Jumbo Non-Conforming Lending Philosophy

Successful jumbo non-conforming lending is based on considerable experience and judgment in dealing with unique borrowers who do not fit into prescribed categories. The primary focus is lender protection and a justified economic reward that considerably exceed the risks. The best protection for the lender is the borrower's equity and ability to make the monthly payments, and competent, aggressive servicing. The risk/reward ratio is further enhanced, whenever possible, by raising the margins to compensate for uncertainties which a reasonable and prudent jumbo non-conforming lender would consider to be acceptable because of the manner in which a loan has been structured and the relative assurance of collectibility.

Section 1: UNDERWRITING RATIOS AND EQUATIONS

A. MAXIMUM COMBINED LOAN TO VALUE RATIOS (CLTV)

The LTV represents the ratio of The Ocean Pacific Capital to the (divided by) estimated Market Value (or purchase price) of the subject property.

The LTV for purchase money financing will be calculated using the lesser of the purchase price or estimated appraised value.

The maximum Loan-to-Value for any single property will not exceed 90 %. However, there will be certain borrowers who qualify for a loan-o-value of more than 90 % (but in no event more than (100%) because of other favorable factors. (e.g. additional collateral is provided)

The Maximum loan amount and CLTV for all eligible properties depend upon property type, estimated market value, occupancy status and state and loan program availability of the subject property.

When calculating the maximum loan amount, identify the above parameters set forth in Attachment A and apply the corresponding ratio.

B. LENDABLE EQUITY

The maximum equity is determined by applying the maximum applicable Loan-to-Value percentage to the market value/purchase price. See the following formula:

a) Market Value or Purchase Price whichever is lower: $

b) Multiply by the applicable maximum LTV percentage(s): x LTV%

c) Equals Qualified Equity (subtract Line b from Line a):

1. The maximum mortgage amount will be rounded down to the nearest $1,000 increment.

C. PROPERTIES OWNED LESS THAN 2 YEARS

On approvals, LTV will be calculated using the lesser of the purchase price plus any verified real property improvements or the estimated market value.

Approvals on properties owned less than I year, LTV will be calculated using the estimated appraised value plus any verified real property improvements.

D. PROPERTIES UNDER NEW CONSTRUCTIONS

If the subject property is new construction on land owned by the client, Ocean Pacific Capital will calculate the LTV by combining land value plus cost of construction.

Section 1: UNDERWRITING RATIOS AND EQUATIONS

1. If the land is owned less than 2 years, use the purchase price of the land; request HUD-1
statement.

2. If the land is owned > 2 years, use the estimated market value of the land per the appraiser.

3. Request a copy of the construction contract.

4. Appraisal should be performed when home is at least 90% complete.

5. Final Inspection performed by the appraiser indicating subject property is 100 % will be required.


6. Certificate of occupancy will be required at closing.

E. ROUNDING OF CALCULATED VALUES

1. When calculating monthly obligations and income, it is necessary to round positive income values
down, and to round obligations or negative income values up, to the nearest whole number.

2. When calculating DTI or CLTV ratios, it will always be necessary practice to round the ratios up
to the nearest whole number.

3. When calculating maximum equity and qualified mortgage amounts, it will always be necessary
to round the values down to the nearest thousand.

D. DEBT TO INCOME RATIOS – (DT)

1. To compute the debt-to-income ratio, it is necessary to first determine Total Monthly Debt and Income.

Total Monthly Debts equal:

The monthly house expense (Ocean Pacific qualifying Mtg. payment) (plus) The monthly miscellaneous expenses (including R/E rental losses) (plus) The monthly revolving and installment debt payments Total Monthly Income equals:

Income from qualifying sources (less) Negative income adjustments (e.g. investment interest) (less) Expenses directly related to the generation of income (e.g. employee business expenses)

Section 1: UNDERWRITING RATIOS AND EQUATIONS

2. The Debt-to-Income Ratio is equal to:

Total Monthly Debts divided by Total Monthly Income.

3. The minimum net spendable income per dependent (NSID) is $1,000. The maximum number of dependents to be charged to one family will be six per family.

Section 2: UNDERWRITING DOCUMENTATION

A. DOCUMENTATION REQUIRED FOR APPROVAL

The following minimum documentation must be submitted to the U/W Dept.:

1. Application

2. Residential Mortgage Credit Report

3. Verification of mortgages or loans, when appropriate.

4. Employment/Income Verification - Copies of two years signed (or stamped prepared by
Accountant with EIN) tax returns will be obtained except for lite documentation or alternative
documentation loans. (see Section 16)

5. Verification of Deposits.

6. Residential Appraisal Report.

7. Preliminary Title Report (if a survey exception appears on the PTR and the Title Co. will not
remove the item without a survey, then a copy of a certified survey will be required).

8. Letters of Explanation (if needed).

9. Completed Underwriting Worksheet, Credit Worksheet, and Income Analysis Worksheet (if
applicable).

10. Transmittal Letter.

ADDITIONAL DOCUMENTATION FOR PURCHASES ONLY

11. Completed Source of Funds Statement.

12. Radon test report. Only if required to be supplied by seller, in the purchase agreement.

13. Termite/Pest Inspection (where applicable), Structural Engineer's Report, and Well and Septic
Systems Certifications are only required if required to be supplied by seller in the purchase
agreement or strongly recommended by the appraiser.

14. Agreement Of Sale, Sales Contract, Purchase and Sales Agreement, or Escrow Instructions,
including amendments.

15. Final inspection prepared by appraiser and certificate of occupancy is required for all new
constructions.

16. Final inspection prepared by Appraiser for all new constructions. Certificate of
occupancy is required.

Section 2: UNDERWRITING DOCUMENTATION


B. EXPIRATION OF DOCUMENTATION

Credit documents (Appraisal, Title Report, Credit Report (in file), VOC's, VOE's, VOD's, etc.) must not
be more than 120 days old on the date the loan is closed. However, if the property is new construction,
the documents may be up to 180 days old on the date the loan is closed. When the age of the documents
is greater than we allow, then the processing file must be updated and re-underwritten. Any exceptions
require the approval from an authorized OPC officer.

C. LOAN PURPOSE

Purchase Money Transactions - Any mortgage transaction in which the proceeds are used to finance the
purchase of the subject property.

No-Cash-Out Refinance Transactions - Any mortgage transaction in which the proceeds are limited to the
sum of the unpaid principal balance of the existing mortgage(s) secured by the subject property only, plus
associated closing costs, points, and other funds.

Cash Out Refinance Transactions - Any mortgage transaction which is not a purchase and exceeds the
above parameters for a no-cash out refinance transaction.

Section 3: UNDERWRITING INTEREST RATES


IMPORTANT INTEREST RATES AND CORRESPONDING GUIDELINE APPLICATIONS

A. Key Interest Rates

a. 6 month LIBOR

b. 1 month LIBOR

c. Fixed 3 Year

d. 30/5 Fixed

e. Neg Amortization

f. 3/27 Variable

g. 5/25 Variable

QUALIFYING INTEREST RATE

B. The proposed Ocean Pacific Capital 300 payment should be calculated by multiplying the mortgage amount by the qualifying interest rate, and then dividing by 12 to determine the monthly payment.

Ocean Pacific Capital Qualifying Interest Rate – Computed at Actual State Rate (never to be less than 7%) except a fixed programs.

C. Securities Margin Interest Rates.

An interest rate charged to a debt secured by marketable securities.

D. Adjustable Rate Mortgage Interest Rate

Used to calculate mortgage payments, which contact adjustable rate provisions.

Section 4: OBLIGATIONS - CREDIT HISTORY & VERIFICATION


A. CREDIT HISTORY

The credit history is to be considered in determining the borrowers financial history.

