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.June 2008
The Federal Reserve, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Office of Thrift Supervision, and the National Credit Union Administration (collectively “Agencies”) issued the final illustrations associated with the Statement on Subprime Mortgage Lending (“Subprime Statement”), which was originally discussed in LPS’ July 11, 2007 Compliance Update. The Subprime Statement, effective July 10, 2007, recommended that financial institutions provide clear, balanced and timely information to consumers about the relative benefits and risks of hybrid adjustable rate mortgage products. The illustrations are intended to assist institutions in providing this information and consist of (1) an explanation of some key features of products covered by the Subprime Statement, and (2) three charts with examples of the potential payment shock accompanying these types of loans.
Institutions are not required to use the illustrations. They may use them, provide information based on them, or provide consumers with information described in the guidance in an alternate format.
First American Loan Production Solutions (“LPS”) has the final documents available for client use.
Alaska:
House Bill 162 (effective July 1,
2008)
Under the new Mortgage Lending Regulation Act (“Act”), no person,
including a person doing business from outside Alaska, may operate as a mortgage
broker, lender or originator without first obtaining a license from the
Department of Commerce, Community and Economic Development (“Department”),
unless that person is exempt and has registered with the Department.
A person engaged in activities for which a license is required under the Act, immediately prior to July 1, 2008 is not required to comply with the Act’s licensing requirements until March 1, 2009.
Connecticut: House Bill 5577 (effective July 1,
2008)
- The CHFA is authorized to continue to develop and
implement programs to assist homeowners with refinancing adjustable rate
mortgages; to provide emergency mortgage assistance; and to purchase
foreclosed
- Foreclosure
- A foreclosure mediation program (“Program”) must
be established in each judicial district by July 1, 2008 by the Chief Court
Administrator to address all issues of foreclosure, including reinstatement,
restructuring of the mortgage debt and foreclosure by decree of sale.
The Program will remain in effect until July 1, 2010.
- Prior to commencing a foreclosure action, the
mortgagee must notify the mortgagor of the availability of emergency
mortgage assistance
- When a foreclosure action is commenced, the
mortgagee must give the mortgagor notice of the Program by attaching a copy
of the prescribed notice and foreclosure mediation request form to the front
of the foreclosure complaint
- A foreclosure mediation program (“Program”) must
be established in each judicial district by July 1, 2008 by the Chief Court
Administrator to address all issues of foreclosure, including reinstatement,
restructuring of the mortgage debt and foreclosure by decree of sale.
The Program will remain in effect until July 1, 2010.
- Licensing
- The Secondary Mortgage Loan Act is repealed and
the Nondepository Mortgage Lenders and Brokers Act is expanded to include
secondary mortgage loans. Mortgage professionals will no longer be
categorized by first and secondary. Each person licensed on July 1,
2008 must, prior to October 1, 2008, transition on to the Nationwide
Mortgage Licensing System. Any license-related filings must be
submitted exclusively through the system on and after July 1,
2008.
- Surety bond requirements, license fees and net
worth requirements are increased
- License expiration dates are changed to December
31st of the year following issuance or renewal
- The Secondary Mortgage Loan Act is repealed and
the Nondepository Mortgage Lenders and Brokers Act is expanded to include
secondary mortgage loans. Mortgage professionals will no longer be
categorized by first and secondary. Each person licensed on July 1,
2008 must, prior to October 1, 2008, transition on to the Nationwide
Mortgage Licensing System. Any license-related filings must be
submitted exclusively through the system on and after July 1,
2008.
