Table of Contents General... 2 Ability to Repay (ATR)/Qualified Mortgage (QM)... 2 ATR Eligibility... 2 Qualifying Ratios... 4 Employment/Income... 4 Verifying Employment History (Employment Gaps)... 4 Borrowers Returning to Work After an Extended Absence... 5 Establishing an Overtime and Bonus Income Earning Trend... 5 Income from Seasonal Employment... 5 Social Security Income... 6 FHA Streamline Refinance and VA IRRRL... 6 Qualified Mortgages (QMs)... 6 Higher Priced Mortgage Loans (HPMLs)... 8 Encompass... 9 Mavent... 10 Points and Fees... 11 Seller/Lender Paid Fees... 12 Discount Points... 13 Origination Fee... 14 Processing Fee... 14 Mortgage Insurance... 14 MCC... 15 CHFA/MFA/Bond Programs... 16 Residual Income Evaluation (RIE)... 16 HOEPA Rule (Homebuyer Counseling Disclosure/List)... 16 Loan Originator Rule... 18 ECOA Valuation Rule/TILA HPML Appraisal Rule... 18 TILA and RESPA Servicing Rule... 20 Page 1 of 20
General Q: Where can I find additional information on the January 2014 CFPB Rules? A: Reg. U content, corporate sponsored webinars and additional information for the January 2014 Rules can now be located under one new category on the Compliance Department page of my.ulc.com. In addition, the following link is to the Regs for CFPB: http://www.consumerfinance.gov/regulatoryimplementation/?utm_source=newsletter&utm_medium=email&utm_campaign=email%2b20130708%2breg %2Bimplementation Q: When do the new CFP rules go into effect? A: The effective dates depend on loan type: For non-fha loans, the effective date of the CFPB QM rule is Applications dated on and after January 10, 2014; Under the FHA rule, the effective date is Case Numbers assigned on and after January 10, 2014. As a result, FHA loans with application dates prior to January 10, 2014 but with case numbers assigned on or after January 10, 2014 MUST comply with the regulation. Q: Will TBD s be considered an application when we take the TBD submission or when we have an address and the 7 items for application under the GFE definition? A: After Thursday, January 9, 2014, all new loans, including loans started as a TBD, will be covered under the new rules. Ability to Repay (ATR)/Qualified Mortgage (QM) ATR Eligibility Q: How do we determine eligibility under ATR? A: The AUSs and the written guides of the GSEs, FNMA/FHLMC, as well as the agencies, FHA/VA/USDA, can be used for eligibility purposes. Accordingly, a covered transaction is a transaction that is eligible for purchase or guarantee by Fannie Mae or Freddie Mac, or eligible for guarantee or insurance by HUD, VA, or USDA, (and therefore is qualified if: the loan conforms to the standards set forth in the Fannie Mae Single-Family Selling Guide, or the Freddie Mac Single-Family Seller/Servicer Guide, or HUD Handbook 4155.1, or VA Lender Handbook VA Pamphlet 26-7, or USDA Lender Handbook, as they relate to a borrower s ability to repay; or Page 2 of 20
the loan receives an Approve/Eligible recommendation from Desktop Underwriter (DU); or an Accept and Eligible to Purchase recommendation from Loan Prospector (LP); or Accept/Eligible recommendation from GUS; or the loan receives a Refer recommendation from ((DU),(LP), or (GUS)) for reasons that are wholly unrelated to a borrower s ability to repay and other risk-related factors.) To rely upon an AUS recommendation to demonstrate qualified mortgage status an underwriter must have: accurately input the loan information into the automated system, and satisfied any accompanying requirements or conditions to the AUS approval that would otherwise invalidate the recommendation, unless the conditions are wholly unrelated to the borrower's ability to repay. The 2013 ATR Final Rule assumes that any recommendation used for compliance would be valid. As such, the above two criteria should be monitored to ensure validity. In particular, because the AUSs generate a list of conditions that must be met in support of the approval designation, those conditions related to the borrower s ability to repay must be satisfied to show eligibility for purchase, guarantee, or insurance. Note: Minor inaccuracies in AUS input data that do not affect eligibility will not affect QM status. Q: If I'm running a new client that doesn't have a property and I get a Refer/Ineligible, but then figure out how to get them qualified, does that hurt the client, or is this rule for Approval ONLY after they are under contract? A: Initial and/or subsequent Refer findings do not affect the borrower s ATR/QM eligibility as long as the final AUS run is Approve/Accept Eligible findings. Q: What are the 8 ATR factors that must be considered when underwriting a loan? A: Lenders must consider the following eight underwriting factors when determining a consumer s ability to repay their loan: 1. Income/Assets 2. Employment Status 3. Monthly Payments on the Mortgage Loan 4. Monthly Payments on Simultaneous Loans Secured by the Same Property 5. Monthly payments on Mortgage Related Obligations 6. Current Debt Obligations 7. Monthly DTI or Residual Income 8. Credit History Q: Are any transactions exempt from the ATR requirements? A: CFPB s list of transactions that are exempt from the ability-to-repay requirements include: Reverse Mortgages; Page 3 of 20
