MSHDA/RURAL DEVELOPMENT PARTICIPATION LOANS

I. [PURPOSE:]{.underline} This instruction supplements Handbook-1-3550,
Chapter 10,

"Leveraged Loans."

II\. [PARAGRAPH 10.4 A,:]{.underline} Procedure for developing
approaches to leveraging and

lender outreach.

This procedure amends the HB-1-3550 Instruction to provide Local and
Area Offices with a MSHDA participation loan checklist and provide
useful information in the completion of these loan dockets.

Attachment 1 provides a "sample" cover sheet that should be attached to
the casefile when it is sent to MSHDA for pre-review.

Rural Development will complete the MSHDA Participation Loan File
Documents listed on Attachment 3, Page 1, Items 1 -- 19 and the Rural
Development Loan File documents listed on Attachment 3, Page 2. The
Local Office will then submit the case-file to MSHDA for a pre-loan
review. This should occur at least two weeks prior to loan closing.

Once the file is returned, the loan may be closed and Items 20 -- 28 on
Attachment 4, Pages 1 and 2 should be completed. The MSHDA file will be
forwarded to MSHDA immediately after loan closing.

The Local Office should contact MSHDA four business days prior to the
date of loan closing. Loan funds will be wired by MSHDA to the loan
closing agent. The Local Office will collect one month of taxes and
insurance on MSHDA's behalf at loan closing. Interest will no longer be
collected. MSHDA will calculate the interest due and subtract it from
the funds wired to the loan closing agent. The borrower should still be
made aware of the interest figure. They will still need to bring this
amount to closing to pay the seller for loan closing expenses.

Any questions concerning these loans should first be directed to SFH and
then to Kathy Koryba, MSHDA, telephone number, 517-241-7455.

III\. [PARAGRAPH NOTATIONS:]{.underline} Please mark Handbook-1-3550,
Chapter 10, paragraph

10.4 A. "Lender Outreach". Please mark this section of the handbook,
"Supplemented by

Michigan Instruction".

IV\. [FILING INSTRUCTIONS:]{.underline} File this Instruction in
Handbook-1-3550, Appendix 7,

Tab #1 entitled "MI 3550 Procedure".

ATTACHMENTS: Attachment l, 2, 3, and 4

Attachment 1

> Page 2

*United States Rural Development \[Address\]*

*Department of \[Phone\]*

*Agriculture*

Date

Michigan State Housing Development Authority

P.O. Box 30044

Lansing, MI 48909

Attention: Kathy Koryba

Dear Kathy Koryba.:

Enclosed is a MSHDA-USDA Rural Development participation loan for your
review. This cover sheet documents information, property information and
loan details.

BORROWER INFORMATION:

Name of Borrower/Co-borrower
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Current Mailing Address
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Social Security Number(s)
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Home Telephone/Work Telephone(s) ­
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

PROPERTY INFORMATION:

Property Address
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

County
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Name of Insurance Carrier
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Annual Insurance Premium/Monthly Premium
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Annual Tax Premium/Monthly Tax Premium
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Appraised Value
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

LOAN DETAIL:

MSHDA Loan: Rural Development Loan:

Loan Amount \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Loan Amount
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Term of Loan \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Term of Loan
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Interest Rate \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Interest Rate
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Monthly Payment \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Monthly Payment
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Loan Closing Date \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Loan Closing
Date \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

WIRING INSTRUCTIONS:

Date to Wire Funds \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Loan Closing
Agent Bank

ABA Number \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Name
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Attention: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

(borrower's name)

Attachment 1

Page 2

You may return the file to the address listed above when your review is
complete. Please contact this office with the amount of interest that
would normally be due at loan closing. If you have any questions, please
contact me, or one of my staff at ( ) . Thank you for your assistance.