Residential Mortgage Credit Report will be required with all mortgage applications and OPC will also
obtain an in-house credit report. When the consumer reporting agency has incomplete information or when
it discovers information that indicates the possible existence of undisclosed credit (see credit inquiries) or
public records, the borrower(s) must provide the additional information that is needed to provide a quality
report.

B. CREDIT REPORT REQUIREMENTS

a) CREDIT REPORT SOURCES OF INFORMATION: It is expected that all information in the client's credit report will be obtained from, or verified by, sources other than the client. When co-borrowers have individually obtained credit, separate repository inquiries are necessary. The results of both reports may be combined in one residential more credit report if the report clearly indicates that this has been done.

b) CREDIT REPORT REQUIRED TIME PERIOD OF INVESTIGATION: The consumer reporting agency must present all data in a format that is understandable and easy to read. The credit report must contain all discovered credit and legal information that is not considered obsolete under the Fair Credit Reporting Act. The collected information should not be changed - although it is permissible to:

1. delete duplicate information,
2. to translate codes to "plain" language, and
3. to make appropriate adjustments to resolve conflicting information to
4. ensure the clarity of the report.

The following types of changes are unacceptable:

1. deletion of trade lines pertaining to borrower's bankruptcy,
2. the addition of a payment amount not required by the creditor to that creditor's trade line, or
3. the restriction of information collection to a shorter time period than that Ocean Pacific Capital requires (generally, seven years).

The credit report must indicate the dates that accounts were last updated with the creditors. Each account with a balance must have been checked with the creditor within 90 days of the date of the credit report.

Section 4: OBLIGATIONS - CREDIT HISTORY & VERIFICATION

C. CREDIT REPORT PRESENTATION AND DELIVERY:

The credit report must be an original report or a computer generated transmission report, with no erasures, Whiteouts, or alterations. It must include the full name, address, and telephone number of the consumer reporting agency. The original credit report must be delivered to the office of the party who requested it. (The credit report may be delivered to lenders by any means that are acceptable under the Fair Credit Reporting Act or other similar regulations such as through the U.S. postal system, by messenger, over a facsimile machine, or through other automated means.) The name of the party who requested the credit report must be shown on the report. If another party paid for the report, that party's name must also be shown, unless the lender ordered the report and the billed party has a documented agent or corporate relationship with the lender. All inquiries made in the previous 90 days must be shown on the report.

D. CREDIT REPORT PUBLIC RECORDS INFORMATION:

Credit reports may include available public record information a disclose whether any judgments, foreclosures, tax liens, or bankruptcies were discovered. Adverse items should be reported in accordance with the Fair Credit Reporting Act.

Consumer reporting agencies must be diligent in obtaining public records information to ensure that their information sources provide the type of information that meet Ocean Pacific Capital requirements. Public records information must be obtained from two sources. Any combination of the following sources will satisfy this requirement:

a. national repositories of accumulated credit records,
b. direct searches of court records by the consumer reporting agency's
c. employees, or
d. record searches made by other public records search firms.

Specific sources of public records information must be disclosed in the, credit report. When the reporting agency discovers information that indicates that the borrower might not have disclosed all information that should be found in the public records, it must perform additional research to verify whether those records do exist.

E. CREDIT REPORT ACCOUNT HISTORY REPORTING REQUIREMENTS:

For each debt listed, the credit report should provide the:

a. creditor's name,
b. the date the account was opened,
c. the amount of the highest credit,
d. the current status of the account,
e. the required payment amount,
f. the unpaid balance,
g. and a payment history.

Section 4: OBLIGATIONS - CREDIT HISTORY & VERIFICATION

F. SIGNIFICANT ACCOUNTS NOT REPORTED ON THE CREDIT REPORT:

If the credit report does not contain a reference for each significant open debt on the application, the lender may require a separate written verification for each unreported debt. The lender may also consider it necessary to verify separately accounts listed as "will rate by mail only or "need written authorization".

G. MORTGAGES AND SIGNIFICANT 013LIGATIONS VERIFICATION

It is important that mortgage payment histories be obtained as they give a good indication as to future mortgage obligations will be paid. This also applies to previous mortgages, which were refinanced or satisfied in the past six (6) months.

If applicable, a minimum of three (3) written Payment History Requests are required.

1. For all VOC's (including VOM's), a verbal verification confirming the payment history for the past 12 months is an acceptable substitute for a written verification. However, a written VOM or VOC, must be mailed during the prescreen process prior to submitting loan file to Ocean Pacific Capital.

The verification process should confirm the following:

outstanding principal balance,
the payment history for the last 12 months,
the present status of the mortgage (i.e. current or past due), and the monthly payment.

The minimum number of VOC requests must include the VOM's on the primary residence and subject property, if appropriate. A VOM or VOC is not required if the account appears on the credit report and a satisfactory current 12 month payment history is exhibited.

If the credit report does not exhibit a mortgage payment history or exhibits a history over an inadequate period of time necessary to demonstrate a consistent and satisfactory payment history (less than 12 months), and a written or verbal VOC/ VOM can not be obtained then the following documentation may be acceptable:

a. a year-end mortgage statement (provided it includes a payment receipt history), and

b. if several of the most recent months payment history are not reported, then copies of up to six (6) months canceled checks (more if deemed necessary). The borrower's canceled checks must be legible, identify the mortgage services for mortgage holder) as the payee.

Section 4: OBLIGATIONS - CREDIT HISTORY & VERIFICATION

Be aware that many mortgage companies will not provide a payment history. In these cases, and where the credit report exhibits three 30-day or more late payments on any credit sources, more than three (3) Rating Requests will be required.

A VOC must be sent for any obligation listed on the application which does not show up on the credit report, whenever the outstanding balance exceeds $10,000.

H. DEROGATORY INFORMATION:

1. All major indications of derogatory credit (undisclosed debts, Judgments, bankruptcies, etc.) must be investigated. In many cases, a statement from the client may provide a sufficient explanation of the reason for the derogatory information. The client statements must be reviewed to determine that the explanation is satisfactory and that it is consistent with the, other credit information, because these statements often new questions or understandings about the client's creditworthiness, careful judgment must be used when evaluating them. If necessary, additional documentation may be required.

2. DEROGATORY CREDIT EXPLANATIONS: When the credit history has been unsatisfactory, it may be necessary to obtain an explanation. The following guidelines should be used:

a. A verbal explanation may be acceptable when the client exhibits not more than two 30-day late payments on installment debts in the past 24 months or three 30 day late payments on revolving debts.

b. A written explanation will be required for any 30-day mortgage late payments that occurred in the last 12 months.

c. A written explanation is required if there are consistent 15-day mortgage late payments exhibited on VOM or mortgage statement on either the primary or subject property.

d. A written explanation is required for all significant installment and revolving late obligation payments. Significant late payments would be exhibited by two (2) or more 30-day installment late payments or, three (3) or more 30-day revolving late payments within the past 12 months.

NOTE: In all cases, prudent judgment should be used when determining special situations, not identified above, in which an explanation may be required. All aspects f the loan file should be used in the analysis to arrive at a decision.

Section 4: OBLIGATIONS - CREDIT HISTORY & VERIFICATION:

3. LIMITED OR NO CREDIT HISTORY: In cases where the client has limited or no credit history, the approval decision should depend predominately on the quality of the collateral, amount of equity in the subject property and the client's ability to repay the debt. It may be necessary to request verifications of rent from the landlord, utility payments, etc.

4. INQUIRIES REQUIREMENTS: Verbal explanation of credit "Inquiries" whether an account has been established should be obtained and documented in the comment section of the loan file under the following circumstance: If the client exhibits excessive inquiries a reasonable explanation should be obtained prior to continuing with the processing of the loan request.

I. BANKRUPTCY

If the loan application and/or credit report states the client has filed bankruptcy within the last two (2) years, a written explanation from the client concerning the circumstances related to the bankruptcy is required in addition to verification that the bankruptcy was dismissed.

