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.December 2006
Ohio
Senate Bill 185 (effective January 1, 2007) (431 Kb)
Senate Bill 185 ("SB 185") was passed by the Ohio General Assembly in May 2006, in an attempt to combat a perceived increase in predatory lending in Ohio. SB 185 applies to mortgage bankers, registered/licensed mortgage brokers, loan officers, settlement service providers with whom mortgage bankers do business. State and federally-chartered financial institutions and their affiliates are exempt from all of SB 185, except for the high-cost home loan amendments.
SB 185 requires several new disclosures for mortgage brokers, loan officers and non-bank lenders, all of which will be available to First American Nationwide Documents' clients by January first, and makes substantial changes to several areas of law including the following: the Second Mortgage Loan Act; the Mortgage Broker Registration Act; the Interest Act; the Consumer Sales Practices Act and the High-Cost Home Loan Act. These changes will be addressed individually below.1
Second Mortgage Loan ActSB 185 amends the prepayment penalty section of the Second Mortgage Loan Act and adds a new section that provides the Ohio Attorney General and county prosecutors with the authority to assert certain claims.
- Under the current law, a registrant may charge two types of prepayment penalties: (1) a penalty not in excess of 1% of the original principal amount of the loan; or (2) a penalty not to exceed 3% of the original principal amount of the loan if the loan is paid in full within the first year after the date the loan contract is executed, 2% the second year and 1% the third year.
SB 185 amends the second prepayment penalty option by allowing such a penalty only within the first two years of the loan. The maximum prepayment penalty is 2% of the original principal amount if paid in full within the first year and 1% of the original loan balance if paid within the second year. - Ohio Attorney General and the appropriate county prosecuting attorney each have standing now to seek injunctive relief and initiate criminal proceedings under certain circumstances.
1 SB 185 also contains provisions affecting real estate brokers, real estate appraisers, title insurance agents and settlement service providers; however, these changes are not addressed in this memorandum.
Mortgage Broker Registration ActSB 185 substantially revises the Mortgage Broker Registration Act ("MBRA") by imposing new education, disclosure and record retention requirements on mortgage brokers and loan officers and by increasing borrowers' rights against mortgage brokers who violate the MBRA, including the following:
- Mortgage brokers and loan officers must complete twenty-four hours of continuing requirements
- Applicants must submit to a criminal background check
- MBRA registrants must deliver a mortgage loan origination disclosure statement to the borrower within three days after taking a loan application and a revised mortgage loan origination disclosure statement within twenty-four hours of any changes
- MBRA registrants must deliver to the borrower a copy of any credit score or report obtained by the registrant in connection with the mortgage loan application
- MBRA registrants must deliver to the borrower a copy of any automated valuation model report used
- MBRA registrants must deliver to the borrower a good faith estimate statement that meets federal requirements and contains certain disclosures
- MBRA registrants must deliver a written disclosure to the borrower prior to closing regarding escrows and the allocation of the borrower's monthly payments
- MBRA registrants must deliver a written notice to the borrower regarding the registrant's relationship with a settlement service provider prior to referring a borrower to a settlement service provider
Interest ActNo penalty may be charged for the prepayment or refinance of a first lien, residential mortgage loan of less than $75,000 (adjusted annually) that is made or arranged by a mortgage broker, loan officer or nonbank mortgage lender.
A "nonbank mortgage lender" is any person that engages in a consumer transaction in connection with a residential mortgage, except for a bank, savings bank, savings and loan association, credit union, or credit union service organization, or an affiliate or subsidiary thereof.
