Archive for the 'News' Category
Monday, May 19th, 2008
Volume III | Issue 17 | May 19, 2008
Another eventful week on Capitol Hill for the housing industry concluded with a near-historic agreement between Chairman Dodd and Senator Shelby on legislation pending before the Senate Banking Committee to establish a FHA-based rescue plan and a new regulator for the GSEs. The Senators will continue to negotiate final details over the weekend in preparation for the proposed markup this Tuesday. Should they be able to transfer the so-called “agreement in concept” into legislative language, it will significantly improve the odds that omnibus housing legislation (including FHA modernization and a rescue plan, GSE reform, and MBA supported tax provisions) could pass Congress and be signed into law.
Next week, MBA will likely testify before Congress for the tenth and eleventh times this year as the House Committee on Small Business considers the RESPA reform proposal and the House Committee on Financial Services examines the effect that the temporary increase in the conforming loan limit has had on the affordability of mortgage credit.
Senate Committee Reaches Deal on GSE Reform and FHA Rescue Plan
On Monday, May 12, Senate Banking Committee Chairman Christopher Dodd (D-CT) released a housing bill, the “Federal Housing Finance Regulatory Reform Act of 2008,” that includes both government-sponsored enterprises (GSE) regulatory reform and a Federal Housing Administration (FHA) refinance program. On Thursday, Chairman Dodd and Ranking Member Richard Shelby (R-AL) reached an agreement on modifications to the package. The bill creates a significantly stronger regulator for the GSEs and includes a FHA rescue bill to be financed by a newly created affordable housing fund. While an agreement has been reached, fine-tuning negotiations and drafting of legislative language will continue into the weekend. MBA will continue to work with Members of the Committee as they move forward with this housing package.
On Wednesday, May 14, MBA sent a letter to Chairman Dodd and Ranking Member Shelby commending the Banking Committee for moving legislation to strengthen the regulatory oversight of the GSEs. MBA strongly supports the role the GSEs play in maintaining and improving liquidity and stability in the secondary mortgage market. Thus, MBA believes it is imperative that they operate in a safe and sound manner, engage in activities consistent with their charter purposes, and are subject to affordable housing goals. MBA urged the Committee to work with the House to reconcile differences so that GSE reform can be enacted as quickly as possible.
MBA Updates Housing Rescue Plan Side-by-Side to Include Dodd Plan
This week, MBA updated its rescue plan side-by-side to include Title IV of Chairman Dodd’s GSE reform/FHA rescue plan legislation. The chart compares and contrasts proposals introduced by Representative Frank, Senator Dodd, Federal Deposit Insurance Corporation Chairwoman Sheila Bair, Office of Thrift Supervision Director John Reich, the National Community Reinvestment Coalition and others. MBA will update this document as developments warrant.
FHA Finalizes Risk-Based Premium Rule, HUD Announces Details of FHASecure Expansion
As reported last week, on Monday, May 13, the Department of Housing and Urban Development (HUD) published a noticein the Federal Register that FHA will implement risk-based pricing (RBP) for most single family mortgage insurance programs. The RBP final rule follows a September 20, 2007 notice that solicited public comment regarding these changes. The final rule accommodates many changes requested in MBA’s comment letter, particularly the need to allow enough time for MBA members to update their origination systems to accommodate the change. HUD also released Mortgagee Letter 2008-13, which expands the threshold for seriously delinquent borrowers that may qualify for the FHASecure program. The implementation date for both announcements is July 14, 2008.
MBA Chairman Speaks at Chicago FRB’s Annual Conference on Bank Structure and Competition
On Friday, May 16, MBA Chairman Kieran Quinn, CMB, spoke before the Federal Reserve Bank of Chicago’s Forty Fourth Annual Conference on Bank Structure and Competition. Mr. Quinn highlighted the work that the mortgage industry has done to assist struggling borrowers avoid foreclosure. Additionally, he supported policies that would allow servicers to help more borrowers, while he cautioned against legislation that has potential to exacerbate current market conditions.
MBA Supports RHS Proposed Rule on Loan Program Eligibility
On Monday, May 12, MBA submitted comments to the U.S. Department of Agriculture’s (USDA) Rural Housing Service (RHS), supporting its proposed rule to modify income requirements for Single Family Housing Guaranteed Loan Program (SFHGLP) eligibility. The proposed rule would alter the eligible adjusted income from one based on households ranging from one to eight persons, to a two-tier income structure consisting of a one- to four-member household and a five- to eight-member household. Implementation of this proposed income limit structure would allow more borrowers to be eligible for SFHGLP, as well as provide easier access for all originators, which in turn enables increased participation from the lending community.
MBA Responds to NY Subprime and Foreclosure Reform and Moratorium Legislation
On Monday, May 12, MBA Vice President of State Government Affairs Paul Richman testified before the New York State Senate’s Standing Committee on Banks at a hearing on New York Governor David Patterson’s Program Bill 44 that addresses mortgage foreclosures and subprime lending practices in New York State. MBA supports the bill’s intention to stabilize the housing market, help at-risk borrowers avoid foreclosure, and prevent lending abuses. However, MBA expressed concern about several provisions of the bill that would create overly broad new legal requirements, in turn restricting the availability of mortgage credit for worthy borrowers.
In a related development, on Wednesday, May 14, the New York State Senate Democratic Conference announced its support for a one-year foreclosure moratorium measure that passed the State Assembly last week. In response, MBA’s Chairman Kieran Quinn, CMB, issued a statement arning New York State officials that enacting a foreclosure moratorium would result in lenders increasing the cost of mortgage credit for New Yorkers and could possibly deter lending in the state. MBA will continue to work with the State Legislature and Governor on these issues.
