Here’s the follow up Q&As from today

 Here is the updated Credit Suisse chart.

There was a question as to whether or not a church can gift the funds for closing on an FHA loan. Here is a link to the HUD manual….

“An outright gift of the cash investment is acceptable if the donor is…

•the borrower’s relative
•the borrower’s employer or labor union
•a charitable organization
•a governmental agency or public entity that has a program providing home ownership assistance to
?low- and moderate-income families
?first-time homebuyers, or
?a close friend with a clearly defined and documented interest in the borrower.”
 Overall 17% of FHA Loans are currently delinquent. That statistic is horrifying. This will not end well.

Here is the interactive map from the New York Times I mentioned. Looks like 30% of the loans originated in Yakima County were subprime. 

and….check out the proposed HUD Rule that was just released today.  Here’s the PDF.  See page 3, number (8)  “(8) Establishing a means by which residential mortgage loan originators would, to the greatest extent possible, be required to act in the best interests of the consumer;”

Didn’t I just say today that this is where we are headed? This moves LOs more on the path toward professionals with fiduciary duties owed to their clients and further away from a retail sales role. We should all carefully watch the debate/comments on this proposed rule.

UPDATE 1

Here’s a link to the FDIC website showing a description of pre-paid finance charges in paragraph 18 (B). I did not see the chart Brandon referred to in class. Brandon if it’s easy to get a hold of that link again, please post it in the comment box. Thank you!

Here is a link to the page where HUD posts updates to the FAQ document regarding all the new RESPA changes (including GFE FAQs). Ooooo, notice that HUD has also updated the “Settlement Costs” Booklet. At the bottom of this same page is a link to submit your comments to HUD.  Now’s your chance to have your voice heard…..who will submit a comment from today’s class?  Hmmm.

Here is a link to an article written by Brian Brady, a mortgage pro located in Calif and a fellow blogger. Brian’s article about the new GFE really jumped out at me.  He says we can use the new GFE to gain clients. Give it a read. 

See you in the morning!

Day 1 follow up:

Here’s the link to the Neighborhood Watch website where you can check on the status of a company’s FHA delinquencies. Follow the link that says “Early Warnings.”

There was a question about the use of the word “firm” in the WA State law Escrow Registration Act. Here’s the link to the definitions section.  See number (7). I can only infer that the meaning has to do with a company’s “doing business as” name, which would be the name of their “firm.”

Here is a link to the NMLS website where they have information on the criminal background checks.

And there were three questions about having to re-take the state exam if you previously took the exam but let your license lapse. I have put an email in to DFI to get an official answer on that one, since the question kept coming up.

and finally, regarding the requirement to disclose the owner’s title insurance policy charge on your GFE, this is from Page 12 of the new FAQ PDF from HUD:

Q: Are charges to the seller listed on the GFE?
A: RESPA requires that only the borrower receive a GFE. The GFE is defined as an estimate of settlement charges a borrower is likely to incur in connection with the settlement. Charges that typically would not be charged to the borrower, but would be charged to another party—such as the seller—do not have to be included on the GFE. If the borrower typically would incur charges for title services and lender’s and owner’s title insurance, the GFE instructions make it clear that those charges are required to be listed regardless of whether, for example, the contract requires the seller to pay for the service. If there is a question about whether the borrower or seller is to pay for a particular settlement service, the charge for that service should be disclosed on the GFE.

Emphasis mine.

Day 2 follow up:

Question from Cathy: Are LOs required to give consumers a list of providers? 
Answer: Found on page 12 of the recent updated HUD FAQs for the new GFE:

GFE – Written list of providers
1) Q: When do loan originators have to provide the borrower with a written list of identified providers?
A: When a loan originator permits a borrower to shop for third-party settlement services, the loan originator must provide the borrower with a written list of settlement services providers at the time of the GFE, on a separate sheet of paper.
2) Q: Does the borrower have to select a settlement service provider from the loan originator‘s written list of settlement service providers?
A: No. If the loan originator permits a borrower to shop for a settlement service provider, the borrower may choose a qualified provider that is not on the originator‘s written list.

You can download the HUD FAQ PDF here.  Ooo, you can also take a look at the new HUD “Settlement Costs Booklet” from this same page. Remember new/newer LOs have a homework assignment to read the Settlement Costs booklet but I will bet that Robert, Ed, Matt, Jenni, Luke, Cathy and Brad will also download and read this. Why? Because these guys are highly attentive to detail.  Follow their lead and read the booklet that you’ll be giving to your customers.  You don’t have to read it tonight, but if I were you, I’d skim-read this before taking the exam.

Next up: What’s deductible? Here’s a link to the IRS website with the answer.  See the link that says “points.” You may have to scroll down a bit after clicking.  Whoa. That answer was so complex, there’s no way (unless my name is Brad) that I’d tackle trying to explain that one.  But maybe I’m just tired.  What would you do?

There was a question: “Is there a difference between simple referral and a referral?”  I see nothing deliniating a difference between the two in the definitions section of the statute.

Joe wanted more reading material (because we know Joe is a big fan of reading) about defaults.  Here are some great articles I found:

Option ARM Recast/Reset Update but what about prime loans? Here you go:

We should also check on the re-default rate of loan mods and the HAMP program. 

Here’s the latest report from TransUnion showing delinquencies over 10%.

Jumbos aren’t doing all that well either.

Dare we check FHA? WTF? Does this report say what I think it says about FHA deliquencies? Quoting CR, “This will not end well.”

Get some sleep and I’ll see you at 9AM!

Day 3 follow up

There was a request for me to send a list of all the Class B Felonies in WA State.  Here you go.

Here is the link to the NMLS Resource Page where you may download and review the SAFE Mortgage Licensing Act.

and Ed had a question regarding the words “non-institutional investor” that appear on page 4 of your Day 3, State Law course packet. Those words are not listed in the defintions section of that RCW. Without knowing DFI’s intent, we are left to take a lay person’s guess that it may mean an individual investor that’s not tied to corporation.  For a precise answer Ed, I suggest contacting DFI direct.

