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Agency 7-Year Balloon

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*** ALL FANNIE MAE-ELIGIBLE LOANS UNDER THIS PRODUCT REQUIRE AN "APPROVE" RESPONSE FROM DU OR AN "ACCEPT" RESPONSE FROM LP. LOANS NOT RECEIVING AN "APPROVE" OR "ACCEPT" RESPONSE MAY BE ELIGIBLE UNDER THE FIXED-RATE FANNIE MAE EXPANDED APPROVAL PROGRAM (DOC# 5326).

MOST FREDDIE MAC-ELIGIBLE LOANS MUST RECEIVE AN "ACCEPT" RESPONSE FROM LP. LOANS NOT RECEIVING AN "ACCEPT" RESPONSE MAY BE ELIGIBLE UNDER THE FREDDIE MAC A-MINUS PROGRAM (DOC# 5303).

REFER TO FLAGSTAR'S RESIDENTIAL UNDERWRITING GUIDELINES FOR MORE INFORMATION ***

Full/Alternative Documentation

PRIMARY RESIDENCE ? PURCHASE AND RATE/TERM REFINANCE

Property Type 1- to 2-unit3

3- to 4-unit

Maximum LTV w/o sec. fin.

Maximum LTV w/sec. fin. 1

Maximum CLTV 2

Maximum HELOC CLTV 2

95%

90%

95%

100%

80%

75%

80%

85%

PRIMARY RESIDENCE ? CASH-OUT REFINANCE5

Property Type 1- to 2- unit3,4 3- to 4-unit4

Maximum LTV w/o sec. fin. 90%

75%

Maximum LTV w/sec. fin. 1 85% 70%

Maximum CLTV 2 90% 75%

Maximum HELOC CLTV 2

95% 80%

Property Type 1-unit3

SECOND HOME ? PURCHASE & RATE/TERM REFINANCE

Maximum LTV w/o sec. fin.

Maximum LTV w/sec. fin. 1

Maximum CLTV 2

Maximum HELOC CLTV 2

95%

90%

95%

100%

SECOND HOME ? CASH-OUT REFINANCE

Property Type 1-unit3

Maximum LTV w/o sec. fin. 90%

Maximum LTV w/sec. fin. 1 85%

Maximum CLTV 2 90%

Maximum HELOC CLTV 2

95%

Property Type 1- to 2-unit3

3- to 4-unit

INVESTMENT PROPERTY ? PURCHASE & RATE/TERM REFINANCE

Maximum LTV w/o sec. fin.

Maximum LTV w/sec. fin. 1

Maximum CLTV 2

Maximum HELOC CLTV 2

90%

85%

90%

95%

75%

70%

75%

80%

INVESTMENT PROPERTY ? CASH-OUT REFINANCE

Property Type 1- to 2-unit3

3- to 4-unit

Maximum LTV w/o sec. fin. 85%

70%

Maximum LTV w/sec. fin. 1 80% 65%

Maximum CLTV 2 85% 70%

Maximum HELOC CLTV 2

90% 75%

Underwriting Engine

DU/LP DU/LP

Underwriting Engine DU/LP DU/LP

Underwriting Engine DU/LP

Underwriting Engine DU/LP

Underwriting Engine DU/LP DU/LP

Underwriting Engine DU/LP DU/LP

1. For Fannie Mae transactions, the "Maximum LTV w/sec. fin." may be as high as the "Maximum LTV w/o sec. fin.". 2. Maximum CLTV refers to the maximum combined loan-to-value of drawn and outstanding liens secured by the subject property.

Maximum HELOC CLTV refers to the maximum potential combined loan-to-value of all liens using total amount of the line of credit. 3. The following Freddie Mac-eligible loans must receive an Accept from Loan Prospector: 1- & 2- unit primary residence purch &

rate/term > 90%; 1- & 2- unit primary residence cash-out > 80%; 2nd home purch & rate/term > 90%; 2nd home cash-out > 80%; all investment property loans > 80%.

4. Texas properties: primary residence cash-out not allowed under this product; refer to document# 5906 (Correspondents) or document# 5907 (Brokers) for Texas homestead property cash-out guidelines.

V. Product Descriptions

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Document# 5305 03/30/2001

SUMMARY:

Agency 7-Year Balloon

Fixed-rate loan requiring a balloon payment at maturity (after 7 years) with a conditional option to modify/refinance to a 23-year fixed-rate loan. Refer to the last page of this product description for Flagstar's Balloon Advantage Option.

