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.May 2009
FEDERAL ANNOUNCEMENT |
12 CFR Part 226 Regulation Z (effective July 30, 2009)
The Board of Governors of the Federal Reserve System adopted a final rule amending Regulation Z,
implementing the changes to the Truth in Lending Act ("TILA") made by the Mortgage Disclosure Improvement
Act of 2008, as revised by the Emergency Economic Stabilization Act of 2008, which is part of the Housing and Economic
Recovery Act of 2008. The below requirements will impact applications received on or after July 30, 2009.
- Early TILA disclosures ("Disclosures") are required for any dwelling secured mortgage loan that is subject to the Real Estate Settlement Procedures Act. This requirement encompasses refinance and home equity loans, in addition to purchase money and construction loans. Home Equity Lines of Credit are not included in this requirement.
- Disclosures must be delivered or placed in the mail no later than three business days after receipt of an application. The consumer must receive the Disclosures before any fees are collected, except for a bona-fide and reasonable fee for obtaining a consumer's credit report. For this requirement, business day is defined as a day in which a creditor's office(s) is open to the public for carrying on substantially all of its business functions.
- The loan closing may occur on or after seven business days after the date the Disclosures were delivered or mailed to the consumer. If corrected Disclosures are provided, the loan closing may not occur until three business days after the consumer receives the Disclosures. For these requirements, business day is defined as all calendar days except Sundays and specified legal public holidays.
- If a consumer has a bona fide personal emergency, the loan closing may be expedited through modifying or waiving certain Disclosure timing requirements. Specifically, this includes the seven day waiting period and the three day waiting period for corrected Disclosures. These modification and waiver provisions are consistent with TILA's waiver provisions concerning the three day right of rescission.
- Disclosures, including corrected Disclosures, must include the following statement: "You are not required to complete this agreement merely because you have received these disclosures or signed a loan application." If the Disclosures are used as the TILA consummation disclosures, then the statement may be included on the disclosures provided at consummation.
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 to comply with the S.A.F.E. Act: Arkansas,
Georgia, Idaho, Iowa, Kansas, Kentucky, Maryland, Mississippi, Montana, Nebraska, New Jersey, New Mexico, North Dakota, Oklahoma,
South Dakota, Utah, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.
Arkansas House Bill 1881 (effective July 1, 2009)
In addition to the enactment of the necessary S.A.F.E. Act requirements, House Bill 1881 amends the Fair Mortgage Lending Act ("Act")
to revise the definition of "exempt person" and add a definition of "reverse mortgage". Among others, insurance companies licensed
or authorized to conduct business by the Arkansas State Insurance Department are no longer considered exempt under the Act.
In contrast, a manufactured home retailer and its employee that performs only administrative or clerical tasks in connection with
the sale or lease of a manufactured home is an “exempt person” under the Act if no compensation or other gain is received for the
performance of such tasks. A reverse mortgage is a nonrecourse loan that pays a homeowner loan proceeds drawn from accumulated home
equity.
Colorado House Bill 09-1109 (effective July 1, 2009)
The definition of "residence in foreclosure" has been amended to include an owner occupied principal residence or dwelling that is
encumbered by a residential mortgage loan that is at least thirty days delinquent or in default. Previously, "residence in
foreclosure" included only those owner occupied principal residences or dwellings against which any type of foreclosure action
has been commenced.
Indiana House Bill 1176 (effective July 1, 2009)
A new chapter regarding real estate appraisals and the requirements and prohibitions associated therewith has been added to the
Indiana Code. A person must not corrupt or improperly influence the independent judgment of a real estate appraiser or the
development, reporting result or review of an appraisal prepared in connection with a real estate transaction in any manner.
A person who knowingly or intentionally violates this law commits a Class A misdemeanor, which may include a $10,000.00 civil
penalty per violation.
After June 30, 2009, a prepayment fee or penalty may not be charged on an adjustable rate home loan or its refinancing. A home loan is secured by property occupied by the borrower as a principal dwelling. A home loan does not include an open-end credit plan, a reverse transaction, a loan made by a state or federally organized bank, trust company, savings bank, credit union or industrial loan and investment
company, a loan subject to be purchased or insured by a federal agency, a loan funded by the Indiana Housing and Community Development Program, or a loan exceeding the Fannie Mae conforming loan amount. If a short sale is proposed with respect to a high cost home loan, certain prepayment penalty restrictions are no longer applicable.
After December 31, 2009, a creditor must provide a notice no later than three business days after receiving a completed written
application for a mortgage loan. The notice will be prescribed by the Homeowner Protection Unit ("HPU") no later than September 1,
2009. The disclosure will include HPU contact information, a statement that the borrower may contact the HPU to report fraudulent
activity, and a statement that the borrower has the right to inspect the HUD-1 or HUD-1A on the business day immediately preceding
settlement.
