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 2009
STATE ANNOUNCEMENTS |
The Secure and Fair Enforcement Mortgage Licensing Act of 2008 ("S.A.F.E. Act"), Title V. Sec.1501, was signed into law on July 1, 2008. States are provided guidance and encouraged to establish a system
for the Nationwide Mortgage Licensing System and Registry ("NMLSR") by July 1, 2009. The NMSLR must be implemented by July 1, 2010. S.A.F.E. Act elements to be incorporated by states include, but are not limited to:
licensing requirements for mortgage loan originators, obtaining a unique identifier number, criminal fingerprint background checks, pre-license education, testing, and continuing education and testing requirements.
If a state does not provide a licensing program, HUD is authorized to establish a program for them.
To date, the following states and the District of Columbia have enacted legislation (with the bold portions
indicating the states that recently adopted legislation) to comply with the S.A.F.E. Act: Alabama, Alaska,
Arizona, Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Indiana, Iowa, Kansas,
Kentucky, Louisiana, Maine, Maryland, Mississippi, Missouri, Montana, Nebraska, New Jersey, New Mexico, New York,
North Dakota, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington,
West Virginia, Wisconsin, and Wyoming.
Colorado—Division of Real Estate 4 CCR 725-3 (effective April 17, 2009)
Mortgage brokers and mortgage loan originators are no longer required to complete the required 40 hours of course work or pass the requisite test in order to apply for and possibly receive a temporary license.
Florida Senate Bill 2226 (effective July 1, 2009)
In addition to the enactment of the S.A.F.E. Act provisions, Senate Bill 2226 amends several disclosure requirements. Effective January 1, 2010, a written agreement for loan modification services must be printed in at least 12-point uppercase type and signed by both parties. The agreement must contain the names and address of the person providing loan modification services, the exact nature of each service to be provided, the total amount and terms of charges that the borrower will pay, and the date of the agreement. The date of the agreement may not be earlier than the date the borrower signs the agreement. The borrower must receive the agreement at least one business day before signing the agreement and the borrower has a right to cancel the agreement within three days of signing. The right to cancel may not be waived. A "Borrower's Right of Cancellation" must be printed immediately above the signature line in at least 12-point uppercase type.
Effective October 1, 2010, the nature of the relationship, ownership or financial interest between the provider and the licensee making the referral, as well as an estimate charge or range of charges generally made by the provider must be included in the conflict of interest disclosure. Regulations may be adopted to administer this disclosure requirement.
The unique registry identifier of each loan originator responsible for providing loan originator services must be printed on the mortgage broker agreement (formally known as the mortgage brokerage agreement) ("Agreement"). The unique registry identifier is provided through the NMLSR. A loan origination fee may not be paid unless disclosed in the Agreement, which is to be signed and dated by both the borrower and the principal loan originator or branch manager. Further, the Agreement must identify all fees received by a mortgage broker as loan origination fees except for application and third party fees. Fees set forth in the Agreement must be disclosed in dollar amounts. This requirement is effective October 1, 2010.
LPS will have these disclosures available on the respective effective dates.
Louisiana
House Bill 810 (effective July 31, 2009)
In addition to the enactment of the S.A.F.E. Act provisions, House Bill 810 adds a provision that the loan originator must sign the original mortgage loan application and include in the application his or her unique identifier. Licensees may charge a reasonable application fee if, prior to collecting the fee, a written disclosure is provided stating the amount of the fee. The disclosure must contain information stating that the application fee is refundable at any time prior to ordering any service required by the lender to evaluate the loan application. Also, if the lender cannot approve the loan after receiving requested documentation, the application fee is refundable. A reasonable application fee is not to exceed $500.00. Only one application fee may be charged in connection with a single loan to a borrower.
By including language specifically stating that the loan is subject to the Louisiana Consumer Credit Law, R.S. 9:3510 et. seq., loans may be made contractually subject to the Louisiana Consumer Code.