TERM:

Seven (7) years (84 months) - Amortized over 360 months

LOAN AMOUNTS:

MAXIMUM: Conforming loan limits for 1- to 4-unit property MINIMUM: $20,000

TEMPORARY BUYDOWNS: Not allowed

UNDERWRITING:

All loans must meet the parameters as set out in Flagstar Bank's current Residential Underwriting Guidelines (see doc# 6000), as amended.

MORTGAGE INSURANCE: All loans above 80% LTV require mortgage insurance coverage according to the following guidelines:

LTV 90.01-95% 85.01-90% 80.01-85%

Coverage 30% 25% 12%

New York properties: for purposes of determining whether or not mortgage insurance will be required, use the loan-to-value ratio that results from dividing the loan amount by the appraised value of the property. If the loan-to-value resulting from this method is greater than 80%, then use the standard method of determining loan-to-value (based on the LESSER of sales price or appraised value) to determine the required MI coverage level.

STATE ELIGIBILITY:

Program is available in all fifty (50) states with the following restrictions: Texas: cash-out refinances are not allowed on primary residences. New York: refer to MORTGAGE INSURANCE section above for mortgage insurance coverage calculation requirements.

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Document# 5305 03/30/2001

Agency 7-Year Balloon

MODIFICATION/REFINANCE: Borrower may modify/refinance at the end of seven (7) years to a 23-year loan for $250, plus cost of updating title, without requalifying provided: 1. Borrower is still the owner and occupant of the property (in the case of investment property, borrower must still be the owner but need not occupy the property). 2. Borrower must be current with 0x30 in the last twelve (12) months. 3. No additional liens have been placed on the property. 4. Lender is not obligated to modify/refinance if the new note rate will be more than five (5) percentage points above the original note rate. 5. Borrower must request modification/refinance in writing to the Note holder as provided in Section 5 of the Balloon Note Addendum. 6. The rate will be 1/2% over the Fannie Mae or Freddie Mac (as applicable) sixty (60) day Mandatory Delivery Rate at the time of modification/refinance rounded to the nearest 0.125%.

CLOSING DOCUMENTATION: Legal documents must be consistent throughout the closing package (i.e. if a Freddie Mac Balloon Note is used, then a Freddie Mac Balloon Rider and Balloon Note Addendum must also be used.)

All loans: Fannie Mae: Freddie Mac:

If applicable:

? Fannie Mae/Freddie Mac Uniform Security Instrument, 3000series

? Standard title commitment with all applicable endorsements ? Multi-state Balloon Note, Form# 3260 ? Multi-state Balloon Note Addendum, Form# 3266

(Refinance)

? Multi-state Balloon Rider, Form# 3180 (Refinance) ? Multi-state Balloon Note - Form# 3290 ? Multi-state Balloon Note Addendum - Form# 3291

(Modification & Extension)

? Multi-state Balloon Rider ? Form# 3190 (Modification & Extension)

? Fannie Mae/Freddie Mac multi-state Condo Rider, Form# 3140 ? Fannie Mae/Freddie Mac multi-state PUD Rider, Form# 3150 ? Fannie Mae/Freddie Mac multi-state 1-4 Family Rider,

Form# 3170 (for 2- to 4-unit primary residences and all investment property mortgages)

? Fannie Mae/Freddie Mac multi-state Second Home Rider, Form# 3890

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Document# 5305 03/30/2001

Agency 7-Year Balloon

FLAGSTAR BALLOON ADVANTAGE

Flagstar Advantage Options are offered to enhance standard Agency guidelines by offering loan-tovalue or other features not found within Fannie Mae/Freddie Mac 7-Year Balloon product guidelines. Borrowers must meet all standard program criteria and are also subject to a minimum credit score of 660. Credit score will be determined by either Fannie Mae's Desktop Underwriter or Freddie Mac's Loan Prospector. California condominiums may require earthquake insurance. Refer to document# 6123 for guidelines.

Balloon Advantage

Agency price adjustment is eliminated on purchase and rate/term refinance transactions of single-family primary residences for LTVs between 80.01-90%. 2-unit properties are not eligible, nor are loan-to-value ratios above 90%. Standard mortgage insurance coverage requirements apply.

Registration Register loans under the "7-Year Balloon Advantage" product.

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Document# 5305 03/30/2001

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