If the bankruptcy was filed within the last twelve (12 ) months, and the application is to be considered for approval, then the bankruptcy must have been dismissed fully and the client has demonstrated an ability to manage financial affairs satisfactory to Ocean Pacific Capital. Although specific situations may very, we generally consider an elapsed time of at least three (3) months between the dismissal of the bankruptcy and the mortgage application as sufficient time to re-establish credit. A shorter elapsed time (but not less than 1 month) is justified if the lender is able to document that extraordinary circumstances caused the bankruptcy and that the client's current situation is such that the events that led to the bankruptcy are not likely to recur. In all cases, the lender must have sufficient documentation for its decision that the borrower is creditworthy.

If the client does not satisfactorily meet the above parameters, then the application should be considered for denial.

J. FORECLOSURE

In most instances, a mortgage foreclosure will be considered on an exception basis. A written explanation from the client concerning the circumstances related to the foreclosure is required and we will consider approving the mortgage provided we confirm that the client has demonstrated an ability to manage his/her financial affairs.

K. GARNISHMENTS

A garnishment will require a satisfactory written explanation from the client concerning the circumstances; and the debt must be paid in full before or at closing.

L. ATTACHMENTS

An attachment will require a satisfactory written explanation from the client concerning the circumstances, and debt must be paid in full at or before closing.

Section 4: OBLIGATIONS - CREDIT HISTORY & VERIFICATION

M. TAX LIENS

Tax liens will be considered a guideline exception, and, may result in denial or an approved amount less than the maximum mortgage. Tax Liens must be paid off or subordinated.

N. JUDGMENTS

Judgments will be considered a guideline exception, and must be paid or subordinated at or prior to closing.

Section 5: OBLIGATIONS - CALCULATIONS

A. CALCULATION REQUIREMENTS

1. TYPES OF OBLIGATIONS:

installment loans, revolving charge accounts, auto leases, lines of credit, real estate loans, housing expenses - (monthly principal and interest payment, taxes, issuance), homeowners association dues, co-op/condo maintenance, leasehold expense) rent on residence cash flow losses from investment real estate taxes on land investment lots alimony, maintenance and/or child support partnership future capital contributions. demand and time notes payable stock pledges and any other debts of a continuing nature.

* only if the debt (interest) payments are not considered investment interest expense (see margin expense section) and declared as such on the client's federal tax returns.

2. Total Monthly Debts are calculated as follows:
PI= Principal & Interest (Ist mortgage payment - only applicable if it is not the subject property securing the mortgage)/T1 =Taxes & Insurance)

Monthly Housing Expense (primary residence only when not the subject property- pin) + Monthly Miscellaneous Payments (incl. all other debt and expenses) = Total Monthly Debts (excluding OPC payment) + Monthly ML estimated payment
= Total Monthly Debts

3. For each debt the following should be determined: unpaid balance, terms, and the borrower's payment history.

Section 5: OBLIGATIONS- CALCULATIONS

4. SHORT TERM

a) Monthly installment debt where the remaining payment period does not exceed ten (10) payments may be excluded as an obligation unless substantial enough (15% or more of gross income) to impair the borrower's ability to meet monthly obligations over the next ten (10) months.

b) If a revolving credit account payment is indicated on the credit report (or application, if applicable) and the monthly payment is such that the expected number of remaining payments is ten (10) or less, then calculate the monthly payment by applying 5% to the outstanding balance. Revolving accounts with these types of circumstances are = to be considered as a short term obligation and thus excluded from the debt service calculation.

c) Payments on any accounts with balances equal to or less than $250.00 should not be included as a debt.

d) Any loss or debt calculated that is $10 or less is not to be included on the Underwriting
Worksheet.

5. OPEN CREDIT ACCOUNTS

a) All accounts labeled "O" (open account) payable in full within 30 days, are to be considered short term obligations, and are not to be included as a debt as long as the client exhibits sufficient cash to satisfy debt.

6. LONG TERM

a) All monthly debts (payments) with a remaining payment period of o= ten (10) months must be considered as long term debts.

b) Revolving Account (outstanding balances less than $10,000) On revolving accounts (typically Visa, MasterCard, Discover and department store accounts) where there is an outstanding balance, the monthly payment amount is calculated equal to 5 % of the balance, unless a different payment amount can be documented in the credit report or from a copy of the monthly statement provided by the client. However, if the balance disclosed on the application is greater than the outstanding balance on the credit report, then the monthly payment should be calculated by using 5 % of the higher balance.

c) INSTALLMENT ACCOUNTS: All accounts labeled 'I" on the credit report should be charged the payment exhibited on the credit report or VOC. If a payment is not exhibited and the terms are not disclosed calculate a payment by amortizing the original balance at 12 % over 48 months.

Section 5: OBLIGATIONS-CALCULATION

d) Home equity lines of credit should be calculated by amortizing the face amount of the line at Prime + 3% over 10 years never to be less than 10%).

Large Lines Of Credit:

If the client has a personal line of credit with a face value of over$50,000 which is believed = to be used for ongoing self-employed businesses, then apply the formula for a Home Equity Line of Credit (amortize the face value over 10 years at Prime + 3%, but never to be less than 10%).

If the client has a personal line of credit with a face value of over $50,000, which is used for an ongoing self-employed business, then calculate the monthly obligation as an interest only payment. The interest rate will be Prime + 3%, but never less than 11%. The payment should then be included-as a negative adjustment to the income calculated on the Income Analysis for that business.

NOTE: The scheduled payment reported by the credit agency should be used if it is greater than the calculated payment.

e) Time and Demand Notes Payable

Time and Demand Notes Payable are to be calculated by amortizing the Outstanding Balance at an interest rate of Prime + 3% (never to be less than 11%) over a (5) five year term.

f) Auto Lease

When the client has financed the purchase of an automobile with a lease, the monthly payment must be included in Total Obligations unless the client demonstrates that the payment is being made by his/her employer.

Even if there are less than 10 payments remaining on the term of the lease, the monthly payment must be included in Total Obligations because:

a) it may be assumed that at the end of the lease term the client will turn in the automobile for a lease on a new automobile (same payments assumed), or

b) if the client intends to keep the automobile, then the residual value assumed will be necessary to be refinanced. Since the terms of the residual value cannot be ascertained, nor the terms of used automobile financing, it will be easier to use the existing obligation as the continuing monthly payment.

Section 5: OBLIGATIONS- CALCULATIONS

7. Auto Allowance Offset to Auto Obligation

Auto allowance reimbursement by a company, can be used to only offset the correlating lease or installment loan payment. Verbal confirmation must be received, verifying the obligation is a lien against the specific auto used for business purposes and verification of the auto allowance must be obtained from an authorized company representation.

8. Rent Expense

If the clients rent their primary residence this obligation must be included in the Housing Expense section of the Total Obligations.

a) a copy of the signed lease, or
b) copies of 3 months recent canceled rent checks, or
c) copies of 3 months bank statements exhibiting the payments
d) VOC

Section 6: OBLIGATIONS- MORTGAGE CALCULATIONS

A. Adjustable (Variable) Rate Mortgage or Trust Deed (ARM) Calculation

1. When the primary residence or second home, which IS NOT the subject property, is financed by an ARM mortgage, then the monthly P&I payment must be calculated us' the formulas described below.

2. A variable rate first mortgage monthly payment should be calculated at the one-year Treasury ARM Index plus four hundred seventy five (275) basis points (never to be less than 7%). However, should the client's current mortgage rate of interest be higher than the index rate, then that interest rate should be used to determine the monthly mortgage obligation.

Adjustable Rate Mtg Payment Formula:

Outstanding Balance amortized at the OPC ARM Index Rate
over the remaining term.

NOTE: If the outstanding balance and/or remaining term cannot be determined it will be acceptable to amortize the original principal balance over the original term using new Ocean Pacific Capital ARM Index Rate.

