) days after a written notice to such Mortgage Lender from the Authority specifying such failure and requesting that it be remedied, provided, however, if the failure stated in the notice cannot be corrected within the applicable period, the party giving such notice shall consent to a reasonable extension of time if corrective action is instituted by the Mortgage Lender within the applicable period and diligently pursued until such failure or defect is fully corrected;

c. Requirement that the Master Servicer purchase a Mortgage Loan as a result of a failure of such Mortgage Lender to abide by the provisions of the Mortgage Origination Agreement and the Program Guide, and the failure of such Mortgage Lender to timely repurchase said Mortgage Loan upon receipt of proper notice;

d. Decree or order of a court, agency or supervisory authority having jurisdiction in the premises appointing a conservator, receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceeding affecting the Mortgage Lender or substantially all of its properties, or for the winding-up or liquidation of its affairs, if such decree or order shall have remained in force undischarged or unstayed for a period of thirty (30) days;

e. Consent by the Mortgage Lender to the appointment of a conservator, receiver or liquidator in any insolvency, readjustment of debt, marshalling or assets and liabilities or similar proceeding affecting the Mortgage Lender or substantially all of its properties; or f. Admission in writing by the Mortgage Lender of its inability to pay debts generally as they mature, or the filing of a petition to take advantage of any applicable bankruptcy or insolvency statute, or the making of an assignment for the benefit of creditors.

Defect or Defective shall mean a failure to cause any Mortgage Loan to comply with the terms of the Mortgage Origination Agreement or this Program Guide.

Discount Fee means the fee to be collected at closing by each Mortgage Lender and remitted to the Authority within [thirty (30)] days of each Closing Date. The amount will be communicated separately to all lenders through the program brochure update as needed.

Eligible Borrower means a person:

a. Who is or will be a resident of the state of Arkansas within sixty (60) days of the Closing of a Mortgage Loan;

b. Whose Annual Household Income does not exceed the amount set forth by the Authority, which amount may be amended from time to time by ADFA; and

c. Who intends to occupy the Qualified Dwelling financed by the Mortgage Loan as his or her principal residence within sixty (60) days after the Closing of the Mortgage Loan. Please see the definition of Qualified Dwelling and Chapter 2, Section C of the Program Guide for further information on the rules for determining whether a residence is a Qualified Dwelling.

d. Citizenship. The borrower can either be a permanent or non-permanent resident alien. The borrower must be here legally and be able to present current documentation verifying his/her status. These conditions follow the FHA and/or FannieMae guidelines for citizenship status of borrowers.

Escrow Account means the account by that name created and maintained by the Mortgage Lender.

Fannie Mae means the Federal National Mortgage Association, or any successor thereto.

Fannie Mae Community Home Buyer's Program means the Community Home Buyer's Program described in the Pool Purchase Contract.

Fannie Mae Custodial Agreement means the Fannie Mae Form No. 2003 from a Custodian to Fannie Mae for the Program.

FDIC means the Federal Deposit Insurance Corporation, or any successor to its functions.

FHA means the Federal Housing Administration of the Department of Housing and Urban Development or any agency or instrumentality of the United States of America succeeding to the mortgage insurance functions thereof.

FHA Insurance means FHA mortgage insurance issued under one of the following FHA Insurance programs pursuant to the National Housing Act: FHA Section 203(b), FHA Section 234(c), FHA Section 221(d)(2), FHA Section 203b\vet, FHA Section 203(k) and FHA Section 203(h) in applicable areas. ADFA encourages all participating Mortgage Lenders to disclose to potential Eligible Borrowers the availability of an energy saving home mortgage. This optional service may be obtained and financed with an FHA-insured loan.

First-Time Homebuyer means any borrower who has NOT had a present ownership interest in his or her principal residence at any time during the three-year period ending on the date of the Closing of the Mortgage Loan and the execution of the Mortgage related thereto. The meaning of First-Time Homebuyer is set forth in further detail in Chapter 2, Section A of this Program Guide.

Flood Insurance Policy means the insurance coverage provided under the National Flood Insurance Program authorized by 42 U.S.C. Sections 4001-4128.

Freddie Mac - Federal Home Loan Mortgage Corporation (FHLMC)

General Resolution means the Home Mortgage Revenue Bond General Resolution of the Authority adopted June 20, 1995.

GNMA Custodial Agreement means the HUD Form 11215 from a Custodian to GNMA for the Program.

GNMA Commitment means a commitment to the Master Servicer from GNMA that GNMA will guarantee securities in the amounts stated in such commitment for a period of one year from the date of such commitment.

Government Obligations means direct obligations of the United States of America, or obligations the principal of which and interest on which are fully guaranteed by the United States of America.

HUD means the United States Department of Housing and Urban Development.

Loan Rate means the interest rate per annum with respect to the Mortgage Loans as specified by the Authority from time to time. The Loan Rate for each specific Mortgage Loan will be set at the time of loan reservation by the Mortgage Lender.

Manufactured Home means any residential dwelling built in an "off-site" production facility, transported to the customer's destination, and installed with a minimum of on-site construction.

Master Servicer means U.S. Bank Home Mortgage, its successors and assigns as servicer hereunder and under the Servicing Agreement, or any substitute or successor appointed pursuant to the Servicing Agreement.

Maximum Household Income Limit means the maximum permitted Annual Household Income of a borrower and anyone 18 years or older who resides in the Single Family Residence, determined pursuant to Chapter 2, Section B with reference to Schedules III and IV hereto and as such schedules may be modified from time to time by the Authority.

Maximum Purchase Price means the maximum Purchase Price permitted by the Single Family Program determined pursuant to Chapter 2, Section C with reference to Schedule II hereto, and as such, the maximum purchase price schedule may be modified from time to time by the Authority subject to the standards stated therein.

Mortgage means the written Mortgage or Deed of Trust instrument securing the related Mortgage Loan and encumbering a Single-Family Residence, which instrument shall be in the then-effective form required by FHA for FHA Insured Mortgage Loans, USDARD for USDARD Guaranteed Mortgage Loans, VA for VA Guaranteed Mortgage Loans, or Fannie Mae for Conventional Mortgage Loans, as applicable, with appropriate riders, and with such modifications as may be required by the terms hereof (particularly the restriction on assumptions set forth as Exhibit 7-N hereto).

Mortgage File means the mortgage documents (or photocopies, thereof) listed in Exhibit A to the Program Guide pertaining to a particular Mortgage Loan, except the original Mortgage Note and the related Mortgage, and all other documents as are customarily maintained in mortgage loan files by private institutional mortgage servicers, provided that there need be contained only a copy (or other evidence satisfactory to the Master Servicer) of hazard or other insurance policies, the original of which is not customarily held by a mortgagee.

Mortgage Lender means any party executing a Mortgage Origination Agreement on the final execution page thereof, being a home mortgage lending institution or entity approved by the Authority (i) which has been doing business on a regular basis in the State for at least 12 months and is currently participating in the local private home lending market from one or more offices located within the State, (ii) is a mortgagee approved by FHA, USDARD and/or VA, as applicable, (iii) which can make the representations, warranties and covenants set forth in Section 1.02 of the Mortgage Origination Agreement, and (iv) which has agreed to originate and sell Mortgage Loans in accordance with the terms of this Program Guide and to release servicing to the Master

Servicer pursuant hereto. The Staff Housing Review Committee of ADFA has the authority to waive the requirement that a lender must have an office in the state.

Mortgage Lender's Delivery Obligation. The Mortgage Lender's agreement to make, deliver, and sell qualified Mortgage Loans to the Servicer pursuant to the Authority's agreement to purchase Mortgage Loans under the Mortgage Origination Agreements.

Mortgage Loan. A loan made by a participating Mortgage Lender to an Eligible Borrower for the purchase of a Qualified Dwelling and secured by a Mortgage on such real estate.

Mortgage Note means the written instrument executed to evidence the borrower's obligation to repay the Mortgage Loan, which shall be the then-effective form of mortgage note required by FHA for FHA Insured Mortgage Loans, USDARD for USDARD Guaranteed Mortgage Loans, or VA for VA Guaranteed Mortgage Loans, each approved under the GNMA Guide, or in the form required by Fannie Mae for Conventional Mortgage Loans, with such modifications or riders or addenda as may be required by the terms hereof.

Mortgage Origination Agreement means the agreement executed by the Authority, the Master Servicer and any Mortgage Lender that serves as the basis for such Mortgage Lender's participation in the Single Family Program.

Mortgage Purchase or Purchase means any closing held at which a Mortgage Loan is sold by the Mortgage Lender to the Master Servicer.

Mortgage Purchase Date or Purchase Date means the date on which a Mortgage Purchase occurs.

Mortgage Submission Voucher means the voucher substantially in the form of Exhibit B hereto, as the same may be amended by the Authority from time to time, which is submitted by the Mortgage Lender to the Master Servicer.

Mortgagor means any person who has a present ownership interest in a Single-Family Residence subject to the related Mortgage and/or executes the Mortgage (but such term does not include any person who (i) executes only the Mortgage Note as a guarantor or co-signor and does not have such a present ownership interest in the Single Family Residence, or (ii) executes the Mortgage solely for the purpose of waiving any rights of dower or curtesy in the Single Family Residence).

Mortgagor's Certificate means the forms of Mortgagor's Application Affidavit and Certification (attached as Exhibit 5-A) and Mortgagor's Closing Affidavit and Certification (attached as Exhibit 5-B) upon which each prospective borrower must certify certain things in order to comply with the Tax Code.

New Construction means a residence which has not previously been occupied.

Non-Qualifying Mortgage Loan shall mean and include any Mortgage Loan purchased hereunder with respect to which:

a. The Master Servicer fails to approve the Pool Documentation Package, as defined in the Servicing Agreement, or the Mortgage Lender fails to deliver all documents to the Mortgage File on a timely basis, or such documentation for Mortgage Loans do not conform to the requirements of the Program Guide and the GNMA Guide or the Fannie Mae Guides, as applicable.

b. Borrower fails to occupy the related Single-Family Residence as a principal residence within sixty (60) days after execution of the related Mortgage.

c. The related residence does not qualify as a Single-Family Residence as defined herein, including, but not limited to, a situation where more than fifteen (15%) percent of the total area of the residence will be used in a trade or business, including child care services on a regular basis for compensation, or as investment or rental property, or as a recreational home.

d. The Purchase Price of the related residence exceeded the Maximum Purchase Price.

e. Except as to Mortgage Loans that relate to residences in Targeted Areas. Prospective Eligible Borrowers do not meet the definition of First-Time Homebuyers except in relation to Mortgage loans for residences in designated targeted areas.

f. The prospective Eligible Borrower's Annual Household Income at the time of the Closing of the Mortgage Loan exceeds the applicable Maximum Household Income Limit.

g. The Mortgage Loan fails to comply with all the applicable provisions of Chapter 2 of this Program Guide or the Mortgagor's Certificate or Seller's Certificate or Notice to Mortgagor of Information Regarding Potential Recapture Tax (attached as Exhibit 7-P).

h. Any statements contained in any of the Affidavits of the Buyer, Seller or Mortgage Lender are determined to be incorrect, untrue, misleading or fraudulent.

i. The Mortgage Loan is a refinancing of an existing loan other than a construction period loan, bridge loan, or similar temporary financing of not more than twenty-four (24) months.

j. The Mortgage assumability rider attached to an FHA Insured or USDARD or VA Guaranteed Mortgage Loan is not approved by FHA, USDARD or VA, as applicable, or the Mortgage assumability rider attached to an USDARD Guaranteed or Conventional Mortgage Loan is not approved by Fannie Mae.

l. Failure to provide the Master Servicer with the documentation required in Part II of Exhibit A of the Program Guide within the time period specified therein.

m. The Mortgage Loan otherwise fails to comply with the terms set forth in the Mortgage Origination Agreement or this Program Guide.

Notice Address means:

a. As to the Authority:

Attention: Single Family Housing

Arkansas Development Finance Authority

423 Main Street - Suite 500

Little Rock, Arkansas 72201 or

P.O. Box 8023

Little Rock, Arkansas 72203-8023

b. As to the Master Servicer:

U.S. Bank Home Mortgage

17500 Rockside Road

Bedford, Ohio 44146

c. As to the Trustee:

Attention: Corporate Trust Department

Simmons First National Bank

501 Main Street

Pine Bluff, Arkansas 71611

d. As to the Mortgage Lender, the address shown on the Mortgage Origination Agreement.

Origination Fees means the fees collected by the Mortgage Lender from an Eligible Borrower or Seller of a Single Family Residence.

Permitted Encumbrances means liens, encumbrances and clouds on the legal title of a Single Family Residence permitted by FHA, USDARD, VA, the PMI Insurer or Fannie Mae, as applicable.

Preliminary Approval and Compliance Package means Exhibit 6-G hereto, and all documents required by Exhibit 6-G to be delivered to the Authority prior to the Closing of a Mortgage Loan.

Prepayment means any monies, however derived, which are received or recovered by the Authority from any payment of, or with respect to, principal on any Mortgage Loan prior to scheduled payments of principal called for by such Mortgage Loan; provided, however, that no monies received or recovered by the Authority from the repurchase of a Mortgage Loan by a Mortgage Lender pursuant to any Mortgage Origination Agreement must be a prepayment.

Private Mortgage Insurance or PMI means any private mortgage insurance company approved by Fannie Mae and providing private mortgage guaranty insurance on Conventional Mortgage Loans in accordance with the Fannie Mae Guide, and licensed to conduct business in the State of Arkansas.

Property Value means the lesser of the Acquisition Cost or the Appraised Value of the Qualified Dwelling at the time of origination of the Mortgage Loan.

Qualified Appraiser means an individual who is approved and/or assigned, as applicable, by FHA, USDARD or VA, or the PMI Insurer and Fannie Mae, as applicable, and is licensed by the State under Arkansas Code Annotated Sections 17-51-101 et seq., as amended and supplemented from time to time.

Qualified Census Tract means a census tract (as defined by the Secretary of Commerce) in which 70 percent or more of the families have an income which is 80 percent or less of the State-wide median family income.

Qualified Condominium Unit means a condominium unit meeting the requirements of the GNMA Guide or the Fannie Mae Guides, as applicable, and which is acceptable to FHA, USDARD or VA, or the PMI Insurer and Fannie Mae, as applicable.

Qualified Duplex means a Single Family Residence (i) consisting of two attached single family units, one unit of which is occupied by the owner as his or her primary residence or is to be so occupied within a reasonable time after the Purchase Date but not more than sixty (60) days thereafter and (ii) which was first occupied as a residence at least five (5) years before the Closing of the Mortgage Loan and the execution of the Mortgage related thereto.

Qualified Dwelling or Single Family Residence means a private detached or attached owner-occupied house, rowhouse, townhouse, or condominium which:

a. contains complete living facilities and facilities functionally related and subordinate thereto;

b. is located within the State;

c. is designed and intended primarily for residential housing (not more than 15% of the total area of which can be used in a trade or business) for one family;

d. which is determined by a Qualified Appraiser to have an expected useful life of not less than the FHA, USDARD, VA or Fannie Mae requirement for a 30-year loan;

e. will be occupied by the Eligible Borrower as his or her principal residence within 60 days of Mortgage Loan Closing;

f is permanently affixed to land;

g. the Purchase Price does not exceed the Maximum Purchase Price as set by the Authority; and h. which appurtenant land does not exceed five acres and reasonably maintains the basic livability of the residence and does not provide, other than incidentally, a source of income to the borrower, including child care services on a regular basis for compensation.

THE TERM QUALIFIED DWELLING SPECIFICALLY DOES NOT INCLUDE:

. Rental houses;

. Vacation homes;

. Factory-made housing that is not permanently affixed to land;

. Stock or any other ownership interest in a cooperative housing corporation or organization;

. Property, such as appliances or furniture, that is not a fixture under applicable law;

. Land that is not necessary to maintain basic livability of a residence or which provides, other than incidentally, a source of income to the eligible borrower. A general rule of thumb is that a residence in which more than fifteen percent (15%) of the total area is expected to be used in a trade or business or which contains land greater than 5 acres is NOT eligible!

Qualified Insurer means any insurance company approved by FHA, USDARD, VA, Fannie Mae, GNMA and the PMI Insurer, as applicable, to provide insurance, other than Private Mortgage Guaranty Insurance on single family residences in the State.

Qualified Mortgage Loan means a Mortgage Loan which is not a Non-Qualifying Mortgage Loan.

Refinance transaction means that the proceeds of a bond loan are used to pay off an existing loan for the same borrower. It does not involve the purchase or sale of real estate.

Resolution means, together, the General Resolution and the Series Resolution.

Seller shall mean any seller or sellers of a Qualified Dwelling to be acquired by a borrower using the proceeds of a Mortgage Loan.

Seller's Certification shall mean the Seller's Affidavit and Certification (attached as Exhibit 7-M) to be completed by the Seller of a Qualified Dwelling to be acquired using the proceeds of a Mortgage Loan upon which each Seller must certify certain things in order to comply with the Tax Code.

Series Resolution means any Series Resolution authorizing the issuance and sale of Home Mortgage Revenue Bonds.

Servicing Agreement means, collectively, the Master Program Administration and Servicing Agreement dated as of July 1, 1998, and supplemented as of June 1, 2000, and again on June 1, 2001, by and among the Authority and the Master Servicer.

Servicing Release Fee means the fee payable by the Servicer to a Mortgage Lender that shall equal a percentage of the outstanding principal amount of a Mortgage Loan as the Authority shall from time to time determine.

Single Family Residence has the same meaning as Qualified Dwelling, as set forth above.

Standard Hazard Insurance Policy means a standard homeowner's fire insurance policy with extended coverage as approved by the Insurance Commissioner of the State, and which qualifies under all applicable requirements of FHA, USDARD, VA or Fannie Mae, as applicable.

Standard Residential Purchase Contract means a contract to purchase residential property, but not an installment agreement for deed, articles of agreement for deed, land sales contract or any other form of ownership or financing that allows a purchaser to enjoy the benefits of ownership without title to the property.

State means the State of Arkansas.

Supplemental Notice means a written notice from the Authority to all affected Mortgage Lenders and the Master Servicer, by which the Authority exercises its reserved right to modify certain provisions of the Mortgage Origination Agreement and this Program Guide.

Targeted Area means an area which is either (a) listed as a Qualified Census Tract, or (b) an "area of chronic economic distress" designated by the State as meeting the standards established by the State and approved by HUD. ADFA maintains a current list of Targeted Areas on its website; also, the Targeted Area list is contained in Exhibit E.

Targeted Area Loans means Mortgage Loans secured by Mortgages on Single Family Residences located in a Targeted Area.

Tax Code means the Federal Internal Revenue Code of 1986, as amended, and all subsequent tax legislation duly enacted by the Congress of the United States of America. Each reference to a section of the Tax Code herein shall be deemed to include the United States Treasury Regulations proposed or in effect with respect or applicable thereto and applicable to the Bonds or the use of the proceeds thereof.

USDARD means the USDA Rural Development or any successor to its functions.

USDARD Guaranteed means guaranteed pursuant to an USDARD Guaranty.

USDARD Guaranty means a guaranty of a Mortgage Loan by the USDARD under Section 502 of Title V of the Housing Act of 1949, as amended, and as such Act may be amended from time to time.

