REGULATION Z – HIGHER-PRICED MORTGAGE LOAN (HPML) POLICY SECURITYNATIONAL MORTGAGE COMPANY APPROVED: 09/09/2013

REVISION NUMBER: 12.4.1.1 PAGE 1 OF 2 REVISED DATE: 03/04/13

Copyright © 2013 SecurityNational Mortgage Company.

Section 12.4: Regulation Z – Higher-Priced Mortgage Loan (HPML) Policy

Summary SecurityNational Mortgage Company (SNMC) shall comply with the Higher-Priced Mortgage Loan (HMPL) requirements of Regulation Z.

Definitions

Higher-Priced Mortgage Loan (HPML) A consumer credit transaction secured by the consumer’s principal dwelling with an annual percentage rate (APR) that exceeds the average prime offer rate (APOR) for a comparable transaction as of the date the interest rate is set by:

1.5 or more percentage points at consummation for loans secured by a first lien on a dwelling, or

3.5 or more percentage points at consummation for loans secured by a subordinate lien on a dwelling. A higher-priced mortgage loan does not include:

1. A transaction to finance the initial construction of a dwelling. 2. A temporary “bridge” loan with a term of 12 months or less. 3. A reverse mortgage. 4. A home equity line of credit.

Average Prime Offer Rate An APR that is derived from average interest rates, points, and other loan pricing terms currently offered to consumers by a representative sample of creditors for mortgage transactions that have low-risk pricing characteristics. The CFPB publishes average prime offer rates for a broad range of types of transactions in a table updated at least weekly, as well as the methodology it uses to derive these rates. These rates are available on the website of the Federal Financial Institutions Examination Council: http://www.ffiec.gov/ratespread/aportables.htm.

Requirements for Higher-Priced Mortgage Loans (HPML) The following rules apply to higher-priced mortgage loans.

Ability to Pay When SecurityNational Mortgage Company extends a higher-priced mortgage loan, it must verify the consumer’s ability to pay, including mortgage-related obligations.

Mortgage-related obligations are expected property taxes, premiums for mortgage-related insurance required by the creditor, and similar expenses.

SNMC must also verify amounts of income or assets that it relies on to determine repayment ability using tax returns, payroll receipts, financial institution records, or other third-party documents that provide reasonably reliable evidence of the consumer’s income or assets.

SNMC must also verify the consumer’s current non-mortgage-related obligations. A presumption of compliance is available for some transactions, but only if the creditor:

Verifies the consumer’s repayment ability as required;

REGULATION Z – HIGHER-PRICED MORTGAGE LOAN (HPML) POLICY SECURITYNATIONAL MORTGAGE COMPANY APPROVED: 09/09/2013

REVISION NUMBER: 12.4.1.1 PAGE 2 OF 2 REVISED DATE: 03/04/13

Copyright © 2013 SecurityNational Mortgage Company.

Determines the consumer’s repayment ability using the largest payment of principal and interest scheduled in the first seven years following consummation and taking into account current obligations and mortgage-related obligations; and

Assesses the consumer’s repayment ability taking into account either the ratio of total debts to income or the income the consumer will have after paying debt obligations.

Prepayment Penalties Regulation Z prohibits prepayment penalties at any time for higher-priced mortgage loans if:

Other applicable law (e.g., state law) prohibits such penalty;

The penalty will apply after the two-year period following consummation;

The source of the prepayment funds is a refinancing by the same mortgage lender or an affiliate; or

The consumer’s mortgage payment can change during the first four years of the loan term. The regulation prohibits creditors from structuring a home-secured loan as an open-end plan to evade these requirements.

Escrow Account When SNMC extends a higher-priced mortgage loan it will ensure that an escrow account is established before consummation for payment of property taxes and premiums for required mortgage-related insurance. The only exceptions involve loans secured by shares in a cooperative or condominium units where the condominium association has an obligation to maintain a master insurance policy, initial construction of a dwelling, temporary financing (12 months or less), and reverse mortgages. Additionally, a “jumbo” loan secured by a first lien is not subject to the escrow requirement unless its APR rate exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by 2.5 or more percentage points. A “jumbo” loan is a transaction with a principal obligation at consummation that exceeds the limit in effect for the maximum principal obligation eligible for purchase by Freddie Mac. For mortgage loan applications received on or before May 31, 2013, the consumer may cancel the escrow account one year after consummation if a consumer’s written cancellation request is received no earlier than 365 days after consummation. For mortgage loan applications received on or after June 1, 2013, the consumer may cancel the escrow account five years after consummation via written request if the unpaid principal balance of the loan is less than 80% of the original value of the property and the loan is not delinquent or in default.