Fannie Mae Rescinds “Maximum Financing in Declining Markets Policy”
On Friday, May 16, Fannie Mae announced plans to implement a nationwide down payment policy to supersede the December 2007 “Maximum Financing in Declining Markets Policy.” Effective June 1, 2008, Fannie Mae will not accept mortgages with loan-to-value (LTV) ratios higher than 97 percent through Desktop Underwriter (DU). The maximum LTV ratio for non-DU loans is now 95 percent nationwide. Implementation of this new plan rescinds a previously implemented policy imposing stricter LTVs in areas experiencing depreciating home prices. Many lender and consumer groups asserted that Fannie Mae’s declining markets policy further depreciated home prices by decreasing liquidity. According to Fannie Mae, the new policy attempts to reverse such effects. MBA is evaluating the impact of the nationwide LTV requirements in light of the increasing difficulty of obtaining mortgage insurance for loans with LTVs higher than 90 percent.
MBA to Testify Before House Committee on RESPA
Thursday, May 22, MBA Chairman-Elect David Kittle, CMB, is expected to testify before the House Committee on Small Business on the Real Estate Settlement Procedures Act (RESPA) proposed rule issued by HUD. The hearing, titled “RESPA and its Impact on Small Business,” is the first of what might be a series of examinations into the new RESPA rules. Also expected to testify are representatives from the National Association of Realtors, National Association of Mortgage Brokers, the American Land Title Association, the Real Estate Settlement Providers Council and other important players in the real estate industry.
MBA Supports Ways and Means Committee Tax-Extenders
On Thursday, May 15, the House Ways and Means Committee favorably approved H.R. 6049, the “Energy and Tax Extenders Act of 2008,” introduced by Committee Chairman Charles Rangel (D-NY). Among other provisions of the bill are four, supported by MBA: 1) extension of special rules for qualified mortgage bonds for veterans; 2) extension of the 15-year straight-line cost recovery for qualified leasehold improvements; 3) extension of the expensing of “brownfields” environmental remediation costs; and 4) the additional standard deduction for real property taxes. These provisions expired December 31, 2007 and would be extended through 2008 upon enactment. House floor action on the bill could take place next week.
MBA Supports Expansion of the Liability Risk Retention Act
On May 8, MBA, as part of an industry coalition, sent a letter to Representative Dennis Moore (D-KS) expressing support to modernize and expand the Liability Risk Retention Act (LRRA) to include property coverage. The “Increasing Insurance Coverage Options for Consumers Act of 2008,” that aims to amend the LRRA, addresses capacity shortages in the commercial property marketplace. Additionally, enhanced corporate governance standards in the bill would ensure that risk retention groups are operated in ways that better protect the interests of policyholders.
MBA Opposes Carried Interest Tax Increase Provision
On Tuesday, May 13, MBA, as part of an industry coalition, sent a letter to Members of the Blue Dog Coalition expressing concern over the carried interest tax increase as part of the Supplemental Spending Bill. Press reports indicate that the Blue Dogs have been asked to consider offset alternatives to pay for veterans program spending. Allegedly, the adoption of a carried interest tax increase, which was the subject of intense debate last year, is under consideration as an offset. MBA opposes this policy, as it would burden real estate entrepreneurs with a multi-billion dollar tax increase at a time when the financial markets are experiencing unprecedented turmoil.
IRS Issues Procedures on Mortgage Loan Modifications
On Friday, May 16, the Internal Revenue Service (IRS) released Revenue Procedure 2008-28 that describes the conditions under which modifications of certain mortgage loans will not cause the IRS either to challenge the tax status of certain securitization vehicles that hold the loans or to assert that those modifications create a liability for tax on a prohibited transaction.
Update: Veterans’ Home Loan Guaranty Program
On Wednesday, May 7, the Senate Veterans’ Affairs Committee held a hearing on a vast array of veterans’ legislation, including bills affecting the Veterans’ Home Loan Guaranty Program: S. 2961, the “Enhancement of Refinancing of Home Loans by Veterans,” which increases the maximum percentage LTV of refinance loans from 90 percent to 95 percent; and S. 2768, that increases the maximum guaranty amount equal to the Freddie Mac conforming loan limit until December 31, 2011. It is possible the markup of this legislation, scheduled for June 26, will include this bill and others covering additional veterans’ benefit programs.
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Monday, December 10th, 2007
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Administration, Secretary Paulson and Industry Announce Plan to Help At-Risk Borrowers
On Thursday, December 6, President Bush announced a plan which includes a framework released by the American Securitization Forum to streamline loan modifications for subprime ARM borrowers who can’t afford upcoming rate resets. To qualify for the expedited process, the loans must have been taken out between January 1, 2005 and July 31, 2007, and the borrower must have less than 3 percent equity in their home. An anticipated 1.8 million owner-occupied subprime ARM resets will occur in 2008 and 2009. This plan does not entail any government spending and is solely a voluntary, private sector effort for helping homeowners.
In addition, the Treasury Department and the Internal Revenue Service issued “Revenue Procedure 2007-72″ on Thursday. Many of the mortgages which are candidates for modification are held in securitization real estate mortgage investment conduits (REMICs) which must comply with certain statutory requirements. Revenue Procedure 2007-72 provides clarity that REMICs will not fail to meet certain of these requirements as a result of streamlined loan modifications.
