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.November 2008
STATE ANNOUNCEMENTS |
Maryland Regulations: (effective November 3, 2008)
COMAR 09.03.06 Mortgage Lenders |
COMAR 09.03.09 Mortgage Originators |
COMAR 09.03.10 Credit and Other Regulation |
The Commissioner of Financial Regulation adopted amendments to provide definitions, licensing requirements and foreclosure record requirements. Regulations 09.03.06 and 09.03.09 contain provisions relating to high-priced mortgage loans and define such loan as one in which the annual percentage rate exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by:
- 1.5 or more percentage points for loans secured by a first lien; or
- 3.5 or more percentage points for loans secured by a subordinate lien.
Security Instruments must include the name and licensee number of the mortgage lender and mortgage originator, or an affidavit in lieu thereof (Md. Code Ann. Real Prop. §3-104.1).
Licensees must use good faith and fair dealing when determining whether a mortgage loan refinancing has a net tangible benefit to the borrower by considering all the circumstances as well as the terms and cost of the loan. Net tangible benefits may include, but are not limited to:
- obtaining a lower interest rate;
- obtaining a lower monthly payment (including principal, interest, taxes and insurance);
- obtaining a shorter amortization schedule;
- changing from an adjustable rate to a fixed rate;
- eliminating a negative amortization feature;
- eliminating a balloon payment feature;
- receiving cash-out from the new loan in an amount greater than all closing costs;
- avoiding foreclosure;
- eliminating private mortgage insurance; and
- consolidating other existing loans into a new mortgage loan.
A mortgage lender has conducted a reasonable inquiry of whether a refinance provides a net tangible benefit to the borrower if they have the borrower complete and sign a net tangible benefit worksheet on the form prescribed by the Commission.
In addition, a disclosure must be provided to the borrower if the terms of the loan includes a balloon payment, does not provide for an escrow account, or includes mandatory binding arbitration. The application disclosures must be in at least 10-point type font and shall appear together on a sheet of paper that contains no information other than the disclosures. The disclosures can include check boxes that may be marked when the disclosure applies. The disclosure must be delivered to the borrower:
- within ten business days after the application for the loan is complete, and not less than 72 hours before the time of settlement;
- when an application is completed at the time of initial application;
- if any change to the loan terms requires additional or modified disclosures. A final set of disclosures shall be delivered at least 72 hours before the time of settlement.
First American Loan Production Solutions (LPS) implemented the changes to the security instruments as required in Senate Bill 216 in April. The net tangible benefit worksheet and disclosures are available for client use.
Washington Administrative Code 208-600-200 (effective December 5, 2008)
Washington House Bill 2770 provided the Department of Financial Institutions (“Department”) with the regulatory authority to require disclosures of additional information. The regulation clarifies the definition of a residential mortgage loan as an extension of credit secured by residential real property used to purchase an owner-occupied, primary residence or second home. A residential mortgage loan does not include an extension of credit secured by residential real property for:
- business, commercial, or agricultural purposes;
- the primary purpose of financing income or investment property;
- an open or closed-end home equity line of credit (HELOC).
A one page disclosure summary is required to help borrowers understand their loan terms. The Department adopted two model disclosures: Disclosure Summary – Fixed Rate Loan and Disclosure Summary – Variable Rate Loan. Lenders may choose to design their own form as long as it is clear, accurate, contains all of the material terms, uses simple language, and fits on one page. The disclosure must be separate from any other document and use plain language terms that are reasonably understandable to the average person. An initial disclosure must be provided to the borrower within three business days following receipt of a loan application.
Material loan terms must be redisclosed within three days if a significant change occurs, or at least three days before closing, whichever is earlier. A significant change is any change that results in an increase in the borrower’s loan amount or fees as follows:
- any increase in the principal loan amount that is greater than or equal to 5%;
- any increase in the interest rate that is greater than 1/8th of 1%;
- changing the loan from fixed to adjustable or adjustable to fixed; or
- any increase of $500 or more in the broker’s yield spread premium, the loan origination fee, discount point fees, or any other fees considered finance charges under the Truth in Lending Act.
- the loan contains a prepayment penalty;
- the loan contains a balloon payment;
- the property taxes and property insurance are escrowed in the loan payment; or
- the loan cost or rate is based on reduced documentation.
AGENCY ANNOUNCEMENTS |
HUD Mortgagee Letter 2008-33 (October 20, 2008)
HUD announced that eligible mortgagors now have the opportunity to purchase a principal residence with Home Equity Conversion Mortgage (HECM) loan proceeds. HECM for purchase transactions, for which the FHA case number is assigned on or after January 1, 2009, must satisfy existing program requirements and the provisions of the mortgagee letter.
FHA defines “HECM for Purchase” as a real estate purchase where title to the property is transferred to the HECM mortgagor and the property will be occupied as the principal residence. At the time of closing, the HECM first and second liens will be the only liens against the property. The property must be occupied by the mortgagor within 60 days from the date of closing.
HUD Mortgagee Letter 2008-34 (October 31, 2008)
The new HECM origination fee limit will be the greater of $2,500 or two percent of the maximum claim amount of the mortgage, up to a maximum claim amount of $200,000 plus one percent of any portion of the maximum claim amount that is greater than $200,000 for all HECMs where the FHA case number is assigned on or after October 31, 2008. Lenders may accept a lower origination fee when appropriate. The total amount of the loan origination fee may not exceed $6,000.
LPS has documents available that provide the new origination fee limits.
HUD Mortgagee Letter 2008-35 (November 6, 2008)
The national mortgage limit is set at $417,000 for all HECMs insured on or after November 6, 2008. The new HECM national mortgage limit of $417,000 also applies to Alaska, Guam, Hawaii and the Virgin Islands which were permitted to exceed the limit by up to 150% under Section 214 of the National Housing Act. The exceptions to this mortgage limit are Hilo, Hawaii; Honolulu, Hawaii; Kappa, Hawaii and Kahului-Wailuku, Hawaii since the new national limit would effectively reduce the mortgage limits in these areas. They will continue to operate under their current mortgage limits as noted in the mortgagee letter.
HUD Mortgagee Letter 2008-36
HUD announced that the national loan limit for 2009 will remain at $417,000. The FHA limits are set at the 65% amount (the “floor”) in areas where 115% of the median house price is less than 65% of the Freddie Mac limit.
| One-Unit | $271,050 | Three-Unit | $419,400 |
| Two-Unit | $347,000 | Four-Unit | $521,250 |
The mortgage limits are set at 150% percent (the “ceiling”) in areas where 115% of the median house price exceeds the 150% figure. Any area where the limits exceed the floor is known as a “high cost” area.
| One-Unit | $625,500 | Three-Unit | $967,950 |
| Two-Unit | $800,775 | Four-Unit | $1,202,925 |
For all other areas where 115% of the median home price is in between the floor and the ceiling, the limit shall be at 115% of the median home price.