Compliance News
In First American's Compliance News Archive you will find easy access to our library of GSE announcements, court findings, legislative changes, specific changes to state requirements, governmental guidance on issues that directly affect the mortgage document industry and more.April 2009
STATE ANNOUNCEMENTS |
District of Columbia Bill 18-0165 / Act 18-0031 (effective March 16, 2009)
The Mortgage Lender and Broker Act of 1996 ("Act") is amended to provide compliance with the Housing and Economic
Recovery Act of 2008. Definitions and new licensing requirements have been added. A mortgage loan originator is defined
as an individual who takes a residential mortgage application, offers or negotiates terms of the loan, or solicits a
mortgage loan on behalf of a borrower for compensation or gain. A person acting as a registered mortgage loan originator
is exempt when acting for a federal banking agency. No person may act as a mortgage loan originator, loan officer,
mortgage lender, or mortgage brokers without first being licensed. The licensee must have a valid unique identifier
issued by the NMLSR. A mortgage loan originator is prohibited from:
- directly employing any scheme to defraud or mislead borrowers or lenders;
- obtain property by fraud or misrepresentation;
- enter into a contract with a borrower that provides a "best efforts" fee to obtain a loan even though no loan is actually obtained for the borrower;
- enter into a contract for specific interest rates, points or other financing terms unless the terms are available;
- fail to make disclosures or comply with rules under any federal or District law;
- make any payment, threat or promise which would influence the loan or appraisal of the property; or
- cause a borrower to obtain property insurance coverage in an amount that exceeds the replacement cost.
LPS has the revised disclosure available for client use.
Illinois Senate Bill 2513 (effective April 6, 2009)
A lender must provide the borrower whose loan payments are 30 days or more delinquent with a notice advising that they may seek counseling through a HUD-approved counselor. The notice must be in substantially similar language as provided in the bill. No foreclosure action can be taken until 30 days after mailing the notice. If an approved counseling agency provides written notice that the borrower has sought counseling, no foreclosure action may be initiated until 30 days after the date of that notice. The borrower and counselor may present the lender with a proposed “sustainable loan workout plan” (“Plan”). If accepted, no further legal action will result as long as the Plan is followed. The Plan and any modifications must be in writing and executed by all parties. The notice requirement does not apply if the borrower has filed for bankruptcy.
Iowa Senate File 364 (Section 654.4B effective May 1, 2009; other sections effective July 1, 2009)
A creditor is required to give the borrower a fourteen-day demand for payment of the accelerated balance to qualify for an award of attorney fees prior to starting foreclosure on the accelerated balance of a mortgage loan and after termination of any applicable cure period. The creditor shall also inform the owner of the availability of counseling and mediation on a form prescribed by the attorney general prior to filing a petition on a one- or two-family owner-occupied residence. The notice may be sent by ordinary mail along with the original notice and petition seeking foreclosure. If the court finds that the notice was not served and the owner desires counseling or mediation, the court may grant a delay of the sheriff’s sale. If the sale has already occurred and the mortgagee or its affiliate was the winning bidder, a delay of the recording of the sheriff’s deed may be granted. The delay shall not exceed sixty days in either instance.
The foreclosing mortgagee and the mortgagor of a one- or two-family owner-occupied residence may agree in writing to a modification of the mortgage obligation to allow the mortgagor to continue to live in the residence. The modification must provide for a reduction of at least 10% in the net present value of the indebtedness owing to the mortgagee. The parties may ask that the court divest any junior liens against the property. If approved, the courts shall order that the junior lienholder be served with copies of the loan modification agreement, a verified current balance of the modification, and the court’s order within 45 days of the service.
Kentucky Attorney General Opinion (March 20, 2009)
A loan modification or extension agreement does not have to be entitled "mortgage" or "mortgage amendment" to be recordable, as long as such document meets general recording requirements.
Kentucky House Bill 106 (effective June 25, 2009)
The Kentucky Financial Services Code ("Code") is amended to provide additional definitions as well as compliance
requirements with the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 ("SAFE Act").
A mortgage loan company or mortgage loan broker must be licensed and may not employ a mortgage loan originator or
mortgage loan processor who is not registered. A mortgage loan company and mortgage loan broker must exercise proper
supervision over the operations, employees and affairs of its company which includes the direct supervision of a mortgage
loan originator as an employee. The unique identifier, name and signature of anyone originating a mortgage loan must be
included on the loan application, solicitations, business cards, and websites.
Additional restrictions have been added which make it unlawful for any person, in connection with a mortgage lending transaction to:
- obtain property by fraud or misrepresentation;
- fail to make disclosures required by state or federal law including regulations; or
- fail to comply with state or federal laws or regulations.