MBA Releases Q3 2007 National Delinquency Survey
On Thursday, December 6, MBA released its National Delinquency Survey (NDS) for the third quarter of 2007. The NDS showed the delinquency rate for mortgage loans on one-to-four-unit properties stood at 5.59 percent of all outstanding loans, up 47 basis points from the second quarter of 2007. The percentage of loans in the foreclosure process was 1.69 percent of all outstanding loans, an increase of 29 basis points from the last quarter. Like last quarter, the national delinquency and foreclosure rates are being driven by what is occurring in a few large states, including California, Ohio, Michigan and Florida. In most states the increase in prime fixed rate foreclosure starts is due to borrowers who have fallen behind on their payments for the traditional reasons (employment, medical, etc.) but who cannot sell their homes due to market conditions. While subprime ARM delinquencies and foreclosures are climbing in all states, in most states the actual number of loans involved is fairly modest. For example, the number of subprime ARM foreclosure starts in California during the third quarter equaled the starts in 35 other states combined.
Senate Judiciary Examines Foreclosures and Possible Bankruptcy Solution
On Wednesday, December 5, the Senate Judiciary Committee held a hearing entitled, “The Looming Foreclosure Crisis: How to Help Families Save their Homes.” Senator Richard Durbin (D-IL), who has introduced legislation to allow bankruptcy judges to cram down mortgages on primary residences, presided over the hearing. Although witnesses disagreed on the consequences of allowing cram downs on primary residence mortgages, a majority believed it would have a negative impact and lead to higher interest rates and costs for consumers. MBA remains very concerned that if judges are allowed to modify or render loans unsecured during a bankruptcy, it will become far more difficult to sell mortgages in the secondary market and will reduce liquidity. Ultimately, consumers will have more trouble obtaining or refinancing a mortgage and would see an increase in costs to reflect this additional risk.
Senate Approves One-Year AMT Extension
On Thursday, December 6, the Senate approved a one-year stand alone extension of the Alternative Minimum Tax (AMT) “patch.” The vote, which passed by an 88-56 margin, did not contain any revenue offsets or additional tax extensions. This sets up a showdown with the House, which is acting under pay-as-you-go rules (PAYGO). PAYGO rules require all new mandatory spending programs or tax cuts to have offsetting spending cuts or tax increases. This makes all bills, in net, “deficit neutral.” House Ways and Means Committee Chairman Charles Rangel (D-NY) is planning a Committee markup next week of a fully offset one-year AMT patch extension.
MBA Requests Relief from Reporting under FAS 114
This week, MBA sent a letter to the Chairman of the Financial Accounting Standards Board (FASB) requesting relief from the requirement to account for modified loans held in portfolio (that are owned by the lender, rather than owned by investors as collateral for securities) under Financial Accounting Statement 114, Accounting by Creditors for Impairment of a Loan (FAS 114). FAS 114 requires modified 1-4 family loans to be measured subsequent to modification and on an ongoing basis for impairment purposes by using one of three valuation methods- (1) performing a discounted cash flow analysis; (2) obtaining an appraisal of the underlying property; or (3) obtaining a market quote for the loan itself. MBA members maintain that their current computer systems are not programmed to project future cash flows on loans that have been modified, and that it would be difficult to obtain values under methodologies (2) and (3) on a timely basis. Consequently, MBA’s letter requests that the FASB grant lenders relief from the requirements of FAS 114 to remove a current operational impediment to modifying loans that they hold in their own portfolios.
Regulators Issue Final Rule for Basel II Capital Requirements
On Friday, December 7, the Department of Treasury, Federal Reserve System, and the Federal Deposit Insurance Corporation jointly published in the Federal Register “Risk-Based Capital Standards: Advanced Capital Adequacy Framework - Basel II Final Rule.” This sets the stage for the implementation of the Advanced Capital Adequacy Framework by the largest US banks on January 1, 2008.
In addition, the agencies intend to issue another proposed rule that would provide all non-core banking organizations - not required to adopt Basel II’s advanced approach - with the option to adopt a standardized approach under Basel II. The agencies said they intend that the proposed standardized option would be finalized before the core banks begin the first transition period year (2008) under the advanced approaches of Basel II.
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Monday, December 3rd, 2007
Summary of H.R. 3915, the Mortgage Reform and Anti-Predatory
Lending Act, As Passed by the House of Representatives
Status – The House of Representatives passed H.R. 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007, on November 15, 2007 by a vote of 291-127. The Senate will likely develop its own, substantially different, mortgage lending reform legislation, and we expect the vehicle for that to be a forthcoming bill by Banking Committee Chairman Chris Dodd (D-Conn.). Any differences between bills passed by the House and Senate would have to be worked out in a conference committee before being sent to the President for enactment.
Scope – H.R. 3915 would regulate the origination of mortgage loans based on the amount of their Annual Percentage Rates (APRs) and points and fees. It also would regulate all mortgage originators including lenders and loan officers as well as mortgage brokers. The bill does not establish a uniform national standard for mortgage lending because, with the exception of some preemption for securitization, it does not establish federal preemption of state and local laws and regulations.
The bill regulates (1) prime and Alt A mortgages (called “qualified mortgages” under the bill) least, (2) subprime mortgages (called “not qualified mortgages” under the bill) to a significantly greater extent than they are today, and (3) “high-cost” or Home Ownership and Equity Protection Act (HOEPA) mortgages the most. Some refer to these three categories as “green light,” “yellow light” and “red light” mortgages, respectively. Mortgages which are “not qualified mortgages” which meet specified underwriting requirements (see below) are called “qualified safe harbor mortgages.”
To define “qualified mortgages,” both first lien and “not first lien,” the bill uses both the trigger levels established under the Home Mortgage Disclosure Act (HMDA) and other metrics using the “conventional mortgage rate,” published regularly by the Federal Reserve as the H. 15 rate. A loan is regarded as a “qualified mortgage” if it meets either test.
