Internal Control Questionnaires and Verification Procedures

Mortgage Servicing — Valuation and Amortization

1. Does the bank’s valuation techniques provide a reasonable estimate of fair value and do they incorporate market participant assumptions?

2. Does the bank use an appropriate market discount rate for valuing MSRs?

3. Is an impairment analysis performed at least quarterly?

4. Is the impairment analysis performed on a “strata-by-strata” basis?

5. Are prepayment assumptions used in discounted cash flow calculations realistic and substantiated by an independent third party?

6. Are the assumptions for ancillary income, float, earnings on escrows, servicing costs, foreclosure expenses, and other revenue and expense items realistic?

7. Do assumptions correspond to the bank’s actual experience?

8. Are MSRs amortized over their estimated useful life? And, is the useful life reasonable, given actual prepayments?

9. Are accounting practices documented and applied on a consistent basis?

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