3. For rental investment properties, it will not be necessary to make adjustments to the interest expense deduction, if the revenues and expense are claimed through Schedule E Part I or Part II (partnerships) of the 1040 tax returns.

Possible exceptions to this rule may be if a home equity loan is applicable, if a loan had recently been placed against a property and would not appear on Schedule E or the mortgage has been refinanced increasing the mortgage expenses previously reported through schedule E.

4. For rental properties where a lease analysis is being used to calculate income (loss); if the applicable mortgage is known to be an ARM, then the monthly P&I payment must be recalculated and applied to the lease analysis using the formulas described above. If the applicable mortgage interest rate terms are unknown, then it will not be necessary to ascertain the interest rate terms. The disclosed or verified payment will be acceptable for lease analysis purposes.

B. OPENED-END CONVENTIONAL MORTGAGES (Excluding Revolving Mtg's)

If a VOM on the primary residence or second home (which is not on the subject property) exhibits an open-end mortgage lien with a maximum principal amount (that is greater than the outstanding balance) which could be advanced to the borrower, then that amount should be used in the monthly obligation payment calculations.

Section 6: OBLIGATIONS- MORTGAGE CALCULATIONS

C. GRADUATED PAYMENT MORTGAGE (GPM)

If a VOM on the primary residence or second home (which is not the subject property) exhibits a GPM, a copy of the note should be obtained from the client. The client's DTI ratio must be computed using the maximum known monthly mortgage payment that would be in effect in the next 5 years. If it is an FHA/GPM, the maximum principal balance should be shown on the note. If the mortgage is a variable rate GPM, then the payment will have to be determined according to Ocean Pacific Capital guidelines for variable rate mortgages. This interest rate will be applied to the outstanding balance over the remaining term, and then the calculated payment will be adjusted by the stipulated annual increment as disclosed in the note. The applicable monthly payment will be the amount calculated for the 5th year after the date of approval.

D. BALLOON MORTGAGE

If a VOM on the primary or second home (which is not on the subject property) exhibits a balloon mortgage, and the payment date is 3 or more years from the date of approval, then the current monthly payment can be used. If the balloon mortgage matures in less then 3 years from the time of approval, then the principal balance of the balloon payment amount must be amortized over a 30 year term at the Ocean Pacific Capital ARM Index Rate.

Section 7: OBLIGATIONS- MISCELLANEOUS

A. ALIMONY/CHILD SUPPORT

Determine to what extent a client is obligated to pay alimony, child support or separate maintenance payments.

1. Such payments are a long term monthly obligation, unless there is evidence of a court-approved reduction or termination. If such payments terminate in less than one year, they may be excluded as an obligation.

a) If the future payments are scheduled to periodically increase, then the highest payment during the next five years is to be used as the monthly payment.

b) If the future payments are scheduled to periodically decrease, then the lowest payment during the next three years is to be used as the monthly payment.

c) Fluctuating payments such as payments based on a percentage of variable-commission/bonus income must be reviewed carefully.

2. A copy of the signed divorce decree or separation; agreement, must be obtained.

3. Other alternatives for verifying alimony obligations are to, obtain the most recent two year's tax returns; or the most recent year's tax return, supplemented by a copy of a previous month's canceled check. The copy must exhibit the bank endorsement stamp. A bank statement exhibiting the draft will be an acceptable alternative for a canceled check if the alternative documentation exhibits increased liability a copy of the signed divorce decree or separation agreement must be obtained.

4. Child Support expenses are not disclosed on tax returns. If the client is required to make child support payments, then a signed copy of the divorce decree or separation agreement, must be obtained if the divorce decree is unobtainable, then a copy of the previous three months canceled checks will be required. The copy must exhibit the bank endorsement stamp.
Bank statements exhibiting three months of child support drafts wilt be an acceptable alternative for canceled checks.

B. LIMITED PARTNERSHIP

When an client owns an interest in a limited partnership, we must determine if the client has any obligation to make additional capital contributions to the partnership.

Section 7: OBLIGATIONS- MISCELLANEOUS

1. If future capital contributions are required, it will be necessary to obtain a letter from the client which states the amount due, payment schedule, and a confirmation that the client is, in fact, a limited partner.

If the client is obligated to pay future capital contributions, and the final payments are due and payable within 12 months of the date of application, then the monthly obligation can be excluded from the total monthly obligation calculations provided that either:

a) the mortgage being granted provides excessive available funds which are sufficient to permit the payment of such obligation without incurring new debt.

b) the client has sufficient liquid assets which could be utilized without resulting in the loss of income in an amount which would jeopardize the Debt-to-Income Ratio.

Future contributions to any limited partnership that are required by the client will be included as an obligation in the Debt-to-Income ratio calculation.

2. If future capital contributions are NOT required, then a written letter from the client specifying that they are a limited partner and no payments are due must be obtained.

C. SECURED BORROWING

Secured borrowings may be considered an obligation with a required monthly payment, and will then be included in Total Debts.

a) Examples of secured borrowings are loans against: 1) life insurance policies, 2) retirement accounts, etc.

b) Payments or negative cash flow from borrowings for business ventures or investment accounts (including bank accounts), are adjusted against income as opposed to being included in Total Obligations. These obligations will be discussed further in the Income Section under the headings of Investment Interest Expense and Margin Expense.

c) Acceptable verification of monthly payments):

VOC or
Signed note or agreement.

d) If the payment schedule cannot be determined, then the monthly payment should be calculated by amortizing the outstanding balance at Prime + 2 1/2 % (never to be less than 9%) over 5 years.

e) If the client states there are no required payment, verification must be obtained to exclude debt (see above verification guidelines).

Section 7: OBLIGATIONS- MISCELLANEOUS

D. CO-SIGNORS OF THIRD PARTY OBLIGATIONS

If the client has co-signed for any loans, then these loans are to be considered the obligations of the client and included in Total Obligations.

E. OBLIGATIONS OF A NON-CLIENT SPOUSE

Obligations of a non-client spouse must be included in Total Obligations unless satisfactory evidence can be submitted to verify the client is not liable for the particular obligations.

1. When the obligations are held in a joint account and the client states the accounts are the responsibility of the non-client spouse:

a) the obligation should be included in Total Obligations unless the tax returns or other documentation indicates the spouse earns income sufficient to meet the payment requirements of the obligation, or
b) request additional information such as lenders disclosures which exhibit the spouse as the sole borrower.

F. LOANS DUE FROM STOCKHOLDERS

Loans due from stockholders can be found on the balance sheet of the business tax returns or financial statements. If the client owns 25 % or more of the business, then the debt is not to be considered in the calculation of Total Obligations. It will be assumed that the loan to the stockholder Will be synonymous to an accrued bonus. This assumption is based on the premise the client has sufficient control over the cash flow of the business necessary to increase his salary or bonus to compensate for the satisfaction of the obligation. In all cases be careful to ascertain 1he stability of the income of the business and that the business profits are sufficient to increase clients salary or bonus without putting the company at risk.

If the client owns less than 25 % of the business, then the debt must be included in Total Obligations. If there is no required repayment schedule or if the payment schedule cannot be determined, then the monthly payment should be calculated by:

0 Amortizing the outstanding balance at Prime + 3% (never to be less than 9%) over 5 year

G. LOANS PAID BY BUSINESSES

When the client states certain obligations are paid by a business and the financial statements or tax returns do not satisfactorily support the clients claim, then the obligation must be included in Total Debts. (An example of unsatisfactory evidence would be if insufficient amounts of, or no interest expense is exhibited on the income statement, or if the revenues of the business appear inadequate to pay the obligation.)

If the financial statements or tax returns do support the payment of this debt, the debt can be excluded provided the client supplies three months canceled checks.