VA means the Department of Veterans Affairs of the United States of America or any successor to its functions.

VA Guaranteed means guaranteed pursuant to a VA Guaranty.

VA Guaranty means a guaranty of a Mortgage Loan by the VA in accordance with the provisions hereof and under the Servicemen's Readjustment Act of 1944, as amended.

Unless otherwise defined herein, all words and phrases defined in Article I of the General Resolution or Article I of the Series Resolution shall have the same meaning herein.

H. A Special Word About Buyers, Borrowers and Mortgagors

You will notice throughout the Program Guide that, from time to time, the terms "buyer", "borrower", and "mortgagor" are used somewhat interchangeably. We apologize for any confusion this may cause. Please note that these variations are a product of the Tax Code. For the most part, when either term is used, it is possible to use the other without disrupting the overall meaning of the relevant provision.

CHAPTER 2 MORTGAGE REVENUE BONDS - TAX CODE COMPLIANCE ISSUES

Participating Mortgage Lenders must understand that there are two separate but simultaneous reviews that will have an impact on any Mortgage Loan originated through the Single Family Program:

(1) Tax Code compliance, and

(2) credit/real estate underwriting. The latter is what Mortgage Lenders presumably do every day. However, Tax Code compliance review is unique to ADFA loans.

There are three key elements to the determination of Tax Code compliance with regard to borrower eligibility for participation in the Single Family Program:

. The borrower must be a First-Time Homebuyer (if property is located in a Non-Targeted County).

. The borrower's Annual Household Income must be within the allowable Maximum Household Income Limit for the county in which the property is located.

. The residence that will be subject to a Mortgage must meet the definition of a Qualified Dwelling.

ADFA requires documentation to support these three basic determinations. The documentation must be inclusive enough to satisfy IRS auditors.

A. First-Time Homebuyer Requirements

1. General

As a general matter, a First-Time Homebuyer is an Eligible Borrower who has not had a present ownership interest in a principal residence at any time during the three-year period prior to the date on which the Mortgage is executed. Each Eligible Borrower (including a non-borrower spouse or co-occupant) must meet the First-Time Homebuyer requirements as set forth by Tax Code in order to participate in the Single Family Program (there is an exception for any residence located in a Targeted Area, as discussed below).

"Present ownership interest" includes not only an outright ownership interest (a fee simple interest) in a residence; it also includes any of the following interests if held directly by the borrower or in trust for the benefit of the Eligible Borrower:

. A joint tenancy

. A tenancy in common

. A tenancy by the entirety

. A community property interest

. The interest of a tenant-shareholder in a co-operative

. A life estate

. A contract for deed

"Present ownership interest" does not include:

. A remainder interest

. A lease with or without an option to purchase

. A mere expectancy to inherit an interest in a principal residence

. The interest that a purchaser of a residence acquires upon the execution of a purchase contract

. An interest in other than a principal residence during the previous three (3) years

2. Special Areas of Concern Regarding the First-Time Homebuyer

a. Prior Ownership of a Mobile Home. The determination of whether or not prior ownership of a mobile home disqualifies an Eligible Borrower from being a First-Time Homebuyer must be made on the basis of facts and circumstances of each particular case. In order to preserve Single Family Program eligibility, the mobile home at issue must have at all times been "mobile"! Any Eligible Borrower who had a prior ownership interest in a mobile home during the three year period prior to execution of the Mortgage must provide adequate documentation that:

. The components which operate only during transportation (hitch and axle) have not been removed;

. The mobile home is moveable and transportable; AND

. No permanent additions have been built around or added to the mobile home structure. Such items include permanently affixed decks, room additions, etc. However, if a deck has been built and the mobile home is merely sitting next to the deck, that would not constitute permanently affixed.

The prior ownership of a "double wide" mobile home will disqualify a prospective Eligible Borrower from First-Time Homebuyer status.

b. Inherited Property. An expectancy to inherit property does not constitute a present ownership interest. However, if the Eligible Borrower occupies the residence after acquiring a vested title interest, the person no longer fits the definition of a First-Time Homebuyer. For example, if a child resides in a residence owned by a parent, and if the child inherits the residence when the parent dies, he/she immediately acquires a present ownership interest at the time of death and thereby loses his or her ability to qualify as a First-Time Homebuyer. However, if the child has not occupied such residence at or since the time of the parent's death, he/she may still qualify as a First-Time Homebuyer.

c. Divorce Within the Last Three Years. You may occasionally encounter a situation where the Eligible Borrower or Co-Eligible Borrower was divorced within the last three years. Be careful!! It is possible that the divorced party may have had a present ownership interest in a residence while in the previous relationship. If this proves to be true, the Eligible Borrower will not qualify as a First-Time Homebuyer. Please see Section 3(b), below, for a detailed explanation.

d. Residence Located in a Targeted Area. An Eligible Borrower need not qualify as a First-Time Homebuyer if the residence that will be financed with a Mortgage Loan is located within a Targeted Area.

e. Dower/Curtesy. Under Arkansas property law, dower and curtesy constitute a right (or said another way, in this case, an inchoate, or incomplete, interest) prior to the time a person becomes a widow or widower. Upon the death of a person's spouse, however, this right matures into a life estate in real property. Thus, so long as a person is not widowed, there is no question with regard to dower or curtesy that an Eligible Borrower may qualify as a First-Time Homebuyer, but if the Eligible Borrower is a widow or widower, the Mortgage Lender must inquire as to whether such Eligible Borrower's rights of dower or curtesy (as the case may be) had matured into a life estate, which would be a disqualifying interest for the purposes of the First-Time Homebuyer rules.

f. For Mortgage Revenue Bonds issued by ADFA in calendar year 2007 there will be a provision for qualified veterans exempting them from the first time homebuyer requirement.

3. Required Documentation

a. Tax Returns for Prior Years. It is relatively easy to document the Eligible Borrower's compliance with the Tax Code requirements for a First-Time Homebuyer. The primary form of documentation is the Federal income tax returns. Each Eligible Borrower, co-borrower, and any other occupant of the Single Family Residence 18 years or older must provide copies of his or her latest federal tax returns. Only one year of federal tax returns is required, including all schedules and copies of his or her W-2(s). Copies of state tax returns are not required. ADFA will review the returns to see if the Eligible Borrower, co-borrower or other occupant of the Single Family Residence of 18 years or older has claimed deductions for home mortgage interest or real estate taxes. In addition to looking for deductions, the Authority will check to make sure that the name of the taxpayer shown on the first page of each return matches the name or former name of the Eligible Borrower. Each first page must also reflect the taxpayer's address and social security number. The return MUST be signed and dated. Extensions filed for late tax payment should be included at application with a copy of the actual return forwarded to the Authority at time of filing.

IF DEDUCTIONS WERE CLAIMED FOR MORTGAGE INTEREST OR FOR REAL ESTATE TAXES, THE ELIGIBLE BORROWER MUST SUPPLY A WRITTEN EXPLANATION OF THESE ITEMS, ALONG WITH SUPPORTING DOCUMENTATION. THE BURDEN OF PROOF WITH RESPECT TO QUALIFICATION AS A FIRST-TIME HOMEBUYER RESTS WITH THE ELIGIBLE BORROWER AND THE FAILURE TO ADEQUATELY EXPLAIN ANY MORTGAGE INTEREST OR REAL PROPERTY TAX DEDUCTIONS WILL RESULT IN THE DISQUALIFICATION OF THE ELIGIBLE BORROWER FROM THE SINGLE FAMILY PROGRAM.

During the period of January 1 through April 15, the question arises as to which three years of tax returns should be submitted. ADFA must have the three most recent returns. So the answer to the question depends on whether the Eligible Borrower has or has not filed a return for the prior year.

Example: On February 20, 2004, the Eligible Borrower makes application for a Mortgage Loan. If the Eligible Borrower has already filed his or her 2003 tax returns, then the Mortgage Lender must obtain a copy of the 2003 return along with the 2002 and 2001 returns. If the Eligible Borrower has not yet filed a 2003 tax return, then the Mortgage Lender must obtain copies of the

2002, 2001, and 2000 returns. Here is where it can get a little tricky. If the Eligible Borrower has provided the 2002, 2001 and 2000 returns and then, prior to the Closing, files a return for

2003, then the 2003 federal tax return will be required before ADFA can approve the Mortgage Loan for purchase. We strongly recommend that you obtain the return that is due on April 15 BEFORE you close the Mortgage Loan. This assures the Mortgage Lender that the Eligible Borrower, co-borrower or other occupant of the Single Family Residence of 18 years or older continues to meet the requirements for a First-Time Homebuyer.

b. Tax Returns for Persons Divorced Within Three Years. The following represents some of the more common approaches used in divorce situations that ADFA recommends:

. Mortgage Lenders should ask the Eligible Borrower whether he or she owned a residence during the previous marriage.

. The Mortgage Lender should review the divorced Eligible Borrower's prior year tax returns to see if deductions were taken for home mortgage interest or real estate taxes. If none were taken, you are probably OK.

. Mortgage Lenders should obtain a copy of the divorce decree along with any other relevant agreement, such as an agreement for child support, etc. Review the decree to determine if there is any language which may give an indication of prior residence ownership. References to such things as a quitclaim deed, a transfer of interest, a release of obligation or a hold harmless agreement are terms often used when settling property disposition. If these references are present, please forward a copy of the relevant document to ADFA for an opinion.

Example: An Eligible Borrower divorced two years ago. The divorce decree indicates that the Eligible Borrower split the proceeds from the sale of the former residence of which she was on title. Does this Eligible Borrower qualify as a First-Time Homebuyer? Based upon this information alone, the answer is no. However, if the Eligible Borrower presents documentation (for example, rent receipts) that substantiate that for 14 months prior to the divorce, the Eligible Borrower was separated and living in an apartment, the Eligible Borrower may in fact qualify. Even though this Eligible Borrower clearly had an ownership interest in a residence, it was not the Eligible Borrower's "principal place of residence;" therefore, the ownership interest is viewed similarly to an ownership of investment property. The Eligible Borrower satisfies the 3-year, non-ownership rule and can be treated as a First-Time Homebuyer.

c. Extension for Filing Tax Return. If an Eligible Borrower has requested an extension to file a tax return, the Mortgage Lender must obtain a copy of the filed extension request and all W-2's. In the event that the return is filed prior to the Closing, copies of the return must be submitted to the Authority.

d. If an Eligible Borrower Did Not File a Tax Return. If the Eligible Borrower was not obligated to file a Federal tax return during one or more of the prior three years (for example, if the Eligible Borrower's level of income did not trigger a filing requirement), then the Eligible Borrower must complete Exhibit 5-B, "Mortgagor's Application Affidavit and Certification." THIS EXHIBIT MAY NOT BE USED IN THE CASE OF LOST OR MISPLACED TAX RETURNS. An Eligible Borrower may include multiple years on one form; however, a separate form must be used for EACH separate Eligible Borrower.

e. Lost or Misplaced Tax Returns. You will be amazed how many people can't find copies of tax returns! If the Eligible Borrower cannot find copies of the tax returns, he or she must request and provide ADFA with certified copies or original transcripts of the missing returns from the Eligible Borrower's local IRS office. There is no waiver or substitute for federal tax returns! The transcript as provided by IRS must contain line-by-line information. Transcripts MUST bear the IRS stamp, date and official signature. Informational or condensed forms provided by tax private preparation companies are not approved for use with ADFA loans. Upon receipt of the copy of the tax returns or the transcript, the Mortgage Lender must review them in order to determine that no deductions were taken for home mortgage interest or real estate taxes.

f Special Documentation with Regard to Manufactured Homes. ADFA requires photographic evidence of the removal of the axles and hitch to any manufactured home; the photographs must be included with the Mortgage Loan File at prior approval. We advise whoever is taking the pictures to use a flash attachment since most cameras take poor pictures in low light/no light areas such as the underside of a manufactured home. In addition, Eligible Borrowers must execute Exhibit 5-E, "Supplemental Affidavit and Certification - Manufactured Home."

4. Special Issues Dealing With Prior Mortgages

The Eligible Borrower fails to qualify as a First-Time Homebuyer if he or she has had a prior mortgage loan or other financing on the subject residence, with the following exceptions:

a. Bridge loans. A prior mortgage loan obtained for temporary financing, such as a construction loan or bridge loan, is acceptable, provided that the prior mortgage loan must have a term of twenty-four (24) months or less.

b. Lease with Option to Purchase. When a credit toward purchase price is provided under a lease with option to purchase, impermissible Seller financing is established. In this situation, the Eligible Borrower/renter is not an eligible First-Time Homebuyer. However, an Eligible Borrower may qualify as a First-Time Homebuyer if the lease only provides a right of first refusal or an option to purchase and no portion of the rent paid has been or will be credited to the purchase price; or if the term of the lease is for no more than 24 months as of the date of Closing.

c. Required Documentation. In order to substantiate any of the above exceptions, the financing document (mortgage, contract or lease) must have been recorded in the relevant county real estate records at the time of execution. A certified copy of the relevant documents must be obtained from the county recorder's office and provided to the Authority.

B. Household Income Requirements

1. General

Of the three compliance issues we review, Household Income is by far the most difficult and frustrating. In fact, the number one reason for rejection of a loan application under the Single Family Program is due to the Eligible Borrower being "over income." In the context of this issue, the term "Eligible Borrower" means the Eligible Borrower as well as any co-Eligible Borrower, and any person who is 18 or older who will reside in the residence, collectively, including those not taking title. The Eligible Borrower must satisfy each of the following requirements.

a. Applicable Income Limits. The Eligible Borrower's Annual Household Income must not exceed the Maximum Household Income Limit shown in Schedules III and IV. Please note that the Maximum Household Income Limit varies depending on the county in which the residence is located and whether the residence is located within a Targeted Area. The Maximum Household Income Limit also varies depending on the household size of the Eligible Borrower.

HUD publishes median household income figures that are the basis for determining the Maximum Household Income Limits. The Tax Code requires the Authority to set the Maximum Household Income Limit at the following percentages of the median household income for the area of the State in which the Eligible Borrower intends to reside:

Household Size of

One (1) or two (2)

Three (3) or more

Targeted Areas	120%	140%
Non-Targeted Areas	100%	115%

NOTE: HUD issues revised figures periodically and generally on an annual basis. The Authority will notify all Mortgage Lenders in advance of the effective date when Maximum Household Income Limits are revised.

b. Calculating the Eligible Borrower's Annualized Gross Income Generally. The Eligible Borrower's Annual Household Income is equal to the Eligible Borrower's annualized gross income. Annualized gross income is calculated by multiplying the Eligible Borrower's gross monthly income by twelve (12). That's right. The Tax Code requires a twelve-month forward projection of the Eligible Borrower's gross monthly income. Gross monthly income is the sum of monthly gross pay as well as additional income from overtime, part-time employment, bonuses, dividends, interest, royalties, pensions, Veterans Administration compensation, net rental income, and so forth. Gross monthly income also includes alimony, child support, public assistance, sick pay, social security benefits, unemployment compensation, income received from trusts, income received from business activities or investments and also deferred income such as 401(k) plan elective deferrals. In other words, ALL INCOME FROM ALL SOURCES.

c. Date of Income Determination. The date used to determine the Eligible Borrower's Annual Household Income is the date of Closing of the Mortgage Loan.

d. ADFA will implement a provision of the Internal Revenue Code that allows a Specified amount of Bond loans to be made in Targeted counties without regard to borrower income limits. Specific approval must be granted by the Single Family program manager in advance of reserving the loan. Approvals will be on a case by case basis.

e. There is a method approved by the Internal Revenue Service called the "High Housing Cost," which is a secondary option for calculating county income limits. This is an option that can be used for any county in Arkansas that is designated as a "High Housing Cost" area.

2. Special Areas of Concern With Regard to the Household Income Requirements

a. Commission, Bonus and Overtime Compensation. Please note that calculating an Eligible Borrower's Annual Household Income begins to become more difficult with regard to any Eligible Borrower who works irregular overtime, receives bonuses and/or commission income, or is self-employed. Generally, Mortgage Lenders must average commissions, bonuses and overtime over the last two (2) years, using tax returns and current year-to-date pay stubs as the basis for such calculation. If there is a clear pattern of such income either increasing or decreasing, emphasis will be placed on the past twelve (12) month period.

b. Self-Employed Eligible Borrowers. Generally, Mortgage Lenders must determine the Annual Household Income of a self-employed Eligible Borrower by averaging his or her income over the last two (2) years using both Federal income tax returns as well as a profit and loss statement for the current year prepared by a third party or prepared by and signed by the Eligible Borrower. The effect of legitimate operating expenses may be taken into account when calculating income for this type of Eligible Borrower. As with commission, bonuses and overtime, emphasis must be placed on the past twelve (12) months of income activity if there is a clear pattern of increasing or decreasing income.

c. Child Support/Alimony. Child support and alimony payments must be included in the calculation of Annual Household Income regardless of whether the Eligible Borrower is divorced or separated or a single person. Proof of amounts received is required from OCSE.

d. Married or Separated Eligible Borrowers Taking Title Individually. Mortgage Lenders may encounter a married or separated Eligible Borrower who wishes to apply for a Mortgage Loan and take title to the residence in his or her name only and not jointly with his or her spouse. This is acceptable, but only after documenting that the Eligible Borrower would still be eligible if the spouse were also to apply and take title. In other words, both Eligible Borrower and his or her spouse must be First-Time Homebuyers and have a combined Annual Household Income within the applicable Maximum Household Income Limit.

If a spouse of an Eligible Borrower (or any other occupant 18 years and older and residing in the home) is not taking title to the Single Family Residence, such spouse (or resident) must sign Exhibit 5-A along with the Eligible Borrower.

3. Required Documentation

a. General. As noted above, Annual Household Income is calculated by annualizing an Eligible Borrower's gross monthly income as of the date of the Closing of the Mortgage Loan. Because of the obvious practical problems presented by the determination date and this method in general, the Tax Code allows the Mortgage Lender (and ADFA) to rely upon the following documentation:

. Information obtained from loan application documents; i.e., the Affidavit of Buyer included in the initial loan application, copies of the two most recent pay stubs and tax returns, and the like; and

. A re-affirmation by the Eligible Borrower at Closing that the information set forth in the Affidavit of Buyer (including Household Income) is still true, correct and complete.

