Compliance News

The Illinois Banking Act is amended to allow financial institutions to provide electronic records to consumers. Electronic records will satisfy the required disclosure of information, provided the consumer receives a clear and conspicuous statement of the option to have the information in paper or nonelectronic form, and the consumer affirmatively consents to the use of the electronic record. Additionally, a "financial institution" now includes subsidiaries and affiliates of banks, savings and loan associations, savings banks, and credit unions.

If a third party requests access to a consumer report on which a security freeze is in effect, the request is in connection with a credit application or other use and the consumer does not allow his or her consumer report to be accessed for that period of time, then the third party may treat the consumer’s application as incomplete.

If a third party requests access to a consumer report on which a security freeze is in effect, the request is in connection with a credit application or other use and the consumer does not allow his or her consumer report to be accessed for that period of time, then the third party may treat the consumer’s application as incomplete.

The New York Banking Law is amended regarding regulation of mortgage loan originators. The act amends the registration requirements and now requires mortgage loan originators to file an application for authorization instead of registration. The new authorization requirements closely mirror the previous registration requirements, but for the change from registration to authorization. The bill also amends the criteria for revocation or suspension of a mortgage loan originator authorization.

The Pennsylvania Plain Language Consumer Act of 1993 is amended and now requires contracts under seal to include the following statement: “This is a contract under seal and may be enforced under 42 PA C.S. Section 5529(b).” Fannie Mae and Freddie Mac both require the addition of this language to all PA security instruments.

First American Nationwide Documents is revising our Pennsylvania security instruments to comply with Fannie Mae and Freddie Mac guidelines.

Fannie Mae will no longer accept applications for Conditional Project Acceptance (1027) after August 31, 2007. This change is the first step in the Agency’s plan to fully delegate the project review and acceptance process for Condominium, Cooperative and PUD’s to lenders. Fannie Mae plans to issue a Lender Announcement within 60 days detailing the policy and procedures for the revised lender delegated review process.

Fannie Mae outlines the requirements for short-term adjustable-rate mortgages, as defined by the seller, that are identified by the seller as Subprime and that are either sold to Fannie Mae pursuant to Fannie Mae's Single-Family Subprime bulk acquisition business, or back Subprime private label securities purchased by Fannie Mae (referred to as Covered Mortgage Loans). All Covered Mortgage Loans with application dates on or after September 13, 2007, must be in compliance with all aspects of the Statement on Subprime Mortgage Lending, and sellers must provide an additional representation and warranty.

Fannie Mae will update Desktop Underwriter® (“DU”) Version 5.7 on the weekend of October 20, 2007, to implement revised maximum loan-to-value (“LTV”) limits for loan casefiles that receive Expanded Approval (“EA”) recommendations where no subordinate financing exists. EA mortgage product enables Lenders to provide financing opportunities for borrowers with less-than-perfect credit at competitive interest rates. Effective with the release are EA Eligibility Modifications, EA Pricing Modifications and Area Median Income Changes. New loan casefiles created in DU on or after October 21, 2007 will be subject to the revised maximum LTV limits. EA Pricing Modifications are effective December 1, 2007.

Fannie Mae is updating underwriting standards for ARM products with fixed-rate periods of three years or less (referred to as “Short-Term ARMs”). Under Short-Term ARMs, borrowers must be qualified based on the greater of the qualifying rate specified for the transaction, or the fully indexed rate. As noted above, Desktop Underwriter® (DU®) will be updated the weekend of October 20, 2007, and loans manually underwritten on or after October 20, 2007 should be in accordance with the provisions of this announcement.

The Federal Bureau of Investigation (“FBI”), in cooperation with the Mortgage Bankers Association (“MBA”), created a Mortgage Fraud Warning Notice (“Notice”), which states that mortgage fraud is a federal offense with serious penalties and will be fully investigated and prosecuted by the appropriate authorities. Both the FBI and the MBA strongly encourage lenders to consider integrating the Notice into their loan processes; however, the use of the Notice is completely voluntary.

First American Nationwide Documents is in the process of implementing the notice, which will be available to our clients upon request.

The Federal Reserve Board published its annual adjustment of the dollar amount that triggers additional disclosure requirements under the Truth in Lending Act for home mortgage loans that bear rates or fees above a certain amount. The dollar amount of the fee-based trigger has been adjusted from $547 or 8% to $561 or 8% of the total loan amount for 2008, based on the annual percentage change reflected in the Consumer Price Index that was in effect on June 1, 2007.

The American Association of Residential Mortgage Regulators (AARMR) and the Conference of State Bank Supervisors (CSBS) issued model guidelines for state regulators examining non-traditional and subprime mortgage lenders and brokers. The purpose of these guidelines is to provide state regulators with a uniform set of examination standards for conducting examinations reviews under both the Nontraditional Mortgage Product Risks Guidance released in November, 2006 and the Subprime Statement issued in July, 2007.

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:

Connecticut, Hawaii, Idaho, Michigan, Mississippi, New Jersey, North Carolina, Texas and Washington

The Veterans Administration will now accept appraisal reports with the statement “Any Qualified Veteran” rather than the veteran’s name, in the borrower field of the appraisal report. The change helps eliminate unnecessary delays at loan closings and helps to limit the disclosure of veterans’ personal identifiable information.

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