Section 7: OBLIGATIONS- MISCELLANEOUS

H. OBLIGATIONS INCLUDED IN THE TOTAL INCOME CALCULATION

Obligations from Investment Interest Expense, Margin Expense and business losses are all considered adjustments to total income.

Section 8: VERIFICATION OF EMPLOYMENT HISTORY

A. EMPLOYMENT STABILITY

1. Employment is not an important factor in determining the acceptability of the application since most asset based borrowers are not W-2 employees. However, the client's work history will be reviewed.

2. Generally, individuals are unacceptable risks when they:

a) Have repeated job changes without significant, improvement in their financial status .

b) Have significant unexplained gaps in employment.

3. The client's income must be examined to determine its stability, adequacy and probability of continuation subject to the requirements of Equal Credit Opportunity Act (ECOA) regulations.

B. INCOME HISTORY

1. The income of all persons who are contributing to the qualifying income is subject to the same requirements.

2. When evaluating employment the principal consideration is adequacy and the second most important consideration is reliability.

Section, 9: VERIFICATION OF EMPLOYEE INCOME

A. EMPLOYEE MONTHLY BASE INCOME

1. Description and verification of Base Income:

a) Salaries or Wages must be verified by either,

1. A written verification of employment (VOE) from the employer, or,
2. a W-2 and pay-stub supplemented by a verbal VOE (WOE).
3. All VOEs and WOEs should verify:

Date Of Employment
Probability of continued employment
Income
4. If the employer will not verbally confirm the client is presently employed, then the client must be contacted at the place of employment.

Verbal contact with the client at the place of employment will be satisfactory evidence of the employment only. after the employer has stated it is not the policy of the company to verbally disclose employee information

2. To calculate Salary or Wage income, determine the frequency of payment. Methods of calculation are as follows:

a) Hourly.

1. Multiply hourly rate by number of hours worked per week, multiply by 52 for the number of weeks in a year and then divide by 12 for a monthly total.

2. If hours vary, use last years' earnings and year-to-date earnings and then average.

b) Weekly

1. Multiply by 52 and divide by 12

c) Bi-Weekly

1. Paid every 2 weeks or 26 times per year.
2. Multiply by 26 and divide by 12 for a monthly total.

d) Semi-Monthly

1. Paid twice per month or 24 times per year.
2. Multiply the pay stub amount by (2) two,

Section 9: VERIFICATION OF EMPLOYEE INCOME

e) Monthly

1. Use monthly income as stated on VOE or pay stub.

B. EMPLOYEE MONTHLY SECONDARY INCQME

1. Secondary income from bonuses, overtime or part-time employment should be recognized as stable monthly income only if-these sources are typical for the occupation and substantiated by the client's previous year's earnings, and continuation of this income is probable a stable two year history must be documented.

2. Description and verification of Secondary Income:

Bonus. Overtime and Part-Time Income must be verified and confirmation that “continuance is likely” by either:

A written verification of employment (VOE) from the employer, or, a W-2 and pay-stab supplemented by a verbal VOE (WOE).

3. To calculate Bonus, Overtime and Part-Time Income determine the frequency of payment. Generally, secondary income should be averaged over a two year period.

a) Bonuses

1. Exceptions to the required two year average would be if the client in the past two years held a previous position which was not bonus eligible.

2. Or if, the bonus is paid periodically throughout the year. In this circumstance, take the year-to-date bonus plus last years' bonus and average them over the time period involved (minimum of 15 months verification required). Verification must be obtained from the employer as to the frequency and continuance of these periodic bonuses.

3. If the frequency of payment is unknown always consider the reported year-to-date income as an annual bonus.

4. PROJECTED BONUSES

a) Bonus income projected by the client or employer is not acceptable. For clients who have recently become bonus eligible the projected income may be acceptable. The inclusion of this income must, be approved by an authorized Ocean Pacific Capital Officer.

Section 9: VERIFICATION OF EMPLOYEE INCOME

b) Overtime and Part-Time

1. Must be earned on a consistent basis.
2. Must be averaged over a minimum of 15 months.

B. COMMISSION DERIVED INCOME

1. Income derived from commission should be verified by signed copies of Federal tax returns, for a period of two (2) years and a VOE if applicable. Income figures used for qualifying purposes should:

be averaged over a two year period. in some cases, it may be appropriate to average the previous years income plus the current year-to-date income (a minimum of 15 months verification required). A tax return must still be received to determine applicable employee business expenses.

employee business expenses should be deducted from the client's earnings and averaged over 2 years.

NOTE: Many individuals who only earn commissions may consider themselves independent contractors (self-employed), and report their business deductions on Schedule C.

C. INCOME DERIVED FROM A TRADE

1. Salary derived through a trade union (plumber, carpenter, etc.) is to be verified by copies of signed Federal tax returns or W-2's for two (2) full years, and a year-to-date pay stub.

a) Verification of Employment by the particular union is required.

b) Generally, income of this nature is not earned on a consistent monthly basis. Therefore, this income should be averaged over the past 2-year period plus current year-to-date income.

c) It is important that year-to-date earnings agree with hourly/monthly income stated by employer. If there are any discrepancies, employer should be questioned and a recent pay stub showing year-to-date earnings should be obtained.

D. INCOME DERIVED FROM A TEACHERS EMPLOYMENT

1. In cases where the annual salary can not be verified and income must be calculated thru the paystub, determine the number of months out of the year the client is actually paid and multiply the base pay by the applicable months divided by 12.

Section 10: FEDERAL TAX RETURN ANALYSIS

TAX RETURNS

A. 1040 PERSONAL TAX FEDERAL RETURN - Except for lite or alternative documentation loans (see section 16) Clients are required to provide most current two years signed Personal Tax Returns (1040) that have been filed with the IRS)

Description of Financial Disclosures:

Label Verify client's name, mailing address and social security number.

Filing Status Verify client's marital status

Exemptions Verify the number of dependents. NOTE: Also, look at fine 6d for dependent children who do not live with client as this could mean that child support payments are being made.

Line 7 The total of all wages, salaries, fees, commissions (excluding amounts reported in Schedule Q, tips, bonuses, etc., the client was paid before taxes.

Line 8a Total taxable interest income received or credited to client. Refer to line 8b, for any tax-exempt interest income. Add this amount, if any, to the total on line S.

Line 8b Non-taxable interest income.

Line 9 The total dividends and distribution of money, stock, or other property that corporations pay stockholders. It is acceptable to add back capital gain distributions
and nontaxable distributions (Sch. B Lines 6 and 7).

Line 10 Refunds of state and local taxes - not acceptable income.

Line 11 The total of taxable alimony payments received. Note that child support payments are not taxable and must be verified by reference to the divorce documents.

Line 12 Income/Loss from a sole proprietorship. Refer to the attached Schedule C, lines 12 and 13, for the amount of depletion and depreciation which may be added to the income or loss reflected on line 31 of Schedule C.

Line 13 Gain/Loss from the sale or exchange of capital assets. If 14 and 15 this figure shows a loss of $3,000, it is a good indication that the loss is being carried over from a prior year. Refer to the attached Schedule D. Generally; income from capital pins is not acceptable.

Line 16a Total IRA Distributions. This amount may represent a roll-over transaction or possibly a lump-sum distribution (not acceptable income, see section 14 page 2).

Section 10: TAX RETURN ANALYSIS

Line l6b Taxable Amount of IRA Distribution (not acceptable income)

Line 17 a&b Other pensions and annuities. Income that is not fully taxable, distributions from profit sharing, retirement plans, and individual retirement arrangements. Use amount on fine 17a for income purposes, provided that it is continuing and consistent in nature.