NOTE: IT IS VERY IMPORTANT TO DOCUMENT ANY AND ALL CHANGES WITH RESPECT TO THE FINANCIAL CONDITION OF THE BORROWER THAT MAY OCCUR AFTER PRIOR APPROVAL AND BEFORE CLOSING. IF A BORROWER'S HOUSEHOLD INCOME EXCEEDS THE APPLICABLE MAXIMUM HOUSEHOLD INCOME LIMIT, ADFA WILL NOT PERMIT THE PURCHASE THE MORTGAGE LOAN. IN OTHER WORDS, AN ELIGIBLE BORROWER WOULD BE WELL ADVISED NOT TO NOT BE A "SUPERSTAR" ON THE JOB UNTIL AFTER CLOSING. BIG PROMOTIONS MIGHT MAKE THE ELIGIBLE BORROWER INELIGIBLE. ALSO, BE CAUTIOUS OF ANY SITUATION WHERE AN ELIGIBLE BORROWER FALLS IN LOVE AND TAKES ON A ROOMMATE. IF THIS HAPPENS, AND IT HAS, ANNUAL HOUSEHOLD INCOME MUST BE RECALCULATED ALL OVER AGAIN.

b. Commission, Bonus or Overtime. Where commission, bonus or overtime income cannot be estimated or anticipated with relative certainty, letters of explanation from the Eligible Borrower and his or her employer may be appropriate. Some Eligible Borrowers and realtors might say that certain previous income sources such as overtime, commissions or bonuses were "one-time events" and will never occur again. Mortgage Lenders must verify these statements with an unbiased third party, such as the Eligible Borrower's employer.

c. Verifications of Employment. Mortgage Lenders are required to obtain a verification of employment. This information may not be totally accurate, but it usually contains a breakdown of overtime, commissions, bonuses, when next raise will occur, etc.

d. Self-Employed Eligible Borrowers. As noted above, Mortgage Lenders must obtain from any self-employed Eligible Borrower both Federal income tax returns for the past two years as well as a profit and loss statement for the current year either prepared by a third party, such as a certified public accountant, or prepared by and signed by the Eligible Borrower. If applicable, self-employed Eligible Borrowers who have an ownership interest in a partnership, a limited liability company or a corporation must provide Federal income tax returns for such entities.

NOTE: A PROFIT AND LOSS STATEMENT MAY ALSO BE REQUIRED FROM AN ELIGIBLE BORROWER WHO IS EMPLOYED FULL TIME, BUT SHOWS OTHER BUSINESS INCOME LOSS/GAIN ON HIS OR HER FEDERAL INCOME TAX (SEE LINE 12 OF FEDERAL INCOME TAX FORM 1040).

e. Child Support/Alimony. With regard to Eligible Borrower s receiving child support or alimony payments, Mortgage Lenders must obtain a copy of the appropriate (and most current) court decree, which sets forth the amount of the support. As an alternative, if the payments for support are being made directly to the State of Arkansas, Mortgage Lenders may obtain a "print-out" sheet from the State which displays all of the information needed to determine the amount of income to include for the Eligible Borrower. Proof of amounts received is required.

f Married or Separated Eligible Borrowers Taking Title Individually. The spouse not taking title must execute Exhibit 5-B (Mortgagor's Application Affidavit and Certification) and Exhibit 7-L (Mortgagor's Closing Affidavit and Certification) if tax returns were not filed due to either age or non-obligation of filing returns, and must also provide the previous three years' tax returns with W-2's attached and his or her two most recent pay stubs. If after review, the loan application can still be approved, the spouse not taking title must waive homestead rights. (Please see the Closing section of this Program Guide for proper language to waive homestead rights.)

4. Special Issues Dealing With Other Miscellaneous Forms of Income

a. Deferred Income. Annual Household Income also includes all deferred income such as an employee elective deferrals (such as for a cafeteria plan) or contributions to a pre-tax retirement plan, the most common such plan being the 401(k) plan. Furthermore, any amounts that the employer contributes into a retirement plan that can be withdrawn (not borrowed against) must be included in the Eligible Borrower's Annual Household Income calculation, even if such withdrawal will lead to a penalty or tax liability for the participant/Eligible Borrower. The key is whether the contributions can be "withdrawn" vs. "borrowed against"! The following steps can be used to make this determination:

. Calculate Annual Household Income and include the employer contributions and employee elective contributions/deferrals. If the Eligible Borrower's income does not exceed the applicable Maximum Household Income Limit, you need to do nothing more.

. If the elective deferred income causes the Eligible Borrower to exceed the Maximum Household Income Limit, then the Eligible Borrower should obtain from his or her plan administrator a copy of the section from the plan document that provides for any restrictions governing withdrawals from the plan. If the plan document states that the contributions can only be borrowed against and cannot be withdrawn, then these amounts are not included in the Annual Household Income calculation.

. In all instances, the Eligible Borrower's elective deferrals or contributions must be included in the Annual Household Income calculation.

b. Interest Earnings. If an Eligible Borrower has a large savings account and there will be savings left after Closing, interest must be imputed on the savings account assuming a 3.25% interest rate (which is determined by HUD and subject to change from time to time).

c. Dividends From Stock and Bonds etc. Annual Household Income includes realized earnings from dividends paid from investment portfolios unless the portfolio is liquidated prior to Closing.

d. Temporary or Nonrecurring Income. Temporary, nonrecurring or sporadic income (including gifts) or income derived from "straight-line depreciation" is not included in the calculation of Annual Household Income. Included in this category are such things as: business expense reimbursements; amortization of capital expenses; per diem allowances; reimbursements for moving expenses; or income used to pay for operating expenses, as often seen with the self-employed Eligible Borrower.

C. Purchase Price Limitations and Qualified Dwellings

1. General

The residence being financed must be a Qualified Dwelling and must not exceed the Maximum Purchase Price for the area in which it is located. The Eligible Borrower must acquire a fee simple interest in the real estate and the residence being financed must become the principal residence of the Eligible Borrower within 60 days after the Closing of the Mortgage Loan.

a. Types of Residence. The following types of residences qualify:

. A single family detached residence, including a manufactured home that is permanently affixed to real property

. A townhouse

. A Condominium Unit

. A Qualified Duplex, provided the structure was first occupied as a residence at least 5 years before the execution of the Mortgage.

b. Acquisition Cost Limits. In order to qualify for participation in the Single Family Program, the residence must have an Acquisition Cost no greater than the allowable Maximum Purchase Price shown in Schedule III. Please note that the Maximum Purchase Price may vary depending on whether the residence is located within a Targeted Area; the county in which the residence is located; whether the residence is new or existing construction; and whether it is a duplex. The U.S. Treasury Department publishes Average Area Purchase Prices which are the basis of setting the Single Family Program Maximum Purchase Price limits. The Maximum Purchase Price limits represent 90% of average area median purchase price for non-Targeted Area residences and 110% of average area median purchase price for Targeted Area residences as with the Maximum Household Income Limits, the Treasury Department will periodically issue new figures. ADFA will notify all Mortgage Lenders in advance of the effective date when the Maximum Purchase Price limits are revised.

In determining purchase price limits, ADFA may also use limits that would mirror the FHA single unit maximum loan amounts. This is appropriate in the Arkansas Single Family Bond Program since the majority of our loans are FHA insured loans.

c. Determination of Acquisition Cost for a Particular Residence. In theory, determining the Acquisition Cost should be easy. Generally, it is equal to what is shown on the Standard Residential Purchase

Contract and reflected on the Affidavits of Buyer and Seller. If the numbers match and the Purchase Price of the residence is less than the Maximum Purchase Price limit, then the residence should qualify. If this sounds too simple, you are starting to catch on. The Tax Code (and our lawyers) have an enormously difficult time in dealing with "simple." We must approach this Tax Code compliance issue from a viewpoint more closely resembling that of an IRS auditor: "there is something wrong here and I'm going to find it!"

As defined by the Tax Code, Acquisition Cost includes all amounts paid, either in cash or in kind, by the borrower (or any party related to the borrower) to the Seller (or to any party related to the Seller) as consideration for the residence. This includes the reasonable cost of completing an incomplete or unfinished residence (incomplete or unfinished means that occupancy is not permitted under law, or that the residence lacks fixtures or architectural appointments normally included or needed to provide adequate living space for the family members who intend to occupy the residence). Completion costs are included in the Tax Code definition of Acquisition Cost whether or not the cost of completing construction is to be financed with a qualified Mortgage Loan. In other words, you must include everything the borrower pays the Seller or incurs to finish out the residence, minus the items listed below, to purchase the residence.

Acquisition Cost does not include:

. Usual and reasonable settlement or financing costs (including titling and transfer costs, title insurance, survey fees, credit reference fees, legal fees, appraisal expenses, "points" which are paid to the borrower, or other similar costs). Please note that, in order for these costs to be excluded from the definition of Acquisition Cost, they must not exceed usual and reasonable charges for these expenses.

. The unpaid value of services performed by the borrower or members of his or her family in completing or finishing the residence. THIS IS BETTER KNOWN AS SWEAT EQUITY.

. Items of personal property which are not fixtures and/or are permanently affixed to the property.

. The cost of minor repairs, fix-ups, etc. performed after Closing and paid for by the borrower.

When a Standard Residential Purchase Contract includes personal property, the borrower and Seller must establish a fair market value for the personal property. The fair market value must be deducted from the Purchase Price when calculating the Acquisition Cost and the loan-to-value ratio. We are not going to worry about such things as old refrigerators and stoves, draperies or other typical items that really have no value to the Sellers. We will concern ourselves if the Standard Residential Purchase Contract includes the $10,000 bass boat parked in the garage or the new stereo system. If in doubt, call the Authority.

2. Special Areas of Concern With Regard to Residence Qualification

The following are additional standards and requirements of a Qualified Dwelling.

a. New Construction. To qualify as new construction, the residence cannot ever have been occupied by anyone. A model home qualifies, provided it was never rented or occupied as a residence prior to being sold.

b. Properties With More Than 5 Acres. The Tax Code prohibits the Authority from financing a residence located on land in excess of that needed to "reasonably maintain basic livability." This prohibition has been generally interpreted to mean land not exceeding five (5) acres. Therefore, if the land on which the house sits is in excess of five acres, you should determine that the property meets this standard and provide ADFA an explanation to justify the determination.

c. Properties With More Than One Livable Structure. Properties containing a main structure and a "coach house" can be cause for frustration. Unfortunately, the only solid advice we can give you is to say that we will consider these loans on a case-by-case basis. Our concern gets back to the issue of what constitutes "basic livability." We have to be confident that there is no intention on the part of the Eligible Borrower to use the additional structure in a trade or business. In some cases we can rely on a sworn affidavit from the Eligible Borrower stating that the "coach house" will not be used in any trade or business, including use as rental property. But, depending upon the appearance of the structure, statements, or comments made by the appraiser, the real estate tax numbers (one or two) or other circumstances surrounding the intended use of the additional dwelling, we may be forced to deny the Mortgage Loan. Again, the key is to contact us for advice if you encounter this situation.

d. Appraised Value Exceeds Program Limit. If the appraised value of the property exceeds the Maximum Purchase Price, do not assume that the loan will not qualify as a Mortgage Loan; we still may be able to approve the Mortgage Loan. The issue that needs to be addressed is whether there is a deliberate attempt to circumvent the Maximum Purchase Price limits or whether the Eligible Borrower just got a good deal. If the appraised value exceeds the Maximum Purchase Price Limit but the Acquisition Cost is below the limit and transaction is clearly an "arm's length" transaction (not between relatives, for example), we usually conclude that our Eligible Borrower bargained for a "good deal." We may require a statement from the Eligible Borrower and Seller indicating that no relationship exists if we are unclear about the relationship between the Eligible Borrower and the Seller. If you discover that the transaction is NOT "arm's length," then you will be required to sell the loan to some other investor. Generally, the residence is not eligible if the appraised value exceeds 110% of the Purchase Price.

e. Land Owned By Eligible Borrower. If the Eligible Borrower intends to have a residence built on land already owned, the cost of such land will be excluded from the Tax Code definition of Acquisition Cost ONLY IF such land has been owned by the borrower for at least two (2) years prior to the date on which construction of the land begins. If the land was purchased less than two years ago, the cost of the land is included in the Acquisition Cost. In order to determine whether to include the cost of the land or not, you should obtain a certified copy of the deed from the county recorder's office and submit it to the Authority when you submit the file. Likewise, the contract of sale or the settlement statement for the land can be used to substantiate such land's cost.

3. Required Documentation

Copy of the Standard Residential Purchase Contract between borrower and Seller.

Copy of the appraisal.

Certified copy of deed for any property owned by Borrower prior to loan application.

4. Special Issues Dealing with Benefit Recapture

The Federal government views Eligible Borrower who purchase a residence with Mortgage Loans financed with the proceeds of tax-exempt Bonds as having received a "subsidy" because of the below-market Loan Rate. The Tax Code requires that an Eligible Borrower who has taken advantage of the below-market Loan Rate may be required to repay part or all of this subsidy to the Federal government if: the Eligible Borrower sells the residence within nine (9) years of purchase; realizes a capital gain; and has had significant increases in Annual Household Income since the Mortgage Loan was made. The repayment is in the form of a tax and is commonly referred to as "Recapture."

Due to this provision in the Tax Code, ADFA requires that the potential Eligible Borrower be informed of this possible taxation at the time of loan application. The Notice to Eligible Borrower, attached as Exhibit 5-

F, must be provided to and signed by the Eligible Borrower at the time of application. By evidence of the Eligible Borrower's signature, we are assured that the Eligible Borrower has been given notice. Two (2) additional notices will be provided to the borrower. One is incorporated into the Affidavit of Buyer and the other will be signed by the Eligible Borrower at Closing.

a. How Does Recapture Work. The Tax Code assumes that the amount of the subsidy realized by the borrower is equal to 1.25% per year. This recapture rate increases in increments of 1.25% for the first five years of residence ownership; then, it declines by the same incremental rate through the ninth year of ownership. The rate of recapture is multiplied by the original Mortgage Loan amount to determine the amount of recapture tax to be paid. The following chart shows the recapture rates by year:

YEAR OF RESALE	RECAPTURE TAX RATE
1	1.25%
2	2.50%
3	3.75%
4	5.00%
5	6.25%
6	5.00%
7	3.75%
8	2.50%
9	1.25%
10	No recapture tax due

As you can see, the maximum amount of the recapture tax increases during the first five years of ownership and decreases for the next four years. After you have informed your borrower of the potential for a recapture tax, let the borrower know that in most cases (estimated to be around 90% - 95%), a recapture tax will not need to be paid! Several factors will determine whether the recapture tax must be applied. The factors include: the year in which the residence is subsequently sold; the circumstances surrounding this disposition of the residence; the household size and Annual Household Income at the time of resale; and the amount of capital gain made upon the resale.

b. Recapture Tax Is Not Paid Under the Following Conditions:

. The Eligible Borrower lives in the residence for more than nine years.

. The Eligible Borrower does not realize capital gain upon resale.

. The Eligible Borrower dies.

. The Eligible Borrower's Annual Household Income at the time of resale has not increased to an amount greater than the Maximum Household Income Limit for the Single Family Program calculated with a 5% annual growth rate.

Let's focus on this last reason, since we feel that it will be the primary reason for not having to pay the recapture tax. Page 5 of Exhibit 7-P, signed by the borrower at the Mortgage Loan Closing, shows a worksheet of the real or perceived risks involved with recapture. We believe that, in most cases, the Eligible Borrower will not have to pay a recapture tax because his or her Annual Household Income likely will not exceed the Maximum Household Income Limit at the time of resale. As you will see in reviewing the chart, we have taken the Maximum Household Income Limit for the Single Family Program and projected it with a 5% annual growth rate. If the Eligible Borrower's income is at or below this adjusted amount at the time of resale, the Eligible Borrower pays no recapture tax! Since our typical borrower's Annual Household Income is well below the Maximum Household Income Limit, it would require an Eligible Borrower to realize significant increases (7% -15% or greater) annually before exceeding the limit.

c. Who Are the Eligible Borrower s Most at Risk?

. Single Eligible Borrowers. If they get married they can double their Annual Household Income overnight.

. Eligible Borrowers who are very close to being over income at the time of loan application. They will be limited to Annual Household Income growth of no more than 5% annually if they expect to stay beneath the allowable limits.

. Young professionals or "superstars" who anticipate significant salary increases within the near future and do not intend to stay in the property for more than nine years.

d. How Does the Borrower Pay the Tax? If the recapture tax must be paid, it will be part of the Eligible Borrower's income tax computation when the Eligible Borrower files his or her annual income tax return for the year in which the Eligible Borrower resells the residence.

e. What If the Eligible Borrower Refinances? It is hard to believe that anyone would want to refinance one of our great rates. However, let's assume for discussion purposes only that an Eligible Borrower wishes to refinance. If this occurs, the recapture tax rate (see chart under "How Does Recapture Work") freezes in the year of refinance. As long as the Eligible Borrower continues to reside in the residence, no recapture tax is due.

Example: The Eligible Borrower refinances in the third year. The recapture tax rate for year three is 3.75%. In year four the rate declines to 2.50%, year five it drops to 1.25% and year six it goes away. In any event, the Eligible Borrower would not pay any recapture tax until a resale of the residence occurs and the recapture tax rate would be the rate for the year of the subsequent sale. All other aspects of the recapture provision remain the same.

f ADFA is implementing a program to reimburse borrowers who are required to pay a

"recapture tax" if they sell their home in the first nine years. They must first pay the actual required tax and then file their claim for reimbursement. A 1099 would be issued to the borrower for the amount reimbursed. The President of ADFA reserves the right to suspend this reimbursement program at his discretion.

D. Mortgage Loan Assumptions

Often a purchaser wants to purchase a home that is subject to a previous mortgage, and the purchaser may want to assume all the rights and obligations of the prior owners under the previous mortgage. In such a case, the Master Servicer may release (subject to any required FHA, USDARD, VA and GNMA, or USDARD, PMI Insurer and Fannie Mae approval, as applicable, and in accordance with currently-applicable FHA, USDARD, VA and GNMA or USDARD, PMI Insurer and Fannie Mae rules and regulations) the prior owners and enter into or take an assumption agreement with or from the new purchaser. However, the Master Servicer can only agree to an assumption with ADFA's written approval.

a. What does it take to get ADFA's approval on an assumption? In order to get ADFA's approval, the mortgage assumption must satisfy the mortgage eligibility requirements:

(i) the purchaser is an eligible Borrower, subject also to the requirement of initial and continued occupancy of the residence as his or her primary residence;

(ii) the Acquisition Cost of the Single-Family Residence does not exceed current county limits that is applicable for the Single-Family Residence in Arkansas at time of application for assumption;

(iii) the Mortgage Loan continues to be insured under the insurance policies described in this Agreement and approved by the Master Servicer;

(iv) the Purchaser's current Annual Family Income does not exceed the Maximum Household County Income Limit currently in effect; and

(v) the Mortgage Loan continues to comply with the requirements of FHA, USDARD or VA regulations and the GNMA Guide, or the requirements of USDARD or the PMI Insurer and the Fannie Mae Guides, as applicable.

(vi) the eligible Borrower must complete the current available Bond documents that include the applicable HomeToOwn Bond compliance documents. (See Chapter 5 Compliance Documents)

b. How does ADFA determine whether these requirements are met? Whether or not these requirements are met is determined when the mortgage is assumed and is based on the circumstances at that time (as if the loan were being made for the first time). For example, the purchase price requirement is to be determined by reference to the average area purchase price at the time of the assumption and not when the mortgage was originally placed.

c. What if the mortgage is assumed, but it does not meet the eligibility requirements? If a mortgage is assumed that does not meet the mortgage eligibility requirements, then that mortgage must be accelerated or replaced with a qualified mortgage.

ADFA will not consent to the assumption if the eligibility requirements are not met.

d. What effect does an assumption have on the Mortgage? Upon the assumption, the eligibility requirements become incorporated in the related Mortgage and are kept as a part of the Mortgage File.

. When a Mortgage is assumed, the interest rate on that Mortgage remains the same.