Sincerely,

Rural Development Manager

*Rural Development is an Equal Opportunity Lender. Complaints of
discrimination should be sent to: Secretary of Agriculture, Washington,
D.C. 20250*

Attachment 2

Page 1

RURAL DEVELOPMENT/MSHDA PARTICIPATION LOANS

1\. Y or N Is house located in a MSHDA targeted area? (If No, skip to
number 3)

2\. Y or N Have the requirements of 2.2.C(1) -- (4) on Pages 2 -- 4 of
MSHDA Operating

Manual been completed?

3\. Y or N Is the borrower a first time home-buyer? Must be a yes if a
non-targeted area.

(See Section 3.1.C. and 4.1.B in the MSHDA Handbook.)

4\. Y or N Is the value of the lot less than 30% of the market value?

5\. Y or N Will zoning allow the property to be subdivided into two
buildable lots?

6\. Y or N Have buyer and seller agreed on completion of all repairs
specified by the

appraiser?

7\. Y or N Will all repairs be completed prior to loan closing?

8\. Y or N Have all adult members of the household signed the
application as a joint

application?

9\. Y or N If the lot contains both a private well and septic system, is
the lot 12,000 square feet

or larger?

10\. Y or N Has the income and loan amount been calculated in accordance
with Sec 4.1.C.

and documented in the running record?

11\. Y or N Is the income and loan amount equal to or less than the
MSHDA maximums?

COMMENTS:

Authorized for Approval by Rural Development Manager:

Signed:\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Dated:\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

GENERAL INSTRUCTIONS:

1.  Complete leveraging worksheet to determine amount of MSHDA loan.

2.  Create loan file for MSHDA in a 4 position folder containing all
    forms to be delivered to MSHDA. Place the MSHDA forms in position
    one and the Rural Development forms in position three.

3.  Label the Rural Development file to show as a MSHDA participation
    loan.

4.  Applicants must have received home-ownership counseling from Rural
    Development or a MSHDA approved counseling agent. This should be
    documented in the MSHDA case-file.

Attachment 2

Page 2

5.  In the Rural Development file, maintain copies of the following
    MSHDA forms:

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A.  "Lender Commitment To Borrower" (SFH 104)

B.  "Income Tax Affidavit" (SFH 135)

C.  "Affidavit of Interest and Agreement As to Classification" for
    manufactured homes (SFH 115)

D.  "Mortgage Loan Data Summary Sheet" (SFH 117)

E.  "Mortgage Document Control Sheet" (SFH 142)

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6.  Submit case file to MSHDA for pre-review well in advance of loan
    closing.

7.  Within 1 day of loan closing, mail MSHDA loan folder to MSHDA via
    Federal Express.

8.  Within 60 days of loan closing, mail original recorded MSHDA
    mortgage and Mortgage Title Insurance Policy to MSHDA via Federal
    Express.

Attachment 3

Page 1

O.F-original to MSHDA file, C.F.-copy to MSHDA file, O.B.-original to
borrower, C.B.-copy to borrower, C. RD F.-copy to RD file

MSHDA FORMS TO BE INCLUDED IN THE MSHDA DOCKET (POSITION ONE)

Check or N/A

\_\_\_ 1. Exhibit 20 (SFH 142) -- Mortgage Document Control Sheet --
O.F.

\_\_\_ 2. Exhibit 27 (SFH 117) -- Mortgage Loan Data Summary Sheet --
O.F.

\_\_\_ 3. Property Survey -- C.F.

\_\_\_ 4. Mortgage Title Commitment and Mortgage Title Insurance Policy
(See limited exceptions

allowed, 5.2, D. Policy is to be issued "without exceptions".) Requires
ALTA 9 endorsements if

there is an exception for oil, gas, or mineral rights. If the title
commitment indicates exceptions

for oil, gas, or mineral rights, obtain a letter from the title company
indicating that the Title

Policy will contain an ALTA 9 endorsement for these items. The insured
party on the title

commitment and title policy is to be "Michigan State Housing Development
Authority, a

public body corporate and politic of Michigan. --O.F.