Bridge loans with a term of 12 months or less; Construction-to-permanent loans for 12 months or less for the construction phase; Extension of credit by a Housing Finance Agency; Extension of credit by Borrower Development Financial Institutions; Extension of credit made pursuant to a program authorized by sections 101 and 109 of the Emergency Economic Stabilization Act of 2008; Down payment Assistance through Secondary Financing Provider made pursuant to HUD s regulations; Community Housing Development Organization (CHDO) provided that the underwriter has entered into a commitment with a participating jurisdiction and is undertaking a project under the HOME program; A 501(c)(3) organization that secured no more than 200 dwellings in the prior calendar year to borrowers with income that did not exceed the low- and moderate-income household limit as established pursuant to section 102 of the Housing and Community Development Act of 1974 (42 U.S.C. 5302(a)(20)) and the underwriter determines, in accordance with written procedures, that the borrower has a reasonable ability to repay the extension of credit. Qualifying Ratios Q: Can I originate loans over 43% DTI? A: Yes Conventional Loans Require AUS Approval Government Loans Require AUS Approval and/or documented compensating factors for elevated ratios. Employment/Income Q: Did Appendix Q change how we review a borrower s employment history or any types of income? A: Yes, there were changes to the following topics: Verifying Employment History (Employment Gaps) Returning to Work After an Extended Absence Establishing an Overtime and Bonus Income Earning Trend Income from Seasonal Employment Social Security Income Verifying Employment History (Employment Gaps) The underwriter must verify the borrower's employment for the most recent two full years, and the underwriter must require the borrower to: Explain any gaps in employment that span one or more months, and Page 4 of 20
Indicate if he/she was in school or the military for the recent two full years, providing evidence supporting this claim, such as college transcripts, or discharge papers. Allowances can be made for seasonal employment, typical for the building trades and agriculture, if documented by the underwriter. Borrowers Returning to Work After an Extended Absence A borrower's income may be considered effective and stable when recently returning to work after an extended absence if he/she: Is employed in the current job for six months or longer; and Can document a two year work history prior to an absence from employment using: o Traditional employment verifications; and/or o Copies of IRS Form W-2s or pay stubs. Note: An acceptable employment situation includes individuals who took several years off from employment to raise children, then returned to the workforce. Important: Situations not meeting the criteria listed above may not be used in qualifying. Extended absence is defined as six months. Establishing an Overtime and Bonus Income Earning Trend The underwriter must establish and document an earnings trend for overtime and bonus income. If either type of income shows a continual decline, the underwriter must document in writing a sound rationalization for including the income when qualifying the borrower. A period of more than two years must be used in calculating the average overtime and bonus income if the income varies significantly from year to year. Income from Seasonal Employment Seasonal income is considered uninterrupted, and may be used to qualify the borrower, if the underwriter documents that the borrower: Has worked the same job for the past two years, (Previously allowed for same line of work.), and Expects to be rehired the next season. Seasonal employment includes, but is not limited to: Umpiring baseball games in the summer; or Working at a department store during the holiday shopping season. Page 5 of 20
Social Security Income Social Security income must be verified by a Social Security Administration benefit verification letter (sometimes called a proof of income letter, budget letter, benefits letter, or proof of award letter ). If any benefits expire within the first full three years of the loan, the income source may not be used in qualifying. (Option for proof of receipt in lieu of the award letter has been removed.) Notes: -If the Social Security Administration benefit verification letter does not indicate a defined expiration date within three years of loan origination, the underwriter shall consider the income effective and likely to continue. Pending or current re-evaluation of medical eligibility for benefit payments is not considered an indication that the benefit payments are not likely to continue. -Some portion of Social Security income may be grossed up if deemed nontaxable by the IRS. FHA Streamline Refinance and VA IRRRL Q: Can we still do FHA Streamline Refinances and VA IRRRLs since they don t have income or asset verification? A: Yes, ULC will continue offering these products using the agency guidelines. Qualified Mortgages (QMs) Q: Does FHA/VA/USDA follow the same standards for QM as Conventional Mortgages? A: The Dodd-Frank Act required that FHA, VA and RHS/USDA publish their own standards for QM that align with the Ability-to-Repay criteria. On December 11, 2013, HUD released its final rule which defines a Qualified Mortgage (QM) that is insured, guaranteed or administered by HUD. The HUD Rule is similar to the CFPB QM Rule, but there are some differences: 1) The threshold for determining if a loan is a Safe Harbor QM or a Rebuttable Presumption QM is different (the Rule does not redefine HPML, it just sets safe harbor for FHA). Under HUD s rule: Safe Harbor Qualified Mortgages will be loans with APRs equal to or less than APOR +115 bps + Annual MIP rate. Rebuttable Presumption Qualified Mortgages will have an APR greater than APOR + 115 basis points (bps) + Annual Mortgage Insurance Premium (MIP) rate; 2) The effective dates are different: For non-fha loans, the effective date of the CFPB QM rule is Applications dated on and after January 10, 2014; Under the FHA rule, the effective date is Case Numbers assigned on and after January 10, 2014. As a result, FHA loans with application dates prior to January 10, 2014 but with case numbers assigned on or after January 10, 2014 MUST comply with the regulation. Page 6 of 20
