Compliance News

President Bush signed the Housing and Economic Recovery Act of 2008 into law on July 30, 2008. Below are a few of the highlights:

• Federal Housing Finance Regulatory Reform Act of 2008* – establishes the Federal Housing Finance Agency (FHFA) which shall be an independent agency with general supervisory and regulatory authority over Fannie Mae, Freddie Mac and the Federal Home Loan Banks (the GSEs).
  • The new GSE single-family loan limits are set at the greater of $417,000 (with increased limits for other single-family properties up to four units) or 115 percent of the local area median home price, as determined by HUD, up to a ceiling of 150 percent of the GSE limit of $417,000 for a one-unit property or $625,500. The GSE loan limit will be adjusted annually by the new regulator based on home prices. The new GSE loan limits take effect January 1, 2009 after the limits in the Economic Stimulus Act expire.
  • The new loan limit increases for FHA mortgage insurance for single-family, one-unit properties (with increased limits for other single-family properties up to four units) to 115 percent of the local area median home price, as determined by HUD (but no lower than a floor of 65 percent of $417,000) or a ceiling of 150 percent of the GSE limit of $417,000 or $625,500. In addition, the mortgage amount cannot exceed 100 percent of the property’s appraised value. Also, the HECM loan limit is currently set at the GSE loan limit which is currently $417,000. The new GSE loan limits take effect January 1, 2009 after the limits in the Economic Stimulus Act expire.
  • The “Hope for Homeowners” program establishes limits for loans at 132 percent of the 2007 conforming loan limit of $417,000 or $550,440.
  • The VA loan limit has set the maximum guarantee amount for loans greater than $144,000 to be 25 percent of the high of:
    • the GSE loan limit of $417,000, or
    • 125 percent of the area median home price for a single-family, one-unit property, not to exceed 175 percent of the GSE loan limit of $729,750. The VA loan limit changes take effect at enactment with a termination date of December 31, 2008. After December 31, 2008, guarantee for loans greater than $144,000 is set at 25 percent of the new GSE loan limit base or the limits for high cost areas.
  • Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) - establishes a Nationwide Mortgage Licensing System and Registry to increase uniformity, reduce regulatory burden, enhance consumer protection and reduce fraud.
  • Hope for Homeowners Act of 2008 – creates an FHA voluntary program for homeowners and existing loan holders to insure refinanced loans for distressed borrowers. The principal obligation amount of the refinanced eligible mortgage to be insured shall not exceed 90 percent of the home’s current appraised value on a 30-year fixed rate loan. The lender would pay a three percent FHA loan origination fee, and the borrower would share the newly created equity with the FHA. In addition, all prepayment penalties and fees related to default or delinquency shall be waived.
  • Foreclosure Prevention Act of 2008 –
    • Building American Homeownership Act of 2008 - The borrower shall pay, in cash or its equivalent, an amount equal to not less than 3.5 percent of the appraised value of the property. Cash or its equivalent may include any amount borrowed from a family member as long as any lien for repayment is subordinate to the mortgage, and the sum of the principal obligation does not exceed 100 percent of the appraised value of the property. In no case shall the funds consist of seller or third party funds when the party benefits financially from the transaction.
    • Home Equity Conversion Mortgages (HECMs) – HUD’s lawyers are still working to determine whether HR 3221 creates a single national HECM loan limit. Origination fees are limited to 2.0 percent of the maximum claim amount of $200,000 plus one percent of any portion of the maximum claim amount that is greater than $200,000 with a ceiling of $6,000. The maximum limits shall be adjusted annually in increments of $500 based on the Consumer Price Index. The lender is prohibited from requiring that the borrower purchase any insurance, annuity, or other similar product as a requirement or condition of eligibility except for title insurance, hazard, flood or other peril insurance that is customary and normal as determined by HUD.
    • Moratorium - A 12-month moratorium period takes effect on October 1, 2008 regarding implementation of FHA’s risk-based premiums for single family mortgage insurance (see Mortgagee Letter 2008-16 which became effective July 14, 2008).
  • Mortgage Disclosure Improvement Act of 2008 –
    • The Truth In Lending Act (TILA) is amended to require that disclosures be delivered or placed in the mail not later than three business days after the lender receives the borrower’s written application, which shall be at least seven business days before consummation of the transaction. If the borrower determines that the extension of credit is needed to meet a bona fide personal financial emergency, they may waive the timing requirements. The borrower must provide to the lender a dated, written, signed statement describing the emergency and specifically waive the requirements.
    • The TILA disclosures must state the following in conspicuous type size and format at closing if the extension of credit is secured by an owner occupied dwelling: “You are not required to complete this agreement merely because you have received these disclosures or signed a loan application”. (effective 12 months after the date of enactment)
    • When the annual rate of interest is variable, the lender shall provide a payment schedule labeled: “Payment Schedule: Payments Will Vary Based on Interest Rate Changes”. The disclosure will provide examples of adjustments to the regular required payment based on the change in the interest rates specified in the contract. The examples must reflect the maximum payment amount of the regular required payments based on the maximum interest rate allowed under the contract in accordance with the rules of the Board. Prior to issuing any rules, the Board will conduct consumer testing to determine the appropriate format for providing the disclosures so that they can be easily understood. (effective on the earlier of the compliance date established by the Board or 30 months after the date of enactment)
    • In any case in which the disclosure statement contains an annual percentage rate of interest that is no longer accurate, the lender must furnish an additional corrected statement to the borrower, not later than three business days before closing.
    • The Servicemembers Civil Relief Act is amended to extend the six percent mortgage interest rate ceiling to one year after the termination of military service.
  First American Loan Production Solutions (“LPS”) will have the revised disclosures available for client use by the effective date.
  