LPS will have the disclosure available for use by December 31, 2009.
Maryland Senate Bill 269 (effective July 1, 2009)
The Commissioner of Financial Institutions ("Commissioner") has created a new license type:
"Affiliated Insurance Producer-Mortgage Loan Originator." This license type includes individuals who originate mortgage loans
only for financial institutions approved by the Commissioner or on behalf of banks, trust companies, savings and loan associations,
or credit unions chartered or incorporated under the laws of Maryland, the United States, or any other state that has a branch office
in Maryland.
Montana Senate Bill 351 (effective July 1, 2009)
In connection with enacted S.A.F.E. Act provisions, the Mortgage Loan Origination Disclosure has been revised.
LPS will have the revised disclosure available for client use by July 1, 2009.
New Jersey Assembly Bill 3816 (effective July 4, 2009)
In connection with enacted S.A.F.E. Act provisions, the New Jersey Licensed Lenders Act has been revised to create two new
regulatory plans, the New Jersey Residential Mortgage Lending Act and the New Jersey Consumer Financing Licensing Act.
The Residential Mortgage Lending Act covers residential mortgage lending and the Consumer Financing Licensing Act covers
non-mortgage, consumer loans of $50,000.00 or less.
New Mexico Senate Bill 342 (effective July 31, 2009)
Mortgage Loan Company Act
The Mortgage Loan Company and Loan Broker Act has been renamed the Mortgage Loan Company Act ("Act").
The Act is expanded to include new and amended definitions, as well as new practices that must be followed.
The Act requires the following disclosures to be made:
- All applicable federal and state disclosures;
- A revised Good Faith Estimate in connection with a copy of the borrower’s lock-in agreement within three days of locking in the loan rate, pricing, and terms;
- A full and fair disclosure of all facts within the knowledge of the mortgage loan company that are or may be material to the borrower’s decision, rights or interests;
- At least two days prior to closing, a disclosure of the total amount of any compensation the mortgage loan company expects to receive specific to the loan offered, including origination fees, broker fees, yield spread premiums and other fees payable to the mortgage loan company by the lender or other third party at the time the loan is funded to the borrower. (If the mortgage loan company does not disclose this information, then the mortgage loan originator must disclose. A mortgage loan originator is an individual who for compensation or gain or the expectation of compensation or gain takes a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan. ("MLO"));
- A mortgage loan summary, which is to be promulgated by the Director of the Financial Institutions Division of Regulation and Licensing Department ("Director") (If the mortgage loan company does not provide this disclosure, then the MLO must provide.); and
- A signed contract by the borrower, which is to be promulgated by the Director, providing for either a mortgage loan rate float or rate lock-in.
LPS will have the disclosures available for use by July 1, 2009.
Home Loan Protection Act
The Home Loan Protection Act ("Act") has been expanded to include new and amended definitions, as well as to include additional prohibitions concerning home loans and high cost home loans.
Prohibited practices regarding a home loan now include:
- Failure to document and consider the borrower’s ability to repay the loan and the costs associated with the loan.
- Originating an adjustable rate home loan that results in negative amortization.
- Originating a home loan in which more than two periodic payments required under the loan are consolidated and paid in advance from the borrower’s loan proceeds.
- Paying a home-improvement contractor from home loan proceeds unless certain requirements are met.
- Charging fees or other charges that are not bona fide, reasonable, and actual to modify, renew, extend, or amend a home loan.
- Charging the borrower a fee in excess of $75.00 to defer a payment under a home loan.
- Recommending or encouraging the borrower to default on an existing loan or other debt prior to and in connection with the closing of a home loan that refinances all or any portion of the existing loan or debt.
- Providing a late payment fee, unless such fee (1) is not in excess of 5% of the amount of the payment past due; (2) only assessed for a payment past due for 15 days or more; (3) not imposed more than once with regard to a single payment nor imposed on a subsequent payment that would be a full payment but for the imposition of a late payment fee; (4) the borrower is notified within 45 days following the date the payment was due that a late payment fee has been imposed; and (5) treating each payment as posted on the same business day as it was received.
- Making a home loan with a provision for acceleration of the indebtedness based on the creditor’s sole discretion.
- Originating a home loan with a penalty or premium for prepayment.
- Making a home loan based upon the foreclosure or liquidation value of the borrower’s collateral home.
- Making or originating an adjustable rate home loan, except a home equity line of credit, in which the interest rate and payment change more than annually during the loan term.