Line 18 Rents, royalties, partnerships. etc. (Refer to Schedule E).

a) Rents Schedule E, Part I Line 22): It is important when using rental income to compare the tax returns to the Real Estate Schedule on the application.

b) Partnerships Schedule E, Part II, line 34): Since the actual lose from partnerships and Sub WS' Corp.'s may not be reported schedules will be required for accurate verification.

c) Sub Chapter “S” Corporations (Schedule E, Part II, line 34): Occasionally an individual will claim his business income here so it is important that you always obtain schedules.

Line 19 Farm Income or Loss. Refer to Schedule F. line 16 for the amount; of depreciation which may be added to the income or loss reflected on line 36 of Schedule F.

Line 21 Social Security Benefits. This amount may represent a temporary distribution or possibly a lump-sum distribution. Use amount on line 21a for income purposes, provided that it is continuing and consistent in nature.

Line 22 Other income. Examples of other income are as follows:

a. Prizes, awards, gambling winnings.
b. Repayment of medical expenses or other items such as real estate taxes that were deducted in an earlier year.
c. Amounts recovered on bad debts that were deducted in an earlier year.
d. Director's fees

These amounts are not to be considered as stable income and should not be included in monthly income for purposes of computing the DT1 ratios.

ADJUSTMENTS TO INCOME:

Line 29 If the tax return shows alimony being paid but the client did not show it on the application, the client should be contacted and the discrepancy reconciled.

Section 11: VERIFICATION OF SELF EMPLOYED INCOME

A. SELF-EMPLOYEE CLIENT

1. QUALIFICATION AS A SELF-EMPLOYED CLIENT

We define a self-employed client, as any client who owns twenty-five percent (25 %) or more of a Partnership, S-Corporation, or of a C-Corporation or is the only owner (sole proprietor/ Schedule C) of a business.

Income from a business is considered stable if the client has been self-employed for at least three (3) full years.

2. SELF-EMPLOYED INCOME CONCERNS

Unstable or declining income over a two-year period may indicate a trend. Therefore previous years tax returns or a current profit and loss statement should be obtained to help determine whether a downward trend has been established. Prior to submitting to Ocean Pacific Capital, an explanation must be obtained. Unstable or declining income may necessitate a reduced approval amount or denial. If a substantial increase is reflected in the profit and loss statement that cannot be sustained, (continue for more than one year) then only the available income from the tax returns should be used to determine income for qualification.

B. SELF-EMPLOYMENT INCOME VERIFICATION AND CALCULATIONS

1. INDIVIDUAL- SOLE PROPRIETORSHIP (Schedule C)

a) Copies of individual Federal tax returns (1040's) and all accompanying schedules signed by the appropriate client or stamped with the preparing firms name.

b) Income should be calculated by including:

Net Profit or Loss (line 31 in 1991/1992, line 29 in 1990 1040's) plus Depreciation (line 13) - if significant, requires approval of authorized Ocean Pacific Capital Officer less 20% non-deductible Travel 6 Entertainment Expense (line 24C) less "other income", unless continuance is likely (line 6) equals Annual Self-Employment Income for qualifying purposes.

c) Monthly income should be determined as follows:

1. If the latest year's income is greater than the previous year, average the two years.

2. If the latest year's income is less than the previous year, use the current year only.

Section II: VERIFICATION OF SELF EMPLOYED INCOME

3. A signed six (6) month P&L is required when the current year's tax return has been filed, and seven (7) months have elapsed since fiscal year-end.

4. A signed twelve (12) month P&L is required when the current year tax return has not been filed by April 15 and ' The Request for Filing Extension" must be submitted with the P&L statement.

2. GENERAL PARTNERSHIP OR SUBCHAPTER "S " CORPORATION

a) Requires copies of individual (1040's) and partnership (1065's) or Subchapter S Corporation (1 12OS's) Federal tax returns, and all accompanying schedules, unless, the business is not the client's primary source of income.

b) Methods of verification.

1. If the income derived from partnership or Subchapter S corporations is not an client's primary source of income, it can be used in the DTI calculation without requiring, 1065, 1120S and K-1 tax returns. To be considered a non-primary source of income, the business income must be equal to or less than 30% of total income reflected on Form 1040.

However, if the amounts disclosed on the 1040 tax return (Sch E Part II) exhibit a passive loss, then either Form K-1 (page 1 and 2), or the Schedule E supplemental statements will be required to determine the actual loss. The actual loss, as opposed to the allowable loss, must be used in the Income Analysis.

2. A six (6) month P&L is required when the current year's tax return has been filed, and seven (7) months have elapsed since fiscal year-end.

3. A twelve (12) month P&L is required when the current year tax return has not been filed within 10 months of fiscal year-end (or by Sept. 15 if the fiscal year is on a calendar year).

NOTE: The "Request for Filing Extension" must be submitted with the P&L statement.

c) To calculate Income from General Partnership (1065's) or Subchapter "S" Corporation (1 120S):

Net income or loss (including Rental Income)
plus Depreciation Amortization and/or Depletion only when the company exhibits substantial liquid assets and retained earnings in relation to debts plus Clients share of Pension and Profit Sharing Plan

Section 11: VERIFICATION OF SELF EMPLOYED INCOME

Plus Clients portion of Officers Salaries, to be verified along with W-2 for S-Corp or Guarantee Payments, to be verified along with K-1 form. plus Dividend and Interest consistent for 2 years and supported by balance sheet less 20% nondeductible expense for Meals & Entertainment found on Sch M-1 less Net gain income and Other Income unless it can be considered ordinary income for that type of business equals Annual Partnership/S-Corp Income for qualifying purposes

To calculate income from a K-1

Net Income or Loss (including Rental activity)
plus Guarantee payments (Partnership related only)

Monthly, income should be determined as follows:

a) If the latest year's income is greater than the previous year, then average the two years.

b) If the latest year's income is less than the previous year, then use the current year only.

c) If a P&L is received and the income is less than the previous year, then average over the current period only.

d) If a P&L is received and the income is greater than the previous year, then prudent judgment should be used as to whether or not to use the income disclosed on the P&L. Generally, unless an upward trend in income has been established, the income disclosed on the P&L should not be used in the Income Analysis.

3. PARTNER IN A MAJOR PROFESSIONAL FIRM
a) If an client is a partner in a major professional firm (national in scope and operates in more than one (1) state, we will consider:
The latest 2 years Schedule K-1
Page I and 2 of the 1040 tax return, signed
Applicable Schedule section of the 1040 tax return, signed
Paystub/W-2, WOE, VOE

4. CORPORATION

a) Two (2) years' Corporate Federal tax returns (I 120's) and the latest corporate financial statements, if available, are required if the client owns 25 % or more of the outstanding capital stock.

Section 11: VERIFICATION OF SELF EMPLOYED INCOME

1. A six (6) month P&L is required when the current year's tax return has been filed, and seven (7) months have elapsed since fiscal year-end.

2. A twelve (12) month P&L is required when the current year tax return has not been filed within 10 months of fiscal year-end (or by Sept. 15 if the fiscal year is on a calendar year). The "Request for Filing Extensions - must be submitted with the P&L statement.

b) To calculate Income from Corporation 11 120): NOTE - Income may only be included if the client owns more than 50% of the outstanding capital stock.

Net income or loss including Rental Income) Less any dividend income reported on Individual Tax Returns, Sch B. plus Depreciation Amortization and/or Depletion when the company exhibits substantial liquid assets and retained earnings in relation to debts, plus Clients portion of Officers Salaries, to be verified along with W-2 for S-Corp or: less 20% non-deductible expense for Meals & Entertainment found on Sch M-1 less Capital or Net gains and Other Income unless it can be considered ordinary income for that corporation
equals Annual Corporate Income for qualifying purposes

c) Monthly income should be determined as follows:

1. If the latest year's income is greater than the previous year, average the two years.

2. If the latest year's income is less than the previous year, use the current year only.

3. If a P&L is received and the income is less than the previous year, then
average over the current period only.

4. If a P&L is received and the income is greater than the previous year then prudent judgment should be used as to whether or not to use the income disclosed on the P&L. Generally, unless an upward trend in income has be established, the income disclosed on the P&L should not be used in the income Analysis.