So, it looks like HUD/FHA took into consideration that FHA loans would more often lose the safe harbor protections because the life-time annual MIP causes the APR to be higher. HUD s QM definition, mortgage loans must: Require periodic payments without risky features; Have terms not to exceed 30 years; Limit upfront points and fees to no more than three percent with adjustments to facilitate smaller loans (except for Title I, Title II Manufactured Housing, Section 184,Section 184A loans and others as detailed below); and Be insured or guaranteed by FHA or HUD. Furthermore, HUD s rule covers Title II manufactured housing, Title I manufactured housing and property improvement loans, Section 184 Indian Home Loan Guarantee Program mortgages and Section 184A Native Hawaiian Housing Loan Guarantee Program mortgages. The rule designates loans insured under these programs as Safe Harbor Qualified Mortgages regardless of upfront points/fees and APR to APOR ratio so as not to interfere with current lending practices until appropriate parameters can be determined. On January 9, 2014, VA released VA Circular 26-14-1, Lender Compliance with CFPB requirements for ATR/QM Rule, to clarify lender actions regarding VA guaranteed loans. Until VA s rule on ATR/QM is in place, all lenders must comply with the requirements of TILA, as established by CFPB s ATR/QM Rule. The USDA/RHS has not released any additional information, to date. Q: Do CHFA, MFA, MMA AND MBOH loans have to meet agency QM requirements. A: Yes Q: What do you mean by agency QM? A: Loans falling under the Agency or Temporary QM definition must meet the same requirements as General QM loans regarding prohibitions on risky features (negative-amortization, interest-only, and balloon-payment features), a maximum loan term of 30 years, and points-and-fees restrictions. They must also meet at least one of these additional requirements: Eligible for purchase or guarantee by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac) while operating under federal conservatorship or receivership Eligible for Federal Housing Administration (FHA) insurance Implementation Tip: See FHA Final QM Rule. Eligible to be guaranteed by the U.S. Department of Veterans Affairs (VA) Eligible to be guaranteed by the U.S. Department of Agriculture (USDA) Eligible to be insured by the Rural Housing Service Eligibility for purchase or guarantee by a GSE or insurance or guarantee by an agency can be established based on the following methods: Valid recommendation from a GSE Automated Underwriting System (AUS) or an AUS that relies on an agency underwriting tool Page 7 of 20
GSE or agency guidelines contained in official manuals Written agreements between a GSE or agency and the creditor (or a direct sponsor or aggregator of the creditor) Individual loan waivers from a GSE or agency To meet the Agency or Temporary QM definition, loans must be underwritten using the required guidelines of the entities above, including any relevant DTI guidelines. They do not have to meet the 43 percent debt-to-income ratio threshold that applies to General QM loans. Q: If we close a loan that doesn t meet the ATR/QM requirements, can we fix it post closing? A: No. Because all QM provisions require the loan to meet ATR/QM requirements at the time of closing, a loan cannot be retroactively made ATR/QM eligible after closing. Higher Priced Mortgage Loans (HPMLs) Q: What is the definition of an HPML loan? A: The definition of an HPML loan varies based on loan type: Conventional Conforming - Conforming loans are HPML if the APR is >= to 1.5% above the APOR. Conventional Jumbo - Jumbo loans are HPML if the APR is >= to 2.5% above the APOR. (PennyMac defines a jumbo loan as HPML if the APR is >= to 1.5% above the APOR.) FHA To determine the qualified mortgage status of a loan, analyze whether the loan meets one of FHA s definitions of qualified mortgage. A Rebuttable Presumption Qualified Mortgage is a High Priced Mortgage Loan (HPML) and will have an APR greater than APOR + 115 basis points (bps) + on-going Mortgage Insurance Premium (MIP) rate. Legally, lenders that offer these loans are presumed to have determined that the borrower met the Ability-to-Repay standard. Borrowers can challenge that presumption, however, by proving that they did not, in fact, have sufficient income to pay the mortgage and their other living expenses. (Note: a Residual Income Evaluation is required on HPML loans.) A Safe Harbor Qualified Mortgages is NOT a High Priced Mortgage Loan (HPML) and will have an APR equal to or less than APOR + 115 bps + on-going MIP. These mortgages offer lenders the greatest legal certainty that they are complying with the Ability-to-Repay standard. Borrowers can still legally challenge their lender if they believe the loan does not meet the definitions of a Safe Harbor Qualified Mortgage. Q: Is the definition of an HPML loan different for a Jumbo loan? A: Yes. Jumbo loans are HPML if the APR is >= to 2.5% above the APOR. PennyMac defines a jumbo loan as HPML if the APR is >= to 1.5% above the APOR. Q: Is the definition of an HPML loan different for an FHA loan? A: To determine the qualified mortgage status of a loan, analyze whether the loan meets one of FHA s definitions of qualified mortgage. Page 8 of 20