. The Master Servicer may charge a fee in connection with the assumption as permitted by FHA, USDARD, VA, GNMA and/or Fannie Mae. They may also charge the reasonable and customary out-of-pocket costs paid or incurred by the Mortgage Lender as specified in Section 4.04 and to the extent permitted by law.

. All warranties and representations of the Mortgage Lender made to the original Borrower with respect to the Mortgage Loan remain in full force and effect with respect to the period prior to the assumption. Once the assumption has occurred, the warranties and representations still apply, but they only apply to the extent they relate to facts concerning the status or performance of the assuming purchaser.

E. Tax Code Compliance Schedules and Tables

SCHEDULE I CURRENT LIST OF TARGETED AREAS

Borrowers purchasing a Qualified Dwelling in a Federally Targeted Area need not meet the First-Time Homebuyer regulation. The following counties constitute Targeted Areas:

Bradley	Lee
Calhoun	Lincoln
Chicot	Madison
Clark	Mississippi
Cleburne	Monroe
Columbia	Nevada
Conway	Ouachita
Crawford	Perry
Crittenden	Phillips
Cross	Prairie
Dallas	Scott
Desha	St. Francis
Drew	Searcy
Jefferson	White
Lafayette	Woodruff
Yell

ARKANSAS DEVELOPMENT FINANCE AUTHORITY

HomeToOwn Program

SCHEDULE II

MAXIMUM PURCHASE/SALES PRICE, DOWNPAYMENT REQUIREMENTS, LOAN AMOUNT REQUIREMENTS AND MORTGAGE LOAN INSURERS

A. MAXIMUM PURCHASE/SALES PRICE

The following are the Maximum Purchase/Sales prices permitted by the ADFA for housing purchased and/or constructed pursuant to this Mortgage Obligation Agreement:

SINGLE UNIT HOUSING
Newly Constructed	See Schedule III
Existing Housing	See Schedule III

PROVIDED FURTHER THAT THE APPRAISED VALUE OF SUCH HOUSING SHALL NOT EXCEED 100% OF SAID MAXIMUM PURCHASE/SALES PRICES.

B. DOWNPAYMENT REQUIREMENTS

Following Loan Insuring Agency guidelines and regulations.

C. LOAN AMOUNT REQUIREMENTS

The principal amount of the mortgage loan will not exceed any applicable loan-to-value limits as established by FHA, USDARD, VA, GNMA or FNMA/FHLMC.

D. MORTGAGE LOAN INSURERS

1. FannieMae guidelines must be followed for insuring of Conventional Loans. Private Mortgage Insurance Companies must be approved by Fannie Mae/FHLMC and be licensed to conduct business in the State of Arkansas.

2. FHA loans must be insured by FHA.

3. RURAL DEVELOPMENT loans must be guaranteed by RURAL DEVELOPMENT.

4. VA loans must be guaranteed by Department of Veterans Affairs.

ARKANSAS DEVELOPMENT FINANCE AUTHORITY

HomeToOwn Program Schedule III

STATE OF ARKANSAS 2007 INCOME BY COUNTY & HOUSEHOLD SIZE

Purchase Price Limits by County/New Existing (Effective April 20, 2007) Income Limits by County and Household Size (Effective April 20, 2007)

N=Non-Targeted		PURCHASE PRICE LIMITS		2007 INCOME LIMITS
T=Targeted		1-2 MEMBER 3-MORE MEMBER
N/T	COUNTY	EXISTING	NEW CONSTRUCTION	HOUSEHOLD	HOUSEHOLD
N	Arkansas*	$200,160	$200,160	$49,682	$57,135
N	Ashley*	$200,160	$200,160	$49,442	$56,859
N	Baxter*	$200,160	$200,160	$48,720	$56,840
N	Benton	$200,160	$200,160	$53,100	$61,065
N	Boone*	$200,160	$200,160	$49,680	$57,444
T	Bradley	$200,160	$200,160	$54,720	$63,840
T	Calhoun*	$200,160	$200,160	$54,720	$63,840
N	Carroll	$200,160	$200,160	$48,480	$56,560
T	Chicot	$200,160	$200,160	$54,720	$63,840
T	Clark*	$200,160	$200,160	$54,720	$63,840
N	Clay	$200,160	$200,160	$48,480	$56,560
T	Cleburne*	$200,160	$200,160	$54,720	$63,840
N	Cleveland	$200,160	$200,160	$49,102	$56,468
T	Columbia*	$200,160	$200,160	$54,720	$63,840
T	Conway*	$200,160	$200,160	$54,720	$63,840
N	Craighead *	$200,160	$200,160	$48,882	$56,146
T	Crawford	$200,160	$200,160	$54,720	$63,840
T	Crittenden	$200,160	$200,160	$68,760	$80,220
T	Cross	$200,160	$200,160	$54,720	$63,840
T	Dallas	$200,160	$200,160	$54,720	$63,840
T	Desha	$200,160	$200,160	$54,720	$63,840
T	Drew*	$200,160	$200,160	$54,720	$63,840
N	Faulkner	$200,160	$200,160	$56,500	$64,975
N	Franklin	$200,160	$200,160	$49,662	$57,112
N	Fulton	$200,160	$200,160	$48,480	$56,560
N	Garland	$200,160	$200,160	$49,282	$56,675
N	Grant *	$200,160	$200,160	$49,800	$57,270
N	Greene*	$200,160	$200,160	$49,502	$56,928
N	Hempstead*	$200,160	$200,160	$48,480	$56,560
N	Hot Spring*	$200,160	$200,160	$49,502	$56,928
N	Howard*	$200,160	$200,160	$48,960	$57,120
N	Independence*	$200,160	$200,160	$49,262	$56,652
N	Izard	$200,160	$200,160	$48,480	$56,560

N	Jackson	$200,160	$200,160	$48,480	$56,560
T	Jefferson	$200,160	$200,160	$54,720	$63,840
N	Johnson	$200,160	$200,160	$48,480	$56,560

T	Lafayette	$200,160	$200,160	$54,720	$63,840
N	Lawrence	$200,160	$200,160	$48,480	$56,560
T	Lee	$200,160	$200,160	$54,720	$63,840
T	Lincoln	$200,160	$200,160	$54,720	$63,840
N	Little River*	$200,160	$200,160	$49,802	$57,273
N	Logan	$200,160	$200,160	$48,480	$56,560
N	Lonoke	$200,160	$200,160	$56,500	$64,975
T	Madison	$200,160	$200,160	$63,720	$74,340
N	Marion	$200,160	$200,160	$48,480	$56,560
N	Miller *	$200,160	$200,160	$48,902	$56,238
T	Mississippi	$200,160	$200,160	$54,720	$63,840
T	Monroe	$200,160	$200,160	$54,720	$63,840
N	Montgomery	$200,160	$200,160	$48,480	$56,560
T	Nevada	$200,160	$200,160	$54,720	$63,840
N	Newton	$200,160	$200,160	$48,480	$56,560
T	Ouachita*	$200,160	$200,160	$54,720	$63,840
T	Perry	$200,160	$200,160	$67,800	$79,100
T	Phillips	$200,160	$200,160	$54,720	$63,840
N	Pike	$200,160	$200,160	$48,480	$56,560
N	Poinsett	$200,160	$200,160	$48,480	$56,560
N	Polk	$200,160	$200,160	$48,480	$56,560
N	Pope*	$200,160	$200,160	$49,122	$56,491
T	Prairie*	$200,160	$200,160	$54,720	$63,840
N	Pulaski	$200,160	$200,160	$56,500	$64,975
N	Randolph	$200,160	$200,160	$48,480	$56,560
T	St. Francis	$200,160	$200,160	$54,720	$63,840
N	Saline	$200,160	$200,160	$56,500	$64,975
T	Scott	$200,160	$200,160	$54,720	$63,840
T	Searcy	$200,160	$200,160	$55,920	$65,240
N	Sebastian	$200,160	$200,160	$49,182	$56,560
N	Sevier*	$200,160	$200,160	$48,600	$56,700
N	Sharp	$200,160	$200,160	$48,480	$56,560
N	Stone	$200,160	$200,160	$48,480	$56,560
N	Union*	$200,160	$200,160	$49,552	$56,951
N	Van Buren	$200,160	$200,160	$48,480	$56,560
N	Washington	$200,160	$200,160	$53,100	$61,065
T	White*	$200,160	$200,160	$54,720	$63,840

T	Woodruff	$200,160	$200,160	$54,720	$63,840
T	Yell	$200,160	$200,160	$54,720	$63,840

The Maximum Household Income Limits are regulated by the Treasury Department. The following MUST be considered when calculating borrower's income. ALL SOURCES OF INCOME MUST BE CONSIDERED.

Household Income is defined as "the current family income of a potential Mortgagor, and shall in any event include the current gross income of ALL persons who reside or intend to reside with such Mortgagor in the same dwelling unit (other than persons under 18 years of age who are not primarily liable or secondarily liable on the Mortgage Note), but exclusive of the income of any CO-SIGNER of a Mortgage Note who does not reside or intend to reside therein, as evidenced by documentation satisfactory to the Authority." Current gross income is annualized current gross monthly income (gross monthly income multiplied by 12).

Gross monthly income is the sum of monthly gross pay AND ANY ADDITIONAL INCOME INCLUDING BUT NOT LIMITED TO THE FOLLOWING:

Alimony

Bonuses

Business Activities Income

Child Support

Commissions

Dividends

Income from Assets

Interest Investments Income

Mileage

Military Allowance

Net Rental Income

Overtime

Part-Time Employment

Pensions

Public Assistance

Royalties

Shift Differential

Sick Pay

Social Security Benefits

Trust Income

Unemployment Compensation

VA Compensation

CHAPTER 3 MORTGAGE LENDER CREDIT/REAL ESTATE UNDERWRITING

ADFA is pleased to purchase the following types of Mortgage Loans for our HomeToOwn Program. These types of Mortgage Loans are eligible for participation in the Single Family Program:

FHA Loans: 203(b), 203(b)/Vet, 234c, 203(k), 203(h), in applicable areas. ADFA encourages the use of the FHA Energy-Saving Mortgage.

V.A. Guaranteed Loans: Guaranteed by the Department of Veterans Affairs.

Conventional Loans: (All conventional loans are put into Fannie Mae pools. They include all conventional loans including the Fannie Mae My Community Mortgage loan. Rural Development: Guaranteed Rural Housing Loans.

Each Mortgage Lender is required to provide to ADFA, in the Mortgage Origination Agreement (as defined in Chapter 1), its Approved Mortgage Lender Numbers for FHA Loans, VA Loans, FNMA Loans and Rural Development Loans. If the Mortgage Lender is also an approved direct endorsement "Chums Underwriter", those approved mortgager lender numbers must also be included in the Mortgage Origination Agreement. If any changes occur within your lending institution, please notify ADFA.

As our bond lender, we are allowing you to credit underwrite our ADFA loans. ADFA needs additional compliance underwriting information to make our files complete. Items we now request must include:

FHA Loans: signed mortgage credit analysis worksheet (MCAW), and any automated underwriting finding (if applicable).

V.A. Guaranteed Loans: signed loan analysis approval sheet, and automated underwriting findings (if applicable).

Conventional Loans: signed uniform underwriting transmittal summary (1008), and automated underwriting findings (if applicable).

Rural Development: signed conditional commitment and any automated underwriting findings (if applicable).

Please note that the Master Servicer has provided the following underwriting checklists for use with the following categories of Mortgage Loans: FHA Loans, VA Loans, Conventional Loans and USDA Rural Development Loans. For your convenience, ADFA has included copies of those four checklists at the end of this Chapter.

The Real Estate Appraisal should have consistency throughout the appraisal. The comparables need to be similar. All appraisers must be on the Mortgage Lender's approved appraiser list. Note: If there are any discrepancies with the appraisal, ADFA may ask for clarification.

ALL MORTGAGE LOANS MUST BE INSURABLE OR GUARANTEED BY MORTGAGE TYPE AND SALEABLE ON THE SECONDARY MARKET. IN THE EVENT THAT A MORTGAGE LOAN IS NOT INSURABLE OR GUARANTEED, BOTH THE MORTGAGE LOAN AS WELL AS ANY DPA LOAN MUST BE REPURCHASED BY THE ORIGINATING MORTGAGE LENDER.

ADFA has the authority to establish underwriting criteria that are more restrictive than required by the Master Servicer, Fannie Mae and Freddie Mac.

ADFA's main goal is to quickly process loans with accuracy so when the loans are delivered to the secondary market, they can be purchased faster with no exceptions.

ADFA will negotiate with the primary Mortgage Insurance Companies to provide services to the participating lenders under our Bond Program. At a minimum these services will include Involuntary Unemployment Insurance for conventional borrowers, contract underwriting for our lenders and any other services they may provide to Housing Fiannce Agencies. These negotiations will be through the RFP process as with other entities that provide a service under ADFA programs.

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CHAPTER 4 - DOWN PAYMENT ASSISTANCE LOANS

ADFA is ready to offer two types of down payment assistance loans. Both of these down payment choices will be available on the Internet Reservation System for ADFA's approved lenders. The two types of loans include the current Down Payment Assistance (DPA) Loan that is a 10 year amortizing mortgage or the American Dream Down Payment Initiative (ADDI)/HOME Program that is a forgivable loan with a five year affordability period attached to it.

ADFA does not allow seller funded down payment assistance from Third Party Non-profit Gift programs in the "HomeToOwn" Program.

A. ADFA'S Down Payment Assistance Loan (DPA)

ADFA is pleased to be able to provide down payment and closing cost assistance in the form of a Down Payment Assistance Loan secured by a second mortgage ("DPA Loan") to those who qualify for it. The amount of assistance available will be communicated separately to all lenders through the Program Brochure. All DPA Loans must be issued in conjunction with a Single Family Program Mortgage Loan. Please note that the funds are a loan.

The proceeds of the DPA Loan can only be used for certain items. Of course, funds may be used for an Eligible Borrower's down payment and Closing costs. Cash back to the borrowers is allowed for expenses "paid outside of closing" (POC). In order for the funds to be replenished they must be designated as being paid up front by the borrower and be reflected as such on the HUD-1 Settlement statement. This applies only to the ADFA hard second mortgage. It does not apply to ADDI loans. It is also important to calculate the loan amounts accurately, because in most cases, the reduction of Mortgage Loan principal costs the Eligible Borrower extra money! Origination fees and other fees based on a percentage of the Mortgage Loan amount would have already been incurred. Reducing the principal balance of the Mortgage Loan doesn't allow the Eligible Borrower to recoup any of these fees, nor does it reduce the monthly payment amount. So do everybody a favor and keep all loan amounts accurate!

The DPA Loan term is based on a 10-year amortization. It is due on sale, transfer, other disposition of the property (including any involuntary transfer by or as a result of foreclosure or judicial sale or operation of law), refinance or other satisfaction of the Mortgage Loan.

In the event the Mortgage Note Holder and the Servicer, in their sole and absolute discretion, after a loss mitigation analysis, find that a catastrophic event, including but not limited to Borrower's death or extended illness, or the extended illness of a close family member who depends primarily on the borrower for support, has occurred which submitted substantially and permanently impairs their ability to repay second mortgage note and requires them to sell the Property for an amount less than the mortgage note, that portion of the lien of second mortgage note which can not be satisfied from the proceeds of such sale shall be released.

The interest rate on DPA Loans may be changed by the Authority at any time. Please refer to the ADFA website for the current rate.

Here are some other requirements for down payment assistance loan:

1. Homebuyer Education. All borrowers, with the exception of co-signors, are required to complete an eight our homebuyer education course taught by an ADFA-approved homebuyer counseling agency. A copy of the certificate that is issued at the end of the course must be included in the Mortgage File. All persons that will be signing the Mortgage are required to take the course!

2. Minimum Cash Investment. There is no longer a minimum cash investment required from borrowers own funds when a down payment assistance program is used in conjunction with our HomeTo Own loan.

3. Maximum Cumulative Loan to Value (CLTV).

. FHA: The sum of all financing may not exceed 100% of the Acquisition Cost plus any prepaid expenses.

. VA: The sum of all financing may not exceed 100% of the reasonable value of the property established by VA plus any Closing costs and prepaids.

. Conventional: The sum of all financing cannot exceed 105% of the lower of either Purchase Price or appraised value.

. USDARD: Sum of financing cannot exceed 100% of appraised value plus the Rural Development Fee.

4. Allowable Fees to Participant Mortgage Lender. No commitment or origination fee will be charged for the DPA Loan. The Mortgage Lender may collect and retain a $50 application fee for each DPA Loan.

5. Closing Requirements.

. DPA Loan must meet federal truth-in-lending disclosure requirements.

. Second mortgage must be recorded in the official public records of the County Recorder's Office such that it constitutes a valid second lien upon the property.

. Hazard insurance policy must show the Mortgage Lender and/or its assigns as an insured second mortgagee.

. Title insurance policy must reflect the second mortgage as a valid lien against the property subordinate to the Mortgage.

. Mortgage Lender advances the funds and is reimbursed at the purchase by the Master Servicer.

. The DPA loan will be assigned to Arkansas Development Finance Authority.

6. Servicing Information.

. DPA Loan will be serviced by the Master Servicer.

. A monthly payment statement will be issued and the Eligible Borrower will remit one check to cover both the first and second mortgage loan obligations.

. Assumptions are not allowed.

. A DPA Loan administration fee of $150 will be netted at purchase from the DPA Loan funds by the Master Servicer.

. There is no prepayment penalty.

. There is no recapture tax provision.

. In the event that the Mortgage Loan (the "First Mortgage") is determined to be uninsurable on the secondary market, then the originating Mortgage Lender will be obligated to repurchase both the Mortgage Loan ("First Mortgage") as well as the DPA Loan.

B. AMERICAN DREAM DOWNPAYMENT INITIATIVE (ADDI)/HOME PROGRAM

President Bush signed the American Dream Down payment Initiative (ADDI) into law on December 16, 2003, under the American Dream Down payment Act ( Public Law 18-186) (ADDI statute). Funds made available under the ADDI statute will be allocated to eligible HOME Investment Partnerships Program participating jurisdictions (PJ) to assist low-income families become first-time homebuyers. Goals of the ADDI Program include increase overall homeownership rate, create greater opportunity for homeownership among lower income and minority households, and revitalize and stabilize communities.

ADFA will provide the ADDI/HOME Program funds in the form of a forgivable loan (second mortgage) at a maximum of $10,000 for down payment and closing costs in conjunction with ADFA's HomeToOwn Mortgage Revenue Bond Program. The ADDI/HOME Program forgivable loan is accessible through the Internet Reservation System. The assistance will be forgiven in equal annual installments over the five-year affordability period for qualified borrowers who have maintained the home as their principal residence. The documents for this program will include a note, mortgage, assignment and ADDI/HOME Agreement.

If the home is pre-1978 built, lead-based paint may need to be addressed and the HOME staff will work with the first-time homebuyers in making the home free of any lead-based paint by placing another forgivable loan on the property with an affordability period attached to it also. Documents will include a note, mortgage and Lead-based Paint HOME Agreement. All of these documents will be available through the Internet Reservation System.

Requirements of the ADDI/HOME Program that must be attained include:

1. A first-time homebuyer is an individual or a married person who along with their spouse who have not owned a home for the past three years. Borrower(s) must furnish the most recent 3 years tax returns with W-2's attached to the lender and Verification of Rental for the past three years. This includes both targeted and non-targeted counties.