Using these triggers, a first lien mortgage that, at the time of origination, either has an APR less than three percentage points over a U.S. Treasury obligation with a comparable maturity or has an APR that does not equal or exceed the most recent “conventional mortgage rate” by more than 175 basis points, is a “qualified mortgage.” A mortgage that is not a first lien mortgage that either has an APR less than five percentage points over a Treasury security of comparable maturity, or has an APR that does not equal or exceed the most recent conventional mortgage, is a “qualified mortgage.” All FHA and VA loans are considered “qualified mortgages” regardless of their APRs.
The federal banking regulators – the Federal Reserve, Comptroller of Currency, Office of Thrift Supervision, the Federal Deposit Insurance Corporation and the National Credit Union Administration – in consultation with the Federal Trade Commission are assigned regulatory responsibility for several portions of the bill. The HUD Secretary is assigned regulating responsibility for the licensing and counseling provisions and the Federal Reserve for the revised HOEPA provisions.
Summary - H.R. 3915:
• Requires registration for all originators and minimum standards for state-licensed
originators.
• Establishes new anti-steering provisions that limit yield spread premiums (YSPs) and
equivalent compensation for mortgages that are “not qualified mortgages.”
• Requires that a lender determine in good faith that a consumer has the ability to repay
his or her mortgage and that refinance loans provide a net tangible benefit. Note:
“Qualified mortgages” and “qualified safe harbor mortgages” would be presumed to meet
these requirements; the presumption is rebuttable against lenders for “qualified safe
harbor mortgages.”
• Prohibits prepayment penalties for “not qualified mortgages.”
• Would expand the coverage of HOEPA and its restrictions governing high-cost
mortgages.
• Includes numerous other provisions including facilitating and funding counseling
programs and requiring counseling for some borrowers, establishing new escrow and
appraisal requirements including requiring escrow accounts and appraisals for certain
borrowers, and establishing new disclosure requirements for all loans.
SPECIFIC PROVISIONS
Licensing and Registration – H.R. 3915 requires all loan originators – defined as those
individuals who take mortgage applications, assist consumers in obtaining mortgage loans or offer or negotiate terms of loans – to be registered with, and maintain a unique identifier through, a nationwide mortgage licensing system and registry. All licensing laws for state-licensed loan originators would be required to meet specified standards for registration and license issuance, as well as testing and continuing education requirements. If the Secretary of HUD determines that a state’s licensing law does not meet the licensing and registration standards in H.R. 3915 a year after the law’s enactment (or after two years for states with legislatures that do not meet annually), licensing regulations developed by the Secretary of HUD shall apply. H.R. 3915 also requires federal banking agencies to develop and maintain a system for registering employees of federally regulated depository institutions.
Duty of Care – The bill requires all loan originators to: (1) be licensed and registered as
required; (2) diligently work to present the consumer with a range of loan products for which the consumer likely qualifies and which are “appropriate” to the consumer’s existing circumstances, based on information known to or obtained by the originator; (3) make full and timely disclosures to each consumer of (a) comparative costs and benefits of each loan product offered or discussed, (b) whether the originator is or is not acting as an agent for the consumer, and (c) any relevant conflicts of interest. Note: a product is presumed to be “appropriate” if the originator determines in good faith, at the time of origination, based on existing information and without full underwriting, the consumer has a reasonable ability to repay the loan and would receive a net tangible benefit.
Anti-Steering – All loan originators, for transactions involving not qualified mortgages, are prohibited from receiving any incentive compensation (including YSPs or equivalent
compensation) that is based on or varies with the terms other than the amount of principal of the loan. This provision does not restrict a consumer’s ability to finance origination fees through their interest rate as long as the fees were fully disclosed to the consumer earlier in the application process and do not vary based on the terms of the loan or the consumer’s decision to finance such fees. The restriction also does not limit or affect the ability of a mortgage originator to sell residential mortgage loans to subsequent purchasers.
Ability to Repay for All Loans – Under regulations prescribed by the federal banking
regulators, no creditor (lender) may make a residential mortgage loan unless the lender makes a good faith determination, based on verified and documented information, that at the time the loan was consummated the consumer had a reasonable ability to repay the loan.
Net Tangible Benefit for Refinance Loans – Also, under regulations prescribed by the federal banking agencies, no lender may make a residential mortgage loan unless the lender makes a reasonable and good faith determination based on information known to or obtained in good faith by the lender that the refinanced loan will provide a net tangible benefit to the consumer.
Safe Harbor for Ability to Repay and Net Tangible Benefit – Any lender and any assignee or securitizer of a residential mortgage loan may presume that the loan has met the ability to repay and net tangible benefit requirements if the loan is a qualified mortgage or a qualified safe harbor mortgage. The presumption is rebuttable against the creditor or lender of a qualified safe harbor mortgage.
Qualified Mortgage - means any residential mortgage loan that meets the tests set forth above in the section titled Scope.
Qualified Safe Harbor Mortgage means any “not qualified mortgage” where:
1) The income and financial resources of the consumer are verified and documented,
2) Underwriting is based on the fully-indexed rate and takes into account all
applicable taxes, insurance and assessments,
3) Mortgage repayment schedule does not provide for negative amortization,
4) Meets other rule(s) set by federal regulators,
And one of the following applies:
a) Fixed payment for at least five years,
b) For ARMs, APR varies based on a margin that is less than three percent over a
generally accepted interest-rate index, or
c) Loan does not result in a debt-to-income (DTI) ratio that exceeds a percentage
prescribed by regulation.
Prohibition on Prepayment Penalties – Prepayment penalties are prohibited for all loans that are not qualified mortgages.