A Rebuttable Presumption Qualified Mortgage is a High Priced Mortgage Loan (HPML) and will have an APR greater than APOR + 115 basis points (bps) + on-going Mortgage Insurance Premium (MIP) rate. Legally, lenders that offer these loans are presumed to have determined that the borrower met the Ability-to-Repay standard. Borrowers can challenge that presumption, however, by proving that they did not, in fact, have sufficient income to pay the mortgage and their other living expenses. (Note: a Residual Income Evaluation is required on HPML loans.) A Safe Harbor Qualified Mortgages is NOT a High Priced Mortgage Loan (HPML) and will have an APR equal to or less than APOR + 115 bps + on-going MIP. These mortgages offer lenders the greatest legal certainty that they are complying with the Ability-to-Repay standard. Borrowers can still legally challenge their lender if they believe the loan does not meet the definitions of a Safe Harbor Qualified Mortgage. Q: What determines the APOR? Where does the percentage come from? A: The APOR, Average Prime Offer Rate, generates the spread between the Annual Percentage Rate (APR) and a survey-based estimate of APRs currently offered on prime mortgage loans of a comparable type utilizing the Average Prime Offer Rates- Fixed and Average Prime Offer Rates- Adjustable tables, action taken, amortization type, lock-in date, APR, fixed term (loan maturity) or variable term (initial fixed-rate period), and lien status. We get the rate from the Federal Financial Institutions Examination Council (FFIEC) website when we run Mavent. Q: Can I still originate a Higher Priced Mortgage Loan (HPML)? A: Yes. ULC will be doing loans that meet the Rebuttable Presumption, which would be a QM loan that is an HPML. The loan must still meet the max 3% Points and Fees test. Q: Will all of our investors purchase HPML loans? A: No. Green Tree and Stearns Lending will not purchase HPML loans. (HPML loans are not eligible for prior approval with Wells Fargo.) Q: Is there a simple way to check, based on current rates and the APOR, if a pre-qual. loan is an HPML loan? A: Yes. You can clarify the calculation by running Mavent at any time. Mavent can be found in the tools tab (compliance review). Review the Section 35 form. Q: We won't know if it is a HPML until the loan is locked? A: Not necessarily. When you run Mavent and complete your fees, you should have a good idea if it will be HPML. If the fees were not accurately input into Encompass or your lock interest rate/points are higher than initially disclosed, you could see a change from non-hpml to HPML. Encompass Q: Where do I find the cheat sheet for Encompass screens? A: The cheat sheet for Encompass screens and documents can be found on the my.ulc.com home page. Page 9 of 20
Q: When completing the Appendix Q tab on the ATR/QM Management form, where do I put negative/additional income, such as 2106 Expenses or Schedule C loss? A: Enter the negative income under Other, field QM.142 for the borrower and field QM.150 for the co-borrower. Q: I m receiving a red flag on the ATR/QM Eligibility tab for Points and Fees test. A: Encompass uses the Pay To column on the 2010 Itemization screen to identify if the amount should be included in the Points and Fees Test. If this column is not identified for a fee, the system will consider the fee paid to Lender and includes it in the Points and Fees test. To correct this issue, 1. go to the 2010 Itemization screen 2. at the top right of the screen find the field for Closing Cost Program, click the magnifying glass to the right 3. in the popup window find applicable Closing Cost Scheme that reads NEW, click to highlight 4. Click Select Q: If we pick the "new" closing cost template, will the paid to lender fees be marked by default so that I only need to pay attention to any "exceptions" like processor fee paid to a non-universal employee? -- OR, will I need to be sure I mark the paid to categories on every loan before GFE review and printing? A: The NEW closing cost templates will include the paid to. You will need to adjust the processor to other if using a contract processor. Q: When picking a closing cost template, am I looking for Crestline closing cost scheme? A: No, pick New closing costs. Q: If I completed the application prior to January 10, 2014, but did not print the file, do I need to go back in and choose the new cost scheme in addition to counseling etc.? A: The new guidelines are based on the GFE application date or FHA Case Number. If the GFE application date or FHA Case Number Assignment date is on or after January 10, 2014, the new guidelines apply. If the GFE application date or FHA Case Number Assignment date is prior to January 10, 2014, the old guidelines apply. Q: When we are charging a discount fee, do we still check/uncheck the "The credit or charge for the interest rate of " box? A: No. On the 2010 Itemization you will check the Specify the Adjusted Origination Charge Details box then click the [Manage Details] button. After this is filled out, Encompass will auto-populate the necessary checkboxes for you. Mavent Q: Why does Mavent/Compliance Report Say: Review of the final loan data has not occurred. The results are based on LOS APR & finance charge amounts, not the disclosed values. Page 10 of 20