2. The first time homebuyer's income cannot exceed 80% of area median income for all seventy-five counties throughout the State of Arkansas. Income limits are adjusted for the total number of persons who will occupy the residence. (See ADDI/HOME Program Exhibit A. Updated annually)

3. Homebuyer(s) must complete an 8-hour Homebuyer Counseling Course from an ADFA approved counselor.

4. Under ADDI eligible property types include, single-family housing (1-4 family residence), condominium unit, or combination of manufactured housing attached to real estate property. The unit must meet all applicable State and local housing quality standards, and the Model Energy Code. The purchase price cannot exceed the HUD 203 (b) Mortgage Limits.

5. The borrower(s) must own, maintain, and occupy this home as their principal residence. The borrower must occupy the home within 60 days of closing the loan.

6. A Housing Quality Standard (HQS) Inspection will be conducted on all homes by ADFA Inspectors. This inspection will be done on all homes that are using the ADDI/HOME Program. This is NOT a home inspection. If repairs are needed, lender must review and discuss "Acknowledgment of Repairs" sent by ADFA underwriter with borrower(s). The Acknowledgment of Repairs must be signed by lender and borrower(s) and sent to ADFA underwriter.

7. Only one down payment assistance loan can be obtained for a qualified buyer from ADFA. If the person's income qualifies for the ADDI/HOME Program that is great but if they are over the income limit, then the regular ADFA Down Payment Assistant (DPA) loan can be used.

8. The borrower(s) will be subject to an affordability period of years based upon the amount of assistance received from the ADDI/HOME Program. If the home is not maintained and sold before the affordability period is up, there will be recapture of HOME subsidy.

Affordability Periods

Home Subsidy	Affordability Period
Less than $15,000	5 years
$15,000 - $25,000	10 years

9. If the home to be purchased was built pre-1978, lead-based paint may be present and additional HOME funds may be used in conjunction with HOME Program to rehabilitate or eliminate identified lead-based paint hazards. A Lead-Based Paint Risk Assessment Inspection will occur by ADFA Inspectors to determine if the home has any lead-base paint hazards and cost will be determined based on the Risk Assessment findings. Other financing will then be discussed with the first-time homebuyer through the HOME Department Staff.

10. Borrower(s) and lenders will review and sign the ADDI/HOME Program Notice to Homebuyer. The original will be sent to ADFA in the compliance package. Applicable fee is the $50 "ADDI 2nd Mortgage Lender Processing Fee".

11. A one-time ADFA Vendor Setup Sheet and W-9 form is required in order for ADDI funds to be released from HUD so ADFA may purchase loan from the lender. These forms may be requested from a Single Family Underwriter.

12. Closing requirements:

. The ADDI/HOME Subordinate mortgage must be recorded in the official public records of the County Recorder's Office such that it constitutes a valid second lien upon the property.

. ADDI/HOME Program Assignment of subordinate mortgage must be recorded in the official public records of the County Recorder's Office.

. ADDI/HOME Program Homebuyer Assistance Agreement must be recorded in the official public records of the County Recorder's Office.

. Hazard insurance policy must show the Mortgage Lender and/or its assigns as an insured second mortgagee.

. Title insurance policy must reflect the ADDI/HOME subordinate mortgage as a valid lien against the property.

. Copy of flood certification must be provided.

. Mortgage Lender advances the funds and is reimbursed by ADFA upon receipt of the original signed ADDI/HOME Program Note and copy of the RECORDED ADDI/HOME Subordinate Mortgage.

. The ADDI/HOME loan will be assigned to Arkansas Development Finance Authority.

13. Servicing Requirements:

ADDI/HOME Program Loans:

. ADDI/HOME Loans will be serviced by ADFA Loan Servicing Department.

. Assumptions are not allowed.

. There is an affordability period that varies with the ADDI/HOME loan amount.

. Lender must provide to ADFA Single Family, final RECORDED documents that include:

a. Original Recorded ADDI/HOME Program Subordinate Mortgage

b. Original Recorded Assignment of ADDI/HOME Program Subordinate Mortgage

c. Original Recorded ADDI/HOME Program Homebuyer Assistance Agreement

HOME Lead Base Paint Loans:

All documentation pertaining to lead base paint loans are to be sent to the HOME Department at ADFA.

AMERICAN DREAM DOWNPAYMENT INITIATIVE (ADDI)/HOME PROGRAM
in conjunction with the Sing Program			le Family HomeToOwn
HUD HOME PROGRAM INCOME LIMITS				04/2007
		NUMBER OF PERSONS/MAXIMUM HOUSEHOLD INCOME AT 80% OF MEDIAN
		INCOME
N/T	COUNTY NAME	1	2	3	4	5	6	7
N	Arkansas	23900	27300	30750	34150	36900	39600	42350	45100
N	Ashley	24550	28100	31600	35100	37900	40700	43500	46350
N	Baxter	22750	26000	29250	32500	35100	37700	40300	42900
N	Benton	29750	34000	38250	42500	45900	49300	52700	56100
N	Boone	23150	26500	29800	33100	35750	38400	41050	43700
T	Bradley	22600	25850	29050	32300	34900	37450	40050	42650
T	Calhoun	22800	26050	29300	32550	35150	37750	40350	43000
N	Carroll	22600	25850	29050	32300	34900	37450	40050	42650
T	Chicot	22600	25850	29050	32300	34900	37450	40050	42650
T	Clark	24450	27950	31450	34950	37750	40550	43350	46150
N	Clay	22600	25850	29050	32300	34900	37450	40050	42650
T	Cleburne	24300	27750	31250	34700	37500	40250	43050	45800
N	Cleveland	25550	29200	32850	36500	39400	42350	45250	48200
T	Columbia	23900	27350	30750	34150	36900	39650	42350	45100
T	Conway	24650	28150	31700	35200	38000	40850	43650	46450
N	Craighead	26300	30100	33850	37600	40600	43600	46600	49650
T	Crawford	25300	28950	32550	36150	39050	41950	44850	47750
T	Crittenden	32100	36700	41250	45850	49500	53200	56850	60500
T	Cross	22600	25850	29050	32300	34900	37450	40050	42650
T	Dallas	22600	25850	29050	32300	34900	37450	40050	42650
T	Desha	22600	25850	29050	32300	34900	37450	40050	42650
T	Drew	24250	27700	31200	34650	37400	40200	42950	45750
N	Faulkner	31650	36150	40700	45200	48800	52450	56050	59650
N	Franklin	24000	27400	30850	34250	37000	39750	42450	45200
N	Fulton	22600	25850	29050	32300	34900	37450	40050	42650
N	Garland	25050	28600	32200	35750	38600	41450	44350	47200
N	Grant	27900	31900	35850	39850	43050	46250	49400	52600
N	Greene	24450	27900	31400	34900	37700	40500	43300	46050
N	Hempstead	22600	25850	29050	32300	34900	37450	40050	42650
N	Hot Spring	24450	27900	31400	34900	37700	40500	43300	46050
N	Howard	22850	26100	29400	32650	35250	37850	40500	43100
N	Independence	25100	28700	32250	35850	38700	41600	44450	47300
N	Izard	22600	25850	29050	32300	34900	37450	40050	42650
N	Jackson	22600	25850	29050	32300	34900	37450	40050	42650
T	Jefferson	25550	29200	32850	36500	39400	42350	45250	48200
N	Johnson	22600	25850	29050	32300	34900	37450	40050	42650
T	Lafayette	22600	25850	29050	32300	34900	37450	40050	42650
N	Lawrence	22600	25850	29050	32300	34900	37450	40050	42650
T	Lee	22600	25850	29050	32300	34900	37450	40050	42650
T	Lincoln	25550	29200	32850	36500	39400	42350	45250	48200
N	Little River	23600	26950	30350	33700	36400	39100	41800	44500

N	Logan	22600	25850	29050	32300	34900	37450	40050	42650
N	Lonoke	31650	36150	40700	45200	48800	52450	56050	59650
T	Madison	29750	34000	38250	42500	45900	49300	52700	56100
N	Marion	22600	25850	29050	32300	34900	37450	40050	42650
N	Miller	26100	29850	33550	37300	40300	43250	46250	49250
T	Mississippi	22600	25850	29050	32300	34900	37450	40050	42650
T	Monroe	22600	25850	29050	32300	34900	37450	40050	42650
N	Montgomery	22600	25850	29050	32300	34900	37450	40050	42650
T	Nevada	22600	25850	29050	32300	34900	37450	40050	42650
N	Newton	22600	25850	29050	32300	34900	37450	40050	42650
T	Ouachita	23250	26550	29900	33200	35850	38500	41150	43800
T	Perry	31650	36150	40700	45200	48800	52450	56060	59650
T	Phillips	22600	25850	29050	32300	34900	37450	40050	42650
N	Pike	22600	25850	29050	32300	34900	37450	40050	42650
N	Poinsett	22600	25850	29050	32300	34900	37450	40050	42650
N	Polk	22600	25850	29050	32300	34900	37450	40050	42650
N	Pope	25500	29100	32750	36400	39300	42200	45150	48050
T	Prairie	23750	27100	30500	33900	36600	39300	42050	44750
N	Pulaski	31650	36150	40700	45200	48800	52450	56050	59650
N	Randolph	22600	25850	29050	32300	34900	37450	40050	42650
T	St. Francis	22600	25850	29050	32300	34900	37450	40050	42650
N	Saline	31650	36150	40700	45200	48800	52450	56050	59650
T	Scott	22600	25850	29050	32300	34900	37450	40050	42650
T	Searcy	22600	25850	29050	32300	34900	37450	40050	42650
N	Sebastian	25300	28950	32550	36150	39050	41950	44850	47750
N	Sevier	22700	25900	29150	32400	35000	37600	40200	42750
N	Sharp	22600	25850	29050	32300	34900	37450	40050	42650
N	Stone	22600	25850	29050	32300	34900	37450	40050	42650
N	Union	24350	27850	31300	34800	37600	40350	43150	45950
N	Van Buren	22600	25850	29050	32300	34900	37450	40050	42650
N	Washington	29750	34000	38250	42500	45900	49300	52700	56100
T	White	25150	28750	32350	35900	38800	41650	44550	47400
T	Woodruff	22600	25850	29050	32300	34900	37450	40050	42650
T	Yell	22600	25850	29050	32300	34900	37450	40050	42650
**	HUD Reviews the income limits annually for all 75 counties.

CHAPTER 5 - MORTGAGE LOAN ORIGINATION

A. Taking Loan Applications - Initial Screening

Mortgage Lenders may accept applications on residences located anywhere within the State. If, after a particular Mortgage Lender initially joins the Single Family Program by executing a Mortgage Origination Agreement, the Mortgage Lender opens additional loan origination branches, the Mortgage Lender must send or fax a letter to ADFA listing the name, address, telephone and contact person at each new location.

a. Date of Sales Contract or Application. Since we have moved to continuous funding, we should always be able to offer Mortgage Loan proceeds. You will no longer have to restrict the date of the Standard Residential Purchase Contract or explain the date the loan application was taken.

b. Pre-Screening Applicants. We request that prior to taking a loan application for an ADFA Mortgage Loan, you take a few minutes to pre-screen the Eligible Borrowers. Ask such questions as:

. Is the Eligible Borrower and any Co-Eligible Borrower a first-time homebuyer?

. Is the Eligible Borrower's spouse a first-time homebuyer even though he or she may choose not to be liable on the Mortgage Loan?

. How does the Eligible Borrower honestly describe his or her credit history?

Once the Mortgage Lender is satisfied with the answers and believes that it has a legitimate candidate for the Single Family Program, then the Mortgage Lender should take the application and proceed to website at:

https://www.adfaweb.adfa.state.ar.us/logon.htm

c. Click here for loan origination documents. Origination documents can be processed by the originator with the Eligible Borrower(s) present. You will need to log on the Internet using your originator number, branch number, password and user ID number.

B. The Reservation Process

The next step is to reserve Single Family Program funds for the borrower. In order to reserve funds, Mortgage Lenders need only access to the ADFA web page at:

https://www.adfaweb.adfa.state.ar.us/logon.htm

Prior to making a reservation request, the Mortgage Lender should have in hand the following information:

a. LOAN APPLICATION (Signed and dated by borrower, any co-borrower and the Mortgage Lender).

b. CREDIT REPORT (Standard report from a credit reporting bureau or merged-in file with three repositories).

c. OFFER & ACCEPTANCE (Signed and dated by borrower(s), Seller(s) and all real estate persons involved with the transaction).

d. CONSTRUCTION/HOME BUILDER CONTRACT (Signed and dated by the borrower and his or her homebuilder).

e. ITEMIZED ACQUISITION COST BREAKDOWN/WITH MATERIAL AND LABOR LIST (If Eligible Borrower is building his or her own house).

f. CONTRACTOR BIDS (For FHA 203(k) Loans, copies of signed contractor bids to rehabilitate property. If unavailable at time of Mortgage Loan application, ADFA will accept signed letter from Mortgage Lender stating approximate cost of rehabilitation).

The $100 reservation fee is no longer required.

The loan reservation system is open from 7:00 a.m. to 10:00 p.m., Monday through Friday, except for State-observed holidays.

At time of reservation, you will be assigned a loan tracking number. This is very important. Put the tracking number on all documentation throughout your file. Refer to it every time you send us a fax, a letter or other documentation. If you don't, we won't be able to respond in a prompt manner because we will be conducting computer searches to identify the file and its underwriter. If you are utilizing our downpayment assistance program (described below), you will also reserve those funds at this point.

Keep in mind that you have thirty (30) days to review the Mortgage File, assemble the ADFA package and send it to us. WE ARE NOT OBLIGATED TO HONOR THE RESERVATION AFTER THE THIRTY (30) DAYS HAVE EXPIRED.

Note: At the time the reservation is made the Loan Rate is LOCKED regardless of future rate changes.

Please keep in mind that once you've received a tracking number, you're telling us you're pretty much ready to go with that specific Eligible Borrower and Mortgage Loan. We realize there might be an occasion to transfer either a given residence (property address) or a Mortgage Lender and we will consider these types of requests, but know that we will ask for a written explanation from the loan officer.

The $25.00 loan reservation fee can be paid be either the lender or the borrower. This $25.00 fee needs to be sent with the closing package that ADFA receives after the loan is closed.

C. Applicable HomeToOwn Compliance Schedule:

**Applicable Forms - Available on Internet Reservation System in fillable form**

5-A Borrower's Certificate as to Income

5-A1 Occupant Income Certification Affidavit

5-B Borrower's Affidavit and Certification

5-C Notice to Buyers

5-D Supplemental Affidavit and Certification - Rental Property

5-E Supplemental Affidavit and Certification - Manufactured Home

5-F Notice to Mortgagor of Potential Recapture Tax; Owner Occupancy Requirement; Purchase Price Limits and Income Limits; Final Shipping Date

ADDI/HOME Program required compliance document :

ADDI/HOME Program Notice to Homebuyer (signed by borrower(s) and lender).

ARKANSAS DEVELOPMENT FINANCE AUTHORITY HomeToOwn Program EXHIBIT 5-A

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ARKANSAS DEVELOPMENT FINANCE AUTHORITY

HomeToOwn Program

EXHIBIT 5 A-1

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ARKANSAS DEVELOPMENT FINANCE AUTHORITY

HomeToOwn Program

EXHIBIT 5-B

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ARKANSAS DEVELOPMENT FINANCE AUTHORITY HomeToOwn Program EXHIBIT 5-C

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ARKANSAS DEVELOPMENT FINANCE AUTHORITY

HomeToOwn Program

EXHIBIT 5-D

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ARKANSAS DEVELOPMENT FINANCE AUTHORITY

HomeToOwn Program

EXHIBIT 5-E

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ARKANSAS DEVELOPMENT FINANCE AUTHORITY

HomeToOwn Program

EXHIBIT 5-F

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CHAPTER 6 - MORTGAGE LOAN PROCESSING

A. Changes to Loan Amounts, Cancellations

Changes in Mortgage Loan amounts can be made in our system prior to ADFA receiving the complete Mortgage Loan package. Once the compliance package has been received at ADFA, any additional change must be requested by fax using form Exhibit 6-J. It is very important that you do not ship a Mortgage Loan to the Master Servicer without notifying us of any changes in Mortgage Loan amounts.

If you need to cancel a Mortgage Loan, please do so within three (3) business days upon the decision that the Mortgage Loan will not qualify. We have provided a form, Exhibit 6-I, Cancellation of Reservation Form, specifically for this purpose. We will accept a copy of your notice of adverse action as long as it contains all of the information outlined in our Exhibit 6-I.

Canceled Mortgage Loan files will be warehoused at ADFA for a maximum of 30 days from cancellation and will be destroyed unless we hear from you that you want the file returned. If ADFA denies the file, we will return file to the Mortgage Lender per written request; otherwise, the denied file will be destroyed within 30 days of cancellation.

B. Compliance Approval

Mortgage Lenders underwrite the Mortgage Loan for credit. Upon your institution's conditional approval, you send the complete file to ADFA, as outlined on the checklist provided in Exhibit 6-G. We urge you to submit a completed package, as incomplete packages impede the approval process. Failure to submit the required documentation may result in the deletion of your Mortgage Loan from the reservation system.

Tax Code compliance issues are addressed more comprehensively in Chapter 2 of this Program Guide.

C. Applicable Forms - **Available on Internet Reservation System in fillable form**

6-G Preliminary Approval and Compliance Package

6-H ADFA Certificate of Compliance

6-I Cancellation of Reservation

6-J Request for Loan Amount Change

ARKANSAS DEVELOPMENT FINANCE AUTHORITY

HomeToOwn Program

EXHIBIT 6-G

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ARKANSAS DEVELOPMENT FINANCE AUTHORITY HomeToOwn Program EXHIBIT 6-H

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ARKANSASVELOPMENT FINANCE AUTHORITY HomeToOwn Program EXHIBIT 6-I

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ARKANSAS DEVELOPMENT FINANCE AUTHORITY

HomeToOwn Program

EXHIBIT 6-J

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CHAPTER 7 - MORTGAGE LOAN CLOSING

A. Pre-closing Procedures

Upon receiving approval from the Authority, you may proceed to schedule the Mortgage Loan Closing.

NOTE: We will carefully examine every Mortgage Loan submitted for purchase. These procedures, if followed by you, will help reduce:

. The period of time between the date of Closing and the Mortgage Loan purchase date per the Master Servicer.

. The number of Mortgage Loans we refrain from purchasing while waiting for the Mortgage Lender to chase after title companies, borrowers, sellers, and so forth.

. The number of Mortgage Loans not purchased and ultimately reassigned to your institution.

Our expectations are the same as any other secondary investor. We want to purchase Mortgage Loans that are compliant with the Tax Code and are "investment quality" with "valid and perfected" liens and "clean" title. Much of what you are about to read should not be new material, because it is what you do normally.

1. Revision in Loan Terms or Acquisition Cost. If the borrower requests a change in terms of a Mortgage Loan which previously had been prior approved, and the Mortgage Loan amount changes, the proposed change(s) MUST be approved by the Authority prior to Closing the Mortgage Loan. The change may necessitate the submission of additional or revised documentation.