Thank you for the memorable 3 days!

Here’s the follow up from Day 1:

Ken Harney’s column regarding LOs using worksheets to provide a pre-GFE in order to attempt to escape quoting fixed costs on the new GFE.

Link to the Neighborhood Watch website where we can check on the FHA default rate of various companies.  And a related story from the Seattle Times.

Stephen Colbert: Honor Bound.

and this late breaking news tonight about FHA raising standards and raising the mortgage insurance premium.  We should expect continued, gradual tightening at FHA.  It should come as no surprise when standards tighten again during 2010.

Day 2
Different ways of holding title.

There was a question left over from Day 1 regarding the dollar amount of the fidelity bond needed for escrow companies in WA State on the escrow quiz. Confirming the answer, as noted in the quiz is $200,000. Here is the link.

And while we’re on the subject of links, here’s the page we talked about on the NAMF website providing the links to all the laws.  All the NAMF exam prep info will eventually move to this new domain.  And who wants access to the existing practice exams for free before they go away and transition to the new platform? When you’re ready, email me and I’ll send you the logon info.

We keep hearing the bankers say “We need to pay out big bonuses in order to recruit and retain the most talented and brightest workers.”  If indeed that is true, then why didn’t these talented and bright workers lead their banks into the biggest financial crisis of our time?  I’m guessing the bank CEOs need to pay bonuses to the hired help in order to justify receiving their own bonuses. 

Dr. Krugman and CalculatedRisk do a nice job of analyzing day one. CR says the Commission needs to interview the regulators in private and the comission must understand the originate-to-sell model of the mortgage lending business.

If the Commission really does want to learn WHO knew what, when, then they’re interviewing the wrong people.

They need to interview the line workers.  Mortgage loan processors, managers, escrow closers, underwriters from the banks, private mortgage insurance companies as well as wholesale lending, loan servicing default and loss mitigation workers and even consumers. Seasoned mortgage industry veterans who have proof in the form of saved memos or emails, that they informed senior management of the red flags, predatory lending, and the insane relaxation of underwriting guidelines that started to pop up as early as 2001 and 2002 yet were ignored or whose concerns were dismissed.

I am willing to bet that if the commission opened up a public comment period for testimony, they would have all the evidence they need to prove all these hoocoodanode banksters definitely did know but their own pay and bonus structure set up an external incentive to keep the dice rolling.  Who wants to be a Debbie Downer CEO and be the first banker to take away the punch bowl when the money party is still going full on?  Anyone? Anyone…Buehler?

Whoever moved first would have run the risk of watching their company lose billions of dollars in revenue at the tail end of the bubble, while their competitors gobbled up the last of the subprime, Pay Option ARM, stated income time bombs and all the bonus income that came with it.  Imagine what it would be like to lose millions, perhaps billions in revenue as your “best and brightest” loan originators (debatable) quit and moved to a competitor because the competing lenders were still selling the subprime/Alt-A/Option ARM drugs to the LO drug dealers who were selling them to the consumer and Realtor junkies. Imagine having to face the board and face the stockholders, trying to explain why you were tightening underwriting guidelines.  The only reason to cut the cord was if consequences started overshadowing the revenue and by then, the damage had been done.  If we continue to reward the bankers for risk taking with no personal consequences we get what we deserve. I’m sure there will still be plenty of people willing to take the helm at corporations; even with more personal liability at stake. 

What would the commission do with hundreds of thousands of comments from mortgage lending industry workers from around the United States? I’d like to find out.

The bank CEOs apparently pre-arranged their stories and flipped a coin to see which one of them would take the Hurricane Katrina angle, and who would say “this stuff happens every 5 to 7 years.”  The thing to do now is to put them in separate rooms and interview them alone.  The Prisoner’s Dilemma teaches us that they will break their agreement if separated and at least one will cave.

The bank CEOs win if they can pretend like this whole mess is nobody’s fault.  This case is not unlike the Space Shuttle Challenger Disaster.  There was one person, an engineer, Roger Boisjoly, who warned that the O-ring seals would fail when temperatures were too low. He was ignored by people in senior positions and the commission decided the accident was nobody’s fault.

There is no reason to ignore the thousands of people out there who warned management.

This means the new national exam is too easy, like I surmised back in June.  Or is it?

What would be more helpful to see in future reports from the NMLS is the number of years experience of the test candidates.  For example, if the LOs who took the new national exam during this first reporting period had 5 to 10 years of experience originating loans, then a 69% pass rate is actually quite dismal, especially since many states have enacted mandatory testing and education over the past few years.  I’d expect it to be higher based on the easy sample test questions NMLS gives us in the candidate handbook. 

10,000 exams taken seems high to me, given the number of LOs who have left the industry.  But divide 50 states by 10,000 and I can easily see 200 people in each state needing to pass that test. If the candidates who took the test were newer to mortgage lending, then a 69% pass rate seems too high.

__________

Greg and Lisa have lots of money. They’ve always been savvy about knowing when to make a move on a good investment and they believe the housing market has bottomed and now is finally the time to buy.  Unfortunately, they have not been terribly good at making their payments on time.  Their credit reports show a long history of not paying their bills on time, lots of medical collections, a bankruptcy tied to a medical illness, and no real “reestablished credit” after the bankruptcy was discharged…but they have a lot of money in the bank. They can make a 20% downpayment on a home.  What type of loan would best suit this couple?

The seller can contribute up to 4% of the home price for their non-recurring closing costs and impounds.
Veterans must qualify on full income documentation. PITI plus all other debt (second ratio) must be under 43% of their gross monthly income unless they meet the VA residual income qualifications.  Current service members receive an allowance for housing and food and those figures can be “grossed up” 115% for income qualification.

Appraisers are assigned by VA and the lender orders the appraisal. Many lenders participate in a delegated underwriting program but some opt to let the VA underwrite the appraisal.

