Selling Your USDA Loans To Coastal Third Quarter 2013.

Selling Your USDA Loans To

Coastal

Third Quarter 2013

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United States Department of Agriculture

I. Rural DevelopmentA. Rural Development - Cooperative Services (RBS) B & I Loans (Business and Industry)

B. Rural Housing Service - (RHS) CP (Community Programs)

II. Farm and Foreign Agricultural Services

A. Farm Service Agency’s (FSA)1. FO (Farm Ownership)

2. OL (Operating Loans)

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Why Sell to the Secondary Market?

• Immediate liquidity• Improved regulatory ratios• Exceed statutory loan limits• Increased earnings

– Servicing Income– Premium income– Income on cash flow float

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Servicing Income

• Collected during the life of the loan– Collected on guaranteed portion sold

• Smaller servicing fee – greater premium

• Larger servicing fee – smaller premium

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Premium Income

• One time source of income– Collected at time of loan sale– Can be anywhere from 1% to over 15%,

depending on loan characteristics

• Longer maturities and higher coupons command higher premiums

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Yield Summary for a Variable Rate USDA Loan

Loan Details Transaction DetailsLoan Name or Number: ABC Widgets, Inc. Gross Rate: 6.000%

Originated: 9/30/2013 Retained Servicing Fee: 1.000%Matures: 9/30/2038 Net Margin: 1.750%

P&I Payment Frequency: Monthly Net Rate: 5.000%Rate Adjustment Frequency: Quarterly Sale Price: 112.250$

Current Index Rate 3.25% Premium Percentage: 12.250%Margin: 2.750%

Current Gross Rate 6.000%Current Balance: 910,000$

Guaranteed Percentage: 75%Unguaranteed Percentage: 25%

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Yield Summary for a Variable Rate USDA Loan

Guaranteed Portion Sold to Coastal: (Current Loan Balance x Guaranteed Percentage) 682,500$ Unguaranteed Portion Held By Lender (Invested Funds): (Current Loan Balance x Unguaranteed Percentage) 227,500$

Premium Earned on Sale: (Guaranteed Portion x Premium Percentage) 83,606$ Servicing Fee Income on Guaranteed Portion Sold: (Guaranteed Portion x Retained Servicing Fee) 6,825$ Interest Earned on Unguaranteed Porion Held: (Unguaranteed Portion Held By Lender x Gross Rate) 13,650$

Year 1 Return: (Premium + Servicing + Interest) 104,081$ Years 2 and Following Return: (Servicing + Interest) 20,475$

Return On Invested Funds

Year 1: 45.750%Years 2 and Following: 9.000%

Assumptions: Constant index rate0% CPR (No amortization of loan balance in excess of scheduled amortization).All premium taken in Year 1 (may not be allowable under FAS 166 Accounting for Premium Income).

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Secondary Market Requirements

Loan Parameters (1 of 2)

1. Present Balance x Guaranteed Percentage i.e. (2,000m x 90% = 1,800m)

2. Note Rate (interest rate paid by the borrower)

3. Rate adjustment period(s) i.e. monthly, quarterly, semi-annually, annually, or fixed rate

4. Payment frequency and structure (Reamoritizing)

5. Dated date

6. Maturity date

7. Construction period if applicable

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Secondary Market Requirements

Loan Parameters (2 of 2)

8. Commitment fees if applicable

9. Prepayment Penalties - i.e. (5,4,3,2,1) Partial Payments Allowed -subject to Penalty

Partial Payments Allowed -not subject to Penalty No Partial Payments Allowed

10. USDA Case Number

11. Nature of business

12. Location of business

13. How long in business

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The USDA Secondary Market - The Role of the Broker/Dealer

BORROWERBORROWER PURCHASING INSTITUTION

PURCHASING INSTITUTION

COASTAL

SECURITIES

COASTAL

SECURITIESLENDING BANKLENDING BANK

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The USDA Secondary Market

• Items on a Bid Sheet:• Case Loan Number• Loan Guaranteed Balance• Gross & Net Coupons• Fixed/Variable• Coupon Adjust Frequency

• Payment Frequency• Prepayment Penalties• Dated Date• Maturity• Caps• Bid

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The USDA Secondary MarketRequired Information For Good Delivery

(Business & Industry Loans – Single Note Option)

**NOTE: Loan must be properly closed and fully disbursed prior to settlement date in the secondary market.

Documents to be included in all Transaction Packages:A. Assignment Guarantee Agreement (Form 4279-6)

· This form can be obtained at your Farm Agency office.· This form must be the original published document. Copies will not be

accepted.· All signatures on Page 3 must be original signatures.· This form must have no whiteouts, cross throughs or any other methods

of correction. · Please type the USDA Loan Identification Number exactly as it appears

on the Loan Note Guarantee (4279-5).• An authorized officer must attest the signatures of the Lender and

Holder and the Corporate Seal affixed over the respective signature.