2. Satisfactory Completion Certificate. Was the appraisal made subject to repairs, replacements, alterations, conditions or completion per plans and specifications? If so, you must obtain a Satisfactory Completion Certificate. The certificate must clearly indicate compliance with all conditions and requirements of the original appraisal and must be signed by the Qualified Appraiser.

3. Hazard Insurance. The residence must be covered by a policy of hazard insurance typically known as a homeowner's insurance policy maintained by the borrower meeting the following requirements:

. The coverage must include all fire and extended coverage risks customarily insured against in the geographical area in which the property is located. The policy must provide a minimum fire and extended coverage insurance on a replacement cost basis in an amount not less than (i) one hundred percent (100%) of the replacement cost, or (ii) the outstanding principal balance of the Mortgage Loan, whichever is less;

. The hazard insurance policy must be in effect on the date of Closing of the Mortgage Loan;

. Insurance policies must be sufficient in amount and scope of coverage to meet the requirements of any private mortgage insurer and/or pool insurance;

. Policies containing a deductible clause up to industry standard of $1000 (maximum deductible) applicable to either fire or extended coverage, or both, are acceptable in areas where these provisions are mandatory or customary;

. The "Loss Payee" must be the Mortgage Lender "and/or its successors or assigns";

. All policies of hazard insurance must contain or have attached the standard mortgage clause customarily used in the area where the home is located. Each policy must provide that the insurance carrier notify the Master Servicer, at least ten days in advance of the effective date, of a reduction in the coverage or cancellation of the policy.

. We require flood insurance for any property located in a special flood area that has federally mandated flood insurance purchase requirements. The Mortgage Lender/Master Servicer must ensure that flood insurance is maintained and that it provides coverage at least equivalent to the coverage provided under the National Flood Insurance Program. Flood insurance must remain in force for the term of the loan in an amount at least equal to 1/3 of the outstanding principal balance of the Mortgage Loan. Flood insurance policies should generally be in the form of standard policies issued by members of the National Flood Insurers Association. The maximum deductible should be the lesser of $1,000 or 1% of the policy face amount.

4. Escrow Account. You must establish an escrow account and collect escrow payments along with the monthly principal and interest payments. This requirement is necessary due to rating agency demands on the Authority. Since the Mortgage Loans are the source for repayment of the Bond debt, the rating agencies require assurance that the properties will always have insurance and cannot be sold at tax sales. The term "escrow payments" means sums deposited toward the payment of real estate taxes and assessments, hazard insurance premiums, and primary mortgage insurance premiums.

5. Preparing Final Documents. You can now prepare the final documents to be used at Closing. You must use current standard FHA, VA, Fannie Mae/FHLMC or USDARD documents which include:

. Note - The debt of each Mortgage Loan must be evidenced by a properly executed Mortgage Note made payable to the particular Mortgage Lender;

. Mortgage - Each Mortgage Loan must be secured by a Mortgage or Deed of Trust, as applicable, constituting a first lien on the residence financed by the Mortgage Loan;

. ADFA Rider - (Exhibit 7-N) The Provisions of this rider substantially modify the terms of the Mortgage and must be attached and recorded with the Mortgage;

. Assignment of Mortgage - (Exhibit 7-O) Each Mortgage Loan must be assigned by your institution to the Master Servicer by a properly executed and recorded Exhibit 7-O - Assignment of Mortgage/Deed of Trust.

6. Fees and Charges of Lender. You may collect actual amounts expended for third party charges, customary Closing costs, including mortgage insurance premiums, inspection fees, survey charges, escrow agent's fees, filing and recording fees, transfer taxes, documentary stamps and document preparation fees paid to the closing agent.

7. Reaffirmation of Affidavits. At Closing, both the Exhibit 7-L, Mortgagor's Application Affidavit and Certification, and Exhibit 7-M, Seller's Affidavit and Certification, must be completed. The Seller may appoint an agent or representative to execute the reaffirmation at Closing. We will require a copy of the recorded power of attorney and the representative must indicate in what capacity he or she is signing (attorney in fact, power of attorney, etc.).

Exhibit 7-K is the checklist used by the Authority in reviewing the Closing/Mortgage File. ADFA requires you to use this checklist as well as Exhibit 6-G, Preliminary Approval and Compliance Package, for both preliminary Mortgage Loan approval as well as Mortgage Loan Closing.

B. Loan Closing and Submission Documents

At this point you should be ready to close the Mortgage Loan and disburse funds. Once again you should look over the ADFA checklist for reviewing purchase files to make sure that your Closing instructions cover the necessary items. In order to be eligible for purchase by the Authority and the Master Servicer, each Mortgage Loan must be delivered to the Authority within 30 days of Closing. The Mortgage Lender must deliver to the Authority the following documents, arranged in the order listed with first item on top.

1. Documents.

. The original Exhibit 7-K, ADFA Required Closing Documents.

. Mortgage Lender check for 1% discount fee and $25.00 Reservation Fee payable to ADFA.

. Typed copy of final loan application with appropriate addendums (signed by all parties, including Mortgage Lender).

. Copy of HUD -1 Settlement Statement (signed by all parties), which must:

(i) $100.00 lock-in Deposit is no longer required.

(ii) reflect $65 tax service fee paid by Seller.

(iii) If refund is shown on line 303 to borrower for more than $10, a letter of explanation must be included also (Please recall that no cash back is permitted if a DPA Note is used in connection with a Mortgage Loan).

. Copy of Mortgage Note.

. Copy of Mortgage/Deed of Trust and Exhibit 7-N rider and any other applicable riders.

. Copy of Exhibit 7-O, Assignment of Mortgage/Deed of Trust.

. Original Exhibit 7-L, Mortgagor's Application Affidavit and Certification.

. Original Exhibit 7-M, Seller's Affidavit and Certification.

. Original Exhibit 7-P, Notice to Mortgagor of Information Regarding Potential Recapture Tax (NOTE: Please be sure you have inserted the appropriate county page for the sample table (Exhibit 7-P, page 4) and completed the top of the page with the borrower's information. A copy of the completed document should be given to the borrower at Closing.).

. Copy of Title Commitment including any title exceptions that need to be cleared or noted due to encumbrances.

. Copy of DPA Loan note (if applicable).

. Copy of un-recorded DPA Loan second mortgage (if applicable).

. Copy of un-recorded assignment of DPA Loan note and second mortgage (if applicable)(Exhibit 7-R).

. Copy of DPA Loan Truth-In-Lending Disclosure form (if applicable).

. Copy of DPA Loan certificate of completion for homebuyer education course (if applicable).

. Copy of the Hazard Insurance Policy and Endorsement reflecting ADFA as second mortgagee if borrower received DPA Loan (if applicable).

The Mortgage Lender is responsible for the timely transfer of Mortgage Loan data to ADFA and the Master Servicer. In any event, the information must be provided within thirty (30) days of the date of Mortgage Loan closing. It is of primary importance that the Mortgagee be protected in this transfer. The Master Servicer and ADFA are on-line together through the Mitas System which allows the Mortgage Lender to send the complete closing package following the Master Services document guide before ADFA's approval is given. The Master Servicer will read the Mitas Pipeline Tracking Status for Closing Approval and then will purchase the Mortgage Loan based on ADFA's Pipeline Tracking Status Criteria.

The Authority has advised you of the identity of the Master Servicer and with the name of a contact person. You should establish contact with the contact person and become familiar with the Master Servicer's delivery guide, Mortgage Loan set-up requirements and transfer procedures.

If you have any questions regarding this data, you should contact the Master Servicer. IT IS YOUR RESPONSIBILITY TO GET COMPLETE DOCUMENTATION TO THE MASTER SERVICER.

The Mortgage Lender is also responsible for advising the borrower of the servicing change. This is done through the "goodbye" letter, as required by RESPA. Pay close attention to the minimum time requirement of RESPA. The contents of the "goodbye" letter should be coordinated with the Master Servicer, especially regarding such items as when and where to send payments and customer service numbers. NOTE: Exhibit 8-S - Form to Notice of Sale of Service is an example of this transaction.

If you receive a payment after the transfer of a Mortgage Loan, it is your responsibility to forward all payments to the Master Servicer in a timely manner.

If a problem arises regarding the transfer of the Mortgage Loan, you should contact the Master Servicer and the Authority.

C. Program Fees

The Mortgage Lender may, at the appropriate processing stage, collect the following fees:

a. All reasonable and customary out-of-pocket costs permitted by law to be paid or incurred by the Mortgage Lender, including, but not limited to, notary fees, settlement fees, hazard or mortgage insurance premiums, appraisal fees, attorneys fees, documentary revenue stamps, recording fees and charges, credit report fees, flood zone determination fee and escrow fees. Such fees and expenses may be collected only once in connection with the origination of the Mortgage Loan and shall not exceed limits established from time to time by Federal and state law and in any event may not exceed similar amounts charged in such area in cases where owner financing is not provided through tax-exempt revenue bonds. For FHA 203(k) loans, you may collect the customary HUD-allowed fees for appraisals, inspections and review fees. All charges must conform with the guidelines of the appropriate loan insuring agency.

b. All appraisal fees shall comply with the guidelines of the loan insuring agency.

c. Amounts that must be prepaid by Eligible Borrower or Seller for taxes, assessments, hazard insurance premiums and other similar recurring charges. Deposits paid by Eligible Borrower or Seller to a reserve or escrow account for taxes, assessments, hazard insurance premiums and other similar recurring charges.

d.. An origination fee to the Mortgage Lender to be paid by the Eligible Borrower or Seller,

not to exceed one percent (1%) of the amount of the Mortgage Loan. Follow HUD guidelines for FHA 203(k) loans.

e. A discount fee paid by the Eligible Borrower or Seller at the Closing of one percent (1%)

of the Mortgage Loan amount. This fee must be remitted to ADFA within thirty (30) business days of Mortgage Loan Closing.

f.. A tax service fee of $65.00 must be collected from the Seller. This amount will be netted at purchase by the Master Servicer.

g. ADFA charges each Mortgage Lender $25.00 for every Mortgage Loan reservation accepted by ADFA. Each Mortgage Lender will send ADFA the $25.00 fee with the closing package.

The fee is non-refundable and can be paid by the borrower.

Lenders may collect any "normal and customary" fee's from either the borrower or the seller. ADFA Single Family Staff will monitor for appropriateness.

The principal amount of the Mortgage Loan may not exceed the applicable loan-to-value limits as established by HUD, USDARD, VA, or Fannie Mae. The financing of allowable closing costs is acceptable as permitted by the loan insuring agency.

D. Applicable Forms - **Available on Internet Reservation System in fillable form**

First Mortgage Documents:

7-K ADFA Required Closing Documents

7-L Borrower's Closing Affidavit and Certification

7-M Seller's Closing Affidavit and Certification

7-N Mortgage/Deed of Trust Rider

7-O Assignment of Deed of Trust/Mortgage

7-P Notice to Mortgagor of Information Regarding Potential Recapture Tax

7-Q Notice to Homeowner

Second Mortgage/DOWNPAYMENT ASSISTANCE LOAN

7-R Assignment of Down Payment Assistance (DPA) Subordinate Mortgage

. Down Payment Assistance (DPA) Note

. Down Payment Assistance (DPA) Subordinate Mortgage

AMERICAN DREAM DOWN PAYMENT INITIATIVE (ADDI/HOME) PROGRAM

. ADDI/HOME Program Promissory Note

. ADDI/HOME Program Subordinate Mortgage

. ADDI/HOME Program Assignment

. ADDI/HOME Program Homebuyer Assistance Agreement

ARKANSAS DEVELOPMENT FINANCE AUTHORITY

HomeToOwn Program

EXHIBIT 7-K

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EXHIBIT 7-L

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EXHIBIT 7-M

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EXHIBIT 7-N

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SAMPLE ONLY Mortgage Lender must use correct county document

County: Arkansas Borrower's Name: Co-Borrower's Name: Tracking Number:

Date That You Sell Your Home	Holding Period Percentage	Adjusted Qualifying Income
		# of Family Members Living In Your Home at the Time of Sale
		2 or less	3 or more
Before the first anniversary of closing (See Note below)	20%	34,700.00	39,905.00
On or after the first anniversary of closing, but before the second anniversary of closing	40%	36,435.00	41,900.25
On or after the second anniversary of closing, but before the third anniversary of closing	60%	38,256.75	43,995.26
On or after the third anniversary of closing, but before the fourth anniversary of closing	80%	40,169.59	46,195.03
On or after the fourth anniversary of closing, but before the fifth anniversary of closing	100%	42,177.85	48,504.53
On or after the fifth anniversary of closing, but before the sixth anniversary of closing	80%	44,286.92	50,929.95
On or after the sixth anniversary of closing, but before the seventh anniversary of closing	60%	46,501.47	53,476.69
On or after the seventh anniversary of closing, but before the eighth anniversary of closing	40%	48,826.37	56,150.33
On or after the eighth anniversary of closing, but before the ninth anniversary of closing	20%	51,267.86	58,958.04

NOTE: Closing means the closing date of your loan.

Please insert here the correct County Income Limit Sheet for your county each year.

ARKANSAS DEVELOPMENT FINANCE AUTHORITY

HomeToOwn Program

EXHIBIT 7-Q

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EXHIBIT A PROPERTY DESCRIPTION

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ARKANSAS DEVELOPMENT FINANCE AUTHORITY

HomeToOwn Program

EXHIBIT 7-R

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EXHIBIT A PROPERTY DESCRIPTION

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CHAPTER 8 - MORTGAGE LOAN SALE TO MASTER SERVICER

A. Closing-Purchase/Sale

Once ADFA approves the Mortgage Loan for compliance and issues a Form 6-H, you may schedule the Closing. The Mortgage Lender will close the Mortgage Loan, send the appropriate documents for recording and deliver the appropriate documents to the Master Servicer and ADFA. Closing of the Mortgage Loan must occur no later than one hundred eighty (180) days after the Mortgage Loan reservation date. You must submit the Closing documents to ADFA within thirty (30) days of Closing. If no other documentation is needed, an ADFA representative will sign Exhibit 7-K and fax a copy to you. You may elect to attach a signed copy of the Exhibit 7-K to the Closing documents submitted to the Master Servicer. The Master Servicer is not obligated to purchase any Mortgage Loan if the Mortgage File takes longer than thirty (30) days to be delivered. If you elect to speed up the process, the Mortgage Lender may send a closing package to Master Servicer at the same time. The Master Servicer will purchase the Mortgage Loan based on the electronic approval from ADFA.

Closing issues are addressed more comprehensively in Chapter 7 and the Master Servicer section of this Program Guide. Use Exhibit 8-S Notice of Sale of Servicer to notify the Borrower(s).

B. Schedules

Please note that the Master Servicer has provided the following delivery checklists for use with the following categories of Mortgage Loans: FHA Loans, VA Loans, Conventional Loans and USDA Rural Development Loans. For your convenience, ADFA has included copies of those four checklists below.

C. Trailing Documents

The final step in the process is delivering the original recorded mortgage, assignment and final title policy. The Mortgage Lender is required to deliver these documents as soon as you receive them. We have established a maximum of 90 days from the date of Closing to get your documents recorded and delivered. ADFA or the Master Servicer may require you to repurchase any Mortgage Loan for failure to meet the 180 day time frame.

ARKANSAS DEVELOPMENT FINANCE AUTHORITY HomeToOwn Program EXHIBIT 8-S

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Delivery Section

GENERAL CLOSING REQUIREMENTS

INTRODUCTION General Information

The following instructions are applicable to FHA, VA, RD, and Conventional bond mortgage loans to be sold to U.S. Bank Home Mortgage (USBHM). All loans will close in the name of the Originating Lenders. The mortgage loans must be readily marketable to prudent investors in the secondary mortgage market. In addition to these instructions, Originating Lenders must comply with individual loan conditions as set forth by the Department of HUD (FHA), the Department of Veterans Affairs (VA), the U.S. Dept of Agriculture (RHS or RD), Fannie Mae, FHLMC (Federal Home Loan Mortgage Corporation aka Freddie Mac), GNMA (Government National Mortgage Association aka Ginnie Mae), U.S. Bank Home Mortgage, and all conditions as set forth in the bond origination documents.

Originating Lenders are responsible for full compliance with the Real Estate Settlement Procedures Act (RESPA), Federal Truth-in-Lending Law, and with supplying USBHM with the correct information to comply with the Home Mortgage Disclosure Act.

Originating Lenders will be responsible for the proper preparation and execution of all legal documents including but not limited to the closing statements, HUD-1 forms and Truth-in-Lending forms.

A complete closed loan package must be received in fundable condition by the Program deadline date for delivery of the loan file for purchase. If the loan being delivered is seasoned (90 days old), the closing loan package must include the original recorded Security Instrument, final Title Policy, original recorded Assignment(s) of Mortgage, if applicable, evidence of insurance on FHA/VA loans, and the original LNG (Loan Note Guaranty - RHS loans). The loan will not be considered eligible for purchase until these documents are provided.

If the loan has exceptions, which prevent immediate purchase, you will receive an individual letter regarding the items/documents needed as well as a stated time to clear the exceptions. Weekly reports of all loans with exceptions will be faxed to the Originating Lender. Failure to clear loans for purchase within the stated timeframe may result in the assessment of penalties or the return of the loan file to your institution.

Second Mortgages

US Bank MUST approve any type of secondary financing used in conjunction with the first mortgage. Lenders must provide US Bank with the following information for all forms of secondary financing:

1) Note

2) Mortgage

3) Program Description

4) Funding Source

* All 2nd mortgage loans must be clearly identified on both the 1003 and HUD-1. For assistance/grant programs, US Bank must be provided with a program description.

A. DELIVERY INSTRUCTIONS

1. Closed loan packages must be submitted in the legal sized file folder with all documentation "acco" fastened according to the appropriate Closed Loan Stacking Order Check sheet. The entire closed loan package should be reviewed for completeness and accuracy BEFORE shipping to USBHM.

2. U.S. Bank Home Mortgage Loan Number is the permanent Servicer loan number. It is to be used on all forms and correspondence given to the Mortgagor(s) at closing. The loan number will be assigned when the loan information is registered either via McWeb, by the Housing Agency, or by direct lock-in (check program guidelines for registration procedures). This is N/A of programs where a disk is used for loan delivery.

Loan packages must be sent via overnight delivery to the following address:

U.S. Bank Home Mortgage

17500 Rockside Road

Bedford, Ohio 44146

Attn: MRBP Operations Department

3. The Purchase/Review Contact Information sheet should be completed and submitted to USBHM immediately (See FORMS section). The office or department responsible for shipping the closed loans to USBHM should supply the information for "Contacts for Purchase/Review". If you currently participate in other programs being serviced by USBHM, and/or if you have personnel changes that affect this information at any time during the programs, please make sure to send the updated information to us immediately so that we have the most current contact information. Please note that wiring instructions for the wiring of funds for the purchase of loans are included on this form. Because the wiring instructions are computer-coded by USBHM when initially received from you, should your wiring instructions change at any time USBHM must be notified. Indicate the new information by correcting the old information on the "Purchase/Review" form and mark it "CORRECTION". U.S. Bank Home Mortgage will not be responsible for the incorrect wiring of funds if a notification was not sent to us. NOTE* U.S. Bank Home Mortgage will wire funds to only one bank. Multiple warehouse banks cannot be accommodated.