  Note: * Mortgage Bankers Association, Key Points in the Housing and Economic Recovery Act of 2008

The Federal Reserve Board’s booklet has been revised with minor changes to the text of the document. The definitions in the Glossary Section have substantial changes. The Spanish version of this booklet is still being revised.

First American Loan Production Solutions (“LPS”) has the revised booklet available for client use.

The Federal Reserve Board published its annual adjustment of the dollar amount that triggers additional disclosure requirements under the Truth in Lending Act for home mortgage loans that bear rates or fees above a certain amount. The dollar amount of the fee-based trigger has been adjusted from $561 or 8% to $583 or 8% of the total loan amount for 2009, based on the annual percentage change reflected in the Consumer Price Index that was in effect on June 1, 2008.

Arizona passed Senate Bill 1028 establishing loan originator licensing requirements. Beginning January 1, 2010, a natural person employed as a loan originator by a mortgage broker or mortgage banker must first be licensed. The mortgage banker and mortgage broker must reasonably supervise the activities of a loan originator who is employed by them. The new law also provides:

• education and examination requirements for loan originators;
• mortgage bankers and mortgage brokers continuing education requirements; and
• prohibited acts which include requiring the borrower to sign any mortgage loan document that contains blank spaces which will be filled in after it has been signed.

Connecticut House Bill 7163 amends the requirements for recorded documents. Instruments presented for recording must have a blank margin of not less than three-fourths of an inch in width surrounding each page. In addition, a return name and address must appear at the top of the front side of the first page of the instrument.

LPS documents comply with these requirements.

Delaware passed House Bill 475 which prohibits a mortgage loan broker from accepting any fee in connection with a reverse mortgage loan, other than an application fee or a credit report fee, property appraisal fee, title examination fee or other bona fide third-party fee prior to receiving a written certification from an independent housing counselor attesting that the prospective borrower has received counseling on reverse mortgage loans. Additionally, a licensed lender cannot finalize a reverse mortgage loan until it has received a written certification from an independent housing counselor. A mortgage broker and lender must ensure that borrowers receive counseling about their reverse mortgage.

The Montana Consumer Loan Act amends a late fee to be the greater of $15 or 5% of the amount past due, not to exceed $50, if provided for in the contract. Originally no cap was provided. Also, a deferral may be granted at any time.

The New York governor signed into law Senate Bill 8143 to address the subprime mortgage crisis. To assist homeowners facing foreclosure, a lender shall provide notice to the borrower at least ninety days before action to foreclose commences. The notice shall contain no less than five HUD approved housing counseling agencies, or other housing counseling agencies.

In addition the Banking Law adds new definitions and establishes new requirements for both high-cost home loans and subprime home loans to avoid future foreclosure crisis. Among other things, the requirements include:

• no negative amortization;
• no financing of insurance or other products sold in connection with the loan;.
• no prepayment penalties;
• no abusive yield spread premiums;
• no teaser rates;
• mandatory escrow of taxes and insurance; and
• mandatory disclosure of taxes and insurance payments.

For subprime home loans consummated on or after September 1, 2008:

• a lender or mortgage broker must provide the borrower of a subprime loan with a notice in at least twelve point type at the time of application: “You should consider financial counseling prior to executing loan documents. The enclosed list of counselors is provided by the New York State Banking Department.” The disclosure must be on a separate form.
• subprime home loan mortgages shall include a legend on top of the mortgage in twelve-point type stating that the mortgage is a subprime home loan subject to the law.
• lenders and mortgage brokers are prohibited from making or arranging a subprime loan unless they reasonably and in good faith believe that the borrower has the ability to repay the loan.

The mortgage broker, with respect to any transaction, must act in the borrower’s best interest by presenting the borrower with a range of loan products that are appropriate to the borrowers existing circumstances and for which the borrower likely qualifies.

Additionally, no lender or mortgage broker may improperly influence a real estate appraisal.

The Mortgage Broker Licensure Act adds a provision that a mortgage broker applicant satisfactorily complete twenty hours of applicable educational requirements during the three years immediately preceding the time of application. In addition, applicants for a mortgage loan originator license must satisfactorily complete sixteen hours of applicable educational requirements during the three years immediately preceding the time of application.

Pennsylvania passed Senate Bill 483 which amends the Loan Interest and Protection Law. The dollar threshold on residential mortgages increased from $50,000 to $217,873 or less. The Department of Banking will adjust the amount annually for inflation.

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, with the bold portions indicating the states that recently adopted the Statement.

Alabama, Arizona, Arkansas, California, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Nebraska, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Oklahoma, Tennessee, Texas, Vermont, Washington, West Virginia, Wisconsin, and Wyoming

Freddie Mac has announced they will no longer purchase New York loans that can be categorized as a “subprime home loan”. This will take affect on all loans dated on or after September 1, 2008.

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