Model Adjustable Rate Note Form

MODEL ADJUSTABLE RATE NOTE FORM

(HOME EQUITY CONVERSION)

FHA Case No.

ADJUSTABLE RATE NOTE

[Date]

[Property Address]

1. DEFINITIONS

"Borrower" means each person signing at the end of this Note.

"Lender" means and its successors

and assigns. "Secretary" means the Secretary of Housing and Urban

Development or his or her authorized representatives.

2.BORROWER'S PROMISE TO PAY; INTEREST

In return for amounts to be advanced by Lender to or for the benefit

of Borrower under the terms of a Home Equity Conversion Loan Agreement

dated , 19 ("Loan Agreement"), Borrower promises

to pay to the order of Lender a principal amount equal to the sum of all

Loan Advances made under the Loan Agreement with interest. Interest will

be charged on unpaid principal at the rate of percent ( %) per year

until the full amount of principal has been paid. The interest rate may

change in accordance with Paragraph 5 of this Note. Accrued interest shall

be added to the principal balance as a Loan Advance at the end of each

month.

3.PROMISE TO PAY SECURED

Borrower's promise to pay is secured by a mortgage, deed of trust or

similar security instrument that is dated the same date as this Note and

called the "Security Instrument." That Security Instrument protects the

Lender from losses which might result if Borrower defaults under this Note.

4.MANNER OF PAYMENT

(A)Time

Borrower shall pay all outstanding principal and accrued

interest to Lender upon receipt of a notice by Lender requiring immediate

payment in full, as provided in Paragraph 7 of this Note.

(B)Place

Payment shall be made at or

any such other place as Lender may designate in writing by notice to

Borrower.

(C)Limitation of Liability

Borrower shall have no personal liability for payment of the

debt. Lender shall enforce the debt only through sale of the Property

covered by the Security Instrument ("Property"). If this Note is

assigned to the Secretary, the Borrower shall not be liable for any

difference between the mortgage insurance benefits paid to Lender and

the outstanding indebtedness, including accrued interest, owed by

Borrower at the time of the assignment.

5.INTEREST RATE CHANGES 1/

(A)Change Date

The interest rate may change on the first day of , 19 ,

and on that day of each succeeding year. "Change Date" means each date on

which the interest rate could change.

(B)The Index

Beginning with the first Change Date, the interest rate will be

based on an Index "Index" means the weekly average yield on United

States Treasury Securities adjusted to a constant maturity of one

year, as made available by the Federal Reserve Board. "Current Index"

means the most recent Index figure available 30 days before the Change

Date. If the Index (as defined above) is no longer available, Lender

will use as a new Index any index prescribed by the Secretary. Lender

will give Borrower notice of the new Index.

(C)Calculation of Interest Rate Changes

Before each Change Date, Lender will calculate a new interest

rate by adding a margin of percentage points ( %) to the current

Index. /2 Subject to the limits stated in Paragraph 5(D) of this

Note, this amount will be the new interest rate until the next Change

Date.

(D)Limits on Interest Rate Changes

The interest rate will never increase or decrease by more than two percentage points (2.0%) on any single Change Date. The interest

rate will never be more than five percentage points (5.0%) higher or

lower than the initial interest rate stated in Paragraph 2 of this

Note.

(E)Notice of Changes

Lender will give notice to Borrower of any change in the

interest rate. The notice must be given at least 25: days before the new

interest rate takes effect, and must set forth (i) the date of the

notice, (ii) the Change Date, (iii) the old interest rate, (iv) the

new interest rate, (v) the Current Index, (vi) the method of

calculating the adjusted interest rate, and (vii) any other

information which may be required by law from time to time.

(F)Effective Date of Changes

A new interest rate calculated in accordance with paragraphs

5(C) and 5(D) of this Note will become effective on the Change Date, unless

the Change Date occurs less than 25 days after Lender has given the

required notice. If the interest rate calculated in accordance with

Paragraphs 5(C) and 5(D) of this Note decreased, but Lender failed to

give timely notice of the decrease and applied a higher rate than the

rate which should have been stated in a timely notice, then Lender

shall recalculate the principal balance owed under this Note so it

does not reflect any excessive interest.

