Compliance News

Senate Bill 3023 implements the loan guaranty provisions of the Veterans’ Benefits Improvement Act. Effective October 10, 2008 through December 31, 2011, the maximum guaranty amount shall mean an amount equal to 25% of the greater of $417,000 or 125% of the area median price for a single-family residence, up to $729,750. The maximum guaranty amount varies depending on the location of the property as noted in VA Circular 26-08-19 (see below under Agency Announcements).

All VA program requirements related to adjustable rate mortgages (ARMs) and hybrid adjustable rate mortgages (HARMs) have been extended through September 30, 2012. Refinancing of home loans is enhanced from 90% of the appraised value of a home to 100%.

House Bill 508 provides licensing and education requirements for Mortgage Loan Originators (“MLO”). Any person employed by or affiliated with a mortgage lender or mortgage broker who engages in mortgage loan originating must first be licensed by the State Bank Commissioner unless otherwise exempt. The bill also authorizes the Commissioner to participate in the National Mortgage Licensing System to facilitate any aspect of the application and licensing process. MLO’s are not required to obtain a license until the Commissioner has adopted regulations implementing the enacted laws.

House Bill 1359 adds general provisions and definitions to the First Lien Mortgage Lending Act. A first lien mortgage transaction applies to a transaction that is secured by an interest in land in Indiana and the closing takes place after December 31, 2008. A first lien mortgage transaction is a loan against land where there is a one to four unit residential dwelling that is used by the debtor primarily for personal, family or household purposes. A dwelling includes an individual condominium unit, cooperative unit, mobile home, or trailer.

A creditor may not secure interest during the period when a first lien mortgage transaction may be rescinded under 15 U.S.C. 1635. A creditor must make available for disbursement the proceeds of a transaction on the later of the date the creditor is reasonably satisfied that the debtor has not rescinded the transaction or the first business day after the expiration of the rescission period.

The Department of Financial Institutions may bring a civil action for a deceptive act in which a person knowingly or intentionally makes a material misrepresentation concerning, or conceals material information regarding the terms or conditions of a first lien mortgage transaction.

The Montana Division of Banking and Financial Institutions adopted rules amending the Mortgage Broker and Loan Originator Licensing Act. The revised rules add definitions, as well as licensing examination and continuing education requirements.

House Bill 7723 and Senate Bill 2598 modify Chapter 34-25.1 – Reverse Mortgages by providing greater protections for consumers who obtain reverse mortgage loans, including the following highlights and clarifications:

Clarification that:

• The outstanding balance of a reverse mortgage may be deemed due and payable upon the borrower’s default, only if said default is on the entire loan and not a portion thereof.
• A reverse mortgage loan may provide for a fixed or adjustable interest rate or combination thereof, including compounding interest.
• Interest on a reverse mortgage may be accumulated and due upon maturity or default on the entire loan, whichever comes first.

Prepayment, in whole or in part, is permitted without penalty if the prepayment is a result of any of the following events:

• All borrowers cease to occupy the home as a principal residence for a period greater than 120 consecutive days.
• For a period of more than 12 months, a borrower fails to occupy the property because of physical or mental illness and the property is not the principal residence of at least one other borrower.
• Any fixed maturity date agreed to by the lender and borrower occurs.
• An event occurs that is specified in the loan documents and jeopardizes the lender’s security.

No prepayment penalty may be imposed by a lender, unless the lender waives all usual fees associated with a reverse mortgage, and then only to the extent such penalty complies with the provisions of R.I. Gen. Laws Section 34-23-5 and is a percentage of the available credit commitment stated in the loan documents, which may not exceed the total of the usual fees initially absorbed by the lender. If a prepayment penalty is imposed pursuant to R.I. Gen. Laws Section 34-23-5(b), which limits the prepayment penalty term to sixty months, then, in addition to the requirements set forth above, the lender must reduce the prepayment penalty on a prorated basis by the percentage of months remaining in the full prepayment penalty term.

A reverse mortgage may become due and payable upon the occurrence of any of the events listed immediately above or when the home securing the loan is sold or the title is transferred.

Repayment is also subject to the following additional conditions:

• The lender’s right to collect reverse mortgage loan proceeds shall be subject to the applicable statute of limitations for written loan contracts; or
• The lender shall prominently disclose in the loan agreement 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 in full is made.

If a reverse mortgage loan provides for periodic advances, these advances must not be reduced in amount or number based on any adjustment in the interest rate.

