Internal Control Questionnaires and Verification Procedures

Retained Interests — Valuation and Amortization

1. Does an appropriate legal opinion exist to support that mortgage securitizations meet FAS 125 criteria?

2. Are “gain on sale” accounting entires reasonable and residual interests initially recorded at their relative fair value?

3. Are retained interests (excluding servicing assets) marked to market quarterly?

4. Does the bank rely on models to provide an estimate of the fair value of its retained interests?

5. Do independent and competent personnel conduct valuation modeling?

6. Does the valuation model appropriately reflect the terms and conditions in loan sales documentation?

7. Can management provide reasonable and verifiable support for the following assumptions used in the valuation model?

   1. Cash Yield

   2. Prepayment Curves

   3. Loss severity Percentage

   4. Discount Rate

8. Does the valuation of residual interests properly reflect the following impacts on cash flows?

   1. Fees (e.g., trustee, servicer, insurer).

   2. Release or additions to reserves.

   3. Overcollateralization requirements.

   4. Payments from delinquent loans that are not in default.

   5. Recoveries.

   6. Insurance coverage of losses (e.g., FHA guaranteed).

   7. Credit losses.

9. Does management compare model estimates of monthly cash flow to actual cash flow received by the bank and explain significant variances?

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