6.BORROWER'S RIGHT TO PREPAY

A Borrower receiving monthly payments under the Loan Agreement has the

right to pay the debt evidenced by this Note, in whole or in part, without

charge or penalty on the first day of any month. Otherwise, a Borrower has

the right to pay the debt evidenced by this Note, in whole or in part,

without charge or penalty after giving Lender two weeks notice. Any amount

of debt prepaid will first be applied to reduce the principal balance of

the Second Note described in Paragraph 11 of this Note and then to reduce

the principal balance of this Note.

All prepayments of the principal balance shall be applied by Lender as

follows:

First, to that portion of the principal balance representing

aggregate payments for mortgage insurance premiums;

Second, to that portion of the principal balance representing

aggregate payments for servicing fees;

Third, to that portion of the principal balance representing

accrued interest due under the Note; and

Fourth, to the remaining portion of the principal balance. A

Borrower may specify whether a prepayment is to be credited to

that portion of the principal balance representing monthly

payments or the line of credit. If Borrower does not designate

which portion of the principal balance is to be prepaid, Lender

shall apply any partial prepayments to an existing line of credit

or create a new line of credit.

7.IMMEDIATE PAYMENT IN FULL

(A)Death or Sale

Lender may require immediate payment in full of all outstanding

principal and accrued interest if:

(i) A Borrower dies and the Property is not the principal

residence of at least one surviving Borrower, or

(ii) A Borrower conveys all of his or her title to the Property

and no other Borrower retains title to the Property in fee simple

or on a leasehold interest as set forth in 24 CFR 206.45(a).

(B)Other Grounds

Lender may require immediate payment in full of all outstanding

principal and accrued interest, upon approval by an authorized

representative of the Secretary, if:

(i) The Property ceases to be the principal residence of a

Borrower for reasons other than death and the Property is not the

principal residence of at least one other Borrower;

(ii) For a period of longer than 12 consecutive months, a

Borrower fails to physically occupy the Property because of

physical or mental illness and the Property is not the principal

residence of at least one other Borrower; or

(iii) An obligation of the Borrower under the Security

Instrument is not performed.

(C)Payment of Costs and Expenses

If Lender has required immediate payment in full as described

above, the debt enforced through sale of the Property may include

costs and expenses, including reasonable and customary attorney's

fees, associated with enforcement of this Note to the extent not

prohibited by applicable law. Such fees and costs shall bear interest

from the date of disbursement at the same rate as the principal of

this Note.

(D)Trusts

Conveyance of a Borrower's interest in the Property to a trust

which meets the requirements of the Secretary, or conveyance of a

trust's interests in the Property to a Borrower, shall not be

considered a conveyance for purposes of this Paragraph. A trust shall

not be considered an occupant or be considered as having a principal

residence for purposes of this Paragraph.

8.WAIVERS

Borrower waives the rights of presentment and notice of dishonor.

"Presentment" means the right to require Lender to demand payment of

amounts due. "Notice of dishonor" means the right to require Lender to

give notice to other persons that amounts due have not been paid.

9.GIVING OF NOTICES

Unless applicable law requires a different method, any notice that

must be given to Borrower under this Note will be given by delivering it or

by mailing it by first class mail to Borrower at the property address above

or at a different address if Borrower has given Lender a notice of

Borrower's different address.

Any notice that must be given to Lender under this Note will be given

by first class mail to Lender at the address stated in Paragraph 4(B) or at

an different address if Borrower is given a notice of that different

address.

10.OBLIGATIONS OF PERSONS UNDER THIS NOTE

If more than one person signs this Note, each person is fully

obligated to keep all of the promises made in this Note. Lender may

enforce its rights under this Note only through sale of the Property.

11.RELATIONSHIP TO SECOND NOTE

(A)Second Note

Because Borrower will be required to repay amounts which the

Secretary may make to or on behalf of Borrower pursuant to Section

255(i)(1)(A) of the National Housing Act and the Loan Agreement, the

Secretary has required Borrower to grant a Second Note to the

Secretary.

(B)Relationship of Secretary Payments to this Note

Payments made by the Secretary shall not be included in the debt

due under this Note unless:

(i)This Note is assigned to the Secretary; or

(ii) The Secretary accepts reimbursements by the Lender for all

payments made by the Secretary.