Lender Liability - Rescission – H.R. 3915 would establish a remedy of rescission, costs and attorneys’ fees against a lender for violation of the ability to repay and net tangible benefit requirements. A lender has a right to cure a loan that a borrower cannot repay or does not provide a net tangible benefit to avoid rescission, if, no later than 90 days after receipt of notification, the creditor provides a cure at no cost to the consumer.
Definition of Cure – Cure for a violation of the ability to repay or net tangible benefit
requirements means modification or refinancing of the loan at no cost to the consumer to
provide terms that would have satisfied the ability to repay and net tangible benefit
requirements.
Assignee Liability – An action may be brought against an assignee or securitizer for rescission and costs for violation of the ability to repay or net tangible benefit requirements. Assignees and securitizers are protected from liability if no later than 90 days after notice from a consumer the assignee or securitizer provides a cure OR the assignee or securitizer satisfies the following conditions:
1) Has a policy against buying loans other than qualified mortgages or qualified safe
harbor mortgages;
2) Has a policy intended to verify assignor or seller compliance with representations
and warranties that the seller is not selling any loan that is not a qualified mortgage
or a safe harbor mortgage;
3) Exercises due diligence per regulations issued by the SEC and banking regulators
including through adequate sampling procedures; and
4) Has a contract with the seller or assignor that represents and warrants that it is not
selling loans which are not qualified or qualified safe harbor mortgages or is a
beneficiary of a representation or warrant from a previous seller to that effect.
Preemption for Assignee Liability- H.R. 3915 says it contains the sole remedies against any assignee, securitizer or securitization vehicle and state laws that provide additional remedies against such entities are superseded. The bill also provides that it is not to be construed as limiting the application of any state law against a creditor.
Statute of Limitations – The liability of a creditor (lender) or assignee or securitizer for
rescission extends for three years from when the loan is consummated for a fixed rate loan, and for an adjustable rate loan, the earlier of one year after reset or six years after the loan is consummated.
Defense to Foreclosure – The bill gives a consumer – who has the right to rescind – the ability to assert that right as a defense to foreclosure. If the foreclosure begins after the statute of limitations expires, the consumer may, where there is a valid basis for the claim, seek actual damages and reasonable attorneys’ fees.
Effect of Foreclosure on Preexisting Lease – A successor to a foreclosed property shall take the property subject to the rights of a bona fide tenant (not the mortgagor) under a lease entered into before the notice of foreclosure, for the remaining term of the lease or six months after the date of the notice of foreclosure, whichever occurs first, as long as the tenant receives a notice 90 days before the effective date of the notice to vacate.
HOEPA High-Cost Mortgages – H.R. 3915 would amend HOEPA in several ways, including expanding its coverage to purchase loans. While the bill would maintain the APR trigger at eight percent above Treasury securities, it would lower the point and fee trigger from eight percent of the total loan amount to five percent. The definition of points and fees also would be expanded to include all compensation paid directly or indirectly to a mortgage broker, premiums for credit life insurance not paid on a monthly basis and all prepayment penalty fees. The bill would also create a third trigger to qualify a loan as a HOEPA loan – a prepayment penalty that applies for more than 36 months or the penalty exceeds more than two percent of the amount prepaid.
Counseling – The bill would establish an Office of Housing Counseling within HUD to provide research, public outreach, policy development and up to $45 million in grants. The Office would assure that specified standards for housing counselors are met, certify software to help counseling efforts and issue booklets on the home buying and mortgage process.
Note: Under the bill, first time borrowers seeking not qualified mortgages with a negative amortization feature must receive counseling prior closing and all borrowers must receive counseling prior to entering into HOEPA loans.
Consumer Disclosures – The bill would add several new disclosures for consumers including:
1) under variable loans, the maximum payment amount, 2) for loans with escrows, the amounts paid in the first year to cover taxes and insurance, and 3) the aggregate amount of settlement charges for all services provided in connection with the loan and the amount of charges that are included in the loan. Additionally, the bill would amend RESPA to provide a new disclosure to appear on the good faith estimate summarizing key loan terms including: the loan amount; whether the loan has a fixed or variable rate; estimated interest rate; estimated monthly payment and percentage of borrower’s income; rate-lock period; whether the loan has a prepayment penalty; total estimated settlement costs; and cash needed to close. During loan repayment, for borrowers with hybrid ARMs, notice must be given six months prior to reset and must disclose the options available to avoid payment shock.
Loan Administration and Escrows – Creditors would be required to establish escrow or impound accounts for at least five years and until sufficient equity has been built up for all first liens on principal dwellings, other than open-end credit plans, where the loan has one of several characteristics including: a first lien loan three percentage points above a comparable Treasury; a DTI ratio in excess of 50 percent; an LTV above 90 percent; or the loan is made, guaranteed or insured by a government agency. Consumers who choose not to escrow must be informed of their responsibility to pay non-escrowed fees. In addition, a servicer may not obtain force-placed insurance unless the servicer has a reasonable basis to believe the borrower has failed to comply with a requirement to maintain property insurance. Prior to imposing any charge for force-placed insurance, the servicer must notify the borrower in accordance with the bill.
Appraisals – For HOEPA loans, physical appraisals would be required to be performed by an appraiser who is certified, licensed, and performs work in accordance with the Uniform
Standards of Professional Appraisal Practice (USPAP). Additionally, creditors would be
required to provide to the consumer one copy of each appraisal conducted for a HOEPA loan at least three days prior to closing, without charge.
“Pressure” on Appraisers – The bill would prohibit any person with an interest in the loan transaction to influence the judgment of the appraiser, through prohibiting coercion, extortion, collusion, inducement, bribery or intimidation. The bill provides civil penalties for first violations and additional costs for subsequent violations.
Mortgage Fraud – The bill would authorize $31,250,000 from 2008 through 2012 for new employees at the Department of Justice dedicated to combating mortgage fraud, and $750,000 for the same period for additional funding for a mortgage fraud interagency task force.