VA doesn’t have a minimum required credit score though some lenders might have a minimum.  A 12-24 month history of decent and reasonable payment history is required.

Underwriting: All loans will be submitted to DU. Approve/Eligible decision is required. If refer/eligible, the brokers will submit the full credit package to the lender for underwriting.

Minimum FICO for manual underwriting will vary from lender to lender. 

Maximum LTV:
Purchase 100% + funding fee
No cash out refinance 90% + funding fee
Cash out refinance 90% + funding fee
IRRRL(interest rate reduction refinance loan): maximum mortgage calculated based on unpaid principal balance & costs of refinance
Most lenders and mortgage brokers are easily approved to originate VA home loans; sponsorship by a VA-approved lender is all that’s required.

_________

With the new Good Faith Estimate requiring that all broker and lender fees go on line 1, together with the VA requirement that the loan originator can only earn a 1% fee, it is highly likely that when LOs originate a VA loan, their profit margin is tight if non-existent. 

Should the VA allow for a higher percentage amount to be charged to the Veteran on line 1. of the new GFE? 

How much would be a reasonable amount?  Please break down your estimation with a math example. For example, loan amount is X.  What are the standard fees typically charged with originating a loan that includes ALL lender AND ALSO all broker fees? 

What percentage does that come to?

Do you believe VA will approve a change to allow for the higher amount shown in your math example?

The primary difference is that a bridge loan often refers to a commercial property or investment property that may be in transition and does not yet qualify for traditional financing, whereas hard money often refers to not only an asset-based loan with a high interest rate, but possibly a distressed financial situation, such as arrears on the existing mortgage, or where bankruptcy and foreclosure proceedings are occurring.

Many hard money mortgages are made by private investors, generally in their local areas. In the past documenting credit history and income were not as important, as the loan is secured by the quick sale value of the collateral property. Today most hard money lenders require a traditional credit review.

Quick sale value differs from a market value appraisal, which assumes an arms-length transaction in which neither buyer nor seller is acting under duress and assumes amount a lender could reasonably expect to realize from the sale of the property in the event that the loan defaults and the property must be sold in a one- to four-month timeframe.

1) Common reasons for seeking a hard/private money loan:
a. Homeowner or subject property does not qualify for traditional agency type loan (FHA, VA, Fannie, Freddie)
b. Investor purchasing a home in need of a temporary bridge loan
c. Homeowner wants to stop foreclosure
d. Pull equity out
e. Unusual type of property
f. Borrower needs to establish creditworthiness

2) Typical terms: 
a. 50% to 70% max loan to value
b. Higher interest rates: 12 to 18%
c. Balloon payments
d. First mortgage lien position
e. Higher fees: 4to 8 points
f. Full documentation
g. Detailed appraisal

3) Differences between hard money and private money
a. Hard money lenders are licensed and organized to lend money and private money lenders could be a friend, a family, a business associate.
b. Hard money lenders have set lending criteria with defined loan terms, rates and points all of which are known up front.  Private money is more flexible on all the typical criteria and open to negotiation.
c. Private money lending is often less expensive than hard money loans.   Hard money lenders get their money from private sources so they mark up the rate and fees to make a profit.  When an LO works directly with private sources of capital, you can often negotiate better terms.

4) Hard or Private money borrowers need to plan an exit strategy prior to obtaining the loan. 

Traditional lenders and investors may require a minimum of 6 to 12 months seasoning on title to refinance to the new appraised value. When your clients are using hard money to acquire investment properties you will need prepare them to be in that hard or private money for 12 months.

__________

Due to each state’s different usury laws, many hard/private money lenders are refusing to loan on residential, owner occupied homes and instead prefer to only make business-related loans or investor loans. Fees on hard/private money loans can be quite lucrative at 5 to 8 points. 

Q: In the mid-1980s when many loan officers worked at a bank and the mortgage broker community was quite small, mortgage brokers were THE source for hard and private mortgage money.  When a person could not get a loan at a bank, consumer finance company, or credit union, they found a broker and the broker was the person who knew where to find mortgage money for that particular person whose situation fell outside of traditional guidelines. Do you believe mortgage brokers will once again become this source or is it still fairly easy to compete against bank loan officers for traditional vanilla mortgage products?

USDA Guaranteed

Section 502 loans are primarily used to help low-income individuals or households purchase homes in rural areas. Funds can be used to build, repair, renovate or relocate a home, or to purchase and prepare sites, including providing water and sewage facilities.

Eligibility: Applicants for loans may have an income of up to 115% of the median income for the area. Area income limits for this program are here.   Families must be without adequate housing, but be able to afford the mortgage payments, including taxes and insurance.  In addition, applicants must have reasonable credit histories.

Approved lenders under the Single Family Housing Guaranteed Loan program include:

Any State housing agency;
Lenders approved by:
HUD for submission of applications for Federal Housing Mortgage Insurance or as an issuer of Ginnie Mae mortgage backed securities;
the U.S. Veterans Administration as a qualified mortgagee;
Fannie Mae for participation in family mortgage loans;
Freddie Mac for participation in family mortgage loans;
Any FCS (Farm Credit System) institution with direct lending authority;
Any lender participating in other USDA Rural Development and/or Farm Service Agency guaranteed loan programs.

Terms: Loans are for 30 years.  The promissory note interest rate is set by the lender.

There is no required down payment. The lender must also determine repayment feasibility, using ratios of repayment (gross) income to PITI and to total family debt.

Standards: Under the Section 502 program, housing must be modest in size, design, and cost.   Houses constructed, purchased, or rehabilitated must meet the voluntary national model building code adopted by the state and HCFP thermal and site standards. New Manufactured housing must be permanently installed and meet the HUD Manufactured Housing Construction and Safety Standards and HCFP thermal and site standards.  Existing manufactured housing will not be guaranteed unless it is already financed with an HCFP direct or guaranteed loan or it is Real Estate Owned (REO) formerly secured by an HCFP direct or guaranteed loan.