- Nonprime home loans
- A nonprime home loan is any residential loan or
extension of credit, excluding open end lines of credit and reverse
mortgages, to a natural person primarily for personal, family or household
purposes, secured by borrower-occupied property, which:
- Does not exceed the then current conforming
limit, as established from time to time by the Federal National Mortgage
Association
- Has an annual percentage rate (“APR”) that
is either equal to or greater than the yield on US Treasury securities
having comparable periods of maturity plus 3% for first liens or 5% for
second liens, and
- Has an APR that is either equal to or greater
than the most recent daily contract interest rate on commitments for
fixed-rate mortgages published by the Board of Governors of the Federal
Reserve System plus 1.75% for first liens or 3.75% for second
liens
- Does not exceed the then current conforming
limit, as established from time to time by the Federal National Mortgage
Association
- Lenders must comply with the following
requirements when making a nonprime home loan:
- Not engage in any misleading, deceptive, or
untruthful conduct in any transaction, practice, or course of business in
connection with making a nonprime home loan
- Not make or offer a nonprime home loan that
refinances an existing mortgage, unless the loan provides a tangible net
benefit to the borrower
- Not encourage default on an existing mortgage or
other debt prior to and in connection with the closing or planned closing
of a new nonprime home loan that refinances all or any portion of the
existing loan or debt
- Not finance any credit life, disability,
unemployment or property insurance, or any other life or health insurance
or any payments for any debt cancellation or suspension agreement or
contract (except for those calculated and paid on a monthly basis or using
periodic payments)
- Adhere to a duty of good faith and fair dealing
with respect to the performance of any contract with a
borrower
- Provide the borrower with a note or letter that
generally describes the terms of the transaction, and notification of any
subsequent material changes to the terms of the transaction within a
reasonable period of time
- Not make a nonprime home loan, unless the lender
reasonably believes, at the time the loan is consummated, that one or more
of the borrowers has the ability to repay the loan and related taxes and
insurance
- Not make a nonprime home loan if any of the
proceeds will be used to pay off a loan on the same property originated,
subsidized or guaranteed by or through a state, federal, tribal or local
government or nonprofit organization, unless the borrower has obtained a
written certification from a HUD-approved nonprofit counselor that the
borrower has received mortgage counseling
- Not make a nonprime home loan
unless:
- The lender collects escrows for property taxes
and insurance, when the loan is for a first lien, unless an exception
applies (applicable January 1, 2010)
- The lender provides applicants with a notice
containing a toll-free number that can be used to obtain a list of
HUD-approved housing counselors no later than three business days after
the receipt of a completed application
- The lender collects escrows for property taxes
and insurance, when the loan is for a first lien, unless an exception
applies (applicable January 1, 2010)
- Not engage in any misleading, deceptive, or
untruthful conduct in any transaction, practice, or course of business in
connection with making a nonprime home loan
- Lenders are prohibited from offering a nonprime
home loan that contains:
- A prepayment penalty
- A provision increasing the interest rate after
default
- A provision requiring a borrower to assert any
claim or defense in a nonjudicial forum that uses principles inconsistent
with the law, limits any claim or defense the borrower may have, or is
less convenient, more costly or more dilatory than going to
court
- A prepayment penalty
- A nonprime home loan is any residential loan or
extension of credit, excluding open end lines of credit and reverse
mortgages, to a natural person primarily for personal, family or household
purposes, secured by borrower-occupied property, which:
If a nonprime home loan contains any of the
aforementioned provisions, that provision is void and unenforceable.
LPS is in the process of creating the Connecticut Counseling Notice and will have it available to our clients by the effective date.
Fannie Mae
Announcement 08-10
(Dated May 16, 2008)
A new national down payment policy for one-unit, primary resident conventional loans is available, effective June 1, 2008. The policy will allow DU® underwritten loans to have a LTV up to 97 percent and up to 95 percent for loan underwritten manually.
Announcement 08-11
(Dated May 16, 2008)
Fannie Mae has expanded their jumbo-conforming program to include the following products:
- 30 year fixed rate mortgage with a 10 year interest only period.
- 7/1 and 10/1 LIBOR ARM, 5/2/5 rate caps with a 30 year term.
- 7/1 and 10/1 LIBOR ARM , 5/2/5 rate caps, 30 year term with a 10 year interest only period.
Lender can begin to deliver these loans for purchase either July 1, 2008 or August 1, 2008 please refers to attachment 1 of announcement 08-11 for more detail.
Freddie Mac
Freddie Mac has made the following changes effective June 1, 2008:
- The requirement to reduce the max LTV/TLTV/HTLTV has been eliminated to for properties in declining market areas.
- Freddie Mac will no longer purchase loan with LTV/ TLTV/ HTLTV greater than 95 percent with the exception of FHA, VA, GRH mortgages, Native American mortgages or Home Possible® mortgages with LTV/TLTV greater than 95 percent.
- The maximum LTV and TLTV for 2-, 3-, and 4- unit Home Possible mortgages has been reduces to a max LTV of 95 percent and TLTV of 100 percent.