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Monday, November 19th, 2007
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House Approves Major Mortgage Reform Bill
On Thursday, November 15, the House of Representatives approved H.R. 3915, the “Mortgage Reform and Anti-Predatory Lending Act of 2007,” by a vote of 291-127. If enacted, this legislation would fundamentally change mortgage practices in several areas: establish a federal duty of care in offering mortgage products; require licensing of all mortgage originators; prohibit steering; create an ability to repay standard: lower HOEPA triggers; attach limited liability to secondary market securitizers; and require an escrow account for some first-lien mortgages in certain circumstances. Prior to floor action, MBA sent a letter to the House Leadership expressing serious concerns with this bill. While the bill is intended to improve several areas of the mortgage market, H.R. 3915 will greatly limit the availability of credit and will prevent many qualified Americans from becoming homeowners. On Wednesday, November 14, the Bush Administration issued its Statement of Administration Policy. Although the Administration supported several key goals of H.R. 3915, it believed this legislation would restrict credit for potential homebuyers and limit refinancing options for current homeowners. Action now moves to the Senate where Banking Committee Chairman Christopher Dodd (D-CT) is preparing to introduce his own reform package.
Senate Passes Terrorism Insurance Legislation
On Friday, November 16, the Senate passed S. 2285, the “Terrorism Risk Insurance Program Reauthorization Act of 2007″ (TRIPRA). The bill would extend the current program by seven years (through 2014) and provide the commercial mortgage market with affordable terrorism insurance. Now that both the House and Senate have passed terrorism extension bills, they will meet in conference to negotiate the differences. MBA will continue to work with Congress to pass final legislation this year that will provide long-term terrorism risk insurance.
Senators Reach Agreement and Move Closer to Passing FHA Reform
This week, Senate Banking Committee Chairman Christopher Dodd (D-CT), Ranking Member Richard Shelby (R-AL) and Senator Elizabeth Dole (R-NC) reached agreement on including a 12-month moratorium for Federal Housing Administration (FHA) risk-based pricing programs in S. 2338, the “FHA Modernization Act of 2007.” Senator Dole had raised objections with these programs, but this agreement now moves the Senate one step closer to passing FHA reform legislation. Senators DeMint (R-SC) and Coburn (R-OK) have placed “holds” on the bill, a procedural maneuver allowing them time to review the legislation, that has temporarily delayed passage of S. 2338. MBA is working with both offices to work through their concerns.
President Signs Appropriations Bill that Funds La. Road Home Program
This week, the President signed the FY08 Appropriations Conference Committee Report for the U.S. Department of Defense. Included in the report is a Continuing Resolution (CR) to fund federal programs through December 14, while Congress works to finish the remaining appropriations bills. The CR also includes $3 billion for Louisiana’s Road Home Program.GSE Housing Goal/Fund Legislation Introduced
On Friday, November 16, Senator Jack Reed (D-RI) introduced a bill, “Government Sponsored Enterprise Mission Improvement Act of 2007,” that would strengthen the affordable housing mission of Fannie Mae and Freddie Mac (GSEs). The bill would require the GSEs to set aside 4.2 basis points on each dollar of unpaid principle balance. This set-aside would go towards an Affordable Housing Block Grant Program managed by the Secretary of Housing and Urban Development (HUD), and would also be allocated for a Capital Magnet Fund managed by the Secretary of the Treasury. It would also create a new statutory duty for the GSEs to serve “underserved markets” that lack adequate credit through conventional lending sources. All measures in this bill are aimed at facilitating loan modification, refinance options and other financial activities for moderate-, low- and very low-income borrowers facing foreclosure.
MBA Submits Comments to OTS Concerning its Possible Rulemaking on Unfair and Deceptive Acts and Practices
Last week, MBA submitted comments to the Office of Thrift Supervision (OTS) regarding whether OTS should expand its unfair and deceptive acts and practices (UDAPs) rules governing federally chartered savings associations. In its comments, MBA encouraged OTS to await new UDAP rules from the Federal Reserve under the Homeownership Equity and Protection Act (HOEPA) before embarking on its own UDAP rulemaking. MBA also urged that if OTS goes forward, its actions should be coordinated and taken in concert with other federal financial regulators. MBA has long supported strong actions against abusive lending in the form of uniform national standards. MBA believes that coordinated and concerted action by regulators can serve that objective.
MBA Joins Amicus Brief Filed in Fair Labor Standards Case before 9th Circuit U.S. Court of Appeals
MBA joined in an Amicus Curiae brief filed in the U.S. Court of Appeals for the 9th Circuit by the U.S. Chamber of Commerce and other lending industry trade associations in Mevorah et al v. Wells Fargo Home Mortgage. The brief supports Wells’ claim that certification of a class of loan officers’ overtime claims was erroneous on several counts. Notably, the brief points out that the District Court ignored significant individualized questions related to each class member’s respective job activities that would prevent class certification. It also expressed concern that the court’s establishment of the class as an “opt-out class” — where class members would be included unless they opted-out — was inconsistent with the Fair Labor Standards Act (FLSA).
Massachusetts Attorney General Heeds MBA’s Concern
Massachusetts Attorney General Martha Coakley (AG) this week extended the effective date for new regulations governing the conduct of mortgage brokers and mortgage lenders. The regulations will now take effect on January 2, 2008. MBA recommended that the AG push the effective date to January 2 from the initial November 15 deadline to allow adequate time for lenders to update their systems, policies and procedures. AG Coakley’s office plans to issue guidance clarifying provisions of the regulations concerning broker compensation and client interests.
