QUALITY CONTROL PLAN - Lone Star Lending

Internal Document

Quality Control Plan

Version 5.0

Revision History

Version #

Date

0.0

0.1

05/13/05

0.2

06/10/05

1.0

06/16/05

1.1

06/22/05

1.2

06/24/05

2.0

07/07/05

2.1

10/02/05

2.2

10/05/05

2.3

02/09/06

2.4

03/08/06

2.5

03/05/07

2.6

08/06/07

2.7

11/19/07

2.8

04/26/08

2.9

05/13/08

3.0

08/05/08

3.1

03/20/09

3.2

05/30/09

3.3

03/02/10

3.6

01/07/11

3.7

05/16/11

4.0

01/24/18

5.0

08/14/19

Comments This is the initial version written by Stacy Bray First draft of multi-employee QC Plan Revised based on review by Stacy First production version Updated Post-closing Checklist based on use Modify checklists based on use Reconcile checklists with Compliance Map Periodic review; Change post-closing to closed file Update Closed File Checklist based on state audit results Add Fraud Review Correct Fraud Review Checklist Correct Closed File QC Checklist Corrected party performing Fraud Checklist Updated the Pre-UW Review Minor change to Pre-UW Review Add fraud traps to checklists Changed checklists to have NA column Additions to fraud checklist Clean up Closed File Checklist Checklist changes for 2010 RESPA changes Changes to checklists for Red Flags Program Changes for anti-steering changes to Regulation Z Changes for Dodd Frank; Checklists moved to Intranet Changes for reorganization of company as a mortgage broker

Information in this document is confidential and the trade secret of Texas Lone Star Lending, LLC. No part of this document may be reproduced or transmitted in any form or by any means, electronic or mechanical, for any purpose, nor may the information in this document be disclosed to third parties without the express written permission of Texas Lone Star Lending, LLC.

2005-2019 Texas Lone Star Lending, LLC. Unpublished work. All rights reserved.

? 2005-19 Texas Lone Star Lending, LLC All rights reserved Document # CORP.3.5.0

"Your Loan Educator"

Page ii Quality Control Plan

Table of Contents

1. Purpose............................................................................................................................................1 2. Program Integrity .............................................................................................................................. 1 3. Procedures ....................................................................................................................................... 1

3.1. Fraud Review...........................................................................................................................1 3.1.1 Review .................................................................................................................................1 3.1.2 Corrective Actions ................................................................................................................ 1

3.2. Pre-Underwriting Review..........................................................................................................2 3.2.1 Review .................................................................................................................................2 3.2.2 Corrective Actions ................................................................................................................ 2

3.3. Pre-Closing Review..................................................................................................................2 3.3.1 Review .................................................................................................................................2 3.3.2 Corrective Actions ................................................................................................................ 2

3.4. Closed File Review...................................................................................................................2 3.4.1 Review .................................................................................................................................2 3.4.2 Corrective Actions ................................................................................................................ 3

3.5. Defaulted Loan Review ............................................................................................................3 4. Training ............................................................................................................................................ 3 5. Records Retention............................................................................................................................3 6. Reviews and Updates.......................................................................................................................3

? 2005-19 Texas Lone Star Lending, LLC All rights reserved Document # CORP.3.5.0

"Your Loan Educator"

Page iii Quality Control Plan

1. Purpose

The purpose of the Texas Lone Star Lending Quality Control Plan ("Plan") is to evaluate and monitor the overall quality of mortgage loan production for all types of loans. This Plan is established to verify the existence and accuracy of legal documents, credit information, and property appraisals contained in the loan file. More specifically, the Plan assures that:

? Our loan procedures comply with all applicable laws, regulations, and requirements;

? Our policies and standards are known and adhered to by our personnel;

? Our procedures are revised in a timely manner to accurately reflect changes in laws, regulations, and requirements, our personnel are informed of any changes, and our employees are held accountable for performance failures or errors;

? Prompt and effective corrective measures are taken and documented when deficiencies in loan origination or underwriting are identified and our personnel are informed when deficiencies are found; and

? Procedures exist for expanding the scope of quality control reviews when fraudulent activities or patterns of deficiencies are identified.

Texas Lone Star Lending (the "Company") will maintain manuals that set forth company policy relative to all facets of the Company's mortgage brokerage business.

2. Program Integrity

Quality control occurs in four steps: fraud review, pre-underwriting review, pre-closing review, and closed file review. The checklists to be used for reviews are located on the Company's Intranet. Reviews are blocking, meaning that for a review that occurs between steps in the loan process (e.g., Pre-Closing Review occurring between loan approval and loan closing), the loan cannot proceed to the next step of the loan process until the review has been successfully completed.

Quality control review findings will be communicated to the appropriate production staff and actions taken to correct any deficiencies that are noted. Notification to investors of problems and corrective actions taken will be made as needed.

3. Procedures

3.1. Fraud Review

3.1.1 Review The Processor will review every loan file for potentially fraudulent information prior to submission for underwriting using the Fraud Review Checklist. The Processor will check any items on the checklist that the Processor finds in the loan file. For each checked item, the Processor will research the loan information, as necessary, for evidence of fraud. If the Processor suspects that fraud may be present, the Processor will forward the file with the Fraud Review Checklist to the Quality Control Officer for action.