Maryland House Bill 1535 (effective April 14, 2009)
Exceptions are provided regarding the requirement that lenders must take into consideration a borrower’s ability to repay before making a mortgage loan. The exception applies to a mortgage loan approved for government guaranty by the Federal Housing Administration, the Veterans Administration, the U.S. Department of Agriculture, the Maryland Department of Housing and Community Development, or the Community Development Administration, or that refinances an existing mortgage loan if the refinanced mortgage loan is:
- offered under the Federal Homeowner Affordability and Stability Plan; and
- made available by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association.
North Carolina Licensee Memo (March 31, 2009)
The Commissioner of Banks reminds licensees that, with few exceptions ,under North Carolina law loan modifications for compensation or gain may be prohibited. The chief exception to this limitation is for employees of licensed Mortgage Servicers or Mortgage Lenders servicing loans on behalf of the owner of those loans. North Carolina law strictly prohibits the collection of advance fees for debt settlement or foreclosure assistance. Licensees are advised to refer the borrower should be referred to the HOPE Hotline for foreclosure prevention counseling, if the licensee is unable to provide assistance.
Utah House Bill 286 (effective May 12, 2009)
This bill modifies the Utah Consumer Credit Code, and mortgage lending and servicing provisions to address the regulation of consumer and residential mortgage loans by the Department of Financial Institutions. A definition of a “dwelling” is added to mean a residential structure attached to real property that contains one to four units including a condominium unit, a cooperative unit, a manufactured home, or a house and amended other definitions.
The Financial Institution Loan Originator Licensing Act is added to provide compliance with the SAFE Act. Definitions, licensing requirements, education requirements, record retention requirements and bonding requirements are provided. The commissioner may adopt rules that allow an individual to challenge information contained in the nationwide database.
On or after January 1, 2011, an individual may not act as a loan originator unless they are licensed or registered. An employee or agent of a depository institution, a subsidiary of a depository institution, or an affiliate of a depository institution may engage in the business of a loan originator without being licensed. A loan originator is prohibited from doing any of the following to induce a lender to extend credit:
- make a false statement or representation;
- cause a false document to be generated; or
- knowingly permit false information to be submitted in a transaction.
In addition, a loan originator may not:
- engage in dishonesty, fraud or misrepresentation;
- engage in false or misleading advertising;
- fail to account for monies or use monies for a different purpose than what they were intended to be used for;
- retain fees for services not performed;
- fail to give a copy of an appraisal to the borrower within 90 days of a request from the borrower when borrower has paid for the appraisal;
- encourage default, delinquency, or continuation of an existing default or delinquency before closing a loan that will refinance the indebtedness; or
- pay an individual who does not hold a license.
Washington Interpretive Statement (April 10, 2009)
The Department of Financial Institutions, Division of Consumer Services provided clarification that companies and individuals offering loan modifications are acting as mortgage brokers or loan originators and must be licensed under the Mortgage Broker Practices Act or Consumer Loan Act unless exempt. The act of processing a loan modification includes taking the borrower’s name, monthly income, Social Security number, property address, estimate of the value of the property, and any other information necessary to provide the loan modification or negotiate loan terms and falls under the definitions of mortgage broker or loan originator. A fee agreement must be provided to the borrower by any person offering a loan modification. In addition, a conspicuous disclosure must be provided advising the borrower that free HUD approved housing counseling is available and that the borrower may obtain a loan modification by contacting the lender or servicer directly.
AGENCY ANNOUNCEMENT |
Fannie Mae Announcement 09-08 (March 30, 2009)
The American Recovery and Reinvestment Act provided new authority that allows Fannie Mae to acquire high-balance mortgage loans originated in 2009. The new “temporary high-cost area loan limits” and new eligibility requirements are outlined in the announcement. In addition, the announcement provides updates regarding jumbo-conforming whole loans.
Freddie Mac Bulletin 2009-8 (April 7, 2009)
Freddie Mac revised the eligibility requirements for the Home Affordable Modification Program (“Program”) to state that the Borrower must have a monthly housing expense-to-income ratio greater than 31% to be eligible for the Program. In addition, servicers are reminded to solicit all Borrowers who are 31 days or more delinquent for a modification provided they meet the eligibility criteria in Chapter C65 of the Guide. Proactive solicitation of eligible delinquent Borrowers should begin no later than April 15, 2009.
The name of Form 3156, The Home Affordable Modification Program – Workout Plan ("Workout Plan") was changed to The Home Affordable Modification Program – Trial Period Plan ("Trial Period Plan"). The bulletin provides the authorized changes under Section C65.7(e) for the Trial Period Plan, when applicable.
