Compliance News

If a third party requests access to a consumer report on which a security freeze is in effect and the third-party request is in connection with an application for credit or any other use and the consumer does not allow his or her consumer report to be accessed for that period of time, the third party may treat the application as incomplete.

Any instrument intended for record that is executed or certified in whole or in part in any language other than English shall not be accepted for record unless the translation is accompanied by a notarized declaration by the interpreter or translator that the translation is true and accurate.

A bill requiring the Commissioner of Financial Institutions (the "Commissioner") to apply the Interagency Guidance on Nontraditional Mortgage Product Risks (the "Guidance") issued in September 2006, the Statement on Subprime Mortgage Lending (the "Statement"), issued in June 2007 and the Guidance on Nontraditional Mortgage Product Risks issued in November 2006 to all state-regulated financial institutions, including, but not limited to, privately insured and state-chartered credit unions. First American Loan Production Services previously discussed the above-referenced guidance in earlier memoranda. The bill authorizes the Commissioner to issue emergency and final regulations for clarification purposes. All mortgage loan products that allow borrowers to defer repayment of principal and interest, including all interest-only products and negative amortization mortgages will be covered by the nontraditional mortgage product risk guidance, however, it does not cover reverse mortgages or home equity lines of credit. Additionally, the Department of Real Estate, the Department of Financial Institutions and the Department of Corporations will be charged with ensuring that state-licensed mortgage lenders and brokers are aware of the existence and content of the documents described in the Guidance and the Statement as soon as possible and are encouraged to comply with such documents at the earliest possible date.

Mortgage brokers who are registered on or before January 1, 2008, must have their registration converted to a license with the Department of Regulatory Agencies, Division of Real Estate (the "DRE") upon satisfaction of all initial licensing requirements.

Several prohibited mortgage broker activities have been added. The director of the DRE may fine, censure, suspend or revoke a mortgage broker's license for violations such as: false or misleading advertising; making any promise when the licensee could not or did not intend to keep such promise; misrepresenting or making false promises through agents, salespersons, or advertising; acting for more than one party in a transaction without disclosing any actual or potential conflict of interest or without disclosing to all parties any fiduciary obligation or other legal obligation of the mortgage broker to any party; or paying a commission or valuable consideration for performing any of the functions of a mortgage broker to any person not licensed under this Act.

A mortgage broker or the broker's agent shall provide the borrower with draft copies of the mortgage loan agreement and all other documents material to the transaction, completed to the extent possible in accordance with the good-faith estimates, at least one business day before closing. The agreement cannot contain any blank spaces. The "documents material to the transaction" includes the deed of conveyance except in the case of a refinancing, the loan agreement, and the title documents if requested by the borrower.

A seller in a real estate transaction must provide to the buyer, before the buyer is obligated under any contract, the Illinois Emergency Management Agency ("IEMA") pamphlet entitled "Radon Testing Guidelines for Real Estate Transactions" and an Illinois Disclosure of Information on Radon Hazards. The act shall only apply to transfers by the sale of residential real property.

First American Loan Production Services ("LPS") is in the process of implementing the required disclosure and the borrower's certification and will have them available to its clients on the effective date.

No person may send marketing materials to a consumer indicating that the person is connected to the consumer's mortgage company, indicating that there is a problem with the consumer's mortgage, or stating that the marketing materials contain information concerning the consumer's mortgage, unless the person sending the materials is actually employed by the consumer's mortgage company or an affiliate.

An act amending Maine's Consumer Credit Code, Truth-in-Lending Act making significant changes relating to residential mortgage loans and permissible high rate, high fee mortgages. The purpose of the act is to protect home ownership and individual home equity and prohibit predatory lending practices by addressing fraudulent or abusive lending practices. A high-rate, high-fee mortgage is defined as any residential mortgage loan in which the terms of the loan meet or exceed the following rate or points and fees threshold:
(1) Rate threshold - the point at which the annual percentage rate equals or exceeds the rate set forth in 12 CFR, Section 226.32(a)(1)(i); or
(2) Total points and fees threshold - for loans greater than $40,000, the point at which the total points and fees payable in connection with the residential mortgage loan less any excluded points and fees exceed 5% of the total loan amount; and for loans less than $40,000, the point at which the total points and fees payable in connection with the residential mortgage loan less any excluded points and fees exceed 6% of the total loan amount.