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B. The Note (Standard Bank Note)This form must be a copy.

C. Loan Note Guarantee (Form 4279-5)Your Farm Agency office provides this form after the loan is guaranteed.This form must be a copy.

D. Prepayment Pass-Through LetterIf a prepayment penalty clause is incorporated in the loan agreement or

note, a Prepayment Pass-Through letter from the originating lender must be prepared. The letter should state the lender’s agreement to pass through to the holder a pro-rata share of any prepayment collected from the borrower.

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E. If seller is not the originating lender, three (3) Assignment Agreements must be properly executed, transferring the loan from the seller to the purchaser. If loan is already in the Secondary Market, include all assignments representing the chain of ownership from original holder to the current purchaser.

The Assignment Agreement must have no whiteouts, mark-outs, cross-throughs or any other methods of correction.

All signatures must be original.

Please submit the executed documents to the following address:Coastal Securities. Inc.920 Memorial City Way – 11th FloorHouston, Texas 77024

Should you have any questions regarding the above information, please do not hesitate to contact any Coastal cashier at 1-800-489-3232.

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(Farm Service Agency, Rural Housing Service & Rural Utilities Service)

**NOTE: Loan must be properly closed and fully disbursed prior to settlement date in the secondary market.

Documents to be included in all Transaction Packages:A. Assignment of Guarantee (FSA Form 1980-36) This form can be obtained at your Farm Agency office. All signatures on Page 3 must be original signatures. This form must have no whiteouts, cross throughs or any other methods of

correction. Please type the Loan Identification Number exactly as it appears on the Loan

Guarantee (1980-27).

B. The Note (Standard Bank Note) This form must be a copy.

.

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C. Loan Guarantee (FSA Form 1980-27) Your Farm Agency office provides this form after the loan is guaranteed. This form must be a copy

D. Prepayment Pass-Through LetterIf a prepayment penalty clause is incorporated in the loan agreement or note, a Prepayment Pass-Through letter from the originating lender must be prepared. The letter should state the lender’s agreement to pass through to the holder a pro-rata share of any prepayment collected from the borrower.

E. If seller is not the original lender, three (3) Assignment Agreements must be properly executed, transferring the loan from seller to purchaser. If loan is already in the Secondary Market, include all assignments representing the chain of ownership from original holder to the current purchaser.

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The Assignment Agreement must have no whiteouts, mark-outs, cross throughs or any other methods of correction.

All signatures must be original.

Please submit the executed documents to the following address:Coastal Securities, Inc.920 Memorial City Way – 11th FloorHouston, TX 77024

Should you have any questions regarding the above information, please do not hesitate to contact any cashier at 1-800-489-3232.

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Disclaimer

Nothing contained herein is an offer to sell or the solicitation of an offer to buy any financial instrument. The opinions and recommendations presented do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. Investors must make their own independent decisions regarding any securities or financial instruments mentioned herein and seek professional advice, including tax and accounting advice. Any indications of market valuation contained herein are based on current information that we consider reliable, but we do not guarantee it is accurate or complete and users should make whatever additional determinations of market value they deem appropriate. All assumptions, opinions and estimates constitute Coastal Securities, Inc.’s (CSI) judgment as of this date and, along with prices and yields, are subject to change without notice. Past performance is not indicative of future results. The yield and/or average life shown on loans, SBA pools, CMOs or mortgage backed securities consider prepayment assumptions that may or may not be met. Changes in prepayments may significantly affect yield and/or average life. CSI does not accept orders or instructions transmitted via email or left on any phone voice or text mail system. Please be aware that communications received by or sent from our email system are not confidential and subject to review by supervisory personnel.

Selling Your USDA Loans To Coastal Third Quarter 2013.

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