House Bill 921 (effective July 1, 2008)
The Department of Banking and Finance is authorized to participate in the nationwide residential mortgage licensing system.
- A cashier’s check issued by a lender from a
federally insured bank, savings bank, savings and loan association, or credit
union
- A check drawn on the escrow account of a
- checks issued by the
- checks not exceeding $5,000 per closing
House Bill 449 (effective July 1,
2008)
The Idaho Consumer Credit Code is amended to add a mortgage retail lending
exemption for entities solely engaged in mortgage lending and already licensed
under the Idaho Residential Mortgage Practices Act.
House Bill 450 (effective July 1,
2008)
The Idaho Residential Mortgage Practices Act (“Act”) is amended to clarify
the definitions of “mortgage lending activities,” mortgage brokering
activities,” and “loan origination activities” include engaging in such
activities for compensation or gain or “in the expectation of compensation or
gain.” In addition, the bill clarifies that the Act applies to loans on
all 1 – 4 family dwellings in
Dollar
Adjustments (effective July 1, 2008)
The biennial dollar adjustments to the Indiana Uniform Consumer Credit Code have been made by the Indiana Department of Financial Institutions. The adjustments include the delinquency charge which has been increased from $17.00 to $17.50.
House Bill 1359 (portions effective July 1, 2008)
- Certain exemptions under the Act have been eliminated,
thereby subjecting loan brokers that currently operate under such exemptions to
licensure with either the Indiana Securities Division or the Department of
Financial Institutions no later than January 1, 2009.
- The prohibited acts of loan brokers have been expanded
to include the following:
- Knowingly releasing or disclosing unencrypted,
unredacted personal information of a borrower or prospective borrower unless
authorized by the individual
- Engaging in any reckless or negligent activities
allowing the release or disclosure of the unencrypted, unredacted personal
information of a borrower or prospective borrower
- Knowingly receiving any funds that were generated as a
result of a fraudulent act
- Knowingly filing or causing to be filed with a county
recorder any document that contains a misstatement or untrue statement of a
material fact, or omits a statement of material fact that is necessary to make
the statements that are made not misleading
- Knowingly releasing or disclosing unencrypted,
unredacted personal information of a borrower or prospective borrower unless
authorized by the individual
Iowa:
Senate File 2277 (effective July 1, 2008)
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.
- Applications for license renewal and registration
must be filed by December 1st of the year of expiration, as opposed
to the previous June 30th deadline
- Beginning January 1, 2009, natural persons acting as
a mortgage banker or broker, who are employed by, under contract with or act
as an agent of a licensed mortgage banker or broker must meet education and
training requirements, as adopted by the Superintendent of the Division of Banking of the Department
of Commerce
- A person, who without first obtaining a license or
individual registration, acts as a mortgage banker or mortgage broker is
guilty of a class “D” felony and may be prosecuted by the attorney general or
a county attorney.
- Bond requirements have increased from $50,000 to
$100,000
-
A licensee’s
certificate is no longer required to be prominently displayed at each office
at which the licensee does business.
-
The Commissioner of the Office of Financial Institutions may share any
information or material which has been disclosed to the licensing system with
any state or federal regulatory agencies having authority over residential
mortgage lending activities.
The biennial dollar adjustments to the Minnesota Uniform Consumer Credit
Code have been made by the Minnesota Commerce Department. The adjustments
include the delinquency charge which has been increased from $5.20 to $7.28.
1301:8-3-03 through 09, 11
through 19, and 22 through 24 (effective July 1, 2008)
The Second Mortgage Loan Act regulations have been amended regarding recordkeeping, advertising and servicing requirements. The new regulations require that small loan licensees prominently disclose on, or in, the loan documents, the federal or state statutory authority pursuant to which the loan is made. If a borrower has an Adjustable Rate Mortgage (“ARM”) with an initial fixed rate period, the licensee must provide a written notice of the pending date when the ARM is to reset to a variable rate at least six months, but not more than seven months, in advance of the initial scheduled reset date.
The annual dollar adjustments to the Oklahoma Uniform Consumer Credit Code
have been made by the Oklahoma Department of Consumer Credit. The
adjustments include the delinquency charge which has been increased from $21.00
to $22.00.