Approval: Rural Development officials have the authority to approve most Section 502 loan guarantee requests.

USDA 502 Direct

Rural Housing Direct Loans are loans that are directly funded by the Government.   These loans are available for low- and very low-income households to obtain homeownership.  Applicants may obtain 100% financing to purchase an existing dwelling, purchase a site and construct a dwelling, or purchase newly constructed dwellings located in rural areas.  Mortgage payments are based on the household’s adjusted income.  These loans are commonly referred to as Section 502 Direct Loans.

Purpose:  Section 502 loans are primarily used to help low-income individuals or households purchase homes in rural areas. Funds can be used to build, repair, renovate or relocate a home, or to purchase and prepare sites, including providing water and sewage facilities.

Eligibility:  Applicants for direct loans from HCFP must have very low or low incomes.   Very low income is defined as below 50 percent of the area median income (AMI); low income is between 50 and 80 percent of AMI; moderate income is 80 to 100 percent of AMI. Families must be without adequate housing, but be able to afford the mortgage payments, including taxes and insurance, which are typically within 22 to 26 percent of an applicant’s income.  However, payment subsidy is available to applicants to enhance repayment ability.  Applicants must be unable to obtain credit elsewhere, yet have reasonable credit histories. .

Terms:  Loans are for up to 33 years (38 for those with incomes below 60 percent of AMI and who cannot afford 33-year terms). The term is 30 years for manufactured homes. The promissory note interest rate is set by HCFP based on the Government’s cost of money.  However, that interest rate is modified by payment assistance subsidy.

Standards:  Under the Section 502 program, housing must be modest in size, design, and cost. Modest housing is property that is considered modest for the area, does not have market value in excess of the applicable area loan limit, and does not have certain prohibited features. Houses constructed, purchased, or rehabilitated must meet the voluntary national model building code adopted by the state and HCFP thermal and site standards. Manufactured housing must be permanently installed and meet the HUD Manufactured Housing Construction and Safety Standards and HCFP thermal and site standards.

Approval:  Rural Development officials should make a decision within 30 days of the Rural Development office’s receipt of the application.

There are other USDA programs beyond Guaranteed and Direct such as rural rehab loans.  Read more here.

__________
Questions
USDA underwriting guidelines mirror FHA’s UW guidelines. 
With 100% LTV loans still available via USDA, do you believe this program should be used to purchase new construction homes?  See this WSJ article for reference.
If yes, why? If no, why not?

When I ask this question, the room falls silent.  Then maybe a lone person might shout, “honesty.”  Someone else might say “The Golden Rule.”  It’s easier to talk about ethics in smaller groups rather than one large group so when the classroom is divided up into smaller working groups and I charge students to come up with a list of 10 things they learned, or to come up with a list of 10 character traits they admire in people (like honesty, courage, etc.) the task is easier because we have each other to talk with.

The SAFE Act now requires licensed LOs to take an ethics class every single year.  Along with that, course providers like NAMF have to insert additional topic categories inside our ethics class: Consumer protection, fraud, and fair housing.  So you’ll be taking an ethics class….every….single…year.  It might seem irritating that the government is mandating this every year but if you think about it, ethical dilemmas change from year to year and course providers are charged with making sure our courses are current each year.

But the mortgage lending industry doesn’t have a required, mandatory code of ethics which all members must subscribe to.  The codes that do exist are pretty lame and are only voluntary.

So we should ask the NMLS, if we are suppose to think about ethics, whose ethics are we suppose to be learning?  Without direction from NMLS, it would be pretty presumptive to assume that we’re suppose to teach/learn the NAMB, NAMPW, NAMF, MBAA codes of ethics. 

So where does an industry begin to learn how to use ethics to solve their professional ethical dilemmas? For example, if we were to sit down and write a brand new code of ethics for the industry (don’t worry, there’s not enough time to do that for the purpose of this article) we would have to start somewhere and here’s where it is: We’d look to normative moral theory.  (Read a very brief paragraph on descriptive, normative, and analytical ethics here.)  Normative moral theory can be applied to any profession such as law, medicine, and even the emerging profession of mortgage loan origination. If we were to sit down and write a code, we would create that code from elements of Aristotle’s virtue ethics, Kant’s duty-based ethics, and J.S.Mill’s Utilitarianism and apply these theories to ethical dilemmas faced by loan originators.

Someday the industry will be ready for mandatory, prescriptive code. If you’d like to take a look at an industry that’s created a prescriptive code, we can look at the Realtor Code of Ethics.  Make all the Realtor jokes you want to; their code has been around for over 100 years.  To me, this means the Realtor association is 100 years ahead of mortgage lending in terms of promoting the moral development of their profession. 

Ethical subjectivism is one of the many reasons that lead to the subprime meltdown. The industry is still in need of an objective, prescriptive code.  An argument against that position is that as long as we follow state and federal law, we don’t really need anything else to guide us.  That may be true, but then that person is arguing to keep himself/herself about as morally developed as a teenager. 

Assignment:
Consider an ethical dilemma you’ve faced during your time originating loans. If you are a new or newer LO, think about an ethical dilemma you’ve faced in another job position.

Q: What was the dilemma?
Q: How did you solve it?
Q: Do you identify more with Aristotle’s ideas, Kant’s duty-based ethics, or J.S. Mill’s Utilitarianism?  Or maybe your ethical style is a combination of each.

Remember, it’s okay to use intuition, emotion, and religion to start your thinking process but we can’t stop there. For example, our intuitions might be wrong. Emotions (example of fear-based thinking “if I can’t sleep at night I know it’s unethical) are a pretty self-serving way of solving problems, and there are literally thousands of different religions in the world so although it’s fine to reach back and think about the ideals you learn from your religion, once you become a professional, your code of ethics becomes your bible.  Since our industry doesn’t have that mandatory code of ethics just yet, we definitely CAN use normative moral theory to get us started. 

