1. ADFA “HomeToOwn” MBS Program Originating and Processing an ADFA “HomeToOwn”,DPA, ADDI, MCC & Internet Loan Reservation System

2. The Single Family division of ADFA offers the following programs: “HomeToOwn” Mortgage Credit Certificate (MCC) Program Down Payment Assistance (DPA) Program Arkansas Dream Down Payment Initiative(ADDI) Program(Through the HOME department)

3. Changes to ADFA “HomeToOwn” program At the present time our “HomeToOwn” first mortgage is not being funded by Tax Exempt Mortgage Revenue Bonds. The program is our “HomeToOwn”MBS. With this program: 1) Borrower does not have to be a first time homebuyer regardless of county. 2) There may be flexibility with the county income limits on a case by case basis. 3) Borrowers can utilize DPA or ADDI and the MCC program with our “HomeToOwn” program. 4) Rate is subject to change at any time 5) There is no recapture tax if home sold regardless of how long borrower lives in the residence

4. Our “HomeToOwn”-MBS program can be used alone or with the other programs as shown below: “HomeToOwn” “HomeToOwn” and DPA “HomeToOwn” and ADDI “HomeToOwn” and MCC “HomeToOwn” and DPA and MCC “HomeToOwn” and ADDI and MCC DPA and ADDI funds cannot be used together

5. Guidelines for the programs “HomeToOwn” MBS Does not have to be first time homebuyer Does have household income limits not to be exceeded Does have purchase price limit not to be exceeded Does not require an inspection There is no recapture tax DPA Does not have to be first time homebuyer Does not have household income limits Does not have purchase price limits Does not require an inspection Has to be used with the “HomeToOwn” MBS program

6. Guidelines for the program-continued ADDI Does have to be first time homebuyer regardless of county Does have income limits that cannot be exceeded Does not have purchase price limit Does not have a credit score Does require an HQS inspection Must be used with HomeToOwn MBS or MCC or both. MCC Does have to be first time homebuyer except in Targeted counties. Does have income limits that cannot be exceeded Does have purchase price limits that cannot be exceeded Does not have a credit score Does not require an inspection Can be used alone or with HomeToOwn MBS and DPA or ADDI

7. The following types of mortgages are eligible in ADFA’s “HomeToOwn” FHA Loans V.A. Guaranteed Loans Rural Development-(when funds available) Conventional-HFA Preferred 97 & 95

8. HFA Preferred 97 Conventional Loan Product Must be credit underwritten by US Bank Home Mortgage-MRBP division. The lender must get an Approve/Eligible in DU findings. No Manual Underwriting is allowed. Loan-To-Value=95.01% to 97%. Combined Loan-To-Value= 105%. Minimum Credit Score= 680 or above Maximum Debt to Income Ratio = 45% MI Coverage @ Charter Level: 97% LTV = 18% (Standard Coverage 35%.

9. HFA Preferred 97 Conventional Loan Product- Continued No Loan Level Price Adjustment. Pre-purchase Homebuyer Education Required. ADFA DPA/ADDI allowed ADFA Income Limits apply Borrowers do not have to be First Time Homebuyers but cannot own another property at time of closing. All other Fannie Mae Underwriting Guidelines apply.

10. HFA Preferred 95 Conventional Loan Product Participating Lender credit underwrites the loan. Manual underwriting allowed if no credit score available. Loan To Value= 95% and below Minimum Credit Score = 640 Maximum Debt to Income Ratio = 45% MI Coverage @ Charter Level: 90.01% to 95% = 16% (Standard Coverage= 30%) 85.01% to 90% = 12% (Standard Coverage= 25%) 80.01% to 85% = 6% (Standard Coverage= 12%)

11. HFA Preferred 95 Conventional Loan Product- Continued Pre-purchase Homebuyer Education Required ADFA DPA & ADDI allowed ADFA income limits apply Borrowers do not have to be First Time Homebuyers however cannot own another property at time of closing. No Loan Level Price Adjustment.