A mortgage broker, mortgage banker, or loan originator must provide a
written disclosure to the borrower before negotiating loan terms for a mortgage
loan if they have a verbal or written contract, joint venture agreement or any
other type of understanding with a builder or a realtor who is party to the
transaction and that this relationship may result in the borrower getting less
favorable loan terms.
LPS is in the process of creating an Oregon Joint Venture Disclosure and will have it available to our clients by the effective date.
The biennial dollar adjustments to the South Carolina Consumer Protection
Code have been made by the South Dakota Department of Consumer Affairs.
The adjustments include the delinquency charge which has been increased from
$15.50 to $16.50. In addition, the minimum delinquency charge has been
increased from $6.20 to $6.60.
Senate Bill 171 (effective July 1,
2008)
A spouse or civil union partner may convey his or her respective homestead
interest to the other spouse or civil union partner prior to the time the
homestead right vests, thereby divesting the grantor of any homestead interest
in the property.
Senate Bill 284 (effective May 28,
2008)
The Commissioner of the Department of Banking, Insurance, Securities, and
Health Care Administration is authorized to participate in a national licensing
system.
The bill amends the Mortgage Lender and Broker Act. The definition
of “mortgage loan” no longer includes the requirement that the property be
owner-occupied.
Senate Bill 6471 (effective
June 12, 2008)
All non-exempt lenders are required to be licensed by the Department of
Financial Institutions under the Consumer Loan Act. Lending is no longer
permitted under the Mortgage Broker Practices Act.
Licensed mortgage brokers may no longer make residential loans or hold themselves out as being able to do so. All persons who engage in the business of making secured or unsecured loans of money, credit or things in actions must obtain a license under the Consumer Loan Act from the Department of Financial Institutions.
The Consumer Loan Act has been amended to eliminate the 12% interest threshold.
Senate Bill 6847 (effective
June 12, 2008)
A mortgage broker, loan originator, or person who has a financial interest
must not:
- give any fee, kickback, payment, or
other thing of value to any person as an inducement, reward for placing
business, referring business, or causing title insurance business to be given
to a title insurance agent in which they have a financial interest; and
- solicit or accept anything of value from title insurers or agents.
House Bill 2770
(effective June 12, 2008)
- A person who commits mortgage fraud is guilty of a Class
B felony. Mortgage fraud is any action by a person made that involves:
- Defrauding or misleading any borrower, lender or person
- Engaging in deceptive practices
- Obtaining property by fraud or material
misrepresentation
- Knowingly make a misstatement, misrepresentation, or
omission with the intention that it be relied on by another, or
- Receive any proceeds or anything of value in connection
with a residential mortgage closing that resulted from fraud
- Defrauding or misleading any borrower, lender or person
- A
financial institution
may not make or facilitate an extension of credit secured by residential real
property upon which a 1-4 family dwelling exists (“Residential mortgage loans do not include reverse mortgages or bridge loans.”)
that:
- Includes a prepayment penalty that extends beyond 60
days prior to the initial reset of an adjustable rate mortgage
- Includes negative amortization, if the loan is subject
to either the Interagency Guidance on Nontraditional Mortgage Product Risks
or Statement on Subprime Mortgage Lending
- Includes a prepayment penalty that extends beyond 60
days prior to the initial reset of an adjustable rate mortgage
- A person subject to licensing under the Mortgage Broker
Practices Act or the Consumer Loan Act may not steer, counsel, or direct any
potential borrower to accept a residential mortgage loan with a risk grade less
favorable than what the borrower would qualify for under the lender’s existing
underwriting standards
- Mortgage brokers, designated brokers, loan originators,
and other persons in mortgage brokering must act in good faith, abstain from
deception and practice honesty and equity in all matters relating to their
profession
- A residential mortgage loan may not be made unless a
disclosure summary of the material loan terms, as adopted by the Department of
Financial Institutions (“DFI”), has been provided to the borrower within three
business days following receipt of a loan application. If any material loan
terms change before closing, a new disclosure summary must be provided to the
borrower within three days of any such change or at least three days before
closing, whichever is earlier.