As a result of this policy, individuals in the community were denied equal access to credit, capital, banking services and loan products; and made housing unavailable on a prohibited basis, a clear violation of Fair Housing law. Loan officers repeatedly told shoppers, “We don’t do row houses.” In some cases Novastar and Bell refused loans where the borrowers had more than adequate credit scores, income, financial stability and even low LTV ratios.

When Bell joined with Novastar it was given a Company Program Manual  listing Unacceptable Property Types. Row houses were not listed. Bell also secured an exclusive warehouse credit line from Novastar, agreeing that Novastar would fund all of Bell’s loans. At the time, Bell had several unclosed Baltimore row house loans, which Novastar refused to fund, and warned that using another warehouse line to close those loans would be a violation of their exclusive warehouse agreement. Bell assigned the loans to another lender for a fee. Bell and its staff continued to refuse loan applications on row houses in Baltimore even after being informed that this was a violation of Fair Housing laws.

Plaintiffs sought injunctive relief as well as money damages, cease and desist orders, attorney’s fees, and enjoining Defendants to modify their lending practices to comport with the law.   
The N.C.R.C. and N.A.A.C.P. in their COMPLAINT claimed the following:

I. Defendants policies and practices violated the provisions of the Home Mortgage Disclosure Act by redlining: refusing to grant credit in a community or neighborhood. Their actions have had a disproportionately adverse effect on African Americans and other people of color compared with Caucasian applicants by virtue of denying the financing of the type of property chosen for security purposes. This contributed to the economic destruction of a Baltimore neighborhood, depreciation of property values, higher foreclosure rates, street crime and the creation of housing ghettos.
II. Defendants policies and practices violated The Civil Rights Act of 1964, which prohibits racial discrimination in the formation and issuance of contracts, and intentional interference to pursue and hold real property. Defendants through their willful conduct contributed to racial hatred, and denied African Americans the right to own property.
III. Defendants policies and practices violated the provisions of The Equal Credit Opportunity Act which prohibits a creditor from discouraging an applicant from making application for credit by refusing to consider the security property offered.
IV. Defendants policies and practices, through the disparate impact theory,  a provision of The Fair Housing Act and other legislation by imposing different requirements or conditions on a loan on the basis of elements other than credit, the result of which was racial discrimination.

Before the trial was held, Bell asked the judge for summary judgment,  claiming it was only following the dictates of its “exclusive source of warehousing and funding.” Its agreement required that all loans must be sold to Novastar thus it had no other choice. At trial Novastar raised an unusually large number of issues with respect to the wording of the law, citing numerous cases and questioning the interpretation and meaning of whether or not the law applied to this case.

The lenders denied the accusations and set out these AFFIRMATIVE DEFENSES

I. Type of property. Independent appraisals show that row house properties in Baltimore are in a transitional state. Many are being converted to commercial or mixed-use enterprises. This, not lack of financing, has resulted in value depreciation. Our Company Program Manual at ¶5.3 Unacceptable Property Types reads: Commercial use or a mix of commercial and residential properties. Clearly, many row houses in Baltimore are “mixed use”, as most appraisals point out. This violates our written policy, which was not drawn frivolously. Empirical evidence we have provided demonstrates that losses on this property type exceed those of other type of dwellings. As further evidence of excessive risk, private mortgage insurers have refused to insure loans on row houses.

II. Intentional Interference. We have shown that there are other mortgage lenders in Baltimore and elsewhere that offer financing to row house buyers.  We fail to see how our actions prohibit borrowers from shopping the mortgage market for other sources willing to accept this type of security. Our Company Program Manual at ¶2.3 Regulatory Compliance reads: We comply with all federal and state regulatory requirements in granting mortgage loans. We have provided the court with a recent pipeline and portfolio report showing that a large number of our borrowers are African American and other minorities and the security properties are located in a variety of neighborhoods, towns, and rural areas  . We fail to see how our conduct in these cases intentionally interfered with these borrowers right to contract for the property desired.

III. Discouraging Applicants. We have shown a number of examples where national mortgage lenders regularly publish U. S. Postal zip codes showing geographic areas in which they will not grant credit.   These typically are areas where lending experience has shown that unreasonable business risks have been found through empirical evidence. We ask the court: How does this differ from avoiding row housing? We believe we should have the same right to define when, to whom, and where we will grant credit without the interference of government and claim this right specifically in this case. We deny discouraging borrowers from applying for credit because in every case cited we informed the borrower of our willingness to finance real property in many other locations.

IV. Racial Discrimination. Refusing to accept real property offered as security for a loan is not against the law. The decision to lower lending risk profiles and elect not to finance row houses is racially neutral – it is not directed toward any race –- it is directed toward real property and therefore cannot be found racially discriminatory.  As an example of our neutral policy we refer to our Company Program Manual, at ¶6.2 Minimum Value Requirements. There is no minimum value requirement for Citizens and Resident Aliens with our company because we long recognized that this is discriminatory by its very nature.  (Non-resident aliens and piggybacks are limited to $75,000 because of secondary market considerations not internal company policy). We have provided the court with example after example of lending companies that have loan minimums whose adverse and disparate effect is directly similar to the case at hand. We will make mortgage loans other companies refuse because we understand the need for making capital available in large or small amounts – a racially neutral policy. We contend that minimum loan amounts are also discriminatory but counsel can find no case in the court’s jurisdiction where lenders have been challenged under civil rights statutes.

Trial Notes
Mentioned in this suit is the fact that lenders have been sued by several cities using two theories of “Public Nuisance” In City of Cleveland v. Deutsche Bank Trust Company, et al. Common Pleas. January 10, 2008. The city claimed that lenders were the cause of high foreclosure rates, blocks of unoccupied residences that were more expensive to police and protect against fire damage and empty blocks of neighborhoods decreases property values and loss of revenue

Notes on the defenses raised:

I. Defendants provided audited internal data showing greater-than-average losses on row houses, together with an article from the Baltimore Sun newspaper, which reported that some units in Baltimore’s row houses were being used as boarding houses and even Bed & Breakfast Inns, in violation of the zoning laws. Zoning violations are often considered a default in mortgage lending.