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Copyright © 2007 Mortgage Bankers Association. All rights reserved.
Mortgage Bankers Association
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Washington, DC 20006-3404
(800) 348-8653
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Friday, November 2nd, 2007
This posting on House of Representatives Bill 3915 was postred on “The Mortgage Insider” site on Active Rain. The author is Rey Gallegos of 5 Star Mortgage in Henderson Nevada. This post is reprinted with his permission.
If House Bill 3915 Passes, Find a New Career!
The US House of Representatives is considering a bill that would Legislate Underwriting Guidelines into Law and outlaw Yield Spread Premium. The bill came out last week and the US House Financial & Services Committee will vote on Tuesday, November 6th, 2007. Let’s be clear, THIS BILL EFFECTS THE ENTIRE REAL ESTATE AND MORTGAGE INDUSTRY AS A WHOLE, Real Estate Agents, Mortgage Brokers AND Mortgage Bankers! On October 30, 2007, I received an email from The National Association of Mortgage Brokers regarding this bill. HR 3915 The Mortgage Reform and Anti-Predatory Lending Act of 2007was introduced by House Financial Services Committee Chairman Barney Frank (D-MA), along with Representatives Miller (D-NC) and Watt (D-NC). This morning I was on a nationwide conference call regarding the effects HR 3915 will have on our industry. After this conference call, and reviewing the bill, all 66 pages of it, I applaud the efforts of the congressman. Their intent is noble in a lot of areas! I have always said that the benefit of our current Mortgage and Real Estate crises is that it will bring about much needed reform. However, there are some items in the bill that will effectively raise Interest Rates almost immediately, all but ELIMINATE MORTGAGE BROKERS, and dramatically reduce banks abilities to practice in a free market and in fact actually hurt consumers instead of helping them. I will break it down.
The Pros of this legislation:
- The bill would require criminal background checks, testing to demonstrate basic knowledge of loan products and continuing education and professional ethics training for all who originate mortgage loans.
- It would also require loan originators to provide a simple, straight-forward disclosure of their role in the mortgage transaction, including all fees and other sources of compensation, and to do so at the onset of the process.
- The establishment of a national registry if it is governed by a federal agency such as the Federal Trade Commission, it includes every individual mortgage originator (including loan officers working for federal- and state-chartered banks and lenders, credit unions and mortgage brokers)
- It will eliminate special incentives paid by lenders to mortgage originators who sell particular loan products i.e. Hefty YSP or rebates for Option ARM’s. In other words, some loans are more profitable for Lenders so they place extra Yield Spread Premium (YSP) on them so that Loan Officers sell those loans as opposed to other loan products. This is a practice that I have always been against so HOO RAY! for this piece of it!
The Cons of this legislation:
- The bill will create a Federal Duty of care and outlaw steering. This doesn’t sound like a bad thing BUT the anti-steering language will outlaw incentive compensation and Yield Spread Premium (YSP) that allows Brokers and Bankers to be competitive.
- It would require all originators to have a minimum net worth or bond requirements of $100,000. Aside from the fact that many originators would not qualify with a net worth of 100k, the bond requirements would effectively eliminate many originators due to the expense to carry this type of bond. In addition, this would create a run of litigation on future loans strictly because consumers would know the bond and/or net worth is there.
- This bill would legislate “STRICT UNDERWRITING STANDARDS”. This means that every loan will have to fit into a perfect box that many homeowners and potential homeowners DO NOT fit into. Also, with set underwriting standards this will basically eliminate the free market in respect to Mortgages. As NAMB President Elect Hanzimanolis stated, “We need to have confidence in the market’s ability to correct itself. Further restrictions through legislation will cripple the industry, and will adversely affect the very people we’re trying to help.”
- Borrower’s will no longer be able to finance closing costs. So basically, if you are going to refinance your house, you will have to pay ALL closing costs out of pocket. For instance, if average loan closing costs were 2 to 3% of the loan amount and if the average refinance loan amount was $200,000, you would have to come out of pocket with 4,000 to 6,000 to refinance your home.
What does this all mean:
- First, Mortgage Brokers would be put out of business. The enormous cost of bond requirements and additional liability would be too much for most Mortgage Brokers to stay in business. Those that could afford the cost would have limited profitability because of the elimination of YSP. This would force most all Mortgage Brokers to cease operations.
- Without Mortgage Brokers, borrowers would have little ability to “shop” for a more competitive rate and loan program. In essence, it would create a monopoly for Mortgage Bankers.
- Even-though Mortgage Bankers would have little competition they ALSO could not benefit from YSP. In order to be profitable, they would have to depend on shear volume which would drastically reduce the level of Customer Service! This would favor the larger Mortgage Banks like Chase, Countrywide, etc. as they have more employees to handle the volume.
- With standardized underwriting there would be no difference between a large Mortgage Bank and a small Mortgage Bank with the exception of rate. Because of the ability for the larger banks to operate at a higher volume this would eliminate the ability for the smaller Mortgage Bankers to compete. This would further create a monopoly for the larger Mortgage Banks.
- In addition, standardized underwriting would limit the ability for “exceptions” to be made in underwriting files. For anyone who has been in the industry, for any amount of time, you know that there are exceptions in virtually every loan file. Standardized underwriting means there are little to no exceptions that can be made. Without an individuals ability to get an exception this would further decline the number of qualified buyers and people qualified to refinance their homes.
- Less home sales means Real Estate Agents and Brokers are competing over a smaller piece of the pie.