If applicable, written disclosures provided to the borrower must contain the following information:
- The name, address, telephone number and unique identifier of the originator; and
- The name, address, telephone number, and unique identifier of the residential mortgage lender by whom the originator is employed.
LPS will have these disclosures available.
Senate Bill 105 (effective August 15, 2009)
The crime of mortgage fraud makes it unlawful for a person to knowingly do any of the following:
- Employ a device, scheme, or artifice with the intent to defraud;
- Make an untrue statement of material fact with the intent to defraud; and
- Receive any portion of purchase, sale, or loan proceeds, or any other consideration paid or generated in connection with the closing of a residential mortgage loan when the recipient knows that the proceeds or other funds were paid as a result of violating the law.
Violations may result in imprisonment, fines up to $100,000.00, or both.
Maine LD 1439 (effective July 30, 2009)
The Maine Consumer Credit Code ("Code") has been expanded to include new and amended definitions as well as
new practices and restrictions.
- The Code's Truth-In-Lending provisions have been revised to model the federal Truth-In-Lending provisions that become effective July 30, 2009 with respect to a consumer's dwelling. The new federal Truth-In-Lending provisions were reported in the May 26, 2009 legislation update.
- A "higher-priced mortgage loan" is defined as a residential mortgage loan that is a nontraditional mortgage or a rate spread home loan. This replaces the definition of "subprime home loan." The following practices and restrictions apply:
- Repayment ability must be verified.
- Effective October 1, 2009, certain high-price loans may not have a prepayment penalty unless it is assessed two years after consummation, the source of repayment funds is not from a refinancing by the creditor or its affiliate(s), and the periodic payment amount does not change during the four years after consummation.
- Flipping is prohibited.
- A high-rate, high-fee mortgage, which is a residential mortgage that exceeds established rate and/or point and fee thresholds, is subject to the following practices and restrictions:
- The outstanding principal balance or accrued interest may not increase due to regularly scheduled periodic payments not covering the full amount of interest due.
- The interest rate may not increase after default (not applicable to variable rate loans).
- If the mortgage is accelerated due to default, any rebate of interest must be computed by a method that is not less favorable than the actuarial method defined in the Housing and Community Development Act of 1992.
- Payment pursuant to a home improvement contract may not be made from amounts extended as credit unless the consumer elects otherwise.
- The first page of the mortgage must include the following: "Notice: This is a mortgage subject to special rules under the federal Truth in Lending Act. Purchasers or assignees of this mortgage could be liable for all claims and defenses with respect to the mortgage that the borrower could assert against the creditor. Maine law also provides for the liability of purchasers or assignees of this high-rate, high-fee loan."
- If the loan term is less than 5 years, payments must fully amortize the outstanding principal balance.
- A demand feature is not allowed unless the consumer commits fraud, fails to meet repayment terms or adversely impacts the security of the loan.
- Repayment ability must be verified.
- No more than two periodic payments may be paid in advance from loan proceeds.
- Points and fees may not be financed.
- Scheduled payments may not exceed twice the average of earlier scheduled payments.
- Counseling certification from an approved counselor must be provided.
- A prepayment fee or penalty is excluded.
- Beginning April 1, 2010, escrow accounts must be established prior to consummation for first lien higher-priced and high-rate, high fee loans secured by a principal dwelling (this excludes cooperatives and condominiums).
- A residential mortgage loan, which does not include a reverse or construction loan, is subject to the following restrictions:
- Beginning October 1, 2009, a creditor or mortgage broker or their affiliate shall not coerce, influence or otherwise encourage an appraiser to misstate or misrepresent the value of a dwelling.
- A creditor may not encourage default.
- A late payment may be charged if authorized in the loan documents and the payment is 10 days or more past due and the charge does not exceed 5% of the amount of the late payment.
- The loan cannot contain a provision that allows the creditor to accelerate the indebtedness.
- A creditor may not finance insurance (credit life, credit disability, credit unemployment or credit property or any other life or health insurance).
- A borrower may not be charged a fee in addition to the actual public discharge fee for a release upon prepayment.