Please follow these instructions:

. All documents must be complete and correct.

. White-outs are not acceptable.

. Strike-outs must be initialed by the appropriate party.

. Holes cannot be punched through recording information.

. Information in any one document must agree with the information in all other documents.

. All signatures must be identical to the printed or typed name.

. All certified copies must be an original certification with original signatures of initials.

. Certified copies of recorded documents (Assignments) must say "certified copy of the original document that has been sent for recordation".

In addition to the above listed, please follow these requirements on all Bond Program Affidavits:

. Mortgage Loan files submitted to the Servicer must contain signed original affidavits.

. Blanks must be completed (enter "N/A" if not applicable to that loan).

. The individuals signing the affidavits must initial any corrections or changes.

. Use of BLUE PEN on documents is preferred. Pencil is not acceptable.

B. FUNDING DOCUMENTATION REQUIREMENTS

This section is to clarify the funding documentation requirements for most loans. The documentation mentioned herein may not necessarily fulfill all requirements for all loans submitted to U.S. Bank Home Mortgage for purchase. U.S. Bank Home Mortgage reserves the right to require additional documentation needed to enhance a loan file on the case-by-case basis. Please ensure that each document submitted is properly completed and correct.

1. Note: Original Note must be in file.

i. The date must be typed and must agree with the date on the Deed of Trust/Mortgage and HUD I.

ii. The city and state where executed must be completed.

iii. The property address must agree with the Deed of Trust/ Mortgage, Appraisal and HUD 1.

iv. The loan amount must be correct, numerically and alphabetically, and must be rounded down to the nearest dollar.

v. The Originating Lender's name must be correct.

vi. If the Originating Lender Name includes a "DBA" (Doing Business As) or any variation of the Company Name, please include all supporting documentation.

vii. The interest rate must be correct, numerically and alphabetically.

viii. The first payment date must be correct as per the calculation of Per Diem Interest collected on the HUD I.

ix. The maturity date must be correct.

x. The Principal and Interest amount must be accurate.

xi. The grace period may not exceed 15 days, late charge not to exceed 5% (4% for FHA/VA/RD loans) or the maximum allowable in your state.

xii. The borrower's name must be typed under their signatures. All borrowers listed on the loan application must execute the Note.

xiii. The Borrower(s) must sign exactly as their names appear in type (inconsistencies will require a Name Affidavit)

xiv. The correct acceptable Note form must be utilized.

1. Conventional Fixed rate must use the most recent Fannie Mae/ FHLMC multi-state note.

2. FHA must use most recent HUD Note.

3. VA must use most recent VA form and be notarized if form requires it.

4. RD loans should use HUD Note. If FNMA Note is used for RD Loans, then an Allonge to the note will be required, with the borrowers right to prepay paragraph deleted.

xv. FHA Notes must include the case number in the upper right hand corner. Case number agrees with Certificate of Commitment or MIC/LGC/Note Guaranty.

xvi. All parties must initial corrections. Corrections must be made by slashing through (///) or x'ing out the incorrect information typing above or below slash or x marks. All borrowers must initial all errors. No whiteouts are allowed. All pages of corrected Note must be included.

xvii. Properly completed applicable Addendums and/or Riders must be included.

xviii. Endorsement on Note - (Please follow the Example Provided)

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1. Be sure to type the name of your institution and the name and title of the officer endorsing the Note. Stamped signatures are not acceptable.

2. All endorsements should be made on the back of original Note only. An allonge is acceptable only if there is no room on the Note for an endorsement. The allonge must reference the borrower's name, property address and loan amount. Endorsements on Riders or Addendums are not acceptable.

3. Cancelled endorsements should be lined through or stamped over "CANCELLED" and initialed.

4. The endorsements must follow the chain of title.

If an original note needs to be returned to you for any reason, it will be sent by overnight mail at your expense. When corrected, it is to be returned by overnight mail. If the note comes from your bank with a bailee letter, it will be returned to your bank.

2. Name Affidavit (If applicable):

i. Must be notarized (signed and dated by notary).

ii. Indicate that the individual is known by more than one name or variation of one name.

iii. The property address is identified.

iv. The affiant has signed the affidavit.

v. The original affidavit is in the loan file.

3. Power of Attorney (If applicable):

i. i. U.S. Bank Home Mortgage accepts only a Limited (Specific) Power of Attorney in those cases that require one.

ii. It must be clear that the mortgagor is appointing a Power of Attorney.

iii. It must be clear who is being appointed with a Power of Attorney.

iv. The Power of Attorney must be signed and dated by the appointer (the mortgagor).

v. The copy of the Power of Attorney must be notarized.

vi. The Power of Attorney cannot expire prior to the execution of the loan documents if there is an expiration date.

vii. The property address and legal description must agree with the Mortgage/Deed of Trust.

viii. The Power of Attorney must be recorded concurrently with the Deed of Trust/Mortgage.

ix. The person being appointed with the Power of Attorney is "Attorney in Fact" and must sign the closing documents as follows:

_______________________________________________

Jane Doe By John Doe, Her Attorney-in Fact

The signature could be: "Jane Doe by John Doe, Her Attorney-in Fact", "John Doe, Attorney-in Fact for Jane Doe: or John Doe". The manner of signing must be legally acceptable according to state guidelines and must clearly show the signer to be the one authorized to sign for the other specifically named individual.

x. Must meet applicable state requirements.

xi. The Title Company must insure a valid Power of Attorney and that seller has a valid first lien.

xii. The final Title Policy must not contain any exceptions based on the use of the Power of Attorney.

ASSIGNMENT OPTIONS:

MERS (Mortgage Electronic Registration System):

USBHM is a member of MERS. MERS is an electronic registration system that tracks the ownership and servicing rights of a loan. If you are a member of MERS, USBHM will accept your MOM (MERS as Original Mortgagee) documents. If you are not a MERS member, you will need to close the loan using the customary mortgage forms and assignments.

When you are MERS ready and will be shipping your first MOM loan, U.S. Bank Home Mortgage will need your Organization ID number (ORG ID) and the name and phone number of a contact person. A MERS Contact Sheet is provided for your use (See FORMS section). USBHM's system must be updated with your ID number and a lack of notification could result in a purchase delay.

If MOM documents have been used, please do not include copies of any assignments in the loan file that is shipped to us, as they are unnecessary. If you are a member using a customary mortgage form, but will be registering the loan with MERS, a copy of the assignment to MERS must be included in the shipped loan file. U.S. Bank Home Mortgage requires that the Beneficial and Servicing Rights be transferred to us within ten (10) business days of purchase.

4. Corporate Assignment-AKA Assignment of Mortgage, Transfer of Lien, Assignment of Security Deed. N/A if MERS Loan.

i. U.S. Bank N.A. is the beneficiary of the Assignment. Assignment should be made to Mortgage Electronic Registrations System, Inc P.O. Box 2026, Flint, Michigan 48501-2026, its successors and assigns as nominee for U.S. Bank N.A., its successors and assigns, The mortgage identification number (MIN) and the MERS telephone number 1-888-679 -6377 must appear on the first page of the assignment.

ii. All information contained in the Corporate Assignment must be complete, correct and agree with the Deed of Trust/Mortgage and Note.

iii. It must contain the legal description of the property, which is identical to that on the Deed of Trust/Mortgage.

iv. It must be signed by an officer of the assigning corporation with the officer's name and title typed below the signature. The name of the assigning corporation must appear above the signature line.

v. Copies must be a "certified true and exact copy", must carry a live ink signature of the person making the certification, and must be fully notarized, with stamp, seal and expiration date of notary.

vi. Intervening Assignments must conform to the guidelines stated above.

vii. MIN (Mortgage Identification Number) and telephone number must be accurate.

5. Deed of Trust/Mortgage (Security Instrument) - (If MOM loan, all security instruments should continue to be transferred to MERS Originator ID 1000212)

a) Copies must be certified as true and exact copies of the original. Appropriate, complete Riders must be attached.

b) The Notarized section must be completely filled in and signed by a notary. The stamp/seal and expiration date is required.

c) The date of the notary must be the same date of the security instrument.

d) All information contained on the Deed of Trust/Mortgage must be complete, correct and agree with the Note and Corporate Assignment. The typed names of the borrowers must be included under the signature line and must match the borrower's names as shown on the faces of the Security Instrument.

e) All parties who have an interest on the property (i.e., spouses in community property states) must have signed.

f) The acceptable forms should be utilized:

1. Conventional loans must use most recent Fannie Mae /FHLMC form.

2. FHA must use most recent HUD form.

3. VA loans must use most recent VA form.

4. RD loans must use most recent HUD form.

g) All Mortgagors must initial all corrections, additions and deletions. No whiteouts allowed.

6. Assignment of Rents 1-4 Family Rider

a) The date must match the Note and Deed of Trust/Mortgage.

b) The name of the lending institution must agree with the Deed of Trust/Mortgage.

c) The property address must match that on the Deed of Trust/Mortgage.

d) The borrower's typed names must be the same as on the Deed of Trust/Mortgage.

e) The borrowers must have signed as their name is typed and must match Deed of Trust/Mortgage.

f) The original must be recorded.

g) This form is mandatory on all properties with rental income or more that one unit.

7. Rehabilitation Loan Rider (*If applicable for current Bond Program. Refer to the Program Origination Agreement)

a) The date must match the Note and Deed of Trust/Mortgage.

b) The name of the Originating Lender must agree with the Deed of Trust/Mortgage.

c) The property address must match that on the Deed of Trust/Mortgage.

d) The borrower's names typed must be same as on Note, Deed of Trust/Mortgage and as vested on the Title Policy.

e) The borrower(s) must have signed as typed and match the Deed of Trust. Mortgage.

f) Rehabilitation Loan Agreement date must be inserted.

g) The FHA case number must be complete and correct.

h) The original must be recorded.

8. Condominium Rider

a) The date must agree with the Deed of Trust/Mortgage.

b) The Originating Lender's name must be the same as on the Deed of Trust/Mortgage.

c) The property address must match that on the Deed of Trust/Mortgage.

d) The correct name of the Condominium Project must be listed on the rider and match the Title Policy.

e) The borrower's names typed same as on the Note, Deed of Trust/Mortgage and as vested on the Title Policy.

f) The borrower(s) must have signed as typed and must match the Note and Deed of Trust/Mortgage.

g) The original must be recorded.

h) A completed rider is required on all condominium transactions.

9. PUD Rider

a) The date must be the same on the Deed of Trust/Mortgage.

b) The Originating Lender's name must agree with the Deed of Trust/Mortgage.

c) The property address must match that on the Deed of Trust/Mortgage.

d) The correct name of the PUD Project must be listed on the rider and match the Title Policy.

e) The borrowers names typed same as on the Note, Deed of Trust/Mortgage and as vested on the Title Policy.

f) The borrower(s) must sign the same as typed and must be the same as on the Deed of Trust/Mortgage.

g) The original must be recorded.

h) A completed rider is required on all PUD transactions.

10. VA Rider

a) The closing date must match the Note and Deed of Trust/Mortgage.

b) The name of the Originating Lender must agree with the Deed of Trust/Mortgage.

c) The property address must match that o n the Deed of Trust/Mortgage.

d) The borrower's name typed must be that same as on the Note, Deed of Trust/Mortgage and as vested on the Title Policy.

e) The borrower(s) must have signed their name exactly as typed and as on the Deed of Trust/Mortgage.

f) The original must be recorded.

g) A completed rider is required on all VA loan transactions.

11. HUD-1 Settlement Statement

Check HUD I:

a) Type of loan - proper box is marked.

b) Name of borrower agrees with the name on all legal documents.

c) The name of seller is identified and completed.

d) The name of the Originating Lender is identified and completed.

e) The property location agrees with Note, Deed of Trust/Mortgage and appraisal and loan application.

f) The settlement date is reflected. This date may or may not be the same as on the Note and Deed of Trust/Mortgage.

g) The summary of borrower's transaction:

1. The contract sales price must agree with the sales contract.

2. The principal amount of the new loan must agree with the loan amount stated on the Note and Deed of Trust/Mortgage.

3. If the loan contains a buy down agreement, the total buy down funds will be shown in either borrower's column or seller's column. In addition to buy down funds reflected here, escrow holdbacks may be shown under this heading.

4. All bond loans MUST have an escrow impound collected.

5. The HUD I clearly lists all mortgage assistance or grants provided to the borrower.

6. FHA/VA loans must reflect the Mortgage Insurance Premium (MIP)/and Funding Fee (FF) paid. RD loans must have the guarantee fee paid.

7. The Hazard Insurance premium prepaid for 12 months is acceptable in lieu of a paid receipt.

8. The Flood Insurance premium prepaid for 12 months is acceptable in lieu of a paid receipt.

9. All loans must have adequate reserves deposited with the lender. Conventional loans with loan-to-value (LTV) below 80.00% may or may not reflect reserves. Requests for an escrow waiver on loans with an LTV below 80% will be reviewed on a case-by-case basis and will be subject to a .25 price adjustment at loan funding. Adequate reserves for taxes/insurance, etc. must be shown to have been collected to insure there are sufficient funds available to pay the next installment when due.

10. Both the borrower and seller must sign the HUD-1 settlement statement (if the loan transaction is a purchase). Only the borrower's signature is required if the loan transaction is a refinance. The settlement agent must sign and date this document in either case.

11. Addendums must be executed by all parties.

12. Temporary Buy downs (*If applicable for current Bond Program. Refer to the Program Origination Agreement)

a) A buy down is a financial incentive offered by the seller (frequently also the builder) to a buyer, which enables the buyer to reduce the mortgage payment in the early stages of the loan. This may also allow the borrower to more easily qualify for the loan. The buydown funds are held by U.S. Bank Home Mortgage and are used to supplement the borrowers payment.

b) When U.S. Bank Home Mortgage buys the loans, the buy down contribution will be deducted from the wire amount in the same was as other collected escrows for insurance and taxes.

c) To document the buy down, there must be an original, signed buy down agreement in the closed loan package.

13. Title Commitment-AKA Title Binder or Prelim. (Please refer to Title Insurance Requirements)

Check for these items on the title commitment:

a) Purchase transactions should show the borrower(s) as the "proposed insured", which may or may not be accompanied by a vesting.

b) The proposed dollar amount of the Deed of Trust/Mortgage c) The legal description agrees with the Deed of Trust/Mortgage and the appraisal d) The date must be the same or prior to the Deed of Trust/Mortgage.

e) Schedule B items, such as delinquent taxes, judgments and liens must be paid on HUD-1

f) A copy of the survey or plat map is needed unless a location endorsement has been ordered. The commitment must contain wording such as "a comprehensive endorsement and location note have been approved for loan policy". The address of the property will also be noted.

g) Attorney's opinion letter (if applicable to your state) must be included. Do not include the Abstract of Title.

h) All title insurance must include an Environmental Protection Lien Endorsement.

i) The latest ALTA form of title insurance policy is required. In states where ALTA forms are not used, similar coverage will be required.

j) ALTA policies must be audited for proper endorsements (i.e., EPA endorsement 8.1, PUD endorsement ALTA 5, Condo endorsement ALTA 4, Manufactured Housing Endorsement ALTA 7, etc.)

k) An ALTA 9 endorsement to the title policy must be obtained for loans where surveys are not required.

14. Surveys or Plat Survey

Check the following items:

a) A survey will be required if evidenced on the HUD-1 that there has been a charge for a survey. If a survey is not required, an Alta 9 endorsement to the title policy must be obtained.

b) The Survey identifies the property by the street address or the legal description, (preferably both)

c) It must be signed and sealed by surveyor.

d) A photocopy of the survey is acceptable.

15. Flood Certification

All files must contain a Life of Loan Flood certification from an outside third party.

16. Hazard Insurance

U.S. Bank Home Mortgage requires an insurance policy or binder (if in a binder state) with a paid receipt for one year. Please check for the following:

a) The policy must reflect the borrower(s) name(s).

b) The original policy must contain the agent(s) signatures, their address and telephone number. It must also reflect the company name and policy number.

c) The coverage amount must be for at least the amount of the loan or for full replacement coverage. (Some states limit required coverage to amount of improvements).

d) The policy is in effect on the day of closing (coverage in force).

e) The full property address must be referenced.

f) Provide proof the policy is paid for the first year.

g) Provide evidence that U.S. Bank N.A. had been named as First Loss Payee. The Loss Payee should read:

U.S. BANK N.A. its successors and or assigns as their interest may appear. c/o U.S. Bank Home Mortgage P.O. Box 7298 Springfield, OH 45501-7298

h) Deductibles may not exceed $1,000 for a single-family dwelling.

i) A 60-day binder is acceptable with a one year paid receipt. Check origination agreements for specifics.

j) A copy of the hazard/liability policy for condo projects will be required when applicable.

k) U.S. Bank Home Mortgage will deduct the required amount of hazard insurance escrow from the wire amount to insure sufficient funds to pay the premium when due. The Originating Lender will be responsible for collecting any shortage from the borrower(s)

l) For conventional loans on a 2-4 unit dwelling, you must provide us with a policy which includes "rental loss" insurance if you used the rental income to qualify the applicant.

m) For properties in an association such as a townhouse or condominium, there is customarily a Master Policy with Certificates issued to each borrower. This will be acceptable as evidence of insurance.

n) Any payment of premiums due before the first payment to U.S. Bank Home Mortgage will be the responsibility of the Originating Lender as will all other late charges, penalties and other costs.

. Acceptable Evidence of Payment of Hazard Insurance

1. Policy stating premium amount is paid in full.

2. Cancelled check (copy of front).

3. A paid receipt from the insurance agent or insurance company.

4. Payment deducted on the HUD-1.

17. Flood Insurance

(Note: Loans on properties in a non-participating community, which is in a flood zone, will NOT be eligible for purchase

a) Flood Zones A and V require flood insurance.

b) Flood Insurance Application must reflect the borrower(s) name(s).

c) The coverage must be equal to the loan amount or the maximum available under the National Flood Insurance Program's regular program.

d) The Policy is in effect (coverage is in force).

e) The full property address must be referenced.

f) Evidence that the policy is paid for first year.

g) Evidence that U.S. Bank N.A. has been named as First Loss Payee. The Loss Payee should read:

U.S. BANK N.A., its successors and/or assigns as their interest may appear.

c/o U.S. Bank Home Mortgage

P.O. Box 7298

Springfield, OH 45501-7298

h) Deductibles may not exceed $1,000 for single family dwelling.

i) The name of the borrower(s) and the property address must appear on the Flood Insurance Application.

j) Any premiums which are due before the first payment to U.S. Bank Home Mortgage will be the responsibility of the Originating Lender as well any late charges or penalties assessed with the late payment.

. Acceptable Evidence of Payment of Flood Insurance

1. Policy stating premium is paid in full.

2. Cancelled check (copy of front).

3. Paid receipt from insurance agent or insurance company.

4. Payment is deducted on the HUD-1.

18. Private Mortgage Insurance

U.S. Bank Home Mortgage requires Private Mortgage Insurance (PMI) on all Conventional Mortgage Loans with a Loan-To-Value (LTV) in excess of 80.00%.