Section 12: VERIFICATION OF ADDITIONAL INCOME

A. ADDITIONAL INCOME CONSIDERATIONS

1. Generally, future, not historical income is considered in evaluating the creditworthiness of the
client.

B. SOURCE OF ADDITIONAL INCOME AND 120CUMENTATION REQUIREMENTS

1. Alimony
All borrowers who elect to have alimony included, as income should submit a signed copy of
the Divorce Decree or Separation Agreement so that the amount awarded and the duration can be verified. If the amounts exhibited on two years of tax returns and the application are consistent, then no further documentation will be required, unless the alimony income represents 25 % or more of total income.

2. Child Support
All borrowers who elect to have Child Support included as income will be required to submit a
signed copy of the Divorce Decree, or Separation Agreement papers so that the amount
awarded and the duration can be verified (review age of dependents).

3. Social Security
Social security income can be verified by:
? Award letter
? Two years 1099R/W2-P
? 1-year 1099R supplemented by a current benefit check
? Two years tax returns
For items 2-4, if there is a 20% variance during a two-year period, then a verbal confirmation from the client identifying the amount of any lump sum distribution will be required.

4. Retirement - Pension, Annuities, etc.
Pension and annuity income can be verified by:

? Award letter
? Two years W-2 P
? 1 year W-2P supplemented by a current benefit check
? Two years tax returns

For items 2-4, if there is a 20% variance during a two year period, then a verbal confirmation from the client identifying the disparity will be required (ie. the amount of any lump sum distribution) and additional documentation may be required.

5. Disability Awards

An award letter from an insurance carrier or employer stating the coverage (i.e., short or long term), the duration and amount is needed and additional documentation may be required.

Section 12: VERIFICATION OF ADDITIONAL INCOME

Note: When retirement income represents 25 % or more of total qualifying income an award
letter will be necessary.
a. Short-Term Disability - If the client is covered under short-term disability, a letter must be obtained from the employer showing that the client will be re-employed in the future at a given salary.
b. Long Term Disability - If the client is covered under long-term disability, the full amount is considered.

6. Trust Deeds/Mortgages and other Long Term Note Receivable
A copy of the Promissory Note and recorded Deed of Trust are required if applicable. In order to be considered as effective income for repayment of the mortgage debt or long term note receivables, the payments must continue for at least three (3) years. The entire payment (principal and interest) is to be considered as "income" for purposes of computing debt-to-income ratios.

7. Trust/Inheritance
A copy of the trust agreement or a statement from a lawyer or executor stating monthly amount and duration is required. If Schedule E exhibits consistent amounts for two years along with the amount disclosed on the application, then no further documentation will be required. If this income represents 25 % or more of total income, then the additional documentation will be required

8. Capital Gains
The inclusion of income from capital gains may be included if it associates with the client occupation and it must be from the same source (e.g., securities) for three (3) years. If from securities a copy of the client's latest brokerage statement should be reviewed and reference should be made to the balance sheet data on the application form. This income must be supported by current activity and assets.

9. Dividends and Interest
A 2-year average will be taken from the Federal tax returns, provided the interest earning assets still exist. If the most recent year's dividend and interest income has decreased significantly from the prior year, consideration should be given to using only the most recent year. Where an client has submitted a copy of their CMA account, the estimated annualized income (Dividends and Interest) indicated thereon may be averaged with the preceding year's dividend and interest income.

10. Potential IRA or Keogh Plan Income
Monthly income from these accounts may be included assuming withdrawal of principal and interest (assuming the OPC Opportunity Cost Index Rate) over a period of fifteen (15) years, for clients who will reach the age of 59 ½ in the year in which the loan is being processed.

11. Limited Partnership Distribution
If a client requests that distributions from a limited partnership be considered for income purposes, we will require a letter from the general partner that the limited partner will be receiving regular distributions. The letter must include the amount and the expected duration. Generally, the K-1 should demonstrate a positive capital account if this income is to be considered.

This income may only be included if consistent for 2 years.
The use of this income will require the approval of the Loan Committee.

Section 13: VERIFICATION & CALCULATION OF RENTAL INCOME

A. QUALIFYING RENTAL INCOME

1. If the SREO has shown an interest in any real estate owned less than 100%, the Income
Analysis should only reflect the client's portion of the income and liability. Note; See the
Obligation Section for divided responsibility (ownership) of the Primary Housing Expense.

2. The net cumulative total from all properties reported on Sch E are to be considered as a single source of cash flow. A gain will increase total monthly income and a loss will increase total monthly debts.

3. If the rental properties listed on the application are included in the past year's Federal tax return, lease agreements are not required. If rents have increased, however, and the additional income is necessary to qualify the client, copies of the signed lease agreements must be obtained. An increase in rents can usually be expected to be associated with a proportional increase in expenses other than depreciation. This scenario should be reviewed carefully.

4. The cash flows generated by partnerships (1065) or Sub-Chapter "S" Corporations (1120S), which are involved solely in the rental of real estate, are to be treated as a business income or loss, as opposed to a rental property income or loss. In these cases, a net loss should decrease total monthly income and a net gain should increase total monthly income.

B. VERIFICATION OF RENTAL INCOME

1. Rental income can be verified by either:

a. Most recent years' Schedule E and/or supporting 1040 schedules.
b. For properties purchased during or after the most recently completed tax year signed
leases.

2. Adjustments to tax return reported income/loss:

a. If the client states a rental property has been sold and needs to reduce the Schedule E loss in order to qualify, then a copy of the fully executed sales contract or a copy of the HUD-1 Settlement Statement will be required.

C. RENTAL INCOME/LOSS CALCULATIONS

1. Income disclosed on the 1040 Tax Return SCHEDULE E Analysis
a) Calculation:

Residential
Net Income/Loss (Line 23)
+ Depreciation Expense
+ Amortization Expense (if applicable)
= Cash Flow (annually)

Section 13: VERIFICATION & CALCULATION OF RENTAL INCOME

Commercial
Net Income/Loss
+ Depreciation Expense
+ Amortization Expense (if applicable)
+ Interest Expense
- Principal and Interest Expense
= Cash Flow Annually

b) The individual property totals do not have to be listed separately.

c) Any adjustments (properties sold, inclusion of non-recurring items, etc.) can be exhibited in the standard Schedule E Income Analysis calculation, comments on the nature of the adjustments should be stated.

2. Income disclosed by LEASE AGREEMENTS

a) When dealing with lease agreements, gross rental income is to be discounted by:

1. Maintenance factor of 10% of gross.
2. Vacancy factor of 10% of gross.
3. Reserve for replacement of 5% of gross.
4. Principal interest, taxes and insurance.

b) If the subject rental property is an owner-occupied 2-4 unit dwelling, then the adjustments to gross rental income are to be discounted by:

1. the 10% vacancy factor only.
2. The full PM is to be exhibited in the Primary Housing Expense Section of the
Underwriting Worksheet.

Calculation:
Gross Monthly Rental Income
- 25% of Gross Rental Income (see 2a above)
- monthly Principal & Interest Payment
- monthly Taxes & Insurance
= net monthly rental income/loss

D. OWNERSHIP OF OTHER REAL ESTATE SPECIAL CONSIDERATIONS

1. Home Equity Mortgages

a) Home equity lines of credit on Rental Properties (exhibited on Sch E of the 1040 Tax Return)

1. If it appears the equity fine deducted was an active account during the full year and the total allowable interest expense has been deducted, then a monthly payment need not be calculated separately from the standard rental

Section 13: VERIFICATION & CALCULATION OF RENTAL INCOME

income analysis. It will be permissible to assume the interest expense is deducted through Sch E.