II. The pipeline and application data used were taken from published HMDA reports, and the Mortgage Bankers Association provided data on the number of foreclosures and average losses to member companies in the same geographic region.

III. Copies of advertisements and loan program brochures of other lenders provided information on zip code lending restrictions. It was and is a common practice. Plaintiffs did not refute it.

IV. The disparate theory holds that when an action has a disproportionate effect on some group (racial, ethnic, etc.) it can be challenged as illegal discrimination even if there was no discriminatory intent.

The question is whether someone who does not engage in racial discrimination can violate the federal Fair Housing Act. The claimant need not prove that individuals were treated differently because of their race. Instead, it is enough to show that a neutral practice has a disproportionate effect – that is, a disparate impact – on some racial group.

However, the theory is difficult to apply. Suppose a landlord refuses to rent to people who are unemployed, and it turns out that this excludes a higher percentage of whites than Asians. A white would-be renter could sue. It would not matter that the reason for the landlord’s policy was race neutral and had nothing to do with hostility to whites. He would be liable, unless he could show some “necessity” for the policy. This would hinge on whether he could convince a judge or jury that the economic reasons for preferring the rent to the gainfully employed were in some way essential.

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Questions.

Did Novastar engage in racial discrimination?
Is it possible for a company that does not engage in racial discrimination to still be found in violation of Fair Housing laws?
If yes, how so? If no, why not?
Here is a link to the Fair Housing Laws for your review.

The appraisal was sufficient but noted that the home’s interior was so filled with personal items, books, magazines and debris that the owner had made high narrow lanes in order to use the rooms. A preliminary title report showed a junior lien in favor of King County Public Assistance securing a loan that was used to assist in purchasing the property. The loan terms required no monthly payments with interest at 4% per annum to accumulate as long as Carnell occupied the home as his principal residence. Upon sale of the home, the entire principal balance was payable. There was a property tax abatement certificate on the home as long as Carnell used it as his principal residence.

The credit report showed 1×30 and 2×60 in the last two years and the credit score was within the guidelines of KMC’s investor. His use of credit was sparse and included one very small balance, never exceeding three hundred dollars. An old pickup truck used in the business was paid for and the business was run on a cash basis. His tax returns showed an average combined monthly income for the last three years of $1,066. and the current monthly payment on the first mortgage was $454. He had little cash reserves with an average bank balance in the high threes.

The broker contacted CALFUND (the investor) by phone to discuss “how we can put this together.” The investor advised that this was a case where the underwriting theory of attributable income could be used.  Because Carnell’s SSI income was not taxable, and the property tax abatement lowers even more tax liability, it would allow KMC to “gross up” the SSI income “to an appropriate amount.” KMC adjusted Carnell’s income by 25%. The investor subsequently indicated by phone that the loan would be approved provided there were no debts other than the new mortgage; and he paid an additional 1% of the loan amount because of the increased risk.

The broker telephoned Carnell with the loan approval and informed him of the new monthly payment, then asked if he had any questions. He responded that he was quite happy and had no questions. KMC did not notify him of the additional cost at this time, explaining that they prepared a new GFE and mailed it to his residence as required by regulation. Carnell claims he never received the notice.

In preparation to close the loan, final payoff statements were ordered from the holders of the first and second mortgages. King County P.A. responded with a final principal amount that included all of the accumulated interest and a per diem charge.

Examination of the loan documents showed that KMC changed its initial GFE and final Settlement Statement to include an additional two percent with one percent going to the investor and an additional percent listed on line 808 of the closing statement as a brokerage fee. A brokerage fee had already been combined with the investor’s fee and reported on line 801 of the closing statement. Carnell signed all final documents without comment or question and the investor wired the funds to escrow.

Seven months later, failing to cure payment delinquencies, Carnell defaulted on the loan. The file showed that he had difficulty meeting monthly payments. The investor demanded that the broker buy the loan back. KMC responded that the investor itself had helped put the loan together. When asked for proof of this, KMC revealed the phone conversations it had with an employee of the investor. The investor found no record of the conversation. The issue between KMC and the investor remained unresolved.

Several months later, the property was foreclosed upon and Carnell lost his home. A lawsuit was brought against both KMC and the investor to recover damages and rescind the entire transaction, seeking to put Carnell in the position he was before applying to refinance. Several violations of state and federal law were claimed in the suit.

KMC’s position was that it did nothing wrong, claiming that a customer had applied to refinance his home; the company followed usual and customary lending procedures and gained loan approval.  It was not unusual for details to have been discussed with the investor. It followed all regular procedures of loan brokerage and complied with disclosure rules. After learning that the final loan costs were greater than estimated they acted in good faith by re-disclosing. They further pointed out that the final settlement statement revealed all of these charges but were not challenged at closing.

The investor claimed that it dealt with KMC at arms length and could find no record of offering “extraordinary assistance” in qualifying Carnell. It was against their policy to offer step-by-step procedures to brokers in order to customize a loan to fit corporate matrixes, “A loan either fit our program or it didn’t,” according to their testimony. Further, the contract between KMC and the investor contained a provision with regard to early defaults, which they chose to exercise.
_____________________________________________________________________________________
Questions.
A broker must use reasonable care in managing a file from application through closing to assure a standard of care commensurate with the duties of agency and brokerage. Some courts have even held licensed brokers to a higher than reasonable standards because the general public considers them experts. In considering how this case was handled, what would have caused you concern if it were given to you for review? Be prepared to discuss the following:

1. What kind of a borrower does Carnell look like on paper?  Does an applicant’s conduct and demeanor at application have relevance to the case or should they be overlooked? After all, they have nothing to do with credit – by law the only basis on which we are to judge credit worthiness.

2. Documentation. Are there any inquiries you would have made or any additional documents/exhibits you would have required before continuing to process and submit this case for approval? Explain what and why you would order more documentation.

