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.July 2008
Federal: Regulation Z (effective October 1, 2009 for all applications; April 1, 2010 for escrow requirement for site-built homes; and October 1, 2010 for manufactured homes)
On July 14, the Federal Reserve Board approved a final rule to amend Regulation Z (Truth in Lending). The rule prohibits unfair, abusive or deceptive home mortgage lending practices and restricts certain other mortgage practices in order to protect consumers and facilitate responsible lending. In addition, advertising standards and requirements for mortgage disclosures are also established.
A newly defined category of “high-priced mortgage loans” was established that includes virtually all closed-end subprime loans secured by a consumer’s principal dwelling. Four key protections were added to the rule that:
A newly defined category of “high-priced mortgage loans” was established that includes virtually all closed-end subprime loans secured by a consumer’s principal dwelling. Four key protections were added to the rule that:
- prohibits a lender from making a loan without regard to borrowers' ability to repay the loan from income and assets other than the home's value. A lender complies, in part, by assessing repayment ability based on the highest scheduled payment in the first seven years of the loan. To show that a lender violated this prohibition, a borrower does not need to demonstrate that it is part of a "pattern or practice."
- prohibits a lender from relying on income or assets that it does not verify to determine repayment ability.
- bans any prepayment penalty if the payment can change during the initial four years. For other higher-priced loans, a prepayment penalty period cannot last for more than two years.
- requires that the lender establish an escrow account for the payment of property taxes and homeowners' insurance for first-lien loans. The lender may offer the borrower the opportunity to cancel the escrow account after one year.
- prohibits certain servicing practices: failing to credit a payment to a consumer’s account as of the date the payment is received, failing to provide a payoff statement within a reasonable period of time, and "pyramiding" late fees.
- prohibits a creditor or broker from coercing or encouraging an appraiser to misrepresent the value of a home.
- requires that a creditor provide a good faith estimate of the loan costs, including a schedule of payments, within three days after a consumer applies for any mortgage loan secured by a consumer's principal dwelling, such as a home improvement loan or a loan to refinance an existing loan.
Alaska: Regulations 3 AAC 14.010 et seq. (effective July 1, 2008)
The Alaska Department of Commerce, Community and Economic Development (“Department”) adopted new regulations amending Alaska’s Mortgage Lending Regulation Act by implementing new licensing and registration requirements for persons engaged in mortgage lending activities. In addition, the regulations include annual reporting, record-keeping, and supervision requirements.
The Department also adopted regulations regarding unfair or deceptive advertising and mortgage lending practices. Unfair or deceptive mortgage loan practices include:
The Department also adopted regulations regarding unfair or deceptive advertising and mortgage lending practices. Unfair or deceptive mortgage loan practices include:
- charging a prepayment penalty that violates AS 45.45.010(g) which states that loan contracts and commitments covering one- to four-family dwellings may be prepaid without penalty, except federally insured loans that require a prepayment penalty.
- failing to give to the borrower or the borrower’s attorney the time and reasonable opportunity to review each mortgage loan document before the disbursement of the mortgage loan money, unless the borrower signs a waiver of the right to receive the time and opportunity for review before disbursement;
- accepting any fees required to be disclosed that are not disclosed in accordance with applicable law;
- refusing to permit a borrower to be represented by the attorney of the borrower’s choice;
- a mortgage broker, engaging the services of another mortgage broker who will charge the borrower an additional fee without obtaining advance written permission from the borrower to charge that fee. The amount of the fee must be specified in writing.
Arizona: Senate Bill 1185 (effective August 31, 2008)
If a third-party requests access to a consumer credit report on which a security freeze is in effect, and this request is in connection with an application for credit or any other use, and the consumer does not allow his or her credit report to be assessed, then the third-party may treat the application as incomplete.
Connecticut: Thomas R. Sullivan, Insurance Commissioner and State of Connecticut v. Reiner, Reiner & Bendett, P.C., Absolute Mortgage Solutions, LLC and Access America LLC d/b/a Century 21 Access America
At the request of the Commissioner of Consumer Protection, the Insurance Commissioner and Attorney General filed a lawsuit against the real estate broker, mortgage company and title law firm in October 2007. The defendants were accused of violating the Connecticut Unfair Trade Practices Act (“CUTPA”) and the Real Estate Settlement Procedures Act (“RESPA”) by engaging in illegal kickbacks and inducement schemes.
The law firm of Reiner, Reiner & Bendett (Reiner) also sells title insurance. Absolute Mortgage and Access America were accused of directing title insurance business to Reiner. Fake marketing and rental agreements were allegedly used to conceal the illegal payments. The settlement resulted in restitutions, fines and forfeitures of $700,000.
The law firm of Reiner, Reiner & Bendett (Reiner) also sells title insurance. Absolute Mortgage and Access America were accused of directing title insurance business to Reiner. Fake marketing and rental agreements were allegedly used to conceal the illegal payments. The settlement resulted in restitutions, fines and forfeitures of $700,000.
Delaware: Senate Bill 203 (effective June 30, 2008)
The State Bank Commissioner is authorized to participate in the Multi-state Automated Licensing System.
Georgia: House Bill 130 (effective August 1, 2008)
If a third-party requests access to a consumer credit report on which a security freeze is in effect, and this request is in connection with an application for credit or any other use, and the consumer does not allow his or her credit report to be assessed, then the third-party may treat the application as incomplete.
Iowa: House File 2700 (effective July 1, 2008)
Iowa amended House File 2556 by enacting House File 2700 which specifies that a lender may charge a borrower a loan origination or processing fee, a broker fee, or both. Together the fees cannot exceed 2% of an amount which is equal to the loan principal. To refinance a prior loan between the same borrower and the same lender, the lender may charge a borrower a loan origination or processing fee, a broker fee, or both, which together do not exceed a reasonable estimate of the expenses of processing the loan assumption or refinancing but which does not exceed 1% of the unpaid balance of the loan that is assumed or refinanced. Lenders may also charge a bona fide and reasonable settlement or closing fee.
Minnesota:
Senate File 3154 (effective August 1, 2008)
Minnesota passed Senate File 3154 to amend the requirements of a residential mortgage originator’s analysis to verify the borrower’s ability to repay the loan.
Senate File 3214 (effective August 1, 2008)
The Minnesota Residential Mortgage Originator and Servicer Licensing Act was amended to clarify the definition of “residential real property” or “residential real estate” as real property improved or intended to be improved by a structure designed principally for the occupancy of from one to four families, whether or not the owner occupies the real property.Missouri: House Bill 2188 (effective August 28, 2008)
Missouri passed House Bill 2188 to create civil and criminal penalties for individuals who commit mortgage fraud. Mortgage brokers are prohibited from making any material misstatement, misrepresentation, or omission in connection with the application for or procurement of a loan secured by real estate. In addition, it is unlawful to:
- employ a scheme to defraud
- receive any portion of the purchase, sale or loan proceeds in connection with a real estate closing that is a violation of the law; or
- influence a real estate appraisal through extortion or bribery.
Pennsylvania: House Bill 2428 (effective July 4, 2008)
Pennsylvania passed House Bill 2428 which prohibits a lender from requiring a borrower, as a condition of obtaining or maintaining a secured loan, to obtain property insurance coverage which exceeds the replacement value of buildings and structures situated on the land used to secure the loan. In addition, a borrower on a loan secured by real property may not be required to insure the value of the land.