Please review the following:

a) Original commitment must be in the file with the lender's information completed on the bottom and signed by the lender.

b) Coverage must equal or exceed the loan amount. Private Mortgage Insurance is required on all mortgages where the loan-to-value exceeds 80.00%. Please refer to the program guidelines for Private Mortgage Insurance requirements.

c) Evidence that premium has been paid must be reflected on the HUD-1.

d) Amount of coverage must be correct per product guidelines.

e) All information must be complete, and agree with loan file.

. Acceptable Private Mortgage Insurance Companies

GEMICO RADIAN UGI RMIC MGIC PMI

One-time MI premiums offered by some mortgage insurance companies are acceptable provided that total LTV doesn't exceed 90% including MI premiums. Any program LTV limitation would take precedence on Fixed Rate Purchases and Fixed Rate Refis.

The monthly MI premium plan is acceptable for all loan programs requiring mortgage insurance. The monthly premium plan is currently available through all the approved primary MI companies (see above). Two month's premiums must be collected at closing and non-refundable premium rates should be used. Check with your local MI company representative to make sure the program is available in your area.

U.S. Bank Home Mortgage requires full MI coverage per Fannie Mae/FHLMC requirements and will not accept reduced MI coverage.

19. Completed Transfer of Servicing form on FHA and RD loans (See FORMS section).

*NOTE - Insuring of all FHA, RD, and VA loans must be done within 60 days of loan closing.

20. Typed Loan Application

a) Fannie Mae 1003 must be utilized for all Conventional, Government and RD mortgage loans.

b) The typed Loan application must contain the verified information from the credit report, exhibits and appraisal. Any discrepancy requires a written explanation.

c) All borrowers must sign and date the Loan Application.

d) The Loan Application must be signed by the lender.

e) Interest rate and loan amount must be completed.

f) How the title is held should be indicated.

g) Home Mortgage Disclosure Act (HMDA) information section must be complete. *New HMDA requirements must be followed.

21. Appraisal

Check the following items:

a) The appraisal report form is correct for the type of property being appraised and all applicable exhibits are included.

b) The appraisal was signed by the appraiser prior to approval of the loan.

c) The appraiser is qualified and disinterested in the subject transaction.

d) The appraiser has made both exterior and interior inspections of the property.

e) The property address agrees with the Note and Mortgage.

f) If the lender/client is not the lender referenced on the Note, one of the following will be required:

1) Credit Transfer Letter

2) Copy of HUD Case Assignment Results

3) Sponsor relationship reflected on page 1 of HUD form 92900A

g) The appraisal must be dated within 6 months of loan closing. A re-certification of value will be required if the appraisal is over 6 months old.

h) Original photos of the subject and comparables are required. On Conventional loans, processed originals and printed digitals are acceptable.

i) U.S. Bank Home Mortgage reserves the right to request a review appraisal if not satisfied with the one delivered. This cost will be paid by the originating lender.

22. W-9 Forms

Federal regulations require us to have in each loan transaction, verification of the social security numbers for each borrower. The completed W-9 form signed by all mortgagors satisfies this requirement. The form is to be completed with the name, mailing address and social security number of the mortgagor. Each W-9 form must be signed and dated.

23. IRS Forms 4506

U.S. Bank Home Mortgage requires IRS Form 4506 to be executed by the borrower(s) on any loan that is underwritten using alternative documentation (virtually all LP or DU approvals). A signed Form 4506 must accompany all packages submitted for validation of underwriting approval. Also, a Form 4506 will be required on all loans for which tax returns have been obtained, including self-employed borrowers. An additional Form 4506 must be executed at time of loan closing and submitted with the closed loan package.

24. Truth-in-Lending

All fees considered finance charges must be include in the calculation of the total finance charge and the APR. Any finance charges paid by the borrower outside closing must be included in the calculations. Any finance charges paid by the seller or another third party should not be included in the calculation. If the seller is paying a pre-determined amount of the borrower's closing costs, all fees that are not finance charges should be paid first before applying the seller credit to any of the finance charges. *Please note that the INITIAL TIL must be dated within three (3) days of application.

25. Notice to Mortgagor Regarding Actual Transfer of Servicing

The notice to the mortgagor advising them of the actual transfer of servicing must contain the required RESPA information. The Cranston Gonzales Act requires the borrower(s) to receive notification at least fifteen (15) days prior to the effective date of the transfer. U.S.

Bank Home Mortgage suggests using the Notice of Assignment, Sale or Transfer of Servicing Right form when notifying the borrower(s) that the loan has been sold to U.S. Bank Home Mortgage. Any equivalent type of "Good-bye" letter is acceptable as long as it has all the required information. This disclosure must provide the borrowers with the name of the new servicer, the address and toll-free phone number:

U.S. Bank Home Mortgage 17500 Rockside Road Bedford, OH 44146 1-800 240-7890

C. AGGREGATE ESCROWS

Originating Lenders will be responsible for collection of the appropriate amount of taxes and insurance.

The "Aggregate Method" of calculation must be used for establishing escrow accounts. It can be defined as the accounting method a lender or bank uses in computing the sufficiency of the escrow account funds by analyzing the account as a whole. Originating Lenders are responsible for collecting the correct amount of escrows at closing. If insufficient funds are collected at closing U.S. Bank Home Mortgage will require the Originating Lender to correct the shortage in addition to providing the borrower with a re-disclosed initial escrow account statement. The shortage must be corrected prior to purchase by U.S. Bank Home Mortgage.

*Please note that U.S. Bank Home Mortgage will not fund loans with negative escrow.

The Aggregate Accounting Adjustment reflected on lines 1006-1008 of the HUD-1 must always be a negative number (credit) or zero. If your calculations result in a positive number (greater than zero), you should re-check your calculations.

However, if your calculations are correct. You can only reflect a zero (0) for the Aggregate Accounting Adjustment on the HUD-1. The regulation does not permit a positive charge on the HUD-1. Keep in mind that you cannot collect the positive charge Aggregate Accounting Adjustment shown in your calculation.

D. FIRST PAYMENT DATE

All loans must be closed with the monthly payments coming due on the first day of each month. Therefore, the first payment should be set so the borrower, when making the first payment, will pay an entire month's interest. First payment dates cannot exceed 61 days from the date of disbursement.

Example: Closing date is May 1st- First payment is June 1st. The borrower would pay

May's interest with the June payment

Closing date is May 2nd-First Payment is July 1st. The borrower would pay interest from May 2nd to May 31st at closing; June's interest would be paid with the first payment.

U.S. Bank Home Mortgage will allow other time frames to be considered on a case-by-case basis.

Per Diem is calculated on 365-day basis.

D1. NOTES DELIVERED BY WAREHOUSE BANK

If your Notes are delivered directly to us from your Warehouse Bank, they must be delivered in identifiable form. Please instruct your Warehouse Bank to attach the Note to a cover sheet, which reflects the identifying U.S. Bank Home Mortgage loan number, borrower's name and the property address. This will enable us to quickly match the Note with the corresponding closed loan package. Please make your bank aware that it is critical that the Note be delivered to the following address:

U.S. Bank Home Mortgage 17500 Rockside Road Bedford, OH 44146 Attn: MRBP Bond Operations

E. EXCEPTION (SUSPENDED) LOANS

Loans which are not in a fundable condition must be perfected within 30 days of notification by USBHM to Originating Lender.

A copy of the Exception Notice must be attached to all documentation sent to U.S. Bank Home Mortgage to clear a suspended loan.

F. FUNDING

Following receipt of a complete closed loan package or the exception items needed for purchase. U.S. Bank Home Mortgage will wire funds according to the provided wire instructions. You will receive a faxed confirmation detailing the purchase transaction on the day the funds are wired. To ensure that the proceeds from the purchase are wired to the correct warehouse bank, wiring instructions must be enclosed in each closed loan package. The instructions must include the borrower's first and last name along with the correct wire instructions.

Interest paid-to-date will be calculated by U.S. Bank Home Mortgage on a 360-day calendar year.

Any loan purchased between the 16th and the last day of the month, where the first payment is due the following month, will be funded at an amortized balance. It will be the Originating Lender's responsibility to collect that payment from the mortgagor.

Taxes/homeowners & flood insurance/MIP due prior to the first payment due to U.S. Bank Home Mortgage will be the responsibility of the correspondent to pay. (Needs to be double-checked). The Originating Lender is also responsible for late charges, penalties and other costs if they are not paid. To assure that MIP is paid timely and the borrower's escrow account is not negatively impacted, U.S. Bank Home Mortgage will collect and pay all MIP premiums unless a payment history is provided reflecting disbursement of the MIP. If the MIP is paid in error by the Originating Lender, the Originating Lender must obtain the refund from HUD. Any payment of taxes, homeowners or flood insurance, which are due before the first payment due to U.S. Bank Home Mortgage, will be the responsibility of the Originating Lender. The Originating Lender will also be responsible for late charges, penalties and other cost if not paid timely.

A loan history is required on loans where payment(s) were due on the first of the previous month (i.e., first payment due per Note is May 1; loan to be purchased on June 15). It is the Originating Lender's responsibility to forward an updated history if the history previously provided is outdated. Mortgage payments received after U.S. Bank Home Mortgage purchases a loan must be forwarded to:

U.S. Bank Home Mortgage

P.O. Box 790415

St. Louis, MO 63179-0415

Attn: Payment Processing Department

Tax bills received after U.S. Bank Home Mortgage purchases a loan must be forwarded to:

U.S. Bank Home Mortgage 17500 Rockside Road Bedford, OH 44146 Attn: Tax Department

G. POST-FUNDING FOLLOW-UP DOCUMENTATION

Any required post-funding follow-up documentation will be notated in a letter that is sent to the Originating Lenders. The required follow-up documentation must be delivered to U.S. Bank Home Mortgage by the deficiency due date. If not, you may be required to repurchase said loans(s) within 30 business days of a written demand by U.S. Bank Home Mortgage.

A copy of the Exception Letter must be attached to all documentation that is sent to U.S. Bank Home Mortgage to clear a post-funding deficiency.

H. FINAL DOCUMENTATION

All final documentation must be delivered to U.S. Bank Home Mortgage within 90 days of the date of purchase. Failure to provide documentation within this timeframe will result in penalties or possibly repurchase of the loan. If required to repurchase the loan, a wire must be received within 30 business days of the written demand by U.S. Bank Home Mortgage. USBHM may elect to collect outstanding documentation. If so any costs associated with the collection will be invoiced to the correspondent with timely reimbursement excepted.

Original loan documents relating to each loan purchased, which U.S. Bank Home Mortgage must receive within said 90 day period include:

1. Title Policy with applicable endorsements.

2. Recorded Deed of Trust/Mortgage or applicable security instrument.

3. Recorded Corporate Assignment, or its equivalent.

4. Mortgage Insurance Certificate/Loan Note Guarantee (address paperless environment here when determined).*

5. Recorded Power of Attorney.

6. Recorded Deed of Trust/Mortgage for Second Mortgage (if applicable).

7. Recorded Corporate Assignment for Second Mortgage (if applicable).

*Please note when submitting government insuring information to us, FHA loans must be insured within 30 days of CLOSING. The transfer of Servicing rights MUST be completed within 15 days of the purchase of the loan by U.S. Bank Home Mortgage. VA loans require the original LGC or a print screen from EDI evidencing the loan is insured. Rural Housing loans require the original LNG (Loan Note Guaranty).

All follow-up documentation, along with the Final Closed Loan Package Transmittal (see Forms section) should be forwarded as shown below.

U.S. Bank Home Mortgage 17500 Rockside Road Bedford, OH 44146 Attn: Document Control

I. TITLE INSURANCE REQUIREMENTS

U.S. Bank Home Mortgage will accept a title insurance policy issued by an American Land Title Association Title Company (ALTA) specially authorized by law or licensed to do business within the state where the property is located. Title Insurance Companies must be acceptable to Fannie Mae, Freddie Mac and Ginnie Mae in order to be eligible title insurers for loans purchased by U.S. Bank Home Mortgage. Short form policies are encouraged.

If the final title policy has not been issued at the time you deliver your closed loan file to U.S. Bank Home Mortgage we will accept a title binder. Your final title insurance policy must contain the following:

1) Insured Party in Schedule A - The original mortgagee or assignee should be reflected with "Its Successors and/or Assigns" added.

2) U.S. Bank Home Mortgage must hold a valid first lien position.

3) The effective date of the policy must be the same as or later than the recording date of the security instrument unless the policy is a master policy or a short form policy.

4) The complete legal description must be shown, if applicable, including lot, block, addition, city, county and state and be exact to the mortgage.

5) The complete tax identification number and amount of taxes must be shown unless the policy is a master policy or a short form. (Some states may not show the amount of taxes).

6) Title insurance coverage must be for at least the loan amount. On graduated payment mortgages, coverage must be for the highest loan amount after all deferred interest is added to the principal.

7) Name(s) of the mortgagor(s) must be consistent with those on the security instrument.

8) All titles must be held as Fee Simple.

9) The mortgagor(s) and mortgagee/beneficiary names, loan amount and date, recording information and recording state entered in Schedule A should be checked against the security instrument. The following is a sample entry containing all required information:

Mortgage from Robert T. Jones and Cynthia R. Jones, husband and wife, to U.S. Bank N.A., dated January 20, 1996, and recorded January 25, 1996 in Book No. 451, Page 3544, as Document No. 1242534 in Jefferson County, Kentucky, in the amount of $50,000.00. Note: if the security instrument has been re-recorded, the security instrument description must show the re-recording information also.

10) If a borrower's spouse has not signed the security agreement, the title insurance policy must affirmatively state that the lien of the Mortgage described on Schedule of the policy is not affected by the absence of the spouse's signature.

11) A plat drawing/survey/"Mortgage Inspection Report" must be included in the closed loan package. The correct dimensions of the lot, the location of any improvements, the measurement from the improvements to the various lot lines, the location and identity of all easements and encroachments must be identified and illustrated on the drawing. All permanent structures must be identified (i.e., house, garage, storage, etc.) The location of easements (east side, west side, etc.) must be described in the title policy.

Surveys are acceptable up to six months old.

If a Location Endorsement, ALTA 116 is not customary to the state and no plat/survey is available, then survey exceptions cannot be noted on the title commitment/final policy.

12) Required Endorsements:

U.S. Bank Home Mortgage requires the following endorsements to the final title policy:

a) All loans require the Comprehensive Endorsement 100 or ALTA 9.

b) All loans require the Environmental Protection Lien

Endorsement (ALTA 8.1).

c) All condominium mortgages require the Condominium Endorsement (ALTA 4).

d) All properties located in a planned unit development require the PUD Endorsement (ALTA 5).

e) All manufactured homes require an ALTA 7. Manufactured housing refers to housing produced in or at a factory. The sections are transported to the building site for final assembly. Mobile Homes meeting the specifications below are considered manufactured housing but modular, panelized or prefabricated homes are not considered manufactured housing. Manufactured housing must meet the following specific requirements: *NOTE all Manufactured homes must be eligible products as defined by the program documents. Additionally:

1) Property must be legally classified as real property.

2) Maximum lot size is 10 acres (In general land value should be no greater than 35% of the overall property value.

3) Its property must have a general appearance and functional utility of a site -built home.

4) The unit must have been built after June 15, 1976.

5) A unit must be double wide or larger with a minimum width of 22 feet.

6) An appraisal or other acceptable alternative with original photos or high quality copies must be in the file. Comparables must include no more than one-site built home. The comparables and comments must support marketability and value. The value may not include furniture; free standing appliances or other items of a personal nature.

7) The home must be permanently attached and anchored per manufacturer specifications and/or state/local building codes. The home must also have acceptable full perimeter walls that include brick, block and poured concrete or treated wood.

8) Wheels, axles and trailer hitches must be removed.

9) The home must have a pitched roof with overhang. Roof covering must be standard composition shingle (asphalt or fiberglass) or better.

10) The unit must have permanent steps and stoops or proper footings.

11) On-site parking must be provided.

J. General Title Waivers

Title to the mortgaged property must be free and clear of all exceptions that would affect the first lien position of U.S. Bank Home Mortgage in any way. Schedule B, Part 1 of the title binder and final title policy lists title exceptions for which the title company is not providing coverage. Before closing, Originating Lenders must determine what action, if any, should be taken to protect the interest of U.S. Bank Home Mortgage in the case of each such exception appearing on Schedule B, Part 1.

The Title insurance industry is in the business of insuring over the title to property, not over its value. If the defect in question has potential effect on the chain of title, the title company should insure over it on the final title policy, either by specific wording on Schedule B or by endorsement.

Examples of such defects are those referred to as:

"Convenants","Conditions","Restrictions","Declarartions","Agreements","By-laws", etc. which might cause the forfeiture or reversion of title if they were violated.

If the defect in question has the potential for an adverse effect on the use and enjoyment of the improvements and hence, on the value of the property as a whole, a specific waiver should be requested.

. The appraiser who completed the appraisal must execute conventional waiver.

. VA wavier request must be sent to the appropriate local VA office: Attn: Valuations.

. FHA waiver requests must be sent to the Direct Endorsement underwriter that underwrote the loan. If the wavier request involves a large adjustment in the value of the property, the local FHA office may need to approve.

All waivers should be reviewed and approved prior to closing by the appropriate agency or appraiser listed above.

Examples of defects of this kind are easements, right of way, and encroachments, which are not covered by the General Title Waivers.

a) Real Estate Taxes: FHA/VA/Conventional/RD - Real Estate Taxes must be followed by the statement, "Taxes that are not yet due and payable". Outstanding special assessments cited must be followed by the statement, "Special assessments hereafter levied".

Note: There are no "pending assessments now a lien."

b) Restrictions, Covenants and Conditions: FHA/VA/RD/Conventional restrictions, covenants and conditions cited must be followed by the statement, "which have not been violated to date. Any future violations will not result in forfeiture or reversion of title". Restrictions, covenants and conditions cited that have been violated must be followed by the statements. "This policy insures against all losses or damages by reason of this violation. This policy insures that neither said violation nor any future violation will result in forfeiture or reversion or title."

. The following exceptions are not acceptable on final title policies:

. Rights of Tenants in Possession.

. Easements or claims of easements not shown of public record.

. Right of first refusal.

. Exceptions for dower or courtesy rights.

. Fraudulent Conveyances.

. Liens (except taxes not yet due and payable).

. Exceptions which state anything as to matters of survey:

(Examples: discrepancies, conflicts, and shortages in area or boundary lines, encroachments or any overlapping of improvements, which an accurate survey of the premises would disclose.) Exceptions which state "possible" or "if any" must be specified or deleted.

. Rights of others in and to the use of the secured property.

FORMS

1. Closed Loan Stacking Order Sheet

a. Conventional Loans

b. FHA Loans

c. VA Loans

d. RHS Loans

2. MERS Contact Information Sheet

3. Contacts for Purchase/Review

4. Final Document Delivery Transmittal

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Disclaimer: These regulations may not be the most recent version. Arkansas may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.

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Arkansas Administrative CodeAgency 109 - Arkansas Development Finance AuthorityDivision 03 - Single Family HousingRule 109.03.08-001 - HomeTo Own Program Guide

Arkansas Administrative Code
Agency 109 - Arkansas Development Finance Authority
Division 03 - Single Family Housing
Rule 109.03.08-001 - HomeTo Own Program Guide