A: The reason you are receiving this message is because the Mavent/Compliance Report was ordered as a Preview instead of a full Order. You can go in and click the Order button to pull the correct results. Points and Fees Q: What figure do we base the 3% points and fees on? A: The new ATR/QM 3% is calculated using the total loan amount or the amount financed from the TIL, not the note loan amount. Q: What fees are included in the Points and Fees calculation? A: Include all of the following: Up-front finance charges Except for some types of mortgage insurance premiums; some bona fide discount points; some bona fide third-party charges Certain loan originator compensation attributable to the transaction Real estate related fees Includes fees for title-related services; notary and credit reports; property appraisals and inspections; amounts paid into escrow that are not otherwise included in the finance charge (except amounts for future payment of taxes). But real estate related fees are excluded from points and fees if a) reasonable, b) creditor receives no direct or indirect compensation in connection with charge, and c) the charge is not paid to an affiliate of the creditor. Premiums for credit insurance, credit property insurance, other life, accident, health or loss-ofincome insurance where the creditor is the beneficiary; and debt cancellation or suspension coverage payments. Maximum prepayment penalty Do NOT include: Bona fide 3 rd party charges not retained by lender, Originator or affiliate Government mortgage insurance premium Interest or time price differential Up to 2 bona fide discount points (See below) Interest rate for the bona fide discount points, starting adjusted rated offers a rebate and the consumer chooses to pay discount points the amount of the points actually paid are the maximum that can be excluded up to the two points Fees for title insurance, title examination, property survey Document preparation fees Amount required to be paid into escrow, if not otherwise included in the finance charge Pre-consummation flood and pest inspection fees Appraisal and credit report fees if charged to all applicants Individual MLO Compensation (employee) Page 11 of 20
Real estate related fees, generally Q: Does the 3% points and fees limit apply to lower loan amounts too? A: For a loan to be a QM, one of the requirements is that the points and fees may not exceed the pointsand-fees caps. The points-and-fees caps are higher for smaller loans. 3 percent of the total loan amount for a loan greater than or equal to $100,000 $3,000 for a loan greater than or equal to $60,000 but less than $100,000 5 percent of the total loan amount for a loan greater than or equal to $20,000 but less than $60,000 $1,000 for a loan greater than or equal to $12,500 but less than $20,000 8 percent of the total loan amount for a loan less than $12,500 The dollar amounts listed above will be adjusted annually for inflation and published each year in the commentary to Regulation Z. Higher thresholds are provided for loan amounts under $100,000. Q: How will ULC assure that a covered loan does not exceed the 3% threshold? A: Our LOS vendor has made code changes and provided system updates in Encompass to calculate the 3% points and fees. Encompass will also evaluate the other requirements of a QM loan, but as with all data in our LOS, its accuracy will depend on the data integrity of our entries. Our IT Applications Department has worked with Encompass and coordinated with several other ULC departments to set up the ATR/QM tools. We have added alerts and stops built around the 3%. The Mavent report will also help document that a loan meets QM requirements. Q: If we go over the points and fees due to a low loan amount, or for whatever reason, what is the alternative? Do we waive some of our fees? A: Waiving fees on some loans would violate fair lending laws. We have run many loans with low loan amounts and have not found them exceeding the points and fees calculation. The main reason is the points and fees calculation is graduated as the loan amount goes down. (3% down to $100,000; $3,000 between $99,999 and $60,000; 5% between $59,999 and $20,000; $1,000 between $19,999 and $12,500; 8% below $12,500). If you find a loan that does exceed the points and fees, email to opssupport@ulc.com for assistance. Q: How often do we go over 3% with points and fees? A: We have tested many loans and have not seen very many. So far, we can pinpoint the FHA 203K GNND loans as exceeding the 3%. In each case, we were able to use a contract processor that lowered the fees to comply. Q: How do we mark closing costs if the buyer is using a county down payment assistance program and is receiving credit for closing costs since it doesn't fit lender paid or seller paid on the itemization? A: Down payment assistance programs should be shown as assets to the borrower and all fees will be shown as paid by the borrower. Seller/Lender Paid Fees Q: Are seller paid fees included in the 3% calculation for ATR/QM? Page 12 of 20