\_\_\_ 5. Exhibit 10 (SFH 105) -- Informational Certification -- Each
page initialed -- C.F., O.B..

\_\_\_ 6. Exhibit 11 (SFH 108) -- Income Tax Affidavit, if one or three
years income tax returns are not

provided -- O.F.

\_\_\_ 7. Exhibit 12 (SFH 106) -- Application Affidavit -- Each page
initialed and form notarized -- O.F.

\_\_\_ 8. Exhibit 15 (SFH 104) -- Lender Commitment to Borrower -- C.B.

\_\_\_ 9. Exhibit 16 (SFH 107) -- Closing Affidavit -- Each page
initialed and form notarized -- O.F.

\_\_\_ 10. Exhibit 26 (SFH 147) -- Informational Reporting Affidavit --
Each page initialed and form

notarized -- O.F.

\_\_\_ 11. Exhibit 30 (SFH 124) -- Explanation of Recapture Requirement
-- C.F., C.B.

\_\_\_ 12. Exhibit 31 (SFH 125) -- Recapture Notification -- O.F., C.B.

\_\_\_ 13. Exhibit 32 (SFH 126) -- Recapture Requirement -- O.F., C.B.

\_\_\_ 14. Form RD 1940-41, Truth in Lending Disclosure Statement for
the MSHDA loan -- O.B., C.F.

\_\_\_ 15. Governmentally issued photo identification of
borrower/co-borrower -- C.F.

\_\_\_ 16. Social Security number verification of borrower/co-borrower
-- C.F.

\_\_\_ 17. Appraisal in Michigan State Housing Development Authority
name -- O.F.

\_\_\_ 18. Exhibit 6 (SFH 114) -- Existing Home Standards Certificate --
completed by the appraiser -- O.F.

\_\_\_ 19. Exhibit 8 (SFH 113) -- Appraiser Inspection and Certification
showing all repair/construction

satisfactorily completed -- Appraiser may delay to loan closing if
required repairs are not

complete at time of original appraisal -- O.F.

\_\_\_ 20. First Lien Letter from the title company indicating MSHDA has
a first lien -- O.F.

\_\_\_ 21. Hazard insurance policy (Sec 5.5) showing MSHDA in first lien
position and USDA in second

lien position -- Include copy of 1 year paid premium -- Make sure
insurance company has the

correct MSHDA address -- C.F.

\_\_\_ 22. Flood Insurance Policy if in a flood zone -- C.F.

\_\_\_ 23. Escrow for repairs/construction completion documentation?
(See 6.1, C.1)

\_\_\_ 24. MSHDA Mortgage Promissory Note (SFH 101) -- O.F.

\_\_\_ 25. Lender Warranty -- Exhibit 24

\_\_\_ 26. HUD Form 1 Settlement Statement prepared by loan closing
agent for MSHDA loan. Verify

Item 202 contains the MSHDA loan amount and Item 204-209 (any blank
line) contains the

Rural Development loan amount.

> Attachment 3

Page 2

\_\_\_ 27. For Manufactured Housing, See 6.3, A. 14 & 15

\_\_\_Certificate of Title showing MSHDA and Rural Development as lien
holders -- C.F.

\_\_\_Exhibit 19 (SFH 115) Affidavit of Intent and Agreement
Classification -- O.F., C.RD F.

OR

\_\_\_Alta 7 Form 3512

RURAL DEVELOPMENT FORMS TO BE INCLUDED IN THE MSHDA DOCKET

(POS. THREE)

\_\_\_ 1. Form RD 410-4, Application for Rural Housing Assistance --
Verify that section I., Type of

mortgage and terms of loan and section VII, Details of transaction are
complete -- C.F.

\_\_\_ 2. Residential Mortgage Credit Report, with explanation of
unsatisfactory credit -- C.F.