Missouri House Bill 382 (effective July 8, 2009)
In addition to the enactment of the S.A.F.E. Act provisions, House Bill 382 expands the requirements for the mortgage loan broker (“MLB”) application disclosure. In connection with the MLB disclosure, a fee agreement must be provided, which sets forth the amounts and sources of the MLB’s fees, as well as all other compensation relating to the loan. The loan origination fee or other MLB compensation is not subject to state law limitations as long as the MLB disclosure and fee agreement are compliant with state and federal law. In the event of non-compliance, the MLB shall forfeit double the amount of fees and compensation paid by the borrower.
LPS has this disclosure available for client use.
Oklahoma Department of Consumer Credit Regulations (effective July 11, 2009)
Requirements have been revised with respect to loans subject to the Uniform Consumer Credit Code (“UCCC”). Early disclosures are provided in mortgage transactions subject to the Real Estate Settlement Procedures Act. These are transactions secured by a consumer’s principal dwelling but not inclusive of open end home equity lines of credit. Creditors are prohibited from imposing any fees, but for credit report fees, until the consumer receives the early disclosures. In the event disclosures are mailed, the consumer is deemed to have received them three business days after they are mailed. A business day is considered any day the creditor is open to the public for carrying on substantially all its business functions.
For closed end high cost loans, prepayment penalties may not apply two years after consummation and the periodic payment of principal or interest or both may not change during the four years after consummation. The consumer’s ability to repay must be verified as of the date of consummation.
Regulations for higher-priced mortgage loans have been established. These loans are secured by a consumer’s principal dwelling and have an annual percentage rate exceeding the average prime offer rate as of the date the interest rate is set by 1.5 or more percentage points for first liens and 3.5 or more percentage points for subordinate liens. The average prime offer rate is set by the Federal Reserve Board and is to be published at least weekly. These restrictions do not apply to initial construction loans, temporary or bridge loans (terms of 12 months or less), reverse mortgages, or open end home equity lines of credit.
Higher-priced mortgage loans are subject to verification of the consumer’s ability to pay as of the date of consummation and first lien higher-priced mortgage loans must have an escrow account established for collection of taxes and mortgage related insurance premiums. Certain exceptions to the escrow requirement exist for condominiums and cooperatives. Prepayment penalties may not apply two years after consummation and the periodic payment of principal or interest or both may not change during the four years after consummation. A prepayment penalty may not be assessed in the event the source of prepayment funds is a refinancing by the current creditor or its affiliate.
Creditors, mortgage brokers, or their affiliates, subject to the UCCC, are prohibited from influencing, coercing, or encouraging an appraiser to misstate or misrepresent the value of a consumer’s principal dwelling.
Vermont House Bill 222 (effective July 1, 2009)
Financial institutions must have approval from the federal Department of Housing and Urban Development (HUD) prior to issuing a reverse mortgage. The mortgage must meet HUD's requirements regarding Home Equity Conversion Mortgages.
Prior to accepting a reverse mortgage application, financial institutions must refer every borrower to a HUD
approved mortgage counselor. The counselor must provide certification that the borrower received face to face
counseling or if permitted, telephone counseling. The certification must be signed by the borrower and counselor,
contain the date of counseling and the name, address, and telephone of both the borrower and counseling
organization. The holder of the reverse mortgage must retain the counseling certification throughout the term of
the reverse mortgage.
Financial institutions may not require reverse mortgage applicants to purchase an annuity as a condition of obtaining the reverse mortgage.
CASE LAW |
Cuomo v. The Clearing House Association, LLC, 557 U.S. ----, No. 08-453 (June 29, 2009)
The U.S. Supreme Court ("Court") issued a ruling concerning a 2004 Office of Comptroller of Currency (“OCC”) regulation regarding a provision of the National Bank Act (“NBA”). Specifically, the OCC established a regulation providing that only the OCC could exercise visitorial powers with respect to national banks. The regulation precluded State officials from exercising “visitorial powers with respect to national banks, such as conducting examinations, inspecting or requiring the production of books or records of national banks, or prosecuting enforcement actions, except in limited circumstances authorized by federal law.” The Court held that this OCC regulation was inconsistent with the NBA provision and that states could bring lawsuits to enforce state laws against national banks.