Consumer Sales Practices ActNo mortgage broker, loan officer or nonbank mortgage lender may commit an unconscionable act or practice concerning a consumer transaction in connection with a residential mortgage. The following acts and practices are deemed unconscionable:
- Arranging for or making a mortgage loan that provides for an increase in the interest rate after default
- Failing to use reasonable methods to determine a borrower's ability to repay a consumer transaction in connection with a residential mortgage
- Arranging for or making a mortgage loan that contains a demand feature unless such feature pertains to the consumer's failure to abide by the material terms of the loan
- Recommending or encouraging default
- Instructing the consumer to ignore written information regarding interest rate and dollar value of points
- Knowingly replacing, refinancing or consolidating a zero interest or other low interest rate mortgage loan made by a governmental or nonprofit lender with another loan unless the current note holder gives written consent of the refinance and the consumer presents written certification of housing counseling from a HUD-approved counseling agency
- Charging a late fee more than once with respect to a single late payment
- Failing to disclose to the consumer at the closing of the consumer transaction that a consumer is not required to complete the transaction merely because the consumer has received prior estimates of closing costs or has signed an application and should not close a loan transaction that contains different terms and conditions than those the consumer was promised
- Arranging for or making a consumer transaction that includes terms under which more than two periodic payments required under the consumer transaction are consolidated and paid in advance from the loan proceeds provided to the consumer
- Knowingly compensating, instructing, inducing, coercing, or intimidating, or attempting to compensate, instruct, induce, coerce, or intimidate, a licensed appraiser
- Financing, directly or indirectly, any credit, life, disability, or unemployment insurance premiums, any other life or health insurance premiums, or any debt collection agreement
- Knowingly or intentionally making a mortgage loan that refinances an existing mortgage loan when the new loan does not have reasonable, tangible net benefit to the consumer considering all of the circumstances, including the terms of both the new and refinanced loans, the cost of the new loan, and the consumer's circumstances
- Knowingly taking advantage of the consumer's inability to reasonably protect his or her interests because of a known physical or mental infirmities or illiteracy
- Entering into consumer transaction knowing there was no reasonable probability of payment of the obligation by the consumer
- Attempting to enforce a prepayment penalty in violation the Interest Act
- Engaging in an act or practice deemed unconscionable by rules adopted by the attorney general
Any unconscionable arbitration clause, unconscionable clause requiring the consumer to pay the supplier's attorney's fees, or unconscionable liquidated damages clause included in a mortgage loan contract is unenforceable.
High-Cost Home Loan ActSB 185 amends Ohio's high-cost home loan, which previously mirrored the federal Home Owner Equity Protection Act ("HOEPA"), to include open end loans and home equity lines of credit and lowers the points and fees threshold to 5% if the loan is equal to or greater than $25,000, 8% if the loan is less than $25,000. Points and fees exclude Department of Veteran Affairs and Federal Housing Administration premiums, as well as up to 1% of yield spread premium. Reverse mortgages and residential mortgage transactions, as defined under HOEPA, continue to be excluded.
SB 185 redefines "total loan amount" as the principal of the loan minus points and fees that are included in the principal amount for closed end loans, and the total line of credit allowed under the loan at closing for open end credit plans.
Additional lending practices are prohibited, including consummating a covered loan transaction that will result in the borrower's total monthly debt-to-income ratio exceeding 50% as verified by the borrower's credit application, credit report, financial information or other reasonable means. An exception exists if the borrower submits to state-approved credit counseling and signs a disclosure that acknowledges the risk of entering into such a loan.
Tennessee
Senate Bill 3989 (effective January 1, 2007) (65 Kb)
Tennessee passed the Tennessee Home Loan Protection Act ("THLPA"), which imposes lending restrictions on loans meeting the definition of a "high-cost home loan." Under the THLPA, a high-cost home loan is a loan in which either the APR equals or exceeds the rate allowed by the federal Home Ownership Equity Protection Act (currently more than 8% for first lien loans or more than 10% for subordinate lien loans) or the total points and fees payable by a borrower exceed the greater of $2,400 or 5% of the total loan amount. If the loan is $30,000 or less, the points and fees threshold is increased to 8% of the total loan amount. Certain types of loans are exempt, including FHA-insured and VA-guaranteed loans.
