Guidelines For Locking When to Hold Off On Locking

The decision to lock a loan – or more importantly, when to hold off on locking – has never been more important in our industry. Lender approvals, preferred pricing incentives, and even the ability to lock in itself, are all reliant on the decisions you make in regard to locking your loan.

Below are some guidelines to follow to help you better determine when it is appropriate to lock.

Do NOT Lock When…

Property

1.    The home is located in a unique neighborhood where “like comps’ will be difficult to obtain;
2.    When, after running comps, the value you see varies by 10% or more from what is needed to qualify for the loan;
3.    When it is a government loan and reliant on the appraised value;
4.    When it is an investment property that will require a desk or field review appraisal
5.    When it is a condo project that is non-warrantable or until you receive a Condo Certification as required by the lender

Borrower

1.    When you know that the borrower is rate shopping or has applied elsewhere
2.    When you have not seen all of the financial documentation to confirm assets and income
3.    When ratios are very tight and allowable income/assets could come into question
4.    When obtaining gift funds and the money has not yet been sourced
5.    If there is any question or concern about employment
6.    If you have any feeling that the borrower may back out of the loan

Transaction

1.    When there is a 2nd that needs to be subordinated
2.    When you have priced yourself so tight that any potential lock extension will kill the deal
3.    Before you have taken a complete application
4.    Before you have an AUS Approved finding
5.    When there is a question as to your ability to close the loan in the time frame you have been provided (for example: a real estate transaction that is contracted to close in 30 days when you know the reasonable expectation is 45 due to the lender you have selected and/or industry turn times)
6.    If you feel that, based on current market conditions and trends, rates will improve significantly  in the next 21 days (or until you are ready to order loan docs);
7.    Unless you and your borrower have agreed to lock at the rate and terms offered and that they understand the commitment being made by them, along with the risks and rewards of doing so.

If all of the above criteria have been met, you should have a very strong comfort level in locking your loan with the confidence that it will close.

Following these guidelines will generate great benefit for you and all of Clarion as it will ensure stronger pull-through percentages, allowing us to secure better terms and pricing incentives from our lenders. This, in turn, will help you to be even more competitive and earn more income.

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To: All Flagstar Bank Wholesale Lending Customers
From: Wholesale Lending
Subject: Best Efforts Delivery
Date: 3/4/09
Memo #: 09044

IMPORTANCE OF MANAGING LOCK FALLOUT

During these uncertain times, as many of our competitors continue to exit the wholesale lending
arena, we pride ourselves on being a relationship lender that is constantly reinforcing our
commitment to the wholesale lending business channel.
Unfortunately, over the last few months the wholesale channel has experienced an unacceptable
level of lock fallout. To help our customers improve their overall performance, we’ve taken numerous
steps to help them reduce lock fallout. Our efforts, which have included offering pricing incentives,
supplying online tools to help customers monitor their own performance, and stressing the
importance of customers honoring their pledge of “best efforts”, have helped reduce our overall lock
fallout.

DEFINING BEST EFFORTS DELIVERY (BROKERS AND CORRESPONDENTS)

In this market many customers have lost sight of what the term “best-efforts delivery” means when
securing a rate lock. Our broker and correspondent agreements (Section 2.3b) state that even for
“best efforts” locks, the “delivery of Mortgage Loans closed by Seller that are locked-in with Flagstar
is mandatory.” This means that if a loan closes that is locked best efforts, it must close with Flagstar.
While a certain level of borrower-driven fallout is expected, heightened levels of fallout are not only
unhealthy for Flagstar, but for our industry as a whole.

BEST EFFORT PAIR OFF FEES

As part of our broker and correspondent agreements, Flagstar reserves the right to charge a pair off
fee on any loans locked best efforts that ultimately close with another investor.
We have been closely monitoring all of our customers (brokers and correspondents) with
unacceptable levels of lock fallout and will begin charging pair-off fees on any loan that we find
closed with another lender after it was locked best efforts with Flagstar.
Loans that were locked with Flagstar but for any number of reasons have become undeliverable to
Flagstar (denied in underwriting, unexpected AUS results, UW condition that could not be met, etc.)
will be exempt from a pair-off fee.

CONCLUSION

We hope that you respect and understand this decision regarding lock fallout. Just as you decide to
pursue a wholesale partnership based on the benefits of conducting business with us, we must
manage our alliances so the benefits outweigh any associated costs of doing business. We feel this
new direction will be in the best interest of our ongoing partnership. Thank you in advance for your
business and continued support.

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