3. Customer Service. Consider the position of the borrower before and after dealing with KMC Mortgage Company. Did the broker help the borrower achieve what he wanted? Was the borrower well served?

4. Verdict.  If you were on the jury would you find in favor of Carnell or the broker/lender?

A Professional:

1. Has specialized knowledge in his or her field.  (Update: This body of knowledge is generally agreed-upon by those in the industry and is typically described within state and federal law.)  This person knows way more than the average random consumer about his or her area of expertise;
2. Is required to complete a minimum amount of formal, academic education;
3. Is tested for competency;
4. Is licensed;
5. Must maintain that license with mandatory continuing education;
6. Subscribes to a mandatory code of ethics in an industry that is self-regulating. This is different from state or federal government regulatory oversight. The industry itself regulates ethical conduct over and above state and federal law;
7. The self-regulating body enforces their code of ethics with sanctions for violations;
8. Owes fiduciary duties to clients. This means the professional has the highest prescribed duty of loyalty to the client, to put the client’s interests above his or her own interests.

Here is how loan originators (LOs) measure up against the above list:

1. LOs, there is a power imbalance between you and the consumer. You know way more about how the machine we call mortgage lending works than the average random consumer will ever know.
2. Finally, with the implementation of the SAFE Mortgage Licensing Act, we will now require licensed LOs to take a 20 hour pre-licensing class.
3. Finally, with the implementation of the SAFE Act, all licensed LOs will first have to pass a competency test.
4. Licensed LOs include LOs who work for a bank or consumer loan company regulated at the state level.  Bank loan officers regulated at the federal level will “register” within NMLS but not hold a license.
5. Continuing education requirements are now set at 8 hours per year via the SAFE Act.
6. There is no mandatory code of ethics for mortgage lenders. What codes exist at the national trade level, are voluntary and offer insufficient guidance.
7. Currently there is no ethical oversight in mortgage lending by the industry. There may be individual company codes of ethics for employees. Were you asked to read and sign a company code of ethics before or during the hiring process?
8. Fiduciary duties are now required for mortgage brokers and loan originators as of June 12, 2008 in Washington States. Other states are gradually adding this requirement.

One of the ways we can better understand the current crisis facing the mortgage industry is that loan officers, loan originators, mortgage planners, loan consultants, or whatever their job title, had absolutely no duty to put their client’s interests above their own. The relationship between a loan originator and the consumer was (and still is in many states) a retail relationship.  During the mortgage-lenders-gone-wild days, many consumers (based on countless interviews held by regulators, consumer advocacy groups and even the mainstream media) held a false belief that a loan originator is a “professional” and owes a duty of honesty and duties to the consumer not to harm him or her.

LOs are not quite professionals but we’re getting there.  Instead, loan originators are classified as an “emerging profession.”  We are living through a historic, transformational phase. On the other side of the transformation, which could come sooner than some people think, I believe LOs, no matter where they work, will owe fiduciary duties to consumers, even with LOs who work at a bank.  If you look at the narrative history of any profession you will see, over time, a steady increase in the number of continuing education classes required, more mandatory pre-licensing education, an elevation of duties owed to clients, more expansive ethical codes, and tougher licensing exams.  Loan originators, no matter where they work, will eventually transform into a professional group and it’s exciting to live through this historic change!

Many mortgage brokers believe fiduciary duties means higher liability.  However, if done right, this may actually have the reverse effect by lowering the mortgage broker’s liability.

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Questions.
1) Does your company have a code of ethics?  If so, post the link in the comment box and tell us if you think your company’s code has helped guide your (or your colleagues) as you’ve faced ethical dilemmas in your career.
2) Do you belong to a professional association?  (Example: NAMB, MBAA, NAPMW, NAMF, Mortgage Planners, and so forth)  If so, find their code of ethics and read it. Could their code of ethics be improved? If so, how?
3) The mortgage industry has lost thousands of loan originators over the past few years.  Some will eventually return.  When they do, what

The idea behind HVCC was to help ensure appraiser independence and to protect the integrity of the appraisal valuation process. HVCC was a settlement. Instead of the NY Attorney General suing Fannie Mae, Freddie Mac, WaMu and First American’s e-Appraise-it appraisal management company, we ended up with HVCC. 

From the New York Attorney General’s press release:

“For more than a year, the Attorney General’s office has conducted an industry-wide investigation into mortgage fraud. On November 7, 2007, Cuomo announced he had issued Martin Act subpoenas to Fannie Mae and Freddie Mac seeking information on the mortgage loans the companies purchased from banks, including Washington Mutual, the nation’s largest savings and loan. The subpoenas also sought information on the due diligence practices of Fannie Mae and Freddie Mac, and their valuations of appraisals.

The subpoenas came on the heels of the filing of a lawsuit by the Attorney General against First American and its subsidiary eAppraiseIt. The lawsuit, announced on November 1, 2007, detailed a scheme in numerous e-mails showing First American and eAppraiseIT caved to pressure from Washington Mutual to use appraisers who provided inflated appraisals on homes. E-mails also show that executives at First American and eAppraiseIT knew their behavior was illegal, but intentionally broke the law to secure future business with Washington Mutual. Between April 2006 and October 2007, eAppraiseIT provided over 250,000 appraisals for Washington Mutual.  The lawsuit is still pending, and the industry-wide investigation into mortgage fraud continues.”

Here’s the NAMB resource page for HVCC.

Here is the bill that’s been introduced that would put a temporary moratorium on HVCC.

Tell us about your experiences living through the transition to HVCC, and how things are going presently.  For example, has HVCC harmed you or your clients or prevented you from conducting business?

“On May 20, 2009, President Obama signed into law the Fraud Enforcement and Recovery Act of 2009 (FERA). The new law is intended to expand the federal government’s capability to prosecute mortgage fraud, securities and commodities fraud, and other frauds related to federal assistance and relief programs, such as the Troubled Assets Relief Program (TARP). A brief discussion of some of FERA’s anti-fraud provisions appears below.

