Fair Lending Initiatives

At Hollander Financial, we are committed to Fair Lending, because we believe it is good business. In the past, the term fair lending usually was used to mean that a lender should treat all borrowers in the same fair manner, without any consideration of certain personal characteristics such as race, national origin, religion or gender. More recently, fair lending also has been used to mean that a lender should avoid certain acts or practices that are thought to take advantage of a borrower's relative lack of experience or sophistication in lending practices. At Hollander Financial, we enthusiastically support fair lending in both senses. We do not consider any impermissible factors at any point in processing any loan application, and we avoid certain practices that some might call unfair.

• Fair Lending Monitoring and Compliance
• No Equity-Based Lending
• Negative Amortization and Balloon Loans
• Prepayment Fees
• Frequent Refinancing
• Appraisal Review
• Credit Life Insurance
• Broker Sourced Loans
• Foreclosure Review

At Hollander Financial, we are very proud of the steps we have taken to comply both with the letter and spirit of state and federal fair lending laws. We have adopted a corporate Fair Lending Policy, but we realize that our Fair Lending Policy will only be successful if it is strictly enforced. For this reason, we have made a substantial investment in monitoring software, which allows us to assess the effectiveness of our fair lending compliance efforts. By identifying our weaknesses, we can adjust these Initiatives as necessary to reduce or eliminate those weaknesses and to improve our level of compliance and customer service. We also have created a Service Quality Committee comprised of legal, underwriting, production and servicing personnel, to ensure our Fair Lending Policy and these Initiatives are administered properly.

Our senior management is strongly committed to the full and successful implementation of these Initiatives. Therefore, as results become available from our monitoring programs, a portion of each Board of Directors' meeting will be devoted to reviewing the company's recent fair lending performance.

At Hollander Financial, we also have an active pre-closing and post-closing Quality Control Program, which is intended, in part, to assure that all of our loans are underwritten and closed in strict conformity with our established policies and these Initiatives. In addition to the traditional function of verifying information in loan files, our Quality Control Department takes a pro-active approach, to identify and eliminate potential sources of fraud and possibly unfair trade practices. Furthermore, Hollander Financial has enlisted the aid of its approved closing agents to help it identify potential sources of fraud and possibly unfair trade practices. Every Hollander Financial approved closing agent is required to immediately notify Hollander Financial's General Counsel if they are aware that any Hollander Financial Branch or employee is involved in any loan-related activity that would be considered at all questionable under any applicable state or federal law, including state unfair or deceptive trade practices acts.

Our established origination practices and procedures have been designed to avoid unfair and so-called predatory lending practices. If we discover a loan was originated contrary to our established origination practices and procedures, we fully investigate how the violation occurred, and we provide appropriate counseling and direction to any involved employee or broker, to ensure that the violation will not occur again. In addition, in all such instances, we evaluate the relevant parts of our origination practices and procedures and implement appropriate systematic changes wherever necessary, to prevent a recurrence of the violation.

We make sure every employee understands his or her role in ensuring that all borrowers are treated fairly and courteously. Our orientation materials for new employees include these Initiatives, and our orientation for new employees includes fair lending training. Each employee's job description includes fair lending responsibilities. Employees are provided with a toll free telephone number and are encouraged to utilize it, to make anonymous reports of suspected unethical behavior and other compliance issues.

To ensure that fair lending laws, and our Fair Lending Policy and these Initiatives are being followed, we perform a semi-annual compliance audit. Any areas that are not in compliance are reported to the Service Quality Committee.

In making credit decisions, Hollander Financial considers, among other things, the borrower's ability to repay the loan we are being asked to make. We will not make a loan if we believe that the borrower does not have the ability, at the time the loan is consummated, to make the scheduled payments to repay the obligation. We rely on EZ-Qual and other bankers underwriting guidelines as the primary indicator of the borrower's ability to repay. When a borrower is approved through the underwriting criteria embodied in EZ-Qual or another bankers underwriting guidelines, we take it as an indication that the banker considers that the borrower has the ability to repay the loan. If the borrower does not have the ability to repay the loan, the loan presumably would be rejected when it is run through EZ-Qual or another bankers underwriting guidelines.

To further assure that a borrower has the ability to repay a loan that has been approved under the bankers guidelines, we consider the debt to income ratio, whether there will be a significant increase in mortgage payments, and how the borrower has managed other current obligations, in addition to established underwriting criteria. Hollander Financial does not offer loans in which any payments are made in advance from the loan proceeds.
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At Hollander Financial, we do not focus on negative amortization loans or balloon loans. However, if one of these loans is attractive to a qualified borrower, we may offer the loan, along with all disclosures required by applicable law and regulations. We also will require that the borrower provide any required acknowledgment of receipt of any required disclosures.
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The purpose of a prepayment fee or penalty is to discourage a borrower from refinancing a loan for a limited period of time, to allow the lender a fair opportunity to recover the costs of making the loan. The benefit of a prepayment fee for the borrower is reflected in our rate sheets. The borrower is offered several rate and point combinations, some of which may include a prepayment penalty, and some of which may not. Borrowers who choose a loan program allowing prepayment penalties and who decide to accept a prepayment penalty benefit from a lower interest rate and/or lower points. Borrowers do not always have the option of obtaining a lower interest rate or lower points by accepting a prepayment penalty because some mortgage programs are offered only without a prepayment penalty, and certain states do not allow prepayment penalties.