- Mortgage brokers and mortgage lenders are required to
reimburse the borrower for undisclosed or incorrectly disclosed fees
- I a prepayment penalty is a condition
of the residential mortgage loan, a written disclosure of such penalty must be
delivered along with the good faith estimate of settlement costs (“GFE”)
within three business days after accepting the borrower’s loan
application. The disclosure must be signed by the borrower at the same
time that the borrower is given the final federal Truth-in-Lending Act
disclosure.
- Mortgage lenders cannot receive a fee that exceeds
that which was disclosed on the most recent GFE unless: 1) the need to
charge the higher fees was not reasonably foreseeable at the time the GFE was
written; and 2) no less than three business days prior to the closing, a new
GFE, a clear written explanation of the increase in the fee and the reason for
charging the higher fee is disclosed. Redisclosure is required if the fee
is increased by more than $1,000, unless the fees as a percentage of the
mortgage loan amount does not change.
The DFI commissioner has proposed rules and a model form for the
disclosure summary. LPS will have the form available to our clients when
it has been adopted.
Wyoming: House Bill 36 (effective July 1, 2008)
The Uniform Law on Notarial Acts has been adopted and provides sample
certificate forms. The Wyoming Acknowledgement Act has been repealed.
Senate File 44 (effective July 1, 2008)
Senate File 44 impacts several areas of the Wyoming Residential Mortgage
Practices Act, including the following:
HUD Mortgagee Letter
2008-14 (issued May 16, 2008)
Lenders are reminded of FHA’s policy regarding the use of non FHA-approved
mortgage brokers also referred to as non-approved entity or third party (i.e.,
advisor, consultant, mortgage brokers) to support the origination of FHA-insured
Home Equity Conversion Mortgages (“HECM”). The Mortgagee Letter describes
the ways in which a non-approved entity or third party may support the
origination of HECMs and the limited circumstances under which they may be
compensated, consistent with both applicable FHA policy and applicable
requirements of the federal Real Estate Settlement Procedures Act and its
implementing regulations found at 24 CFR Part 3500.
HUD Mortgagee Letter
2008-15 (issued May 22, 2008)
The Federal Housing Administration (FHA) has replaced both mortgage credit
analysis worksheets HUD-92900-PUR and HUD-92900-WS (MCAWs) with HUD-92900-LT,
FHA Loan Underwriting and Transmittal Summary (LT). Lenders are still
responsible for calculating the mortgage amount in accordance with existing FHA
statutory requirements and documenting that calculation in the loan origination
file. The HUD-92900-LT will be used in conjunction with the HUD-92700-WS,
the 203(k) Maximum Mortgage Worksheet. Mortgagees may begin using the new
form on June 9, 2008, but must use it for all loan applications taken on or
after October 1, 2008.
The HUD-92900-A, Addendum to Uniform Residential Loan Application, has
been updated with dedicated signature lines for co-borrowers. Lenders may
begin using this form immediately but must use it for all loan applications
taken on or after October 1, 2008.
HUD Mortgagee Letter
2008-16 (issued May 22, 2008)
FHA will implement risk-based premiums on one- to four-unit single family
mortgages effective with new FHA case number assignments on or after July 14,
2008. The premium matrix included in this mortgagee letter replaces the
premium matrix in Mortgagee Letter 00-38, which identifies the current mortgage
insurance premiums for FHA’s single family programs. The premium grid is
based solely on the prospective borrower’s credit bureau score and the
loan-to-value ratio.
HUD Mortgagee
Letter 2008-17 (issued June 20, 2008)
Lenders are reminded of existing FHA policy regarding the use of non
FHA-approved mortgage brokers when originating FHA-insured forward mortgages.
FHA loan origination services must be performed by a FHA-approved lender or
FHA-approved mortgage broker (loan correspondent). The loan correspondent
may be compensated for the actual loan origination services it performs either
directly by the consumer or indirectly by the FHA-approved lender without being
in violation of either the federal Real Estate Settlement Procedures Act
(“RESPA”) or FHA regulations.
FHA regulations permit a borrower to engage a broker who is not
FHA-approved to assist him/her in obtaining mortgage financing. However,
the loan origination services may not be performed by that broker
and the FHA-approved mortgagee may not compensate the broker for such services.
FHA requires that these services be performed by either a FHA-approved lender
or loan correspondent. Payment of duplicative fees is prohibited under
RESPA.