1 Mortgage Lending laws and how it affects you, the REALTOR. Presented by Anders Hostelley and Leonard Loventhal
2 Secure and Fair Enforcement for Mortgage Licensing Act Title V of P.L , the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 ( SAFE Act ), was passed on July 30, The new federal law gave states one year to pass legislation requiring the licensure of mortgage loan originators according to national standards and the participation of state agencies on the Nationwide Mortgage Licensing System and Registry (NMLS). The SAFE Act is designed to enhance consumer protection and reduce fraud through the setting of minimum standards for the licensing and registration of state-licensed mortgage loan. Mortgage loan originators who work for an insured depository or its owned or controlled subsidiary that is regulated by a federal banking agency, or for an institution regulated by the Farm Credit Administration, are registered. All other mortgage loan originators are licensed by the states.
3 SAFE Act The NMLSR (Nationwide Mortgage Licensing System and Registry) will be required for registering all mortgage loan originators All mortgage loan originators must be either state-licensed or federally registered
4 SAFE Act The licensing system must include at minimum, the following: Screen individuals for no felonies in the last 7 years Screen individuals for no previous license revocations Require proof of financial responsibility using a credit report Require pre-license testing and education Require continuing education Provide for license renewals on an annual basis Include a bond, net worth or recovery fund
5 SAFE Act The registered loan officers must complete a criminal background check and submit employment history and experience Fingerprints for a background check must be provided to the NMLSR Provide authorization to the NMLSR to obtain a credit report Pass the test developed by the NMLSR which covers: Ethics Federal law and regulation State law and regulation Federal and state law and regulation pertaining to fraud, consumer protection, nontraditional mortgages and fair lending
6 SAFE Act Hawaii requirements Complete 20 hours of pre-licensure education courses approved by NMLSR, which includes: 3 hours of federal law and regulations 3 hours of ethics, which must include fraud, consumer protection and fair lending 2 hours of standards on non-traditional mortgage lending HUD GRANTS HAWAII EXTENSION TO MARCH 31, 2011.HUD has agreed to a reasonable delay until March 31, 2011 to allow applicants to fully comply with the licensing provisions of the federal and Hawaii Safe Acts.
7 SAFE Act Hawaii Requirements State-licensed Loan Originators must meet the following standards in order to maintain the license: Continue to meet the standards that were required to obtain the initial license Every year complete 8 hours of continuing education which must include: 3 hours of federal law and regulations 2 hours of ethics, which must include fraud, consumer protection, and fair lending; and 2 hours of standards on non-traditional mortgage lending
8 Dodd-Frank Wall Street Reform and Consumer Protection Act The Dodd Frank Wall Street Reform and Consumer Protection Act (Pub.L , H.R. 4173) is a federal statute in the United States that was signed into law by President Barack Obama on July 21, The Act is a product of the financial regulatory reform agenda of the Democratically-controlled 111th United States Congress and the Obama administration. It is more than 2,300 pages long and includes 16 titles
9 Title IX Credit Risk Retention Requires federal banking agencies and Securities and Exchange Commission (SEC) to issue rules to require securitizers to retain an economic interest of at least five percent of credit risk in assets they securitize. Also, requires regulators to establish and define a specific exemption for qualified residential mortgages taking into consideration underwriting and product features that historical loan performance data indicates result in lower risk of default. Also, authorizes alternative forms of risk retention for commercial mortgage backed securities.
10 Title IX Statute requires an exemption for qualified residential mortgages which shall be defined by regulators based on statutory criteria to ensure sound underwriting and lower risk of default such as: Documentation of borrower s financial resources Debt-to-income standards Mitigating potential for payment shock on adjustable rate mortgages through product features and underwriting standards Mortgage insurance or other credit enhancements to reduce risk of default and There is a hot debate going on in Washington today, suggestions have been made to limit QRMs to LTVs less than 70%, and incorporate FICO score requirements. The final ruling on QRMS is supposed to take place this April.
11 Title X Consumer Financial Protection Bureau (CFPB) Established Establishes CFPB as independent entity housed within FRB. Assigns CFPB broad authority to write rules to protect consumers from unfair or deceptive financial products, acts or practices and reassigns to CFPB responsibility for major consumer protection laws including RESPA, TILA, HOEPA, HMDA and more, detailed below. CFPB is scheduled to be up and running this July 22 nd.
