Compliance News

Those persons filing licensee information, or an affidavit in lieu thereof, in connection with a security instrument for residential property are no longer required to file a one-page form that is substantially similar to the form in the regulations, and now may file separate multi-page forms.

The Mortgage Stabilization and Relief Act (“Act”), which includes the Mortgage Stabilization Program and New Jersey Housing Assistance and Recovery Program, was signed into law to aid homeowners at risk of losing their homes. The Housing and Mortgage Finance Agency (“HFMA”) will be responsible for the administration of the Act.

The Mortgage Stabilization Program promotes the modification or refinancing of first mortgage loans in imminent danger of foreclosure by allowing the HFMA to offer second mortgage loans that match the lender’s contribution up to $25,000, with no monthly payment requirements, to eligible borrowers. A homeowner is eligible for the program if the homeowner’s household income does not exceed 120% of the area median household income or the HMFA’s Mortgage Program income limits and the homeowner owns no other residential real property at the time of application. If accepted into the program, the homeowner must participate in budget counseling sessions and repay the HMFA and lender’s loans upon sale of the property.

The New Jersey Housing Assistance and Recovery Program (“HARP”) allows homeowners facing imminent foreclosure to use and occupy the property for up to 36 months at an affordable rent. The law defines affordable rent as monthly rent or lease payments that do not exceed 33% of the household’s monthly average gross income. HMFA will provide funds through the HARP Support Fund to approved nonprofit and public entities that will execute lease-purchase agreements with homeowners who meet the requirements. The lease-purchase agreement will include a provision that allows the homeowner to buy back the property.

The Department of Banking (“Department”) adopted Chapter 46 relating to the proper conduct of lending and brokering in the mortgage loan business. The final rule 1) prohibits false or misleading advertising, 2) requires that licensees evaluate an applicant’s ability to repay the loan, 3) prohibits certain licensee actions in connection with loan transactions, 4) imposes certain restrictions on loan funding, and 5) requires licensees to provide the borrower, upon request, with all documents the borrower paid for or signed.

Effective March 20, 2009, licensees are required to provide to the borrower a new disclosure, prescribed by the Department, detailing the terms of the loan (excluding reverse mortgages), including the following:

1. if the lender providing the loan will escrow the applicable property taxes and hazard insurance
2. if the licensee is a lender with the ability to directly lock-in a loan interest rate
3. whether the loan contains a variable interest rate or balloon payment feature
4. whether the loan includes a prepayment penalty
5. whether the loan has a negative amortization feature

A mortgage broker who takes an application is not required to provide the disclosure if the lender making the loan elects to provide it. The disclosure must be delivered or placed in the mail within three business days after the application is received or prepared by the licensee. The applicant must sign and date the disclosure within 10 business days after delivery or mailing. The licensee must retain the original executed disclosure form in the applicant’s loan file. In addition, an updated disclosure must be issued at the time the licensee knows or reasonably should know that the initial disclosure form is inaccurate.

First American Loan Production Solutions will have the disclosure ready for client use by the effective date.

Fannie Mae updated and clarified its policies regarding minimum credit score requirements for government loans and debt-to-income ratio requirements to now extend to mortgages insured or guaranteed by federal government agencies All government insured and guaranteed mortgage loans delivered to Fannie Mae are subject to a minimum representative credit score of 580.

A maximum 45 percent debt-to-income ratio for all manually underwritten conventional loans will be implemented. The benchmark debt-to-income ratio of 36 percent, will continue to be supported, but will allow the benchmark to be exceeded up to a maximum of 45 percent with strong compensating factors. Government loans and loan case files underwriter through Desktop Underwriter are excluded from the maximum 45 percent debt-to-income ratio.

Lenders are encouraged to implement the changes immediately. On or after March 1, 2009, all whole mortgage loans purchased by Fannie Mae and mortgage loans delivered into MBS with issue dates on or after March 1, 2009 must comply with the new policies.

The Home Valuation Code of Conduct (“the Code”) has been revised to include the following:

1. A lender may accept an appraisal ordered by a different lender if the lender who ordered the appraisal complied with the Code.
2. Appraisals by a lender’s in-house appraisal staff may be relied on if they meet the requirements of the Code.
3. A lender’s ownership of or affiliation with an appraisal management company is no longer restricted if the company adopts written policies and procedures implementing the revised Code.
4. Any adverse, negative, or irregular findings during quality control testing must be reported to Fannie Mae.

The Bulletin addresses additional Servicing requirements and documentation for the Streamlined Modification Program (SMP) and provides information related to processing a modification with mortgage insurance under the SMP. Freddie Mac’s logo requirements for its use are also addressed. In addition, the Bulletin reminds Servicers that the suspension of foreclosure sales and scheduled evictions on occupied single-family properties (1 to 4 unit properties) has been extended until January 31, 2009.

The Mortgagee Letter provides statutory requirements and standards, policies and regulations for the HOPE for Homeowners Program (H4H). The H4H Program assists borrowers who are facing difficulty in paying their mortgages by allowing them to refinance into an affordable FHA-insured mortgage, if eligible. Among other things, the requirements covered in the Mortgagee Letter are as follows:

1. determining pre-program mortgage payment DTI;
2. increased loan-to-value ratios and modified income ratio;
3. extending mortgage term to 40 years;
4. definition of initial equity for a shared appreciation mortgage;
5. appreciation share options; and
6. MERS registration.

Revised versions of the Shared Equity Mortgage and Shared Appreciation Mortgage were included as Exhibits B and C to the Mortgagee Letter.

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