Several acts and practices are prohibited for high-rate, high-fee mortgages to include the following:

• A creditor may not finance any points or fees;
• No prepayment fees or penalty fees may be charged;
• No negative amortization;
• No loan provisions which allow for increased interest rates after default;
• A creditor may not make a high-rate, high-fee mortgage without first receiving a certificate from an approved third party counselor indicating the borrower has received counseling on the advisability of the loan transaction; and
• A notice is required on all high-rate, high-fee mortgage documents that create a debt or pledge property as collateral.

The act also prohibits several acts and practices relating to making residential mortgage loans, including but not limited to:

• A creditor may not recommend or encourage default on an existing loan prior to and in connection with the closing of a residential mortgage loan that refinances all or any portion of the existing loan.
• A creditor may not knowingly or intentionally engage in the act or practice of "flipping" a residential mortgage loan. Flipping includes any refinance loan that does not provide a reasonable, net tangible benefit to the borrower.
• A borrower may not be charged a late payment unless the loan documents specifically authorize the charge, the charge is not imposed unless the payment is past due for 10 days or more and the charge does not exceed 5% of the amount of the late payment.

LPS is in the process of implementing the required notice and will have it available to its clients on the effective date of January 1, 2008.

The Bureau of Consumer Credit Protection and the Bureau of Financial Institutions jointly released a statement to delineate the concepts of "reasonable, tangible net benefit" and "ability to pay" set forth in Maine's amended predatory lending law. See above. Under the reasonable, tangible net benefit, a creditor may not knowingly or intentionally make a residential mortgage loan to a borrower who refinances an existing mortgage loan when the new mortgage loan does not have a reasonable, tangible net benefit to the borrower, considering all the circumstances, including, but not limited to, the terms of both the new and refinanced loans, the cost of the new loan and the borrower's circumstances. Refinancing without providing such a benefit is known as "flipping" a residential mortgage loan, which is prohibited. Additionally, under the ability to repay concept, a subprime mortgage loan may not be extended to a borrower, unless a reasonable creditor would believe at the time the loan is closed that the borrower will be able to make the scheduled payments. The determination of a borrower's reasonable ability to repay a subprime mortgage loan must be documented or otherwise evidenced in writing and must include, without being limited to, a consideration of the following:

• The borrower's income;
• The borrower's credit history;
• The borrower's current debt obligations, both secured and unsecured;
• The borrower's employment status;
• The borrower's debt-to-income ratio; and
• The borrower's available financial resources, excluding the equity in the principal dwelling that secures or will secure the subprime mortgage loan.

The agencies also created a model form entitled "State of Maine - Reasonable, Tangible Net Benefit Disclosure Form" for creditors and borrowers to use to determine whether or not the borrower is receiving a reasonable, tangible net benefit when the loan is made. The creditor shall explain its reasonable, tangible net benefit analysis to the borrower, and shall present the above-referenced form to the borrower for signing and provide the borrower with an executed copy of the disclosure, prior to or upon making the new residential mortgage loan.

LPS is in the process of implementing the required notice and will have it available to its clients on the effective date of January 1, 2008

Fannie Mae will not purchase or securitize any mortgage loan that meets the definition of a "high-rate, high-fee mortgage" under Maine law (see Selling Guide Part VII, Section 104.15)

If a third party requests access to a consumer report on which a security freeze is in effect and the third-party request is in connection with an application for credit or any other use and the consumer does not allow his or her consumer report to be accessed for that period of time, the third party may treat the application as incomplete.

Both Fannie Mae and Freddie Mac issued announcements informing lenders that there will be no changes to the conventional mortgage loan limits for the year 2008. The 2007 mortgage loan limits will continue to apply to all conventional mortgages that are purchased by these two agencies.

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, Massachusetts, Michigan, Mississippi, Missouri, Nebraska, New Jersey, New York, North Carolina, North Dakota, Tennessee, Texas, Washington, West Virginia, Wisconsin, and Wyoming

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