12. We rely on our participating lenders to credit underwrite for our Government and 95% Conventional mortgage loan products. Our Master Servicer does require a 640 or above and a maximum Debt to Income Ratio of 45% for Conventional and 660 credit score for FHA. Our Master Servicer no longer accepts FHA manually underwritten loans. This means they also will not accept non-traditional credit when borrowers have no credit scores. Manuel underwriting is accepted for VA, RD and FNMA Conventional 95% programs. Our 97% Conventional product must be credit underwritten by US Bank Home Mortgage-MRBP Division and have a minimum credit score of 680. Manual underwriting is not allowed and lender must obtain an Approve/Eligible DU findings to submit to US Bank Home Mortgage.

13. Taking the loan application The first thing to assess when taking a loan application for the ADFA “HomeToOwn” MBS is if the borrower(s) meet the ADFA income & purchase price requirements. Each county has income limits that the household cannot exceed based on the size of the household.(exceptions may be made on a case by case basis and not to exceed 10% over the published income limit amount). Income for all persons living in the home, 18 years of age and older, must be used. The maximum purchase price limit is currently $250,000.00.

14. ADFA’s income limits are available on our website at www.adfa.arkansas.gov Once on the website click “Publications and Forms- Housing” on the top toolbar. That will pull up all the information for the Single Family program.

15. MBS RESERVATION Keep in mind that you have 30 days from the reservation date to submit a compliance package to ADFA. The closing file must be delivered to ADFA and US Bank Home Mortgage within 45 days of the reservation date and finally the loan must be cleared of exceptions by ADFA and purchased by US Bank Home Mortgage-MRBP division within 70 days of the reservation date. There is a one-time 30 day extension for any loans not purchased within 70 days from reservation. The fee is $375.00 to be netted out at time of purchase. This fee must be paid by the lender. The borrower or seller cannot pay this fee.

16. ADFA “HomeToOwn” MBS Compliance Package ADFA must receive a compliance package within 30 days of the reservation date. If a compliance package is not received within 30 days it is automatically cancelled from our system. The loan cannot be re-reserved without contacting ADFA to allow a re-reservation and lock in the rate. If a loan cancels and needs to be re-reserved it will be reserved at the higher of the 2 rates. A Copy of the Standard Loan Estimate for HomeToOwn, DPA, or ADDI as applicable signed by applicant. TRID questions may be addressed by calling US Bank Help Desk, 1-800-562-5165.

17. Compliance Package to ADFA The Exhibit 6-G is the checklist that is used to assemble a package for ADFA. Everything listed on this Exhibit must be sent to us. Please do not send incomplete packages to ADFA.

20. ADFA Exhibits Exhibit 5-A-This exhibit should be sent with all compliance packages. This tells how many people will be living in home, how many 18 years of age or older and annual household income Exhibit 5A-1-This exhibit is only used if there is a non-borrower occupant living in the home over the age of 18.

24. . Exhibit 5-C-This Exhibit is to be signed and sent only on FHA and Rural Development Loans. Exhibit 5-B-This Exhibit is to be completed and sent only if the borrower(s) were not required to file tax returns in the last year.

26. . Exhibit 6-H-This is to be sent with all packages. This is the approval to close and will be emailed to you signed by an ADFA compliance underwriter when all exceptions are met and the loan is ready to close according to our compliance guidelines. All Exhibits sent with the compliance package must be originals.

28. ADFA “HomeToOwn” Down Payment Assistance Subordinate Mortgage Loans (DPA)

29. ADFA offers two types of down payment assistance loans to help with down payment and closing costs. 1) The Down Payment Assistance (DPA) Loan is a 2 nd mortgage with a 10 year amortization or... 2) The Arkansas Dream Down Payment Initiative (ADDI) is administered through the HOME Investment Partnerships Program (HOME) as a forgivable soft 2 nd mortgage with a five year affordability period.

30. Down Payment Assistance Loan (DPA) Must be used in conjunction with the “HomeToOwn” MBS program 10 year amortization at 4.0% (subject to change) $1000 to $6000 can be used for down payment and closing cost Borrowers are able to receive cash back at closing to cover POC items Borrowers are required to take an 8 hour homebuyer education course or a e-home online course through an ADFA approved homebuyer counseling agency Collect $175 processing fee that will be netted out at purchase from Master Servicer No prepayment penalty No recapture provision

31. Down Payment Assistance Loan (DPA) DPA is subject to TRID and the Standard Loan Estimate and Closing Disclosure. The Standard Loan Estimate is to be issued within three days of the application date. The TRID disclosures can have either the lender or ADFA named as the ‘creditor’. The lender will fund both the first and second mortgages at closing. DPA Note and mortgage will be in the name of ADFA. ADFA will provide the lender a Legally Enforceable Obligation Letter on FHA Loans.