A: If the seller pays a fee that would normally be included in the 3% points and fees, with exception of a Broker Fee, it can be excluded from the 3% points and fees. Note: Fees paid by a third party, other than the seller, can only be excluded from the points and fees if they are already excluded from the points and fees. Q: Is there a 3% cap on seller paid closing costs? A: The IPC limit is determined by occupancy and LTV: Occupancy Type LTV/CLTV Ratio Maximum IPC Principal residence or second Greater than 90% 3% home 75.01% - 90% 6% 75% or less 9% Investment Property All LTVs/CLTVs 2% Review the FAQs posted to my.ulc.com for additional requirements when IPCs exceed the above limits. Q: Are lender paid fees included in the 3% calculation for ATR/QM? A: Lender paid fees will not help reduce fees to be included in the 3% points and fees. Fees that we retain (and affiliates) and compensation paid to our Broker partners, which are the bulk of the points and fees, must still be included in the 3% if paid by the lender. Note: APR calculations remain the same, so lender and other 3rd party paid fees will still reduce the APR to keep a loan under the HPML threshold to keep the safe harbor protections. Q: If we have lender paid closing costs, do we use discount points to pay for this now? A: Lender paid closing costs should be paid through premium pricing. Discount points should only be charged if the borrower wants a rate lower than the par quote. Q: Do we still have to determine what fees seller is paying and what they aren t paying? A: Selecting the fees on the itemization for the seller has not changed. Continue with the same process of detailing those costs paid by the seller. Discount Points Q: Can we exclude discount points from the 3% Points and Fees limitation? A: Bona fide discount points may be excluded if they meet certain requirements: Exclude up to 2 bona fide discount points if the interest rate before the discount does not exceed the APOR for a comparable transaction by more than 1 percentage point; or Exclude up to 1 bona fide discount point if the interest rate before the discount does not exceed the APOR for a comparable transaction by more than 2 percentage points. Page 13 of 20
Note that a discount point is bona fide if it reduces the consumer s interest rate by an amount that reflects established industry practices, such as secondary mortgage market norms. An example is the pricing in the to-be-announced market for mortgage-backed securities. Q: Will the Discount Fee Disclosure form be populated by secondary at rate lock and do I, as the LO, just need to send with lock disclosures? A: Correct, unless you disclose with discounts on a float. When disclosing a discount on a float you will need to complete the screen (training to follow) and sent the disclosure. At this point, we prefer you not disclose discounts until we clarify how it affects the bona fide discount. Q: On CHFA loans, will we be disclosing a 1% origination fee or a 1% discount fee? A: See CHFA/MFA/Bond Programs Q: When we are charging a discount fee, do we still check/uncheck the "The credit or charge for the interest rate of " box? A: See Encompass Origination Fee Q: Are we still charging an origination fee? A: You must still charge the 1% origination fee on CHFA, MMA, MFA and MBOH loans where applicable. On other loans, in lieu of charging an origination fee, charge a discount fee, as it should be bona fide and not go against the points and fees. Processing Fee Q: Can a 3rd party processing fee be collected at closing? A: Yes, as long as there is a valid invoice from a non-affiliated processing company with a valid NMLS #. This will be disclosed in box 3 of GFE, not Box 1. Q: If the processor is an employee of ULC, and NOT a contract processor, does the processing fee have to be included in the 3% points and fees? A: Yes. Q: If the processor is a contract processor, and NOT an employee of ULC, does the processing fee have to be included in the 3% points and fees? A: No. Mortgage Insurance Q: Is mortgage insurance included in the Points and Fees limitations? A: It depends on the type of mortgage insurance: Borrower-paid rate programs Include Exclude Monthly Premiums Page 14 of 20
Refundable Single Premiums Nonrefundable Single Premiums Annual Premiums Upfront Premium Split Premiums Monthly Premium Lender-Paid Rate Programs Single Premiums Monthly Premiums (Not Eligible) Q: Can we use over par pricing to pay for single premium MI and exclude the premium from the points and fees? A: ULC s attorneys feel that defending the Lender Paid MI on the HUD is questionable. Effective immediately, ULC now has an LPMI rate disclosed program option in Optimal Blue. The MI in this case is not disclosed on the GFE, nor on the HUD-1. Seller paid MI is reduced form the points and fees. Q: Is seller paid MI reduced from points and fees? A: Yes Q: Will ULC still allow split premiums? A: Yes, as long as the loan passes the points and fees test. Q: How do we know which MI Company to send our files to with the ULC pricing of lender paid MI? A: At this point, the preference is MGIC, but any of our MI Venders may be used. Soon the underwriters will be ordering MI. Note: No MI can be ordered as refundable until we get clarification of the CFPB definition of refundable. MCC Q: Are MCC fees exempt from points and fees, as they are paid to others? A: This depends on who the MCC fee is paid to: MCC fees paid directly to the MCC Vendor is considered as paid to others, and therefore exempt from points and fees. MCC fees paid to processing, when the processor is a ULC employee, will show as paid to lender, and therefore included in the points and fees. MCC fees paid to processing, when the processor is a contract processor, will show as paid to other, and therefore excluded from the points and fees. Q: What if CHFA MCC - added cost of $450? A: See CHFA/MFA/Bond Programs Page 15 of 20
