AI & ML Governance Policy

1. Purpose of This Policy

The purpose of this Artificial Intelligence (AI) & Machine Learning (ML) Governance Policy is to:

Establish formal standards for the safe, ethical, compliant, and transparent use of AI/ML technologies throughout 1st Alliance Mortgage.

Ensure full compliance with all Freddie Mac requirements regarding AI/ML use, including documentation, management oversight, governance, and disclosure.

Protect borrowers, employees, partners, and the organization from risks associated with AI/ML tools.

Ensure that AI/ML is used responsibly and does not replace human judgment in loan decision-making, underwriting, borrower communication, or any regulated mortgage activity.

2. Scope

This policy applies to:

All employees, contractors, vendors, and third parties acting on behalf of 1st Alliance Mortgage

All departments, including sales, operations, processing, underwriting, closing, compliance, IT, and marketing

All AI/ML tools, systems, integrations, automations, or platforms used to create, modify, or assist in mortgage-related workflows

This includes—but is not limited to—generative AI (text, voice, image, code), automated decisioning tools, workflow automation, and any model or algorithm that performs predictive or analytical tasks.

3. Definitions

Artificial Intelligence (AI):

Technology capable of performing tasks that typically require human intelligence, such as analysis, prediction, content creation, or decision support.

Machine Learning (ML):

Automated systems that learn from data to make decisions, predictions, or classifications.

Generative AI:

Models that produce original content including text, images, audio, code, or analysis.

Automated Decisioning:

Any AI/ML tool that attempts to approve, deny, price, or otherwise determine loan eligibility.

(Note: 1st Alliance Mortgage does not allow AI to make credit decisions.)

4. Permitted Uses of AI/ML

AI/ML tools may be used for:

Drafting emails, marketing copy, or customer-facing content (subject to human review)

Internal scripting, automation assistance, and workflow optimization

Data organization, summarization, or reporting

General administrative support

Research and training

Quality control support tasks

All outputs must be reviewed and approved by a qualified team member before use.

5. Prohibited Uses of AI/ML

AI/ML may not be used for:

Making credit decisions, underwriting decisions, loan approvals, denials, or counteroffers

Evaluating borrower risk without human oversight

Communicating sensitive borrower-specific data through unapproved AI tools

Bypassing regulatory disclosures, compliance rules, or TRID requirements

Generating adverse action notices or formal loan disclosures

Sending unreviewed AI content directly to borrowers or partners

Replacing human review in any compliance or legal requirement

AI/ML may assist in drafting, but final decisions and communications must be human-reviewed.

6. Required Documentation

For all AI/ML used within the company, 1st Alliance Mortgage will maintain:

A full inventory of AI/ML tools used

The purpose and manner of use

Departments and individuals authorized to use each tool

Safeguards in place, including data protection measures

Change logs and updates to AI workflows or tools

Freddie Mac may request these records at any time.

7. Senior Management Approval

All AI/ML tools and workflows must be approved by senior management, defined as:

CIO

CTO

CISO

COO

CRO

Compliance Director

Approval must be documented before the tool is first used operationally.

8. Training & Communication Requirements

This policy must be:

Distributed to all employees whose responsibilities involve AI/ML

Reviewed during onboarding for applicable roles

Reinforced through periodic training and compliance updates

Accessible in the company’s policy repository

Employees must acknowledge receipt and understanding of this policy.

9. Ongoing Monitoring, Review & Updates

The Policy Owner is responsible for:

Maintaining this document

Ensuring the policy is reviewed at least annually

Verifying that the company’s AI/ML use aligns with all current regulatory guidance, applicable laws, and industry best practices

Rolling out updates whenever Freddie Mac, Fannie Mae, CFPB, NCUA, or other regulatory bodies issue new requirements

All updates must be approved by senior management.

10. Risk Management & Safeguards

1st Alliance Mortgage will implement and maintain:

Controls to prevent unauthorized AI/ML use

Data privacy safeguards

Vendor risk assessments for third-party AI tools

Processes for human oversight and quality review

Secure handling of borrower information

Incident reporting mechanisms for any AI/ML misuse

11. Vendor & Third-Party AI Tools

Before a vendor AI tool is used, 1st Alliance Mortgage must:

Perform due diligence

Review the vendor’s data-handling practices

Ensure compliance with privacy laws and mortgage regulations

Obtain approval from senior management

12. Freddie Mac Disclosure Requirements

Upon request, 1st Alliance Mortgage will provide Freddie Mac with:

A full list of all AI/ML tools used

Detailed explanation of each tool’s purpose

How the tool is used in practice

Associated risks and mitigation measures

Policies and procedures governing the tool

Any additional information Freddie Mac requires

Documentation must be accurate, current, and readily available.

13. Indemnification Notice

1st Alliance Mortgage acknowledges that:

The company assumes all liability for its use of AI/ML tools

Freddie Mac and its directors, officers, employees, and agents are indemnified for all losses, damages, claims, costs, and expenses arising from the company’s AI/ML use

This includes direct, indirect, incidental, special, consequential, and unforeseeable damages

Employees must understand that improper AI use can create legal, regulatory, and financial exposure for the company.

14. Enforcement

Violations of this policy may result in:

Revocation of AI tool access

Additional training requirements

Disciplinary action, up to and including termination

Referral to compliance, legal, or regulators if required

15. Employee Acknowledgment

All employees must acknowledge:

They have read and understand this policy

They agree to comply with all requirements

They will immediately report any deviations or concerns to management

Effective Date: 12/04/2025

Policy Owner: 1st Alliance Mortgage

1st Alliance Mortgage LLC - NMLS 1407 | 4438 State Highway 6 S, Ste. 201, College Station, TX 77845

Notice To Texas Loan Applicants: Consumers wishing to file a complaint against a mortgage banker, or a licensed mortgage banker residential mortgage loan originator, should complete and send a complaint form to the Texas Department of Savings and Mortgage Lending, 2601 North Lamar, Suite 201, Austin, TX 78705. Complaint forms and instructions may be obtained from the department’s website at www.sml.texas.gov

A toll-free consumer hotline is available at 1-877-276-5550. The department maintains a recovery fund to make payments of certain actual out of pocket damages sustained by borrowers caused by acts of licensed mortgage banker residential mortgage loan originators. A written application for reimbursement from the recovery fund must be filed with and investigated by the department prior to the payment of a claim. For more information about the recovery fund, please consult the department’s website at www.sml.texas.gov