AGENCY ANNOUNCEMENTS |
Fannie Mae Announcement 09-17 (June 5, 2009)
Fannie Mae updated the requirements for the document certification and custody of the HomeSaver Advance (HSA)
Truth-in-Lending Disclosure Statement and Promissory Note (Form 3721 or 3721.33). Effective July 10, 2009,
the certification and document custodian functions become the responsibility of Fannie Mae.
A completed HomeSaver Advance Delivery Inventory and all related HSA notes must be provided by the servicer to
Fannie Mae via overnight delivery on the same day that the HSA case is closed in the HomeSaver Solutions Network.
If the HSA note has been correctly and accurately executed, certification and funding will be provided within one
business day.
The HomeSaver Advance Closing Certification and Instruction (Form 3720) has been retired effective immediately in the event the revised HSA notes are executed (Form 3721 or 3721.22).
Fannie Mae Announcement 09-19 (June 8, 2009)
Due to increased concerns of fraud in the mortgage lending process, increased unemployment and stock market fluctuations, Fannie Mae revised certain underwriting and eligibility policies.
- The age of credit documents is reduced from 120 days to 90 days for existing construction and 180 days to 120 days for new construction.
- Construction-to-permanent single-closing transactions with credit and appraisal documents dated more than four months but not exceeding 18 months at the time of the conversion to permanent financing will be accepted if the documents were dated within 120 days of the original closing date, the LTV and CLTV do not exceed 70% and the loan received an "Approve/Eligible" recommendation.
- Home Equity Lines of Credit are permissible as secondary financing with the Flexible mortgage and MyCommunityMortgage products.
- HUD-1 Settlement Statement (or HUD-1A, if applicable) or other closing settlement statement must be executed by the borrower and seller (if applicable).
- Lenders must obtain a completed/signed Form 4506-T from all borrowers at both application and closing.
Fannie Mae Announcement 09-21 (June 26, 2009)
Form 1003 was revised to accommodate new data elements required by the Federal Housing Finance Agency. The updated form accommodates the lender’s collection of the Loan Originator ID and the Loan Origination Company ID. The use of the updated form is required for mortgage loan applications taken on or after January 1, 2010. For loans secured by properties located in states that have not implemented the NMLSR prior to the January 1, 2010 effective date, implementation of the required use of Form 1003 will be waived.
Form 1008 was updated to provide lenders with new project classifications for condominiums, planned unit developments, and cooperatives as referenced in Announcements 08-34 and 09-04. The updated form must be used for mortgage loan applications taken on or after January 1, 2010 for manually underwritten mortgages.
Effective immediately, lenders may begin using the new Forms 3747 and 3748 in order to resubordinate all existing subordinate liens in order to retain the first lien position of a new loan.
Fannie Mae Announcement 09-23 (July 1, 2009)
The loan-to-value ratio was increased from a limit of 105% to 125% under the Home Affordable Refinance Program. The expansion is intended to help borrowers with a demonstrated track record for making their mortgage payments on time, but who are not able to refinance due to declining property values. The refinance must provide the borrower with either a reduction in the monthly mortgage payment (principal and interest) or a more stable product (convert an ARM to a fixed rate mortgage).
Fannie Mae Lender Letter 05-2009 (June 16, 2009)
Fannie Mae will provide the Section 404 notice to borrowers when it purchases or securitizes a mortgage loan. Notices will be sent to borrowers on or before June 19, 2009 for loans acquired on or after May 20, 2009.