I could go on from there but I am sure you get the picture! Here you will find a Summary HR 3915 along with the Full Bill HR 3915. You can also sign an online petition to vote NO for HR 3915. Although this legislation is a direct attack on Mortgage Brokers, it will end up affecting every piece of both the Mortgage and Real Estate Industry. I urge you to act! On Friday, I will have more information about how you can contact your congressman in regard to HR 3915. Your mortgage partner for life,
Rey “Steak Dinner” Gallegos
Senior Loan Officer
Five Star Mortgage
My website: www.4NevadaHomeLoans.com
My Mortgage Blog: The Mortgage Insider
Your complete community mortgage broker
Proud Member National Association of Mortgage Brokers
© Copyright, 2007. Rey Gallegos, All Rights Reserved.
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Monday, October 29th, 2007
APMW-Hudson Valley
www.napmw-hudsonvalley.org
Dinner Meeting
SPEAKER: RHOLDA RICKETTS,
New York State Banking Department
TOPIC: Update on Licensing and
Other Regulatory Issues
Thursday, November 8th
Youngest Brother Restaurant
310 Robinson Ave. (Route 9W) Newburgh, NY
(www.youngestbrother.com)
Cocktails at 5:30 (Cash Bar)
Dinner & Speaker 6:15
Members AND Non-Members $29.00
RESERVATIONS ARE REQUIRED
Reservations -Please complete and fax to: (845) 457-8277
OR e-mail to: Barbara.Carr@waldensavingsbank.com
OR call: (845) 457-7700 ext. 255
Name(s): _____________________________________________________
Company: _______________________________________________________
Phone: ____________________
e-mail: ________________________________
Pay at the door, or remit check to: Claire Simonetti, Treasurer
c/o The Berkshire Bank
(Checks payable to P.O. Box 469
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Thursday, October 11th, 2007
Please be advised that our web site hosting account will have interruption of service due to a server move. The move is scheduled for one day between 10/12 and 10/31 2007. The interruption will last up to 10 hours when our account is moved to their new servers. Your web site and email service will both be off-line for the duration. This will happen between 11 pm and 9 am in order to minimize your inconvenience.
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Wednesday, October 10th, 2007
MAA Congressional Action Update: Mortgage Insurance Deductibility and BankruptcyToday the U.S. House of Representatives passed H.R. 3648, the Mortgage Forgiveness Debt Relief Act of 2007, which the Mortgage Action Alliance supported. The legislation will extend the income tax deduction for all mortgage insurance premiums and also allows for the discharge of indebtedness. The final vote in the House was 386 to 27. MAA will continue to advocate for the extension of mortgage insurance deducibility.
The House Subcommittee on Commercial and Administrative Law passed H.R. 3609 , the Emergency Home Ownership and Mortgage Equity Protection Act of 2007, which would allow bankruptcy judges to modify the terms of a mortgage contract during bankruptcy proceedings by a party-line vote of 5-4. MAA believes that this legislation would further exacerbate the serious credit crunch that is currently affecting the mortgage market. We believe that this bill will be taken up by the House Judiciary Committee next week and there will be further Alerts as Congressional Action is planned.
Stayed tuned to further posts to tell you how to support legislative initiatives that help our clients a our industry.
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Saturday, September 22nd, 2007
Thank you to the members and guests who helped us celebrate our 21st Board Installation. The event was held at the Ships Lantern Inn in Milton and we had record attendance of 71 people. The Board of Directors for 2007 to 2009 are Lisa Restuccia, John Klassen, Michael Martin, Evan Handel, Gary Gogerty and Robert Villone.
In addition to taking care of business the attendees enjoyed an Appetizer and Networking Hour sponsored by David Ellicott of Stewart Title Insurance and Gary Gogerty of Drake Loeb, Heller, Kennedy Gogerty Gaba and Rodd PLLC.
The entertainment was first class. Comedian Paul Bond provide jokes, one liners and music. This was sponsored by Joe DeBerardinis of River City Abstract.
A great time was had by all. We ill be hosting a educational seminar in the evening on October 24th. Details will follow.
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Thursday, May 31st, 2007
John M. Robbins, CMB, Chairman of the Mortgage Bankers Association (MBA) testified before the New York State Assembly’s Standing Committes on Judiciary, Banks, Consumer Affairs and Protection, Housing and Oversight, Analysis and Investigation. In his testimony, he acknowledged that a few unethical actors in the real estate finance industry made bad loans, but that policy makers should take care that in their efforts to protect consumers they don’t inadvertently restrict the availability of credit to worthy borrowers.
“We all share the same commitment of developing better protections for consumers against abusive lending and foreclosures and assuring that these borrowers continue to have the financing they need,” said Robbins. “I urge you to not smash this subtle, intricate and ingenious system of real estate that we have created as we fix problems in the subprime market.”
In his testimony, Robbins pointed out that more than 1 million Americans used a subprime loan to purchase their homes last year. He reminded the committee that homeownership across the country was near record highs and that subprime loans have played a crucial role in closing the gap berweeen the overall homeownership rate and the minority rate.
Addressing the current troubles in the subprime arena, Robbins cited a confluence of factors including a slowing of home price appreciation and weakening job market in some parts of the country. He reminded the committee that neither was a particularly large problem in New York and thus the state’s overall delinquency (4.82%) and foreclosure (1.11% rates were below the national average (5.31% and 1.19% respectively).
Robbins also reminded the members of the committee that 35 percent of New Yorkers own their homes free and clear and only 17 percent of New Yorkers even have a subprime mortgage, and of that 17 percent, 83 percent are paying their subprime mortgages on time. New York’s subprime foreclosure rate is below the national average.
Robbins pointed out some of the steps the industry is taking to help borrowers who find themselves having trouble paying their loans, including partnering with NeighborWorks America, a national nonprofit organization to promote their free counseling hotline, 888-995-HOPE, manned by the Homeownership Preservation Foundation.
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