Section C65.2 has revised the requirements for co-branding and the use of Freddie Mac’s logo as well as co-branding and the use of the Making Home Affordable logo.
The Borrower Qualification Worksheet ("Worksheet") that was announced in Bulletin 2009-6 is now available for use. Servicers must use the Worksheet to calculate the target monthly mortgage payment and identify the modification terms to qualify Borrowers for the Program.
HUD Mortgagee Letter 2009-09 (March 23, 2009)
This Mortgagee Letter outlines new requirements for appraisal reporting for Federal Housing Administration (FHA) loans. Appraisers are required to be diligent when using only impartial sources of data. In addition, lenders have the responsibility of verifying that the appraisal is accurate and adequately supports the value conclusion.
HUD Mortgagee Letter 2009-10 (March 27, 2009)
Issues regarding Home Equity Conversion Mortgage ("HECM") counseling requirements are clarified in this letter. Lenders may not contact a counselor or counseling agencies to refer borrowers. Lenders must be provided with a list of HUD-approved counseling agencies. This list must include at least ten agencies, five in the local area, and at least one within a reasonable driving distance. Counselors must review each client’s unique financial situation during the counseling session and document a client’s budget based on the financial information provided. Form HUD-92902 has been updated to provide a space to record how the session fees will be paid as well as a box to check if the fees are waived.
HUD Mortgagee Letter 2009-11 (March 27, 2009)
The Home Equity Conversion Mortgage ("HECM") for Purchase program allows qualifying seniors to purchase a new principal residence with HECM loan proceeds. The Federal Housing Administration (“FHA”) defined a HECM for Purchase transaction as one where:
- the property title is transferred to the HECM mortgagor;
- the property must be the principal residence of the mortgagor; and
- the HECM first and second liens must be the only liens at the time of closing.
In addition, the property must be occupied within 60 days from the date of closing. Lenders must require that all outstanding or unpaid obligations are satisfied at closing. An existing FHA-insured mortgage must be paid off before the HECM for Purchase mortgage can be insured since the mortgagor can only have one principal residence at any one time.
To be eligible for FHA-insurance, new home construction must be completed on the property and a certificate of occupancy issued. On existing homes, major property deficiencies which threaten the health and safety of the homeowner must be repaired by the seller prior to closing. Examples of these deficiencies are:
- no running water
- leaking roof
- no primary heating source
- inadequate electrical systems (including lighting)
- inoperable doors and windows
- state or local code violations
Lenders must ensure that (i) properties that will be financed using FHA-insured mortgages may only be sold by the current owner of record; (ii) resale of a property may only occur after 90 days from the last sale; and (iii) resales occurring between 91 and 180 days must have the property value validated if the new sale price exceeds 100% of the previous sales price.
The maximum claim amount is used to determine the principal limit and mortgage insurance premium. The estimate of closing costs and the initial mortgage insurance premium are not used in the maximum claim amount calculation.
HECM mortgagors must provide monetary investments which may include cash on hand or cash from the sale or liquidation of the mortgagor’s assets. Seller contributions such as loan discount points, interest rate buy downs, closing cost down payment assistance, builder incentives, and gifts or personal property given by the seller are prohibited. Prior to closing, Lenders must verify the source of all funds.
Additional items addressed in the mortgagee letter are:
- Gap financing which is prohibited
- Mortgage insurance premiums – 2% of the maximum claim amount must be remitted within 15 days of closing.
- Refinancing and existing upfront mortgage insurance premiums
- Suspension and debarments
- Enhanced counseling
- Right of rescission
HUD Mortgagee Letter 2009-12 (April 2, 2009)
HUD urges mortgagees to review their company procedures to ensure that they do not materially violate FHA program statutes, regulations and handbook requirements.
HUD Mortgagee Letter 2009-13 (April 10, 2009)
New Mexico revised their mortgage to a deed of trust instrument in January 2008. This Mortgagee Letter provides guidance regarding the FHA New Mexico model mortgage form. Handbook 4165.1 REV-2 (Section 4-7 and 4-8) states that the introductory language and non-uniform covenants in the FHA model mortgage form should be the same as in the Fannie Mae/Freddie Mac security instrument. Mortgagees are directed to use a deed of trust in New Mexico and should create that document by using the most recently approved Fannie Mae/Freddie Mac deed of trust introductory language and non-uniform covenants. Changes should be made as needed to insure compliance with state law. In addition, the following definitions should be deleted from the introductory language:
- Loan
- Riders
- Applicable Law
- Community Association Dues, Fees and Assessments
- Electronic Funds Transfer
- Escrow Items
- Miscellaneous Proceeds
- Mortgage Insurance
- Periodic Payment and,
- Successor in Interest of Borrower
- Mortgage Insurance