However, Hollander Financial does not offer any borrower a loan that contains a prepayment penalty unless that borrower also is given an opportunity to obtain the same loan without a prepayment penalty but with a higher interest rate or increased points. If a borrower is offered a loan product that allows for a prepayment penalty, they are provided a Loan Terms and Prepayment Penalty Disclosure, demonstrating that Hollander Financial offered a loan both with and without a prepayment fee or penalty, and further demonstrating that the borrower was afforded the opportunity to review the specific prepayment clause applicable to the loan. The prepayment penalties charged are determined in accordance with state law and the federal Alternative Mortgage Transactions Parity Act (where applicable). The actual Loan Terms and Prepayment Penalty Disclosure is prepared by Hollander Financial's document preparation vendor, and neither the loan officer nor any branch personnel can alter or modify it in any way. In order to avoid "locking-in" customers to high rate loans, Hollander Financial continues to offer the Fannie Mae Timely Rewards mortgage program, which rewards borrowers with lower interest rates and payments as their credit history improves.
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When borrowers obtain multiple, successive, sometimes unnecessary mortgage loans on a property within a short period of time, they may lose equity through the payment of loan-related fees for the various loans. This is often called "flipping." At Hollander Financial, we have taken several steps to guard against flipping and the imposition of excessive or unnecessary fees on borrowers.

First, as discussed above in the Customer Service Initiatives, we assist all borrowers to evaluate and determine whether they are obtaining a reasonable net tangible benefit in connection with a new loan.

Second, as a matter of policy, we do not solicit and generally do not refinance a loan we originated less than 12 months previously, although we may make an exception if the borrower contacts us and if the new loan benefits the borrower.

Third, if we refinance a Hollander Financial loan more than a year but less than 24 months after its origination, we limit our points to not more than five.

Fourth, we do not refinance below-market interest rate loans made by non-profit buyer assistance and other similar programs.

Certain states impose additional or different restrictions on refinance loans, and we comply with such restrictions. If we inadvertently make a loan that is not in conformity with these policies, we will make every reasonable effort to correct the error by waiving or refunding points or fees which should not have been assessed, or by taking other appropriate corrective action.
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At Hollander Financial, we also believe that borrowers can be set up for failure if they are allowed to borrow in excess of a property's value because of an inflated appraisal. We have enhanced our appraisal review process, to reduce the risk that we might make a loan based on an inflated appraisal. Appraisers who submit inappropriate or poorly substantiated appraisals are removed from our list of approved appraisers.
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We do not offer this insurance, or similar single-premium life, disability or unemployment products, to our borrowers.
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A small portion of our business is generated through mortgage originators. All of Hollander Financial's originators are required to conduct themselves in a manner reflecting honesty, honor, integrity, and professionalism. We have incorporated a Code of Conduct for originators into our Broker Agreement, which must be executed by each broker with whom we do business. We ensure that originators with whom we do business adhere to our Broker Agreement by monitoring broker-sourced loans, to ensure they comply. We will not continue to do business with any broker who does not adhere to our Broker Agreement, or who fails to maintain the level of professionalism and integrity that we expect and demand. To assist our originators in their efforts to adhere to these Initiatives and our Code of Conduct, all originators have access to our Fair Lending Training Video.
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At Hollander Financial, for loans we service, our Servicing Department works continually with our borrowers to try to find solutions, even before a foreclosure action is initiated. Depending on the facts and circumstances surrounding a particular loan, we may consider the following options to avoid foreclosure:

• Waiver of remaining loan balance
• Loan modification
• Settling loan for partial repayment
• Cooperating with owner in the sale of the property
• Subordinating the lien of the mortgage to another lender who refinances the balance
• Assisting the borrower in qualifying for emergency housing financial assistance from a government agency
• Referring the borrower to credit/housing counseling
• Deferring payment
• Refunding points
• For senior citizens, taking a deed in lieu of foreclosure and providing the senior with a life estate.

We also have implemented a foreclosure review process to ensure that no borrower loses his/her home inappropriately. No foreclosure action is initiated until our foreclosure committee is satisfied that we have made every attempt to find a solution other than foreclosure. If a foreclosure is approved, we continue to work with the borrower throughout the foreclosure process, to seek a solution to save the borrower's home.

Additionally, we do not offer any loans that provide for the rate of interest to increase upon the occurrence of an event of default.

At Hollander Financial, one of our goals is to maintain foreclosure rates below the industry average. We believe we are achieving this goal by basing our loans only on the prospective borrower's demonstrated ability to repay and by our innovative loss mitigation efforts when unforeseen circumstances push a previously qualified borrower into default.
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