32. Arkansas Dream Downpayment Initiative (ADDI) HOME Program Income limits are at 80% of area median income (AMI) May not exceed six percent (6%) of the purchase price of a home. Maximum of $10,000. Cannot buy down mortgage loan Forgivable soft 2 nd mortgage. The loan is forgiven in equal monthly installments over a 60-month period Buyer must be first-time homebuyer (not owned a property within last 3 years) regardless of county Borrower(s) must complete an 8 hour Homebuyer Counseling Course or an e-home online course from an ADFA approved homebuyer counseling agency

33. ADDI Loan(continued) HQS Inspection required prior to ADDI approval If dwelling is pre -1978, a lead-based paint inspection and risk assessment, is required if there is chipping and peeling paint on the structure Additional HOME/ADDI funds will not be provided for repairs associated with ADDI loans All repairs must be completed on the unit prior to approval of ADDI allocation unless HUD foreclosure Does have to be used in conjunction with ADFA’s “HomeToOwn” MBS first mortgage and/or MCC program Standalone ADDI is not allowed, however ADDI and MCC may be submitted together for this purpose.

34. ADDI Loan (continued) There is a new fee, “ADDI Funding Fee”, of $10 on all ADDI Loans. For the purposes of TILA, the $10 ADDI Funding Fee is the only fee to be included in calculating the Annual Percentage Rate (APR). ADDI is subject to TRID and the Standard Loan Estimate and Closing Disclosures must be used. The Standard Loan Estimate should be issued within three days of the loan application date. The $10 “ADDI Funding Fee” will be paid by the borrowers at closing and will not be included in the ADDI loan amount.

35. ADDI Loan (continued) The $10 “ADDI Funding Fee” should be listed on the ADDI Loan Estimate and the ADDI Closing Disclosure. The TRID disclosures can have either the lender or ADFA named as the “creditor”. The lender will fund both the first and second mortgages at closing. ADDI Note and Mortgage will be in the name of ADFA. ADFA will provide the lender with a Legally Enforceable Obligation Letter on FHA Loans.

36. DPA vs ADDI Income limits same as “HomeToOwn” limits. Must be paid back $1000 to $6000 Borrowers do not have to be a first time homebuyer regardless of county Borrowers can receive cash back for POC items at closing. No inspection required Can only be used with HomeToOwn-MBS product. Income limits are at 80% of area median income Forgivable over 5 years Up to 6% of sales price not to exceed $10,000. Borrowers do have to be a first time homebuyer regardless of county. Borrowers cannot receive cash back at closing. HQS inspection required. This is ordered within 24 hours of receipt of the submission package after income has been reviewed by the underwriter. Cannot be used as a Standalone. Must be used with HomeToOwn-MBS or MCC. Has no credit score

37. Mortgage Loan Closing ADFA “HomeToOwn” MBS

38. Loan Closing Fees and Charges Lender may collect all normal and customary closing costs. $25 reservation fee to be collected and disbursed to ADFA. $85.00 Tax Service Fee to be collected paid by seller only. This amount will be netted at purchase by the Master Servicer. $400.00 Loan Funding Fee effective 11-1-2015. This amount will be netted at purchase by the Master Servicer.

39. Loan Closing Fees and Charges (cont.) The financing of allowable closing costs is acceptable as permitted by the loan insuring agency. Discount Points are not an allowable charge for any ADFA loan products. ADFA pays a service release premium (SRP) of 1.25% on FHA and RD loans,.75% on VA loans, and 1% on 95% and 97% Conventional loans when sold to the Master Servicer.

40. Loan Closing and Submission Documents Neither ADFA nor US Bank will prepare final closing documents. This is the responsibility of the lender. All ADFA exhibits and 2 nd mortgage closing documents are on the internet reservation site. https://www.adfaweb.adfa.state.ar.us/mitas The closing package must be received by ADFA within 45 days of reservation date unless otherwise approved by Single Family staff. Exhibit 7-K. This is your checklist of everything to be submitted to ADFA after closing. Check for $25.00 reservation fee payable to ADFA. Typed copy of final loan application with appropriate addendums and signed by all parties including lender.