12 Mortgage Reform and Anti-Predatory Lending Act Title XIV Requires Additional Disclosures for Consumers on Mortgages: Lenders must disclose the maximum a consumer could pay on an adjustable rate mortgage. Timeshare loans are exempt Prompt Crediting of Payments Creates new TILA 129F. Requires servicers to credit payments as of date of receipt except when a delay does not result in a charge or negative credit reporting. If servicer accepts non-conforming payment, it shall be credited within five days of receipt. Housing Counseling: Establishes an Office of Housing Counseling within HUD to boost homeownership and rental housing counseling. Appraisal Independence: Continuance of HVCC requirements, cost of Appraisal Management companies charge needs to be disclosed as a separate fee.
13 Mortgage Reform and Anti-Predatory Lending Act Title XIV Establishes Penalties for Irresponsible Lending: Lenders and mortgage originators who don t comply with new standards will be held accountable by consumers for as high as three-years of interest payments and damages plus attorney s fees (if any). Protects borrowers against foreclosure for violations of these standards. Expands Consumer Protections for High-Cost Mortgages: Expands the protections available under federal rules on highcost loans lowering the interest rate and the points and fee triggers that define high cost loans. Negative Amortization Requires disclosure and counseling for first-time borrowers prior to consummation of loans with negative amortization secured by dwelling.
14 Mortgage Reform and Anti-Predatory Lending Act Title XIV Require Lenders Ensure a Borrower s Ability to Repay: Establishes a simple federal standard for all home loans: institutions must ensure that borrowers can repay the loans they are sold, no stated income loans. Must underwrite ability to pay multiple loans if know (or reason to know) of other liens Use DTI based on all debt service and current income and reasonably assured future income, employment status, credit history, other assets. Must use fully amortizing payment. Need W-2s or similar. Need IRS or other third party verification. Limited exemptions for certain government guaranteed refinance loans Use fully amortizing payment for DTI, even if option ARM or interest-only loan (no more exploding underwriting) Use fully-indexed rate for discounted ARMs Exclusion for reverse mortgages and bridge loans
15 Mortgage Reform and Anti-Predatory Lending Act Title XIV Prohibit Unfair Lending Practices: Prohibits the financial incentives for subprime loans that encourage lenders to steer borrowers into more costly loans, including the bonuses known as yield spread premiums that lenders pay to brokers to inflate the cost of loans. Prohibits pre-payment penalties that trapped so many borrowers into unaffordable loans. Prohibits variable compensation depending on type off transaction. Safe Harbor = offer consumer a menu of options for each type (fixed/variable) of loan requested by consumer, lowest interest rate lowest rate without gotchas (negative ARM, balloons, demand feature, shared equity) lowest dollar points and fees
16 Mortgage Reform and Anti-Predatory Lending Act Title XIV Prohibition on Steering/Loan Originator Compensation: Does allow compensation to originator (1) based on principal amount of loan, (2) to be financed through loan s rate as long as it is not based on loan s rate and terms and originator does not receive any other compensation such as discount points, or origination points or fees however denominated, other than third-party charges, from consumer (or anyone else), and (3) in form of incentive payments based on number of loans originated within specified period of time. Expressly permits compensation to be received by creditor upon sale of consummated loan to subsequent purchaser, i.e. compensation to lender from secondary market for sale of consummated loan.
17 Website resources NMLSR web site: HUD web page re SAFE Act: DFI Hawaii: Dodd-Frank Wall Street Reform and Consumer Protection Act: df Honolulu HomeLoans:
18 Addendum Qualified Mortgage =Includes loans that meet several requirements including that income relied on to qualify borrowers is verified and documented, underwriting and ratios are consistent with statutory and regulatory requirements, and total points and fees payable in connection with loan do not exceed 3 percent of total loan amount. Reverse mortgage are exempt. Plain vanilla loans Non-qualified mortgage =Loans that do not meet the definition of a qualified mortgage loan, there are several restrictions for non-qualified loans, this will further incentivize the market to move the industry toward the origination of qualified mortgages. High Cost Mortgage = Loans priced 6.5% above Average Prime Offer Rate (8.5% for junior liens and loans under $52K) (Previously Treasury +8% or Treasury+10%) Fee Trigger 5% for loans over $20K, 8% or $1,000 for loans under $20K (Previously 8% / $400) Prepayment penalties illegal for high cost loans. Pre-loan Counseling Requires certification from HUD approved counselor before creditor can extend high-cost loan to consumer. Definition of high-cost loan now incorporates purchase loans and home equity lines of credit. Higher-Risk Mortgage = Any first lien residential mortgage loan with an APR that exceeds APOR for a comparable transaction by 1.5 percentage points or more for mortgage loan having original principal obligation that does not exceed conforming loan limit, 2.5 percentage points or more for jumbo loan having a principal obligation that is greater than conforming loan limit, and 3.5 percentage points or more for subordinate lien residential mortgage loan. Rules are to be promulgated by FRB, OCC, FDIC, NCUA, FHFA and CFPB.
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