CHFA/MFA/Bond Programs Q: On CHFA loans, will we be disclosing a 1% origination fee or a 1% discount fee? A: CHFA, MFA, Denver MMA, and Montana Bond do not allow for discounts unless it is for extensions. If extensions are charged, they will be counted against the 3% as it is not to buy down the rate. Q: What if CHFA MCC - added cost of $450? A: $200 comes to ULC and is included in the points and fees test, unless paid to a contract processor, and $250 is paid to CHFA and is excluded from the points and fees test. Watch your fees to not go over. Residual Income Evaluation (RIE) Q: When is a residual income evaluation required? A: All conventional HPML mortgages will require an RIE to be done. (Encompass has been programmed to do this automatically.) If the loan does not pass the RIE, the loan may not be sold to Wells Fargo. Q: How is residual income defined for purposes of ATR/QM? A: Residual income for purposes of the RIE is defined as the total gross qualifying income for the loan minus the gross monthly debts of all borrowers on the loan. (Include non-borrowing spouse debts in community property states.) Note: If any borrower has non-taxable income being grossed up for qualifying, include the grossed up amount n the gross qualifying income. Q: Is Colorado a Community Property State? A: Colorado is not a community property state, but we do business in states that are community property states. (Community Property States: (Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin)) Q: Do we have a worksheet for RIE? A: Yes. A new Encompass form, Residual Income Summary has been added to the forms list, or you can use the Excel form posted to my.ulc.com/departments/underwriting/forms/employment-income. HOEPA Rule (Homebuyer Counseling Disclosure/List) Q: What is the minimum number of agencies that should be provided to the borrower on HUD approved counseling agencies list? A: Lenders must provide a list of at least 10 HUD approved counseling agencies located nearest to the borrower s current zip code within 3-days of application. Q: When am I required to provide a copy of HUD approved counseling agencies to my borrower? Page 16 of 20
A: Lenders must provide a list of at least 10 HUD approved counseling agencies located nearest to the borrower s current zip code within 3-days of application. Q: Does the homebuyer counseling need to be signed or sent within three days? A: The list must be sent within 3-days of application. Q: On a loan with 2 borrowers who have 2 different addresses, what zip code should be used to pull the HUD Approved Counseling List? A: The primary borrower s address is required to be used to pull the HUD Approved Counseling list, however, it would be advisable to send a relevant counseling list to each borrower. Q: If I have 2 loans with the same zip code can I pull one counseling list for both loans? A: Yes, if it s the same day. Copies must be loaded into each file. To assure compliance with the Rule, do not continue to use the list on a subsequent or different day. The counseling list is constantly changing. Q: If loan is FHA CHFA and was disclosed prior to January 10, 2014, but no FHA Case number was pulled, do I need to send the new Homeownership disclosure and counseling list? A: If the GFE application date is on or after January 10, 2014 or an FHA Case Number Assignment pulled on or after January 10, 2014, you must disclose the Homeownership counseling list as well as the new appraisal disclosure and the discount disclosure if applicable. Q: All loans require that the HUD Counseling list is given correct? What loans actually require the HUD counseling besides CHFA? So all borrowers get the list but not all borrowers are required to do the counseling correct? A: All loans do require the homebuyer counseling disclosure and list. The disclosure does not reference whether they need to take the class, but gives them a resource for independent advice. The required homebuyer counseling is based on specific first time homebuyer programs like CHFA, MFA, Bond, etc. Q: Does the Notice of Homeownership Counseling Agencies disclosure requirement under the HOEPA Rule apply to every loan, not just HOEPA loans? A: Yes. Even though this provision was issued in the HOEPA Rule, it is actually a RESPA change. The counseling list must be provided on all of our loans. A borrower will only need to actually take a counseling course if the borrower is a first time home buyer with a negative amortization loan. Q: What loan types are covered under the new HOEPA tests? A: See table below: Transaction Type Covered Exempt Purchase, Refinance, HELOC (Covered if secured by a principal dwelling.) HELOCs Manufactured Housing Loans Initial Construction Loans Loans made by small creditors predominantly serving rural or (Exempt from balloon prohibition if other criteria Page 17 of 20
