Internal Control Questionnaires and Verification Procedures

Collateral

1. Does the bank place primary collateral reliance on first liens on real estate?

2. Does the bank temper the collateral reliance placed on:

   1. Ground leases?

   2. Conditional sales contracts?

3. Are chattel mortgages taken on non-real estate construction improvements?

4. Does the bank require that construction loans:

   1. Made without the benefit of prearranged permanent financing be limited to a percent of the completed cost or market value of the project?

   2. Subject to the bank’s own take-out commitment be limited to a percent of the appraised value of the completed project?

   3. With a take-out commitment that is predicated upon achievement of rents or lease occupancy, be limited to the floor of such a commitment?

   4. To finance land acquisition and development without prearranged permanent financing be limited to a percent of the appraised value for unimproved real estate loans?

5. Do construction loan policies preclude the issuance of standby commitments to “gap finance” projects with take-out restrictions regarding rentals or occupancy?

6. Are unsecured credit lines to contractors or developers who are also being financed by secured construction loans supervised by:

   1. The construction loan department?

   2. The officer supervising the construction loan?

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