Compliance News

A person is deemed to have committed residential mortgage fraud when such person knowingly makes, uses or facilitates the use of any deliberate misstatement, misrepresentation or material omission; receives any proceeds in connection with a residential mortgage loan known to have resulted from a deliberate misstatement, misrepresentation or material omission; or files any residential mortgage loan document known to contain a deliberate misstatement, misrepresentation, or material omission. Any person who commits residential mortgage fraud or who engages in or conspires to engage in a pattern of residential mortgage fraud is guilty of a felony.

Section (b)(3) of the Texas Finance Code is amended to require a written disclosure regarding mortgage fraud. A lender, mortgage banker or mortgage broker must provide the disclosure at closing, on a separate document, in at least 14 point type and use language substantially similar to that provided by statute. If a person reasonably expects mortgage fraud is or is about to be committed they must reports the activity to an authorized government authority. Failure to comply with this requirement will not affect the enforceability of the loan.

First American Nationwide Documents will have this disclosure available to its clients by September 1, 2007.

Exclusive agents of financial services companies are exempt from the provisions of the Mortgage Broker License Act. To obtain the exemption, financial services companies must obtain, and annually renew, a registration with the Department of Savings and Mortgage Lending. Only federally-chartered and regulated depository institutions, and their affiliates and subsidiaries, may become registered financial services companies.

The Mortgage Broker License Act (“MBLA”) now will govern mortgage brokers and loan officers making or brokering second lien mortgage loans as well as first lien mortgage loans. Additionally, corporations, limited liability companies and limited partnerships must obtain a mortgage broker license in order to engage in the business of mortgage brokering. Several other provisions of the MBLA pertaining to licensing exemptions; initial education requirements; loan officer application fees; provisional loan officer licenses; and notification requirements also are amended. The bill becomes effective September 1, 2007; however, corporations, limited liability companies and limited partnerships are not required to obtain a mortgage broker license until January 1, 2008.

Fannie Mae clarified Announcement 06-21, Discontinuance of Fannie Mae LIBOR Indices, which related to the required use of replacement indices that lenders must use for loans previously tied to the Fannie Mae LIBOR index.

Effective for settlements on or after November 1, 2007, Freddie Mac is increasing delivery fee rates for certain mortgages with secondary financing.

Hawaii recently adopted the Statement on Subprime Mortgage Lending, based on the federal interagency guidance issued in July of this year.

As previously discussed in our July 11, 2007 Legislative Update, the final interagency Statement on Subprime Mortgage Lending (“Statement”) clarifies how financial institutions can offer certain adjustable rate mortgage products in a safe and sound manner and in a way that clearly discloses the risks a borrower may assume.

To date, the following states have adopted the Statement:

Connecticut, Hawaii, Mississippi, New Jersey, North Carolina and Washington

The one-year London Interbank Offered Rate (“LIBOR”) will be an acceptable index for the HUD-insured one-, 3-, 5-, 7- and 10-year Adjustable Rate Mortgage products, and the one-month Constant Maturity Treasury, the one-month LIBOR, and the one-year (12-month) LIBOR will be acceptable indices to adjust interest rates on HUD-insured Home Equity Conversion Mortgages.

• The $675,000.00, 95-100% has been eliminated.
• All 100% LTV and CLTV have been reduced to 95%
• The minimum Credit score for the $675,000.00, 90/95% is now 660.

Section 201:

• Maximum LTV and CLTV is now 90%

Section 202:

• The SISA documentation option is no longer available

Section 211:

• The SISA documentation option is no longer available

Second Mortgage, Limited Documentation, Owner Occupied:

• Maximum CLTV is now 90%

Full/Alt-A:

• Owner Occupied: Minimum FICO 680, and maximum one unit, loan amount $750,000.00 and 95/95% LTV/CLTV
• Owner Occupied/Second Home: Maximum LTV/CLTV is 70/70% for 620 FICO.
• Non Owner Occupied: Minimum FICO 680, and maximum 90/90% LTV/CLTV
• Non Owner Occupied: Minimum 700 FICO on cash out loans with a maximum LTV/CLTV 80/80%

Limited Doc:

• Wage earner restricted from Stated Income loans.
• Owner Occupied/Second Home: Maximum LTV/CLTV 90/90% with 650 FICO.
• Non Owner Occupied: 700 minimum FICO with maximum LTV/CLTV 90/90%.
• Non Owner Occupied: 660 minimum FICO with maximum LTV/CLTV 70/80%.
• Non Owner Occupied: Minimum 700 FICO on cash out loans with a maximum LTV/CLTV 750/80%.

The following program has been discontinued:

• No Documentation programs

The following programs have been suspended:

• Second programs
• Preferred Hybrid ARM programs

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