43. Loan Closing and Submission Documents (continued) Copy of Mortgage Note Copy of Mortgage/Deed of Trust and any applicable riders. Copy of Exhibit 7-O, Assignment of Mortgage/Deed of Trust unless MERS is used

44. Loan Closing and Submission Documents (continued) Original Exhibit 7-L, Mortgagor’s Application Affidavit and Certification Original Exhibit 7-M, Sellers Affidavit and Certification Copy of title commitment Copy of the Standard Closing Disclosure with closing package for Home To Own, DPA, or ADDI as applicable dated 7 business days before closing or 3 business days before closing if lender provides proof of delivery to borrower(s) by a borrower’s dated signature, an electronic signature with a time stamp or a screen shot or receipt from an electronic delivery system that shows the borrower actually opened the e-package as evidence of actual receipt. Copy of Warranty Deed (includes marital status)

51. DPA loan closing and submission documents The DPA Note, Subordinate Mortgage are found on the internet reservation site. Typed final DPA loan application signed by all parties. Copy of the Standard Closing Disclosure with closing package for Home To Own, DPA, or ADDI as applicable dated 7 business days before closing or 3 business days before closing if lender provides proof of deliver to borrower(s) by a borrower’s dated signature, an electronic signature with a time stamp or a screen shot or receipt from an electronic delivery system that shows the borrower actually opened the e-package as evidence of actual receipt.

52. DPA loan closing and submission documents (continued) Copy of DPA Loan Note Copy of DPA Loan Subordinate Mortgage Copy of Home Buyer counseling certificate Copy of Hazard Insurance showing ADFA as 2 nd mortgagee All recorded documents should be sent to US Bank Home Mortgage/MRBP division

53. ADDI loan closing and submission documents The original Promissory Note for the ADDI program. Copy of the ADDI Mortgage Copy of the ADDI Deferred Note Agreement. The original recorded ADDI Subordinate Mortgage and Deferred Note Agreement should be forwarded to ADFA immediately for Lender reimbursement. Copy of the Homebuyer Counseling Certificate

54. Cont. ADDI loan closing and submission documents Copy of Hazard Insurance showing ADFA as 2 nd mortgagee. Copy of Flood Certification. Copy of the Standard Closing Disclosure with closing package for Home To Own, DPA, or ADDI as applicable dated 7 business days before closing or 3 business days before closing if lender provides proof of deliver to borrower(s) by a borrower’s dated signature, an electronic signature with a time stamp or a screen shot or receipt from an electronic delivery system that shows the borrower actually opened the e-package as evidence of actual receipt.

56. ADFA Mortgage Credit Certificate “MCC” Program

57. What is a Mortgage Credit Certificate? An MCC is a First-Time Homebuyer program that was authorized by congress in the 1984 Tax Reform Act as a means of providing housing assistance to families of low and moderate income. It provides for a Federal tax credit up to $2,000 per year that reduces the amount of Federal income tax paid by the borrower, giving more available income to qualify for a mortgage loan and assist with house payments. The Borrower can claim the Federal tax credit each year as long as the home is the borrower’s primary residence.

58. What is a Mortgage Credit Certificate? The Amount of the tax credit is equal to the annual mortgage interest paid multiplied by the MCC Tax Credit Rate of 50%. MCC’s can be used with all loan types including “HomeToOwn”. Loans must be fixed rate and fully amortizing.

59. How does a MCC work? A “tax credit” entitles the taxpayer to subtract the amount of the credit from their total Federal income tax liability resulting in a “dollar for dollar” tax savings. MCC Example: Mortgage Amount$150,000 Interest Rate 3.75% Total Interest Paid First Year $ 5,625 MCC Tax Credit Rate X 50% ___________ Total MCC Benefit$ 2,812.50 The maximum amount of tax credit allowed is $2000.00 per year. The unused benefit can be carried forward for up to three years. In this example $812.50 can be carried forward for a period of three years. *** Please refer to the MCC Excel Tool in a separate attachment

61. How does a Homebuyer use the MCC? The borrower claims the tax credit whey they file their Form 1040 “U.S. Individual Income Tax Return” annually. They must use Form 8396 “Mortgage Interest Credit” to claim the credit. They may itemize if they choose. The credit may be claimed for the life of the loan as long as the home is their primary residence. To take advantage of the tax credit as soon as possible, the borrower may go to their employer and adjust their W-4’s to reflect the anticipated credit. A $2000 tax credit  12 = $166.66 monthly savings. Unused MCC Tax Credits may be carried forward for 3 years.

