SPECIAL PROGRAM REQUIREMENTS:

Eligible expenses to be included in the cost of rehabilitation are materials, labor, contingency reserve, overhead and profit (noted in each work item), fees for inspections, permits, licenses, and lien protection fees for title updates. There will be a supplemental origination fee charged on the portion of the proceeds allocated to the rehabilitation.

All contractors must be licensed if required by the state.

Stearns will review the following items pursuant to all contractors:

 Credentials (license, bonding, liability insurance and workers compensation insurance)  Work Experience

 W9s must be completed and signed by every contractor working on the project

Total number of contractors that may be used on Streamline 203(k) loan is limited to four (4). If the work requires more than four (4) contractors and/or if the borrower wants more than four (4) contractors, in lieu of the multiple contractors, a General Contractor will be required instead. The general contractor may acquire his own sub-contractors. Credentials are needed only on the General Contractor and not required on the sub-contractors.

We will allow for exceptions to the maximum number of contractors, on a case by case basis. Exception requests are to be submitted to Rehab Dept.

Rehab Dept Contact Information: Email Address: [email protected]

Phone: 714-437-3214 Fax: 714-437-3215

Under some circumstances, “self-help” arrangements where the borrower performs some or all of the work may be permitted (but are discouraged) unless the borrower’s ability to perform the work is self-evident & easily documented. Not allowed for any projects for which permits will be required, unless the borrower is a licensed contractor in the specific field necessary for the rehabilitation. Must meet the following requirements:

 Must fully understand the 203(k) program and the risks inherent in rehab projects.  Must be able to document that the borrower can perform the work in a competent, timely

and workmanlike manner and provided explanation of borrower’s qualifications and experience that can support borrower’s knowledge of work to be done.

 Must provide a detailed estimate listing the supplies/materials needed, and cost of these. Estimate cannot include charge for labor

 Must also provide a fully complete estimate(s) from an actual contractor(s) for all the self- help work to be completed by borrower. This estimate must include costs for labor.  Borrower is required to provide credentials to evidence borrower’s Licensing, Bonding,

Liability Insurance and Worker’s Compensation Insurance (as applicable).

4086-06 STREAMLINE 203(K) Page 4 of 27 5/3/13

SPECIAL PROGRAM REQUIREMENTS: (cont’d)

 Provide cash reserves/credit (for the entire amount as reflected on estimate from contractor that includes labor), to fund rehab costs.

 A self-help agreement must be signed, with the borrower’s understanding that the work must be completed within 6 months of closing.

 Not permitted for properties in Texas.

The rehabilitation work must begin within 30 days of closing, and all work must be completed within 6 months of closing, or less depending on the rehabilitation complexity.

Changes to contractors or previously approved work items on loan after closing:

Once the loan has funded, changes and/or any modifications to the previously approved work items are not allowed. However, there may be circumstances where exceptions may be considered for unforeseen additional work required to be completed that is related to the approved repairs. Any exceptions to work items changes/modifications must be approved by Stearns Lending Inc., before the change/modification is made or work is done. Use of contingency account funds is restrictive and limited. An exception for changes/modifications may be requested by submitting the following documentation to Rehab Dept:

 Detailed written request explaining the actual changes/modifications needed in repairs from what was listed on the original contractor estimate.

 Detailed written explanation of why the changes/modifications are needed.  Provide cost breakdown for the changes/modifications needed.

 Rehab Dept will review and approve or deny the changes, and communicate the final decision with borrower and contractor.

Please contact the Rehab Department if a change in contractor is contemplated. A change in contractor may be required if one of the current contractors decides they do not want to do the proposed work, or have begun the repairs and decide they do not want to finish the work. The Rehab Department will need a new contractor estimate from the different contractor, for the work that had been previously approved, and a fully completed Contractor Profile form on the new contractor.

Streamlined 203(k) rehabilitation items can include:

 Program is limited to $35,000 in rehabilitation amount, so major remodeling, structural repairs, site amenity improvements, and room additions are not eligible.

 Examples (not all-inclusive) of eligible improvements:

o Repair/replacement of roofs, gutters & downspouts

o Repair/replacement/upgrade of existing heating, ventilation & air conditioning

o Repair/replacement of plumbing & electrical systems

o Repair/replacement of flooring

o Minor remodeling that does not involve structural repairs

o Weatherization, including storm windows & doors, insulation and weather stripping

o Purchase & installation of appliances, including free-standing.

o Improvements for accessibility for persons with disabilities.

o Lead-based paint stabilization or abatement of lead-based paint hazards

o Repair/replacement/addition of exterior decks, patios & porches.

o Basement finishing & remodeling that does not involve structural repairs

o Basement waterproofing

o Replacement of windows, doors, and exterior wall re-siding.

o Well repair

o Septic repair or replace

o Pool repair permitted for functionality, health and safety issues, such as an empty pool on a foreclosure sale, to a maximum of $1,500. Installation of a new pool (or spa) is not permitted.

o Mold remediation is allowable on a case by case basis. Minor mold remediation will most likely be acceptable, major mold causes and cures will most likely need a full 203K, and this Lender does not participate in the full 203K program.

SPECIAL PROGRAM REQUIREMENTS: (cont’d)

The following FHA options may be combined with the Streamline 203(k) loan program. Combining any one, or multiple of these options with Streamline 203(k) transaction can be a complex process that exceeds standard guidelines. Please contact Corporate Support for assistance.

 $100 Down Payment Incentive

 Energy Efficient Mortgage (may include Energy-Related Weatherization and/or Solar Energy Improvements)

 Good Neighbor Next Door  HUD REO with Repair Escrow

ARM ADJUSTMENTS: Not applicable

INTEREST ONLY: Not applicable

TEMPORARY