RESPONSIBLE MORTGAGE LENDING POLICY
American First Lending Corporation recognizes that the residential mortgage lending industry has undergone phenomenal growth over the past decade. With this growth has come rapid development of products and distribution channels, making mortgage products accessible to consumers with a wide variety of objectives and resources. American First Lending Corporation supports the broader availability of a variety of mortgage products to consumers.
Much of this expansion has come in the area of nonconforming loans, including traditional “subprime” and Alt-A lending. American First Lending Corporation believes that nonconforming mortgage lending provides an important and necessary service to our economy, only if done in conjunction with providing standard conforming lending. In providing loans to people with impaired or unproven credit, nonconforming lenders play a critical role in expanding homeownership and ultimately strengthening neighborhoods. However, financing the purchase of a home can be an extremely complex financial transaction for many homebuyers. Additionally, those individuals that have impaired, nontraditional or limited credit histories generally present higher risk and may also be the least financially sophisticated. The combination of these factors make the nonconforming mortgage lending industry more susceptible to abusive or “predatory” lending practices on the part of irresponsible and/or abusive brokers, lenders, appraisers, home improvement contractors and others involved in the loan origination process.
While there is no recognized definition of “predatory lending,” it may involve deception or fraud, manipulation of the borrower through aggressive sales tactics or taking unfair advantage of a borrower’s lack of understanding about loan terms. These practices may be combined with loan terms that alone or in combination are abusive or make the borrower more vulnerable to abusive practices.
1. Responsible Lending Principles
American First Lending Corporation has established certain principles or standards for responsible lending to discourage predatory lending practices. These principles include the following:
• American First Lending Corporation will not originate, purchase or finance “high cost loans,” however denominated, as defined under applicable federal or state law. Furthermore, it is American First Lending Corporation’s policy not to originate, purchase or finance loans which would meet the state or local definition of a high cost loan but for the existence of an exemption or exception from the law based upon the charter of the originating institution.
• Credit decisions should be based primarily on the repayment ability of the borrower, as demonstrated by the borrower’s credit or mortgage pay history, or an analysis of the borrower’s current debt and income. This underwriting process includes the following components: (1) For all mortgage loans which permit the deferral of interest or principal, the borrower will be required to qualify at the fully-indexed rate; (2) For all mortgage loans which permit the deferral of interest or principal, the borrower must qualify at a payment which would fully amortize the loan over its term; and (3) For all products permitting negative amortization, the borrower will be required to qualify based upon a principal amount equal to the maximum potential principal balance.
• American First Lending Corporation will not originate subprime loans which provide for negative amortization.
• American First Lending Corporation will not knowingly originate or purchase a refinance loan which does not provide a net tangible benefit (NTB) to the borrower. A net tangible benefit calculator has been provided to the underwriting staff, and is performed on all refinance transactions deemed by the underwriter as not clearly providing a benefit to the borrower. Should the individual loan fail the net tangible benefit test, it is then up to the underwriter to counter offer the loan to a situation which would generate a pass on the NTB test.
• Disclosures must comply with applicable legal requirements, and should provide a reasonable explanation of all pertinent loan terms and conditions. For its own originations, American First Lending Corporation will provide consumers with timely, complete, clear disclosures regarding loan features and terms, including information regarding potential payment shock and features which may increase or decrease the cost of the loan. In addition to disclosures required by applicable law, American First Lending Corporation will also give written disclosures (if applicable) regarding prepayment penalties, reduced documentation loans, and payment shock which may occur with interest-only or payment option adjustable rate mortgages, as well as a summary of important loan terms (including interest rate and type, loan amount, payment amount, and whether the loan is subject to a prepayment penalty).
• Fees and rates should be representative of the associated credit risks and/or costs and services associated with the origination of the loan and be properly disclosed. American First Lending Corporation will not purchase or originate loans where broker compensation is in excess of the greater of (i) $3750 or (ii) 5% of the original principal amount of the note.
• Insurance products, such as credit life insurance, disability insurance, home warranties, etc., should not be presented in a manner that leads the borrower to believe they are a condition of the loan and should be appropriately explained and disclosed. American First Lending Corporation will not originate, purchase, or finance mortgage loans which offer single-premium insurance products as part of the origination process.
• Prepayment penalties should be fair and fully disclosed. Consumers should be given the option to obtain a loan without a prepayment penalty (i.e.; higher pricing as related to the value of the prepayment penalty in the secondary market which will eliminate the prepayment penalty or reduce the term of the prepayment penalty). American First Lending Corporation will not originate or purchase loans with prepayment penalties in excess of three years from the date of origination; nor will American First Lending Corporation originate or purchase loans with prepayment penalties which extend beyond the first rate adjustment date for hybrid ARM products.
• American First Lending Corporation will not originate or purchase loans which include mandatory arbitration clauses unless (1) such clauses are waived by the originator prior to purchase, or (2) the loan is in excess of the loan limits for loans conforming to Fannie Mae or Freddie Mac guidelines.
• American First Lending Corporation will instruct its servicer’s to report all borrowers’ positive as well as negative payment history to credit bureaus.
• American First Lending Corporation will promptly research and respond to any consumer complaints.
2. Due Diligence Practices
To support responsible lending, American First Lending Corporation will not knowingly purchase, securitize or finance loans originated pursuant to predatory lending practices. While recognizing that any determination of the existence of predatory lending with regard to a single loan is largely subjective and that many of the items discussed above may not alone be indicative of predatory lending, California Financial Group’s due diligence process is nevertheless intended to identify trends and concentrations that would indicate a pattern of predatory lending practices.
American First Lending Corporation’s due diligence process generally involves a review of a sample of the loans to be funded or sold, and includes both credit-oriented and compliance-oriented reviews. Loans are both randomly and adversely selected, and the process is designed to identify patterns of deviation from compliance and approved underwriting policies. If necessary, we will increase our due diligence sample size in order to make any determinations regarding predatory patterns.
In addition to loan level reviews, American First Lending Corporation typically conducts corporate/operational due diligence of its counterparties. As a part of this process, American First Lending Corporation will inquire about the company’s responsible lending practices and compliance with applicable laws and regulations, with a focus on verifying that adequate processes are in place to promote responsible lending practices and legal compliance on an ongoing basis.
Furthermore, American First Lending Corporation monitors its third party originators, specifically for the purpose of identifying possible predatory lending patterns or practices and verifying compliance with this Responsible Mortgage Lending Policy. If such patterns or practices are discovered, appropriate follow-up action is taken, including without limitation counseling or educating the third party originator regarding legal compliance or best practices, increased pre-funding supervision, other corrective action, or suspension or severance of American First Lending Corporation’s relationship with the third party originator.
3. Policy Updates
American First Lending Corporation will continue to closely monitor regulatory and legislative developments relating to predatory lending and will update this Policy accordingly.
4. Exceptions/Interpretations of Policy
Requests for exceptions from, or interpretations of, this Policy, shall be referred to Senior Management. Exceptions may only be granted on a case-by-case basis upon the concurrence of senior level managers from the intended investor’s Risk Management and Legal departments; approval shall be in writing. An exception will not be granted if it is determined that such exception would facilitate future abusive lending practices.
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