Putting all the pieces of loan compliance together

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Putting all the pieces of loan compliance together

• Rebecca Ketter, CCBCO 6/19/09

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A Big Year for Changes

• Unparalleled crisis brings unparalleled reaction
• HOEPA/HMDA
• TILA
• RESPA
• HVCC
• SAFE

An alphabet soup of changes!!!
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HIGHER PRICED 10/1/2009

• Higher-priced mortgage loans - consumer
  credit transactions secured by consumers
  principal dwellings that are
• For first liens - 1.5 percentage points above the
  prime offer rate
• For second-lien loans - 3.5 percentage points
  over
• Came to be because of TIL changes.
• Note Requirements for higher-priced loans
  extend to home purchase and home improvement
  loans and refinances as proposed

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HIGHER PRICED Cont

• Prohibits a lender from making a loan without
  regard to borrowers' ability to repay the loan
  from income and assets other than the home's
  value.
• A lender complies, in part, by assessing
  repayment ability based on the highest scheduled
  payment in the first seven years of the loan. To
  show that a lender violated this prohibition, a
  borrower does not need to demonstrate that it is
  part of a "pattern or practice."
• Prohibits a lender from relying on income or
  assets that it does not verify to determine
  repayment ability.
• Bans any prepayment penalty if the payment can
  change during the initial four years. For other
  higher-priced loans, a prepayment penalty period
  cannot last for more than two years.
• Requires that the lender establish an escrow
  account for the payment of property taxes and
  homeowners' insurance for first-lien loans.

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HMDA - effective 10/1/09

• Compliance is mandatory for loan applications
  taken on or after October 1, 2009 and for all
  loans that close on or after January 1, 2010
  (regardless of the application date).
• Currently a HMDA rate spread is reported if the
  yield between the APR and Treasury Securities is
  3 on first liens and 5 on subordinate liens.
• This will be replaced with the Average Prime
  Offer Rate and will now be a rate of 1.5 for
  first liens and 3.5 for subordinate liens.
• HMDA reporting for 2009 shall have January to
  September 30 applications reported as the 3 to 5
  rate spread, and applications taken after October
  1 reported using the new 1.5 to 3.5 rate spreads.

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Truth In Lending changes

• Apply to dwelling-secured consumer loans for
  which a creditor receives an application on or
  after July 30, 2009.
• Early Disclosures are no longer just for
  purchases Truth in Lending now includes
• Refinances
• Home Equity (closed-end)
• Dwelling secured no longer just the primary
  dwelling
• 2nd home, for example
• Business purpose is still exempt

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Early disclosure timing

• Deliver or mail no later than three (3) business
  days after we receive the application.
• Applies to purchase.
• Applies to Non-purchase.
• Applies for primary dwelling.
• Applies for a dwelling other than the primary
  dwelling.

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Cannot Charge Fees!!!

• We cannot charge the customer any fees, other
  than a credit report fee
• Until early disclosures are received by the
  customer.

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We must make corrections!!

• Before closing (at least 3 days before)
• If the APR falls outside of tolerance limits
  (more than 1/8 of 1 percentage point in a regular
  transaction, or more than 1/4 of 1 percentage
  point in an irregular transaction, as defined in
  226.22(a)) this limit did not change
• New disclosures must be sent
• No later than 3 business days before closing

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We must wait!

• Seven (7) business day waiting period
• Creditors must wait seven business days after
  they provide the early disclosures before closing
  the loan

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Waiting Period for Corrected Disclosures

• Closing may not occur until 3 business days after
  the consumer receives the corrected disclosures.
  
• New rules assume receipt is 3 business days after
  mailing,
• thus closing can be not sooner than 6 days after
  sending the corrected disclosures.
• Board stated they will not adopt separate rules
  or presumptions for overnight shipping or
  electronic delivery.

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Business Day Different Definitions

• Business Day for Early Disclosures
• 3 business days and uses the "days on which a
  creditors offices are open to the public for
  carrying on substantially all of its business
  functions" definition (to remain consistency
  between TILA and RESPA)
• Business Day for Waiting Periods
• (7 business days to consummation 3 business days
  for corrected) "all calendar days except
  Sundays and specified legal public holidays
  specified at 5 USC 6103(a)"

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Clear as mud?
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January 1, 2010 - RESPA

• New Application Definition
• New Good Faith Estimate (now 3 pages long)
• New HUD-1 (also now 3 pages in length)
• New HUD-1a
• Servicing disclosure was effective January 16,
  2009

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Principles of RESPA Reform

• Help consumers shop for the best loan
• Shopping leads to greater competition lower
  prices
• Key final terms of the loan disclosed to the
  borrower at closing
• Preserve a competitive market for all
  settlement service providers

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Application

• Not until 1/1/2010
• Application means the submission of a borrowers
  financial information in anticipation of a credit
  decision relating to a federally related mortgage
  loan, which shall include
• the borrowers name,
• the borrowers monthly income,
• the borrowers social security number to obtain a
  credit report, the property address,
• an estimate of the value of the property,
• the mortgage loan amount sought,
• and any other information deemed necessary by the
  loan originator.
• An application may either be in writing or
  electronically submitted, including a written
  record of an oral application.