A lender that is found by an appropriate court to have failed to make required loan advances will forfeit to the borrower treble the amount wrongfully withheld plus interest at the legal rate.

A lender may not require an applicant to purchase an annuity as a condition of obtaining a reverse mortgage loan nor may any portion of the loan proceeds be used to purchase an annuity. A lender or broker may not offer an annuity to a borrower or refer a borrower to anyone for the purchase of an annuity prior to the closing or before the expiration of the right to rescind.

The fees, costs and payments that may be charged in connection with the origination and closing of a reverse mortgage loan must be properly disclosed to the borrower(s) and are limited to the following:

• Application fee
• Loan origination fee
• Document preparation fee
• Appraisal and survey fees
• Title examination fees
• The cost of a tax search for tax liens
• Payments to discharge any existing liens on the real property securing the loan
• Recording costs
• Actual attorneys' fees charged to the lender in connection with the closing of the loan
• Credit Report fee
• The cost of a flood zone search
• Home inspection fee
• The payment for any repairs contracted for at or before the loan closing
• Mortgage insurance premiums
• The payment of real estate taxes and property insurance
• Other costs permitted to be charged by the Director of the Department of Business Regulation.

With limited exceptions, the fees and costs restrictions above do not apply to any national bank, federal savings bank or financial institution that is insured by the FDIC, or a wholly owned subsidiary of any of the foregoing or Home Equity Conversion Mortgages (“HECMs”).

Lenders shall deliver to loan applicants a statement prepared by the Department of Elderly Affairs, if available, on the advisability and availability of independent counseling and information services. The lender must provide the borrower with the names of at least three independent, authorized counseling agencies that are not affiliated with them. Except for HECMs, if free counseling is not available, the lender must pay the cost. The lender cannot process a reverse mortgage loan application, other than ordering an automated valuation model and a preliminary title search, until an original certificate, dated and signed by both the counselor and the borrower(s) has been received (at least 3 days prior to closing). The loan must close within 180 days after the prospective borrower(s) sign(s) the counseling certificate or the borrower is required to receive counseling again.

At the closing and annually thereafter, the lender shall provide to the borrower(s) contact information for the lenders (or its assignee’s or servicing agent’s, as the case may be) employee(s) or agent(s) who have been designated specifically to respond to inquiries concerning reverse mortgage loans.

An applicant for a reverse mortgage loan shall not be bound for at least three business days after all of the following have occurred:

• The applicant’s execution and delivery to the lender of a fully completed application;
• The applicant’s delivery to the lender of the certificate of counseling; and
• The applicant’s receipt, in writing, of all of the information required to be disclosed.

No reverse mortgage loan shall be closed prior to the expiration of this three business day period and this three business day period shall be in addition to any right of rescission the borrowers may have following the closing of the loan. In addition, no costs in connection with the application and processing of a proposed reverse mortgage loan shall be imposed upon any applicant for a reverse mortgage until (1) the applicant’s execution and delivery of the fully completed application to the lender, and (2) the applicant’s delivery of the counseling certificate to the lender. Each lender shall inform each applicant in writing of the applicant’s rights pursuant to this section simultaneously with providing the application to the applicant for completion.

HECMs made prior to July 14, 2006 are deemed in compliance with R.I. Gen. Laws Section 34-25.1 in effect as of July 14, 2006.

First American Loan Production Solutions (LPS) will have the required disclosures available by January 1, 2009.

Senate Bill 4160 amends the Tennessee Residential Lending, Brokerage and Servicing Act licensing requirements. Persons applying to be licensed or registered as a mortgage lender, mortgage loan broker, mortgage loan servicer, or mortgage loan originator must successfully complete an education training course approved by the commissioner. This requirement does not become effective until the commissioner has approved at least one educational training course. In addition, the applicant must consent to a criminal history records check and provide a set of the applicant’s fingerprints.

The commissioner is also authorized to participate in establishing a multi-state automated licensing system.

The New Mexico mortgage was changed to a deed of trust earlier this year. Mortgagees should begin using the updated New Mexico Deed of Trust for loans closed on or after October 1, 2008.

LPS has the revised documents available for client use.

Fannie Mae has released a Comprehensive Risk Assessment Worksheet to help lenders choosing to underwrite loans manually with comprehensive risk assessment. It is not required, just recommended for lenders to use the worksheet since effective January 1st all mortgage applications dated on or after this date will need to be underwritten per the comprehensive risk agreement guidelines.