63. Does “Recapture Tax” apply to the MCC Program? For the Recapture Tax to apply, ALL of the following conditions must be met: Sell the home within nine years Make a net profit on the sale of the home Borrowers household income must increase at least 5% each year. We estimate that 96% of the borrowers will not be subject to the recapture tax. Note: ADFA will not reimburse MCC borrower’s that are required to pay the recapture tax.

64. Other information from the IRS IRS Publication 523 “Selling Your Home” gives information on how to figure and report recapture tax. IRS Form 8828 is used to report recapture tax. IRS Publication 530 “Tax Information for Homeowners”-Information on Mortgage Credit Certificate (MCC)

65. To qualify for the MCC program the borrower does have to meet the first time homebuyer requirement. A non borrower spouse or co-occupant must meet the first time homebuyer requirement also. If property is located in a Targeted County, the first time homebuyer requirement does not apply. Veterans and spouses of veterans are exempt from the first time homebuyer requirement. In general, 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 of closing. First-Time-Homebuyer

66. County Income Limits Each county has income limits that the household cannot exceed based on the size of the household. The county income limits for the MCC program are the same as the “HomeToOwn” MBS limits No income restrictions may apply to Targeted Counties. ADFA approval required. We must use all income for all persons living in the household, 18 years of age and older. ADDI Funds may be used for MCC fees

67. Compliance Package to ADFA MCC Conditional Commitment Transmittal Checklist is what is used to assemble a compliance package and send to ADFA. It is located in the “Click here for MCC Documents” on the internet loan reservation system.

69. ADFA Exhibits Exhibit A-This exhibit should be sent with all compliance packages. This explains the potential recapture tax Exhibit B-This exhibit should be sent with all compliance packages. This tells how many people will be living in home, how many 18 years of age or older and annual household income

73. Exhibit C-This Exhibit is the MCC Disclosure and is to be read by borrower, signed and sent with all compliance packages. Exhibit I-This Exhibit is to be signed and sent only on if there is a non-borrower occupant in the home over the age of 18. All Exhibits sent to ADFA must be the original.

77. . If all documents are in order & compliance conditions met, the ADFA underwriter will sign and send the Conditional Commitment Letter (Exhibit D) to the Lender. The commitment expires 60 days from the date of the letter

79. ADFA MCC Closing

80. Loan Closing and Submission Documents Lender closes the loan within 60 days from date of commitment letter. MCC Closing Package Transmittal Checklist is your checklist of everything to be submitted to ADFA after closing. Must be sent to ADFA within 30 days of loan closing date. Mortgage Lender check for $25.00 reservation fee &.50% MCC fee payable to ADFA. Typed copy of final loan application with appropriate addendums and signed by all parties including lender.

81. .

82. Loan Closing and Submission Documents (continued) Closing Disclosure, signed by all parties Copy of Mortgage Note Copy of Mortgage/Deed of Trust Original Exhibit E-Borrower’s Closing Affidavit Original Exhibit F-Seller’s Closing Affidavit Original Exhibit G-Lender’s Closing Affidavit Original Exhibit P with County Income Limit Page

89. MCC Fees $25.00 Reservation Fee MCC Issuance Fee-.50% of loan amount $50.00 Reservation Extension Fee-paid for each 30 day extension granted. $125.00 Reissuance Fee-Fee paid to ADFA on assumptions and refinance. Lender Fee-Lender may charge borrowers up to $150.00 per MCC transaction.

90. . If all compliance guidelines are met, ADFA will issue the Mortgage Credit Certificate. The original certificate will be sent to the borrowers at the address of the subject property. A copy of the certificate will be sent to the designated contact person for the Lender. The contact person is responsible for reporting to the IRS and records retention

91. Federal Reporting Lender’s Information Return for Mortgage Credit (IRS Form 8329)- Lender is required to annually file with the Internal Revenue Service Form 8329 on or before January 31 st of each year. It covers information with respect to loans made in conjunction with the issuance of MCC’s during the prior calendar year. For details of this requirement see Chapter 5, paragraph A of the MCC Program Guide.

