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Changes to Improve the Efficiency of the Early Rate-Lock Delivery Process

November 7, 2011

Vice President of Multifamily Underwriting Debby Jenkins

We've heard from you that increasing our speed to rate-lock is the most important improvement we can make to raise borrower satisfaction. I am excited to announce some key changes to our early rate-lock process, effective December 1, that will improve our speed and help you deliver results to borrowers more quickly. The most significant change is a lock with less approach to our early rate-lock process. Locking with less reduces the amount of information the borrower needs to submit at preliminary underwriting for early rate-lock.

To help you lock with less, we're moving some current preliminary underwriting package components to the full underwriting package. This will enable our underwriter to review your preliminary underwriting package more quickly. Additionally, we're committing to a notification timeline to advise you within two business days of receiving the preliminary underwriting package of whether your package submission includes all of its required items. Our goal is to make an early rate-lock decision within two to five business days after determining that we have the complete preliminary underwriting package.

We're also changing our approach to determining the exact loan proceeds for an early rate-lock deal. Until now, the rate-lock was frequently postponed to obtain additional information so we could finalize the exact loan proceeds. For loans that are rate-locked using an Early Rate Lock Application with a revision date of December 1, 2011 or later, we are enabling our underwriters to adjust the initial loan proceeds at full underwriting within a plus or minus 5 percent tolerance. As part of this change, we are eliminating breakage fees for changes to the loan proceeds that are within the minus 5 percent range. Although we expect any decrease in proceeds to be within the 5 percent tolerance, if we do need to reduce proceeds by more than five percent, we would calculate any breakage fees at only 95 percent of the difference from the original underwritten proceeds. This new approach gives you additional flexibility, especially with transactions where speed to rate-lock is the borrower's main concern.

With these underwriting changes, we are now able to make necessary adjustments to proceeds after rate-lock. Your deal will be assessed at full underwriting to establish the final net operating income (NOI), making any required adjustments to proceeds as a result. The Early Rate-Lock Application (ERLA) has been modified to provide greater transparency in explaining how we calculated the NOI. We will also provide you with the option in certain circumstances to maintain proceeds with a higher price.

We know speed to lock is critical for you – that's why we've also expanded our regional office staff this year. We are also reserving capacity in the Regions to execute early rate-lock business in expedited timelines. Your feedback has been valuable in helping us enhance our early rate-lock capability. With these changes, we hope you will notice greater efficiency, flexibility, and speed in our service delivery.

To assist you and your borrower with these early rate-lock process changes, we've prepared more detailed information for your review. I also invite you to training to learn more about how these changes will improve our efficiency and facilitate a quicker rate-lock decision that is competitive with other investors.

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