Fannie Mae announced the differences between the Economic Stimulus Act of 2008 (ESA) and the Housing and Economic Recovery Act of 2008 (HERA) for loan limits in high-cost areas.

Economic Stimulus Act- Loans originated between July 1, 2008 and December 31, 2008 with loan amounts higher than 125% of the median area home price or $417,000 not to exceed $729,000 or 175% of the conforming loan limit. These loans are referred to as Jumbo Conforming loans. Some time in 2009 Fannie Mae will announce the phase-out of this product offering for flow deliveries.

Housing and Economic Recovery Act- Loans originated on or after October 1, 2008 with loan amounts higher than 115% of the median area home price or $417,000 not to exceed $729,000 or 150% of the conforming loan limit. These loans are referred to as “High-Balance Mortgage Loans” and will be considered as a loan feature rather than a separate product. They will be eligible for purchase on or after January 1, 2009.

For all eligibility and delivery requirements please refer to the Fannie Mae Selling Guide.

The FTC has suspended enforcement of the new “Red Flags Rule” until May 1, 2009. Only those entities subject to the FTC oversight benefit from the extension. The extension was given to allow creditors and financial institutions additional time to develop and implement written identity theft prevention programs. All other entities (banks, thrifts, etc.) that are subject to other federal oversight must be in compliance by the November 1, 2008 deadline.

Freddie Mac announced in their Bulletin released October 17, 2008 the changes to Post settlement Delivery Fees structure and rates (see Guide Exhibit 19 for full details). Delivery fee changes will affect all flow Purchase Contracts with settlement dates of January 2, 2009 or after.

As of October 1, 2008 all loans meeting the Housing and Economic Recovery Act of 2008 will be referred to as “Super Conforming Mortgages” and will be eligible for purchase January 2, 2009. Under the HERA Act the conforming loan limits for certain high-cost areas was increased to the lesser of 115% of the area median home price or 150% of the current conforming loan limit, please refer to chapter L33 of the Guide for requirements.

Additionally, Freddie Mac has lowered the maximum LTV/TLVT/HLTV requirements for: Second homes, two unit and Investment properties.

Effective January 2, 2009 Freddie Mac will no longer purchase Alternative Stated Income Mortgages.

HUD announced that mortgagees may now use the New York Consolidation, Extension, and Modification Agreement (CEMA) (form 3172) on FHA refinance transactions. The form must be revised to remove any references to “Fannie Mae/Freddie Mac” Notes, Uniform Instruments, and Mortgages, and replace those references with “Federal Housing Administration.” Form 3172 is to be used for refinance transactions only and may be used immediately.

The Department of Housing and Urban Development (HUD) informed Federal Housing Administration (FHA) approved Mortgagees and HUD approved housing counseling agencies that mortgagees are no longer permitted to pay for HECM counseling on behalf of mortgagors. The Housing and Economic Recovery Act of 2008 (HERA) (Section 2122) requires that the HECM mortgage must be executed by a mortgagor who received adequate counseling from an independent third party that is not either directly or indirectly associated or compensated by a party involved in 1) originating or servicing the mortgage; 2) funding the loan underlying the mortgage; or 3) the sale of annuities, investments, long-term care insurance, or any other type of financial or insurance product. This new statutory requirement is effective immediately.

The Housing and Economic Recovery Act of 2008 (HERA) amends the National Housing Act to authorize a new temporary FHA mortgage insurance program called the HOPE for Homeowners (H4H) Program. Under this Program, certain mortgagors facing difficulty in paying their mortgages will be eligible to refinance into affordable FHA-insured mortgages. The H4H Program is effective for endorsements on or after October 1, 2008 through September 30, 2011. The information, directions, and guidance provided in this mortgagee letter reflect statutory requirements as well as the standards, policies and regulations adopted by the Board of Directors for the H4H Program.

This circular clarifies Public Law 110-389 (S. 3023), the Veterans’ Benefits Improvement Act of 2008. The VA’s Loan Guaranty Program, which is included in the law, changed the provisions of the extension of adjustable rate mortgage authority, enhancement of regular refinancing loans, and guaranty amounts. In addition, the circular provided the method for calculating the maximum guaranty for loans over $417,000. Circulars 26-08-15 and 26-08-16 are rescinded immediately. This circular is automatically rescinded January 1, 2010.

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