- Making an adjustable rate home loan, except a home equity line of credit, in which (1) the initial interest rate may be increased by more than 2 percent for loans with initial periods less than 5 years and 6 percent for initial periods greater than or equal to 5 years; (2) a periodic interest rate that increases more than 2 percent; and (3) a lifetime interest rate cap more than 6%.
- Advertising home loan terms that cannot be offered to a reasonable number of qualified applicants.
- Misrepresenting a borrower’s credit rating.
- Misrepresenting, inflating, or fabricating, or encouraging a borrower to do the same with regard to the source or amount of a borrower’s income or assets.
- Failure to establish an escrow account when the loan-to-value ratio is 80% or higher for an owner occupied residence.
Virginia
Under the Mortgage Lender and Broker Act, a mortgage broker must make reasonable efforts to secure a mortgage loan that is in the best interests of the applicant which includes, but not limited to, the product type, rate, charges and repayment terms of the loan. A borrower may recover actual damages, attorney fees, and court costs as a result of a broker’s breach of duty.
No person shall use any deception, fraud, false pretense, false promise, or misrepresentation in connection with a mortgage loan transaction. Willful violation can lead to a civil penalty of not more than $2,500.00 per violation.
Washington House Bill 1311 (effective July 26, 2009)
The Department of Financial Institutions ("Department") adopted new laws regarding proprietary reverse mortgage lending. A proprietary reverse mortgage loan is defined as any reverse mortgage loan product that is not a Home Equity Conversion Mortgage loan or other federally guaranteed or insured loan. A proprietary reverse mortgage loan product may not be offered without preapproval by the Department.
Prepayment or the refinancing of a reverse loan is permitted without penalty at any time. However, when a reverse lender has paid or waived all the usual fees or costs associated with the loan, a prepayment penalty may be imposed provided the penalty does not exceed the total amount of the usual fees or costs initially absorbed.
In the loan agreement, the lender must disclose in bold 16 point type any interest rate or other fees to be charged during the period that commences on the date that the reverse mortgage loan becomes due and payable and that ends when repayment is made in full. The first page of any deed of trust must contain the following statement in 16 point boldface type: "This deed of trust secures a reverse mortgage loan."
Prior to accepting a final and complete application or assessing any fees, the lender must refer the prospective borrower to a HUD approved counseling agency by providing a list of at least five independent housing counseling agencies. A lender must receive a certification from the applicant that counseling has been received. The certification must be signed by both the borrower and the agency counselor and must include the date of the counseling as well as the names, addresses, and telephone numbers of both the counselor and the borrower.
Additionally, the lender must provide the borrower with the "Important Notice to Reverse Mortgage Loan Applicant" disclosure (in bold 16 point font) within three business days of receipt of the completed application. Also, the borrower in a proprietary reverse transaction has the right to rescind the transaction as provided in Regulation Z.
AGENCY ANNOUNCEMENTS |
Fannie Mae Announcement 09-11 (May 1, 2009)
Mortgage loan applications will be required to include loan origination identifiers and appraiser data elements on or after January 1, 2010. This announcement provides information about the requirements for:
- State and federal license and registration requirements;
- Updates to the 2000 – character loan delivery files; and
- Updates to the Uniform Residential Loan Application (Form 1003).
Freddie Mac Bulletin 2009-10 (April 21, 2009)
The Bulletin provides updates for the Home Affordable Modification program. If a borrower is current or less than 31 days delinquent and claims a hardship, criteria is provided to determine if the borrower is in imminent default. A modification must be considered by servicers if it is determined that the borrower’s debt coverage ratio is less than 1.20 and cash reserves are less than three times the current monthly PITIA payment. The Borrower Qualification Worksheet will assist servicers in making the imminent default evaluation. The Bulletin also provides requirements for determining the amount of principal forbearance that is permitted to achieve the target payment for a modification. The Net Present Value
("NPV") Calculator must be used to compare the NPV result for a modification to the NPV result for not modifying the mortgage.
Most importantly, servicers are reminded that all foreclosure sales on owner-occupied properties should be suspended in the event the borrower qualifies for a modification under the Home Affordable Modification Program.
The Bulletin also addresses the following:
- Income verification requirements;
- Definition of interest rate cap;
- Credit Bureau reporting requirements;
- Collateral Valuation requirements;
- Eligibility requirements;
- Verifying installment debt and other expenses;
- Program incentive requirements ;
- Transfer of Servicing requirements;
- Reporting data to Fannie Mae in its capacity as financial agent for Treasury;
- Compliance Agent; and
- Program documentation.
Freddie Mac Bulletin 2009-12 (May 12, 2009)
The loan amount of the mortgage as stated in the note must be used to determine compliance with the maximum loan limits for super conforming mortgages.