2. If it appears the equity line was recently opened or not fully utilized, it may be necessary to calculate the estimated annual interest and net the full expense against the Income Reported. Remember to add back any portion, which may have been deducted.

Section 14: ADJUSTMENTS TO TOTAL INCOME

A. Investment Interest Expense (Inv.1nt-ExW

1. Inv. Int. Exp. can be found reported in several areas of the tax return. For example: Line 11 of Sch. A, Form 4952, Supplemental Schedules, K-1 's, Sch. E Part 11 and even in some rare occurrences Sch. E Part 1.

Inv.lnt.Exp. must be charged against total monthly income.

Form 4952 Line I is the correct amount to determine total Inv.lnt.Exp. before taking into consideration any adjustments.

B. Margin Expense

1. If margin expense is reported on a current Security Account statement or tax returns the monthly payment must be calculated to offset Total Income. (NOTE: Margin Expense will usually be included in the Investment Interest Expense total.)

C. Employee Business Expenses (Reimbursed and Un-reimbursed)

1. Forms 2106

a) The amounts on Line 8 (positive amounts) from both column A and B are to be combined to calculate Total Employee Business Expense.

b) Negative amounts on Line 8 indicate additional income which The OPC Group considers unacceptable.

2. If Form 2106 is not available, then Schedule A Line 20 can be used to determine Total Employee Business Expense.

a) The amount on Schedule A may represent an amount exhibiting an adjustment for the 20% deduction on Meals and Entertainment Expense.

Formula: Schedule A amount divided by 80%.

1. If Form 2106 is not submitted, but a supplemental statement is included and the amount of Meals and Entertainment Expense can be broken out, then only this amount need be increased by the 20% deduction.

3. Depreciation Expense reported as an Employee Business Expense is not to be excluded from Total Employee Business Expense.

4. Generally average business expenses over 2 years and include it as a negative adjustment to income, unless the current year is significantly greater then average only that year.

Section 15: NET WORTH

A. NET WORTH

1. Accumulation of net worth, particularly in the form of liquid assets, is a strong indication of creditworthiness. A borrower who accumulates net worth solely from earnings and savings demonstrate a strong ability to manage his or her financial affairs. If the net wroth is in a liquid form, it can be used to service the debt to pay unexpected debts that may occur, or to protect against short-term interruptions of income. Therefore, large liabilities may be offset by liquid assets.

2. Verification of Liquid Assets:

Documentation is required to verify that the borrower has sufficient cash and/or marketable securities to complete the mortgage transaction, to support any income credited or to support the overall lending decision.

Acceptable Verification:

a) completed verification of deposit
b) current two months bank statements
c) current months security account statement

Any indicated of borrowed funds must be investigated - i.e.: recently opened account, a recently received large deposit, a current balance significantly greater than the average balance reported.

3. Add other net worth components.

Section 16: LITE DOCUMENTATION

A. LITE DOCUMENTATION/ALTERNATIVE DOCUMENTATION GUIDELINES

1. OPC will accept 12 months bank statements as supporting documentation in evaluating a borrower's capacity to pay. This will be used as one of many factors in credit evaluation decisions by the OPC Loan Committee

2. In evaluating cash flow as evidence of capacity to pay, other factors, such as equity in the subject property; quality and stability of income; credit previously repaid; likely repayment source(s); additional collateral and guarantees being provided; the existence of subordinate debt; credit usage and credit quality will be analyzed and evaluated.

3. Cash flow from a personal account will be considered better evidence of capacity to pay than will cash flow from business accounts. This is intended to recognize the likely gross to net implication of business costs. Ocean Pacific Capital will evaluate gross to net at varying levels based upon judgment of likely costs of conducting the type of business involved. Acceptable, specific and documented expense analysis will be encouraged.

4. When multiple bank accounts are offered as evidence of cash flow, or multiple transaction accounts are known to exist, Ocean Pacific Capital will require at least a three (3) months history of each accounts including all pages of the statement, in addition to first page copies of the nine previous months. Also, Ocean Pacific Capital will need an analysis that strongly supports a full understanding of the borrower's cash flow.

For lite documentation, generally the margin will be increased along with other costs to compensate for the additional perceived risk.

Further, lite documentation will be used for Self Employed borrowers only. Business must have been in existence at least one (1) year. Borrower must provide a year to date profit and loss statement along with 12 months bank statements. Income is taken from application as stated by borrower and must be reasonable for the line of business/profession.

Attachment A
Ocean Pacific Capital
Residential Real Estate
Jumbo Non-Conforming Lending
Program Parameters

Availability:
* One to four unit Real Property/properties

Purpose:
* Purchase
* Rate and Term Refinance
* Cash-out Refinance

Documentation:

* Appraisal from Approved Ocean Pacific Capital Appraisal List
* Signed FNMA Form 1003 Loan Application
* Tax returns personal/corporate or other acceptable form of
verification to prove ability to debt service (section 16)
* Bank Statements-time to time as requested
* VOE's
* VOD's
* Residential Mortgage Credit Report

LTV: * 90 percent maximum. 100 percent for certain borrowers who qualify for a larger loan-to-value because of other favorable factors (e.g. additional collateral)
Note Terms: * Adjustable Rate Mortgages
* Non Amortizing
* Term five to ten years
* Index One of Sixth Month LIBOR
* Margin: 2 to 5 percentage points above the index - Margin is
determined based,, upon, overall risk assessment
* Default Interest - I percent per month of principal balance and accrued interest
* Late charge - 10 percent of the monthly payment amount
* Prepayment penalty, - maximum allowed by law
* Late charge at maturity equal to maximum amount permitted by applicable law I
* Life cap is fully indexed rate plus 5 percent of the start rate

Ownership: * Individual * Partnerships
* Family Trusts * Corporation
* Land Trusts * Revocable Trusts
* Limited, Liability Companies
Loan Size: * $200,000-00 to $10,000,000.00

Acceptable Occupancy Status: * Primary Residences, Second Homes, and Investment Properties

Accept-able Property Types: * Single Family, Investment Property, Condo, PUD, Multi (14 units),

Acceptable Lien Position: * First lien or junior lien position which will be predominately 2nd trust deeds

Qualifying Rate: * Note Rate

DTI: * No ratios

Qualifying Mortgage
Payment Formula: * Loan amount times (x) note rate divided, by 12 Determination Formula: Time of Closing: two to four weeks (The faster the closing the larger the margin) Collateral: Additional collateral will require, smaller margins.

Credit Assessment: Demonstrated, ability to repay or designated future source of income for monthly, payment&
(which can, include loan guarantor(s)).

Subchapter 3.2 Representations and Warranties

101 Representations and Warranties

With respect to each Mortgage Loan as of each Closing Date, the Seller represents to note holder that:

i. The information set forth in the Mortgage Loan Schedule is true and correct in all material respects;

ii. As of the Closing Date, the Mortgage Loan is not delinquent in payment more than 29 days and the Mortgage Loan has not been dishonored; the Mortgage Loan has never been delinquent in payment for more than 59 days and has not more than once been delinquent in payment for more than 30 days; there are no material defaults under the terms of the Mortgage Loan; the Seller has not advanced funds, or induced, solicited or knowingly received any advance of funds from a party other than the owner of the Mortgaged Property subject to the Mortgage, directly or indirectly, for the payment of any amount required by the Mortgage Loan;

iii. To the best of the Seller's knowledge, there are no delinquent taxes or other outstanding charges affecting the related Mortgaged Property, which would permit a taxes authority to initiate foreclosure proceedings against the Mortgaged Property;

iv. The terms of the Mortgage Note and the Mortgage have not been impaired, waived, altered or modified in any respect, except by written instruments contained in the Mortgage File, the substance of which waiver, alteration or modification is reflected on the Mortgage Loan Schedule. No instrument of waiver, alteration or modification has been executed, and no Mortgagor has been released, in whole or i