The following restrictions apply to high-cost home loans:
- No lender may recommend or encourage default on an existing loan prior to the closing of a high-cost home loan that refinances all or any portion of the existing loan
- No lender shall knowingly or intentionally make a high-cost home loan that refinances within 30 months an existing home loan or high-cost home loan of the borrower when the new loan does not have a reasonable benefit to the borrower
- A high-cost home loan may not permit a lender, in its sole discretion, to accelerate indebtedness
- A creditor may not finance, directly or indirectly, single premium credit insurance unless (A) the total benefits payable under all such policies do not exceed $50,000, (B) the principal amount of financed premiums for such policy must be repayable during the policy's term, and (C) the amount payable under such credit life insurance policy must not be more than 103% of the then unamortized principal balance of such loan
- A lender or servicer must provide a borrower or his designated agent, upon request, 2 pay-off statements within any 12 month period, free of charge
- A high-cost home loan may not include a balloon payment
- No prepayment penalties shall exceed in aggregate 2% of the loan amount prepaid in the first 24 months following the loan closing; and no prepayment penalty may be charged if the lender is the note holder of the note being refinanced
- No lender may charge points and fees on a high cost home loan if the loan refinances an existing high cost home loan with the same lender or its affiliate; points and fees may only be charged in connection with any additional proceeds received by the borrower in connection with such refinancing
- No lender may directly or indirectly finance any points and fees in excess of either 3% of the total loan amount or $1,500 if the total loan amount is more than $30,000 or 5% of the total loan amount if the total loan amount is $30,000 or less
- A high-cost home loan may not contain negative amortization features
- A lender shall not make a high-cost home loan unless the lender has given a prescribed written notice to the borrower advising the borrower of the right to talk to a credit counselor
Rhode Island
Senate Bill 2851 (effective December 31, 2006) (37 Kb)
Rhode Island enacts the Rhode Island Home Loan Protection Act (RIHLPA), which imposes restrictions on loans meeting the definition of a "home loan" and imposes additional restrictions on loans meeting the definition of a "high-cost home loan." Under RIHLPA, a lender is prohibited from financing credit insurance premiums, flipping, recommending default, and accelerating a loan at the lender's sole discretion on all home loans. Restrictions on high-cost home loans include prohibitions on prepayment penalties, balloon payments, negative amortization and increased interest rates due to default. In addition, a lender may not make a high-cost home loan without first receiving certification that the borrower has received counseling on the advisability of the loan transaction.
Agency News
Fannie Mae Announcement 06-25 (December 20, 2006) (144 Kb)
Effective April 2, 2007, the Standard Eligibility Criteria and the Enhanced Eligibility Criteria will be combined into one set of expanded criteria, and the Enhanced Eligibility Criteria will be eliminated.
Fannie Mae Announcement 06-26 (December 20, 2006) (232 Kb)
Fannie Mae announced several enhancements to their Interest-Only (IO) offerings to further expand IO mortgage eligibility criteria and increase efficiencies for lenders. These enhancements will be available beginning January 30, 2007.
Fannie Mae Lender Letter 07-06 (December 21, 2006) (298 Kb)
Fannie Mae extended the underwriting flexibilities which were scheduled to expire December 31, 2006. The Hurricane-related underwriting guidelines (for Hurricanes Katrina and/or Rita) are effective for mortgage loans closed on or before December 31, 2007, and delivered to Fannie Mae no later than March 31, 2008.
HUD 06-30 (December 18, 2006) (45 Kb)
The purpose of this mortgagee letter is to provide guidance on certain provisions in Handbook 4060.1 REV-2, which was issued on August 14, 2006.
HUD 06-31 (December 22, 2006)(40 Kb)
This Mortgagee Letter announces the results of HUDs Tier Ranking Scores (TRS) for Round 26. Round 26 scores cover the fiscal year 2006 (i.e., October 1, 2005, through September 30, 2006) performance period.
HUD 06-32 (December 21, 2006) (56 Kb)
This updates Mortgagee Letter (ML) 2004-40 by announcing the change for HUDs Management and Marketing Contractor servicing the state of Georgia and provide the contact information needed for the submission of Preservation and Protection (P&P) requests related to HUD-owned properties in Georgia. With the exception of the information included in this Mortgagee Letter, all other information in ML 2004-40 remains the same.