underserved areas Bridge Loans (12-months or less) Timeshares Reverse Mortgages are met.) (Exempt from balloon prohibition.) (Exempt to the extent it is not a principal dwelling.) Loan Originator Rule ECOA Valuation Rule/TILA HPML Appraisal Rule Q: When does the new TILA HPML Rule go into effect? A: The TILA/HPML Rule becomes effective for RESPA Applications dated on or after January 18, 2014. (Note: Reverse mortgages are exempt from this new rule.) Q: Does the new TILA HPML Rule affect what appraisal form we must use? A: Yes. Full Interior/Exterior appraisals are required on all HPML loans. Q: What is the definition of a flip for HPML purposes? A: The seller acquired the property within 180-days prior to the date of the purchase contract, AND The new purchase price exceeds the seller s acquisition cost by: 10% if the seller acquired the property within 90-days of the contract date, OR 20% if the seller acquired the property between 91 and 180-days prior to the contract Q: Is it true the new TILA HPML Rule requires a second appraisal on flip transactions, even on conventional loans? A: Yes. Two full appraisals are required if on a primary residence transaction: The seller acquired the property within 180-days prior to the date of the purchase contract, AND The new purchase price exceeds the seller s acquisition cost by: o 10% if the seller acquired the property within 90-days of the contract date, OR o 20% if the seller acquired the property between 91 and 180-days prior to the contract date. Q: When two appraisals are required for a flip transaction, can the same appraiser do both appraisals? A: No Q: Are there additional requirements for the second appraisal on a flip transaction? A: Yes. One of the two required appraisals, (doesn t have to be the second appraisal), must include an analysis of: The difference between the previous price and the new purchase price Page 18 of 20
Changes in market conditions between the date the seller acquired the property and the date of the new purchase agreement, and Any improvements made to the property between the date the seller acquired the property and the date of the new purchase agreement. Q: Can the borrower be charged for the second appraisal on a flip transaction? A: No Q: Who can pay for the 2 nd appraisal fee on HPML flip loans? A: The second appraisal can be paid by the seller (preference), or the lender. Q: Does the second appraisal requirement on a flip transaction supersede FHA s second appraisal requirement? A: You must follow the most restrictive of the two rules. Q: What is an example of promptly delivery of a valuation? A: Sending a copy of an appraisal within a week of completion with sufficient time before consummation (or account opening for open-end credit). On day 15 after receipt of the application, the creditor s underwriting department reviews an appraisal and determines it is acceptable. One week later, the creditor sends a copy of the appraisal to the applicant. The applicant actually receives the copy more than three business days before the date of consummation (or account opening). The creditor has provided the copy of the appraisal promptly upon completion. Q: What is an example of not promptly delivering a valuation? A: Delay in sending an appraisal. On day 12 after receipt of the application, the creditor s underwriting department reviews an appraisal and determines it is acceptable. Although the creditor has determined the appraisal is complete, the creditor waits to provide a copy to the applicant until day 42, when the creditor schedules the consummation (or account opening) to occur on day 50. The creditor has not provided the copy of the appraisal promptly upon completion. Q: What happens if we have multiple versions of an appraisal or other valuations? A: The reference to all appraisals and other written valuations does not refer to all versions of the same appraisal or other valuation. If a creditor has received multiple versions of an appraisal or other written valuation, the creditor is required to provide only a copy of the latest version received. If, however, a creditor already has provided a copy of one version of an appraisal or other written valuation to an applicant, and the creditor later receives a revision of that appraisal or other written valuation, then the creditor also must provide the applicant with a copy of the revision Q: If the valuation will not come in to satisfy the delivery requirement of 3 days, can I obtain a wavier? A1: Yes, a waiver may be obtained if a valid reason for non-delivery applies. The waiver must still be provided 3 days prior to closing. A2: Illinois loans will always require the borrower to receive the appraisal at least 24 hours before closing. No wavier can be obtained for the 24 hour delivery. Q: My buyer is out of the country (returning the day before closing). Will an email from her stating she received the appraisal suffice as opposed to the signed appraisal received certification? Page 19 of 20
A: The borrower will sign the cert at closing. There will an acknowledgement cert in every closing package. Q: How will we insure appraisals are provided to our borrowers in a timely manner? A: Our Appraisal review procedure has been modified as follows: When the Appraisal department receives the appraisal from the appraiser, they will upload the appraisal to Encompass Document P00 Appraisal in the Encompass efolder. (VA appraisals will be uploaded by Underwriting Support.) Underwriter will review appraisal and condition for anything additional that is needed. If appraisal is fine as is, the UW will upload the final appraisal into Encompass Document P00 Final Appraisal. When the appraisal is uploaded to P00 Final Appraisal Encompass will send an e-mail to the loan processor notifying them the appraisal is ready to be sent to the borrower. If the appraisal has conditions that need to be met the UW will not upload the appraisal in the final appraisal placeholder until all required conditions have been met. After the UW uploads the Final Appraisal to P00 Final Appraisal, they will need to go into P00 Appraisal and uncheck the current version box on the initial appraisal so it is not sent to the investor. TILA and RESPA Servicing Rule Page 20 of 20