93. Records Retention Lender is required to keep the Internal Revenue Service Form 8329 for a period of six years. Details are listed in Chapter 5, paragraph B.

94. CAUTION We are not professional tax preparers so we should notbe giving tax advice to the borrowers. We recommend that borrowers seek the advice of a qualified tax preparer when deciding whether or not to take advantage of the benefits of a Mortgage Credit Certificate.

95. ADFA Internet Reservation System

96. When you are ready to make a reservation go to: https://www.adfaweb.adfa.state.ar.us/mitas

97. The first page is the Lender log on page. You will enter your originator #, Branch#, User Name and Password. The password is case sensitive. Then click “Login”.

98. Once logged in you can click “Register by Program” to make a new reservation. “View Loan Pipeline” to pull up a reservation that already exists by name “View Loan Detail” to pull up a reservation that already exists by ADFA loan number

99. To make a “HomeToOwn” TBA program reservation, click on “HomeToOwn”-MBS

100. To reserve a Mortgage Credit Certificate (MCC) after clicking on “Register by Program” you will click on either MCC Targeted or MCC Non Targeted Counties depending on what county the property is located in.

101. Loan Info Screen-Complete all fields that are shown on example below. Then click on the “Next” tab on left side of page.

102. Property screen-Enter all fields as shown below. Make sure county code field has correct county shown and Division/Area and Targeted Non- Targeted fields match. Then click “Next” Tab on left side of page.

103. Additional Info screen—All that is required to be entered on this screen is the Appraised Value and Total Persons 18 years and older. Then click “Next” tab on left side of page.

104. Mortgagor screen—Complete all fields as shown in example below. Then click “Next” tab on left side of page.

105. Co-Mortgagor screen—Complete this screen as shown in example below and click “Submit” tab on left side of page. If there is not a Co-Mortgagor then leave page blank and click “Submit” on left side of page to complete reservation.

106. After clicking on “Submit” if you have a good reservation this page will pop up showing the “Reservation Confirmation”. The Loan Status at bottom of page will show “Reservation”. You can print this page by clicking on the blue “Printer Friendly” tab.

107. RESERVING A DPA OR ADDI SECOND MORTGAGE: Once you receive a reservation confirmation, if you need to reserve a DPA or ADDI second mortgage you will click “Main Menu” on left side of screen in blue area.

108. Go into “View Loan Pipeline”

109. Then go into “HomeToOwn”-MBS

110. Click on “Reservation”

111. Find borrower’s name that you want to reserve the second for and click on their name

112. Click on “Reserve Second” box.

113. Click on whichever program you are needing to reserve down payment assistance from

114. Input 2 nd loan amount and click “Submit” button on left hand side of page in blue section.

115. After clicking Submit this page should come up showing “Reservation” on bottom and date.

116. To Print Documents: Go to reservation page and click on 2 nd blue box “Print Documents”

117. Once you click on “Print Documents” it may give you a error screen, click “Continue to website” Then this page will come up which has all the ADFA “HomeToOwn” MBS exhibits that are needed to send with the compliance & closing packages.

118. MCC documents

119. To Change Loan information after reservation. Click on 3 rd blue box “Loan Application”. This will allow you to go back into screens and change information if needed.

120. Single Family Contact List Murray Harding---Single Family Manager (501) 682-5974 or murray.harding@adfa.arkansas.govmurray.harding@adfa.arkansas.gov Denise Wells—---Single Family Assistant Manager (501) 682-5466 or denise.wells@adfa.arkansas.govdenise.wells@adfa.arkansas.gov Dean Norman------Compliance Underwriter (501) 682-5935 or dean.norman@adfa.arkansas.govdean.norman@adfa.arkansas.gov Barbara Whittaker-Compliance Underwriter (501) 682-5930 or barbara.whittaker@adfa.arkansas.govbarbara.whittaker@adfa.arkansas.gov Rachae Frye--------Compliance Underwriter (501) 682-5933 or rachae.frye@adfa.arkansas.govrachae.frye@adfa.arkansas.gov