If the circumstances described in (i) or (ii) occur, then all payments

by the Secretary, including interest on the payments, shall be

included in the debt.

(C)Effect on Borrower

Where there is no assignment or reimbursement as described in

(B)(i) or (ii), and the Secretary makes payments to Borrower, then

Borrower shall not:

(i) Be required to pay amounts owed under this Note until the

Secretary has required payment in full of all outstanding

principal and accrued interest under the Second Note held by the

Secretary, notwithstanding anything to the contrary in Paragraph

7 of this Note; or

(ii) Be obligated to pay interest or shared appreciation under

this Note at any time, whether accrued before or after the

payments by the Secretary, and whether or not accrued interest

has been included in the principal balance of this Note,

notwithstanding anything to the contrary in Paragraphs 2 or 5 of

this Note or any Allonge to this Note.

12.SHARED APPRECIATION /3

If Borrower has executed a Shared Appreciation Allonge, the covenants

of the Allonge shall be incorporated into and supplement the covenants of

this Note as if the Allonge were a part of this Note.

BY SIGNING BELOW, Borrower accepts and agrees to the terms and covenants

contained in this Note. /4, /5

___________________________ (SEAL)

Borrower

___________________________ (SEAL)

Borrower

Footnotes for Model Adjustable Rate Note Form (Home Equity Conversion)

1. The Model Adjustable Rate Note Form is designed for mortgages with

interest rates that adjust annually, subject to annual and lifetime caps on

increases. If the mortgage has interest rates that adjust monthly subject

only to a lifetime cap, the following modifications to the Model Adjustable

Rate Note Form are mandatory:

(a)Change Paragraph 5(A) to read:

(A)Change Date

The interest rate may change on the first day of ,

19 , and on the first day of each succeeding month. "Change Date"

means each date on which the interest rate could change.

(b)Change Paragraph 5(C) to read:

(C)Calculation of Interest Rate Changes

Before each Change Date, Lender will calculate a new

interest rate by adding a margin of percentage points ( %)

to the current Index. /2 Subject to the limit stated in

Paragraph 5(D) of this Note, this amount will be the new interest

rate until the next Change Date.

(c)Change Paragraph 5(D) to read:

(D)Limit on Interest Rate

The interest rate will never increase above percent ( %).

2. If Lender intends to round the interest rate, the phrase "and rounding

the sum to the nearest one-eighth of one percentage point (0.125%)" shall

be added.

3. The paragraph may be omitted if Lender does not offer a shared

appreciation mortgage.

4.Include any required or customary form of authentication.

5. The model note is a multistate form which requires adaption for the

following jurisdictions:

(a) Alaska. Add the Borrower's Post Office address, if different

from the property address.

(b) Kansas. Delete "including reasonable and customary attorney's

fees" from Paragraph 7(C).

(c) Kentucky. Paragraph 7(C) should be changed to read: "If Lender

has required immediate payment in full as described above, the debt

enforced through sale of the Property may include $500.00 for costs

and expenses for enforcing this Note. Such costs and expenses shall

bear interest from the date of disbursement at the same rate as the

principal of this Note."

(d) Louisiana. Add the following text following the Borrower's

signature lines:

"NE VARIETUR" for identification with a mortgage given before me

on ___________, 19___.

________________________

Notary qualified in ________________________ Parish, Louisiana.

(e)Puerto Rico. Mortgages and notes in Puerto Rico, together with

any associated riders or allonges, shall have alternating English

and Spanish lines so that the complete text of each document

appears in both languages. Mortgagees should contact the HUD

Caribbean Office to obtain model Puerto Rico documents that

contain both languages and contain other adaptations of the

regular model forms that have been approved by the Caribbean

Office.

(f) Virginia. The first sentence of Paragraph 8 should be changed to

read: "Borrower and any other person who has obligations under this

Note waive the right of presentment and notice of dishonor, and waive

the homestead exemption."

After the Borrower's signature lines, add:

This is to certify that this is the Note described in and secured

by a Deed of Trust dated ______________, 19___ on the Property

located in ____________________, Virginia.

My Commission expires:

________________________

Notary Public