Freddie Mac Bulletin 2009-17 (July 8, 2009)
The Federal Reserve Board amended Regulation Z to include a new category of higher-priced mortgage loans (“HPML”) which are defined as mortgages secured by the borrower’s principal residence (first lien loan) with an annual percentage rate that is at least 1.5% higher than the average prime offer rate for a comparable transaction. Applications dated on or after October 1, 2009 must meet the new eligibility requirements and must be one of the following:
- Fixed-rate mortgage;
- 7/1 or 10/1 ARMs, or 7/6-month or 10/6-month ARMs; or
- 7-year balloon reset mortgage.
Streamlined refinance mortgages and Freddie Mac Relief Refinance Mortgages (Same Servicer) are prohibited because they do not require verification of income and assets. In addition, HPMLs that contain prepayment penalties will not be accepted even though Regulation Z permits prepayment penalties under certain conditions. Freddie will not purchase HPMLs that adjust (interest or payment) during the first seven years after origination.
Freddie Mac Modifies Relief Refinance Mortgage (June 5, 2009)
Borrowers who have current first lien conventional mortgages owned or securitized by Freddie Mac may participate in Freddie's Relief Refinance Mortgage offering. This offering aims to provide loan products with better terms through expanded LTV/TLTV/HTLTV ratios, relief from mortgage insurance and simplified appraisal requirements.
HUD Mortgagee Letter 2009-18 (June 10, 2009)
The Mortgagee Letter provides guidance on the new statutorily authorized maximum mortgage amounts for FHA insured Energy Efficient Mortgages ("EEM"). The maximum amount of the portion of the EEM for energy improvements is the lesser of 5% of:
- The property value,
- 115% of the median area price of a single family dwelling or
- 150% of the conforming Freddie Mac limit.
HUD Mortgagee Letter 2009-19 (June 12, 2009)
In accordance with the Housing and Economic Recovery Act, the Federal Housing Administration ("FHA") is implementing a new approval process for condominium projects to qualify for FHA insured mortgages. Lenders are allowed to determine project eligibility, review project documentation and certify to compliance under Section 203(b) of the National Housing Act and 24 CFR 203 of HUD’s regulations. A list of approved condominium projects will be maintained by HUD.
The Mortgagee Letter immediately eliminates the spot condo approval process and clarifies that manufactured housing condominium projects qualify for both Home Equity Conversion Mortgages and forward mortgages.
Two condominium project approval processing options are available to lenders:
- HUD Review and Approval Process (HRAP)
- Direct Endorsement Lender Review and Approval Process (DELRAP) – available only to lenders with unconditional Direct Endorsement authority and staff with knowledge and expertise in reviewing and approving condominium projects.
FHA-to-FHA streamline refinance transactions and FHA/HUD Real Estate Owned (REO) Division sales do not require project approval.
The Mortgagee Letter requirements are effective for all case numbers assigned on or after October 1, 2009 unless stated otherwise.
HUD Mortgagee Letter 2009-21 (June 30, 2009)
The Mortgagee Letter provides clarification for the Federal Housing Administration (“FHA”) Home Equity Conversion Mortgage (“HECM”) Program.
- A reduced initial MIP amount of 2% of the increase in the maximum claim amount will be collected by FHA which only applies if the collateral property remains the same.
- The Anti-Churning Disclosure is provided to ensure that the refinance benefits the mortgagor. Lenders should provide its best estimate of:
- The total cost of the refinancing to the borrower;
- The increase in the borrower’s principal limit as measured by the estimated initial principal limit on the HECM refinance LESS the current principal limit on the existing HECM; and
- The funds available minus any closing costs and other fees.
- Under the Program, all HECM borrowers must receive counseling from an independent third party. Borrowers may waive the HECM counseling requirement if three conditions are met:
- The borrower has received the Anti-Churning Disclosure;
- The increase in principal limit exceeds the total cost of the refinance by an amount equal to five times the cost of the transaction; and
- The time between the closing and the application for refinancing does not exceed five years.
- The Mortgagee Letter also provides clarification regarding:
- Information provided to mortgagees originating HECM refinance loans;
- HECM servicer contact information; and
- Payoff of existing HECM loan.