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Good Faith Estimate Changes

• Some closing costs will have tolerance levels we
  will have 30 days from the date of closing to
  correct errors, and repay consumers any
  overcharges, to avoid violations.
• Zero (0) for
• (i) The origination charge
• (ii) While the borrowers interest rate is
  locked, the credit or charge for the interest
  rate chosen
• (iii) While the borrowers interest rate is
  locked, the adjusted origination charge and
• (iv) Transfer taxes.
• 10 for
• Lender required settlement services
• Lender-required services, title services and
  required title insurance, and owners title
  insurance
• Government recording charges.

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Lets take a look.
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Binding GFE effective 1/1/2010

• The loan originator is bound, within the
  tolerances, to the settlement charges and terms
  listed on the GFE provided to the borrower,
  unless a new GFE is provided prior to settlement.

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GFE Page 1

• Important dates
• Summary of loan terms
• Escrow account information
• Summary of settlement charges

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• GFE
• Page 1

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GFE Page 2

• contains all costs associated with the loan
• two categories
• Adjusted Origination Charges
• All Other Settlement Services

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• GFE
• Page 2

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GFE Page 3

• Primarily an instruction page
• List of which charges can change
• Table of other loan options
• Shopping chart

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• GFE
• Page 3
• Instructions

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Moving on to the HUD (settlement statement)
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• HUD-1
• Settlement
• Statement

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In General

• revised to compare with GFE
• categorized - eliminate fee proliferation
• 3rd party charges listed outside column
• added page to HUD-1/1A
• highlights key loan terms

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Right-to-Cure
Inadvertent or technical errors not a violation
of RESPA Section 4 IF revised HUD-1 is provided
within 30 calendar days after settlement
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• HUD-1
• Page 2

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Fee Categories 700s

• eliminated commission percentage
• Lines 701 702 commission split
• Line 703 disbursed commission
• Line 704 if outside settlement P.O.C.

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Fee Categories 1100s
Title services Means any service involved in
the provision of title insurance (Lenders
Owners)
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Title Service

• Includes, but is not limited to
• title examination evaluation
• preparation issuance of commitment
• preparation issuance of policies
• AND
• all administrative services processing
  services required to perform these functions
• (e.g. document delivery, preparation copying,
  wiring, endorsements, notary)

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• HUD-1,
• page 3

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Comparison Chart

• compares charges listed on GFE
• actual charges listed on the HUD-1/1A
• identifies tolerance compliance
• or violation
• 3 categories charges that cannot
• increase, sum of charges that cannot
• increase more than 10 and charge
• that can increase

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• Comparison
• Chart

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Loan Terms

• ensures borrowers that they
• received loan applied they
• applied for
• highlights key loan terms

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• Loan
• Terms

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HVCC

• Home Valuation Code of Conduct
• Loans originated on or after May 1, 2009, and
  delivered to Fannie Mae or Freddie Mac.
• The purpose of HVCC is to preserve Appraiser
  independence from improper influence by the
  parties who order appraisals.
• Independence from Loan Production. All members
  of a lenders loan production staff are
  prohibited from selecting or otherwise
  influencing the selection of an appraiser, as
  well as having any substantive communications
  with an appraiser relating to the appraisers
  valuation.
• Borrower must be given a copy of any appraisal
  report concerning the borrower's subject
  property, promptly upon completion, and no less
  than three days prior to the closing of the loan.
  
• Lenders are required to perform quality control
  tests on a randomly selected 10 percent sample of
  the appraisals or valuations used by the lender.

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S.A.F.E. act of 2008

• Establishes Nationwide Mortgage Licensing System
  and Registry comprehensive database
• Coverage Loan originators - Takes loan
  applications and offers or negotiates terms of
  loans for compensation or gain. (Advising on loan
  terms, preparing loan packages, or collecting
  information on behalf of the consumer would
  qualify as origination.)
• Minimum Standards For state licensing and
  registry laws for originators include
• Annual licensing and registration
• Unique identifier fingerprints and background
  checks
• Demonstrated financial responsibility, character,
  and general fitness
• Minimum educational requirements and written
  examination
• Restrictions against licensees being issued to
  persons that have had license revoked, pled
  guilty or been convicted of a financial crime or
  breach of trust

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Youre SAFE for now

• The federal agencies released a proposed rule to
  implement S.A.F.E. on June 1, 2009
• The database established by the Conference of
  State Bank Supervisors (CSBS) and the American
  Association of Residential Mortgage Regulators
  (AARMR) to support the licensing of mortgage loan
  originators by the States is not ready.