3.1.2 Corrective Actions The Quality Control Officer will temporarily suspend a loan file in which fraud is suspected and investigate the issues identified in the Fraud Checklist. The Quality Control Officer may contact the applicant or appropriate party for additional information. If and when the issues are resolved, the Quality Control Officer will release the application for submission.

If the Quality Control Officer believes fraud has occurred, the Quality Control Officer will prepare and file a Suspicious Activity Report or report the incident to appropriate regulatory or law enforcement officials. If

? 2005-19 Texas Lone Star Lending, LLC All rights reserved Document # CORP.3.5.0

"Your Loan Educator"

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the incident involved Texas Lone Star Lending employees, the Quality Control Officer will report it to the Human Resources Manager for disciplinary action.

3.2. Pre-Underwriting Review

3.2.1 Review A member of the Company's production staff will review every loan file prior to submission for underwriting using the Pre-Underwriting Review Checklist. Any errors or deficiencies must be corrected prior to submission for underwriting. If in the reviewer's opinion corrective action is not possible, the reviewer will notify the Quality Control Manager.

3.2.2 Corrective Actions The reviewer will notify the appropriate party (e.g., Loan Originator, title company) of each item requiring corrective action. The party will provide corrected information or documentation to the reviewer. Once satisfied all errors or deficiencies have been corrected, the reviewer will approve the Pre-Underwriting Review and submit the loan for underwriting.

3.3. Pre-Closing Review

3.3.1 Review A member of the Company's management team will review the Closing Disclosure of every loan prior to closing using the Initial CD Review Checklist. If the manage finds errors or deficiencies, the manager will note those on the checklist and forward it to the Loan Coordinator for corrective action.

3.3.2 Corrective Actions

The Processor will correct all errors and deficiencies identified on the checklist and communicate the corrections to the appropriate party (e.g., title company, investor). Upon receipt of a corrected Closing Disclosure, he Processor will notify the reviewer, and the reviewer will verify that the issues have been corrected and approve the Pre-Closing Review.

If in the manager's opinion an error or deficiency appears to be an act of incompetence, the manager will report the incident to the relevant employee's manager. If necessary, the employee's manager will require corrective training for the employee and/or notify the Human Resources Manager for inclusion in the employee's Employment File.

If in the manager's opinion an error or deficiency appears to be an act of fraud, the manager will temporarily suspend the loan file and investigate the issues. If and when the issues are resolved, the Quality Control Officer will release the file for closing.

If the manager believes fraud has occurred, the manager will prepare and file a Suspicious Activity Report or report the incident to appropriate regulatory or law enforcement officials. If the incident involved Texas Lone Star Lending employees, the manager will report it to the Human Resources Manager for disciplinary action.

3.4. Closed File Review

3.4.1 Review Every quarter, the Quality Control Officer will select randomly 10% of the loan files originated in the previous quarter (a minimum of three files) to undergo closed file review. The selection must include at least one file from each Loan Originator. Note that the sample set includes all originated files, both funded and cancelled.

The review may be performed by a team designated by the Quality Control Officer or by an outside quality control service provider. Using the Closed File Review Checklist, the reviewers will document any errors or deficiencies in the loan file and forward the results to the Quality Control Officer.

? 2005-19 Texas Lone Star Lending, LLC All rights reserved Document # CORP.3.5.0

"Your Loan Educator"

Page 2 Quality Control Plan

3.4.2 Corrective Actions When the Quality Control Officer receives findings of errors or deficiencies from a Closed File Review, the Quality Control Officer will prepare an action report identifying the errors and deficiencies and send it to the employees associated with the loan file. The employees must submit to the Quality Control Officer written responses addressing each of the findings within 15 days of receipt of the action report.

The Quality Control Officer will review the responses to make sure the findings have been adequately addressed. In addition, the Quality Control Officer will review previous reviews involving the employees for patterns of deficiencies or fraudulent activity.

If necessary, the Quality Control Officer will require corrective training for the appropriate employee(s) and/or notify the Human Resources Manager of the issue for inclusion in the employee's Employment File.

If the Quality Control Officer suspects fraud, the Quality Control Officer will prepare and file a Suspicious Activity Report or report the incident to appropriate regulatory or law enforcement officials. If the incident involved Texas Lone Star Lending employees, the manager will report it to the Human Resources Manager for disciplinary action.

3.5. Defaulted Loan Review

Company management will add any defaulted loan closed by the Company about which it is notified to the list for closed file review during the next scheduled review period.

4. Training

All employees will receive training on the use of checklists on the Company's Intranet.

The Company convenes staff meetings no less frequently than once a month to review the results of Quality Control reviews, changes in lender and agency programs and guidelines, as well as other topics.

5. Records Retention

A "checklist record" consists of the marks and notes against the items in a checklist as well as the identifier of the employee who completed the checklist and the date and time the employee completed the checklist. If a reviewer notes errors or deficiencies, the record will contain both the original review and subsequent reviews.

The Company will retain each checklist record as a permanent part of the loan file and thus will retain the checklist records for as long as it retains the loan file.

The Company will retain any action reports associated with Closed File Reviews for as long as it retains the associated loan file.

The Company may keep records in paper or digital form.

6. Reviews and Updates

The Quality Control Officer will monitor changes to laws, regulations, and requirements and update this document as appropriate.

? 2005-19 Texas Lone Star Lending, LLC All rights reserved Document # CORP.3.5.0

"Your Loan Educator"

Page 3 Quality Control Plan

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