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.October 2007
HUD Mortgagee Letter 2007-13 (effective October 12, 2007) (77 KB)
Forward Mortgages
Lenders now may use the 1-Year London Interbank Offered Rate (“LIBOR”) as an acceptable index option for FHA-insured
forward adjustable rate mortgage (“ARM”) loan products. The source that should be used to calculate periodic
adjustments to the note rate is The Wall Street Journal, as published on the first business day of each week,
which is typically a Monday, or Tuesday if Monday is a non-publishing day. The published LIBOR index figure
shall be rounded to three digits to the right of the decimal point.
Home Equity Conversion Mortgages
Additionally, the 1-Month Constant Maturity Treasury (“CMT”) index, the 1-Month LIBOR index and 1-year
LIBOR index may be used to calculate interest rate adjustments on Home Equity Conversion Mortgages (“HECM”)
that have adjustable rates. The source that should be used to calculate periodic adjustments to the note
rate is The Wall Street Journal, as published on the first business day of each week, which is typically
a Monday, or Tuesday if Monday is a non-publishing day. The 10-year swap rate must be used to calculate
the Expected Interest Rate on LIBOR-indexed HECM.
When locking-in the Expected Interest Rate, calculating Principal Limits, establishing the Initial Interest Rate, or closing a HECM loan, the CMT indices and the weekly average of the 10-Year LIBOR swap rate as shown in the H.15 Statisical Release (“H.15”), and the 1-Month and 1-Year LIBOR rates as published in The Wall Street Journal on the first business day of each week, are effective the next day after they are published, until the day after the rates are published the following week.
Lenders may continue to offer the lock-in features described in Mortgagee Letter 06-22, however, if a borrower chooses or is offered an index and/or a margin different from that chosen or offered at application, the Expected Interest Rate used to calculate the Principal Limit must be the new margin, plus the index, as of the application date or the date of closing, whichever is lower.
In all circumstances, for forward and reverse adjustable rate mortgages, if the Federal Reserve begins publishing the LIBOR indices in H.15, then lenders must use the H.15 as the source for the LIBOR rates. The CMT and LIBOR indices offered cannot be used interchangeably.
FALPS is in the process of implementing the above changes and will have the revised HECM documents available to our clients by November 1, 2007.
When locking-in the Expected Interest Rate, calculating Principal Limits, establishing the Initial Interest Rate, or closing a HECM loan, the CMT indices and the weekly average of the 10-Year LIBOR swap rate as shown in the H.15 Statisical Release (“H.15”), and the 1-Month and 1-Year LIBOR rates as published in The Wall Street Journal on the first business day of each week, are effective the next day after they are published, until the day after the rates are published the following week.
Lenders may continue to offer the lock-in features described in Mortgagee Letter 06-22, however, if a borrower chooses or is offered an index and/or a margin different from that chosen or offered at application, the Expected Interest Rate used to calculate the Principal Limit must be the new margin, plus the index, as of the application date or the date of closing, whichever is lower.
In all circumstances, for forward and reverse adjustable rate mortgages, if the Federal Reserve begins publishing the LIBOR indices in H.15, then lenders must use the H.15 as the source for the LIBOR rates. The CMT and LIBOR indices offered cannot be used interchangeably.
FALPS is in the process of implementing the above changes and will have the revised HECM documents available to our clients by November 1, 2007.
HUD 24 CFR Part 203 Standards for Mortgagor’s Investment in Mortgage Property (effective October 31, 2007) (115 KB)
The description of tax-exempt organizations that may be used as permissible sources of gifts for borrower’s down
payment assistance is revised. The rule prohibits sellers, or any other person or entity that benefits
financially from the transaction from funding borrower’s down payments of the property sale.
HUD 24 CFR Part 214 Housing Counseling Program (effective October 29, 2007) (167 KB)
HUD published a final rule establishing regulations for its Housing Counseling program. This rule follows publication of the December 23, 2004 proposed rule which adopted and augmented the Housing Counseling requirements that housing counseling agencies are already familiar. The following changes were made:
- Included, defined or revised the terms multi-state organization, participating agency and reverse mortgage;
- Authorized alternative counseling settings for clients when face-to-face is not feasible;
- Provided greater flexibility to agencies in hiring staff;
- Revised requirements for the client management system for participating agencies to use the system for the collection of client-level information, including but not limited to, financial and demographic data and counseling services; and
- Redesigned the conflicts-of-interest provision to make it easier to understand.
Federal Housing Administration H.R. 1852 (effective September 18, 2007) (166 KB)
On September 18, 2007, the “Expanding American Homeownership Act of 2007” was passed, which updated the National Housing Act and enabled the Federal Housing Administration (“FHA”) to use risk-based pricing to more effectively reach underserved borrowers. Some of the bills highlights are as follows:
- Extended the Mortgage term from 35 years to 40 years.
- Allows zero or lower down payment loans for borrowers who can afford monthly mortgage payments, but lack the substantial down payment.
- Increased funding for counseling programs for subprime borrowers and borrowers who become delinquent on their loan payments.
- Provided additional disclosure requirements, to include Lenders providing a list of counseling approved agencies to the borrower at application, and notice of foreclosure prevention counseling availability at closing.
- Improved reverse mortgage loan programs by increasing loan amounts and reducing the maximum amount of Lender’s fees.
Department of Housing and Urban Development (“HUD”) Mortgagee Letter 2007-11 (effective September 5, 2007) (103 KB)
FHA announced the FHASecure initiative, which enables homeowners to refinance various types of adjustable rate mortgages (ARMS) that have recently
had a rate reset. The initiative was created to assist homeowners who were current under their existing
mortgages, but have become delinquent, following the reset of their ARMs. The FHASecure initiative is a
temporary program and applies to loans with loan applications signed no later than December 31, 2008.
Statement on Subprime Mortgage Lending
As previously discussed in our July 11, 2007 Legislative Update, the final interagency Statement on Subprime Mortgage
Lending (“Statement”) clarifies how financial institutions can offer certain adjustable rate mortgage products in
a safe and sound manner and in a way that clearly discloses the risks a borrower may assume.
To date, the following states have adopted the Statement:
Arizona, Alabama, Arkansas, California, Connecticut, Georgia, Hawaii, Idaho, Indiana, Iowa, Kentucky, Massachusetts, Michigan, Mississippi, Nebraska, New Jersey, North Carolina, New York, Tennessee, Texas, Washington, West Virginia, Wisconsin, and Wyoming
To date, the following states have adopted the Statement:
Arizona, Alabama, Arkansas, California, Connecticut, Georgia, Hawaii, Idaho, Indiana, Iowa, Kentucky, Massachusetts, Michigan, Mississippi, Nebraska, New Jersey, North Carolina, New York, Tennessee, Texas, Washington, West Virginia, Wisconsin, and Wyoming