\_\_\_ 3. Form RD 1910-5, Request for Verification of Employment, or
other verification for all sources

of income -- If self-employed, two years of income taxes needed and Form
RD 431-4, Business

Analysis Non-Agricultural Enterprise -- C.F.

\_\_\_ 4. If property is in a non-targeted area, complete tax return
(Schedule 1040 with all schedules

attached) needed for the last three years (See 4.1, B) showing no
deduction of taxes or interest

for real property used as a primary residence for the last three years
(See 5.2, B.) signed by the

applicant -- C.F.

\_\_\_ 5. Form RD 1944-60, "Landlord Verification" -- C.F.

\_\_\_ 6. Verification of assets required to close: a) Verification of
Deposit, b) Gift letter, (Appendix B,

Exhibit 13), c) Copy of deed showing land ownership -- C.F.

\_\_\_ 7. Purchase agreement/Option to Purchase and/or Contract to Build
-- C.F.

\_\_\_ 8. New Construction:

\_\_\_Copy of Residential Builders License -- C.F.

\_\_\_MSHDA Builder Profile, (Appendix B, Exhibit 2) (Dev 109) -- O.F.

\_\_\_Rural Development "Contractors Qualification Statement" -- C.F.

\_\_\_Exhibit 3 (DEV 110) Equal Opportunity Builder Certificate -- O.F.

\_\_\_ 9. Document the following in running record of the MSHDA
case-file:

\_\_\_The expected amount of monthly payment to cover tax and hazard
insurance bills when due

(Tax and Insurance Escrow) Collect first payment of taxes and insurance
at loan closing.

\_\_\_That the borrower has been informed of the ½% MSHDA first 3 year
prepayment penalty

(see 7.5 -- Rural Development will not collect it's ½%)

\_\_\_The applicants have received home-ownership counseling from Rural
Development or

MSHDA

\_\_\_ 10. Form RD 1944-3, "Budget and/or Financial Statement", if used
to show repayment ability in lieu

of ratios -- C.F.

\_\_\_ 11. Form RD 1924-19 "Builders Warranty" on new construction --
C.F.

\_\_\_ 12. Form RD 1927-8 "Agreement with Prior Lienholder", signed by
MSHDA -- C.F.

\*\*\*\*\*ALL ITEMS LISTED ABOVE MUST BE SUBMITTED FOR MSHDA
PRE-REVIEW\*\*\*\*\*

Attachment 4

GENERAL NOTES

-   MSHDA needs written documentation from the treasure's office on how
    much the property taxes will be for the upcoming year. MSHDA also
    needs verification that the last tax bill was paid. This can usually
    be found in the title commitment. If not, please obtain a receipt
    from the treasurer's office.

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-   When completing the MSHDA mortgage, round the MSHDA payment up to
    the next nearest whole dollar.

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-   Wire transfer of MSHDA funds. MSHDA would like to have these funds
    wired directly to the loan closing agents' bank. You will need to
    contact your loan closing agent ahead or time to arrange this.
    Notify MSHDA 4 days in advance of loan closing. They will wire the
    funds directly to the loan closing agent.

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-   Rural Development will collect one month of taxes and insurance for
    MSHDA at loan closing. We will not collect interest. MSHDA will
    calculate the interest due and wire the loan request less the
    interest amount. Please make the borrower aware that they should
    still bring this amount to closing.

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-   If the title commitment contains exceptions for oil, gas, or mineral
    leases (usually mentioned on schedule B) you must obtain a letter
    from the title company stating that the title policy will contain an
    ALTA 9 endorsement.

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-   Verify that the liabilities (creditors and dollar amounts) listed on
    the credit report match those on the liability section, page three
    of the application. If these do not match, complete a second page
    three (liability section) that does match the credit report. The
    applicant does not have to sign this second liability schedule.

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-   Please obtain two title commitments and two title policies -- One
    for MSHDA and one for Rural Development.