Additionally, FBI Director Robert Mueller recently stated that the FBI is discussing with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) the issue of requiring the private sector to take a more proactive approach to combating mortgage fraud. There are reports that one proposal would extend current anti-money laundering (AML) requirements to compel non-bank mortgage lenders to submit Suspicious Activity Reports (SARs)…”

Continue reading the McGuire Woods article here.

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Questions.

This law was signed in May of 2009. What changes have you seen take place since this law went into effect?  For example, are lenders tightening up their review processes for potential fraud? What about at the originator level? What changes have been made at the third party broker LO level to make sure that loans are originated within the boundaries of this new federal law?

The SAFE Act requires state-licensed MLOs to pass a written qualified test, to complete pre-licensure education courses, and to take annual continuing education courses. The SAFE Act also requires all MLOs to submit fingerprints to the Nationwide Mortgage Licensing System (NMLS) for submission to the FBI for a criminal background check; and state-licensed MLOs to provide authorization for NMLS to obtain an independent credit report.”

Loan originators who work under a broker or consumer loan company will be referred to as licensed mortgage loan originators. Loan officers who work at a bank (see next paragraph for how SAFE defines a bank) are exempt from testing and education but will still be registered within the Nationwide Mortgage Licensing System and will receive a unique identifier. 

LOs 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 LOs. All other MLOs are to be licensed by the states.

The SAFE Act requires state-licensed MLOs to pass a written qualified test, to complete pre-licensure education courses, and to take annual continuing education courses. The SAFE Act also requires all MLOs to submit fingerprints to the Nationwide Mortgage Licensing System (NMLS) for submission to the FBI for a criminal background check; and state-licensed MLOs to provide authorization for NMLS to obtain an independent credit report.

Please note that while the SAFE Act requires NMLS to fulfill certain responsibilities associated with providing educational services or ensuring background checks are completed, it is individual state law that determines when a state-licensed MLO is required to pass the SAFE Mortgage Test, complete pre-licensure or continuing education training, and when state-licensed MLOs are required to complete their background checks. All state info located here. 

Read the SAFE Act here.

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Questions
1) The SAFE Act was passed during the height of the 2008 meltdown.  Do you believe that if this federal law was in place in 2001, that it would have prevented the current mortgage lending crisis?  If yes why, if no, why not?  Carefully read the SAFE Act (don’t worry, the act itself is not very long) before writing your reply.
2) Are there things inside this law that don’t belong? 
3) Did the government miss anything that should have been inside this law?
 

1. Effective Dates:
Mandatory use of the revised HUD-1 and 1A is effective the earlier of January 1, 2010, or whenever the revised GFE is first used for the loan transaction.  Any settlement service provider who delivers the new GFE prior to January 1, 2010, will be subject to all of the requirements related to the new GFE, including compliance with the tolerance provisions and use of the required HUD-1 and 1A.
Here is the press release issued by HUD stating that HUD will exercise restraint (regarding taking enforcement actions) during the first 120 days of 2010 to give everyone time to adjust to using the new GFE, provided companies are making a good faith effort to comply.

2. New Mortgage Broker Definition.  “…a person (not an employee of a lender) or entity that renders origination services and serves as an intermediary between a borrower and a lender in a transaction involving a federally related mortgage, including such a person or entity that closes the loan in its own name in a table funded transaction. An approved FHA loan correspondent is a mortgage broker for purposes of this part. Under the previous definition an employee and an exclusive agent of a lender were excluded from the definition. This removes the exclusion for an exclusive agent of a lender.

3. New Definition of “Origination Service.   “…any service involved in the creation of a mortgage loan, including but not limited to the taking of the loan application, loan processing, and the underwriting and funding of the loan, and the processing and administrative services required to perform these functions.”

4. New Approach to Disclosing Mortgage Broker Compensation & Lender Fees. Both the GFE and HUD-1 contain three related consumer disclosures including any lender-paid compensation to the broker: “Our origination charge,” “Your credit or charge (points) for the specific interest rate chosen,” “Your adjusted origination charge.”

5. Our Origination Charge  (#1, GFE page 2) includes all charges that loan originators will receive except for any points paid for the rate chosen.
Originators may not charge any additional fees for getting the loan.
The 0% tolerance applies to this charge.
Disclosed on block #1 page 2, GFE, and Line 801 of the HUD-1.

6. Download a PDF of the new GFE and read it here.
Here’s a link to the HUD RESPA page which also contains instructions for how to complete the new GFE.

Biggest changes:  Everyone’s fees will go on line 1.  For example, if you are a mortgage broker and routinely charge 1% mortgage broker fee and also an administration fee or a processing fee, now the total sum of these fees will go on line 1.  The same rule applies for a banker:  If the bank loan officer typically charges a 1% loan origination fee and an underwriting fee, the total sum of those fees will go on line 1. 

Yield Spread Premium is now shown on line 2 and will always belong to the consumer (if you think about it, this really isn’t a change.  We should have always been explaining the choices and uses for YSP.  Since many LOs did not clearly, fairly, and honestly explain YSP to the consumer, the government is now making the decision for you to always make YSP the property of the consumer.) So YSP is not going away! instead, the consumer must agree to give you what’s left over (after using some of the YSP to pay for closing costs.)  So for example, if you’d like to earn a 1% mortgage broker fee and a 1% YSP then broker LOs will quote a 2% fee on line 1 of the new GFE. 

7.  HUD Good Faith Estimate Tolerance Rule

Charges that cannot increase at settlement
Our origination charge
Your credit or charge (pts) for the specific interest rate chosen after you lock your interest rate.
Your adjusted origination charge after you lock your interest rate.  

Charges that can increase up to 10% at settlement
Required services that we select
Title services and lender’s title insurance (if we select them or you use companies we identify)
Owner’s title insurance (if you use companies we identify)
Required services that you can shop for (if you use companies we identify)
Government recording charges

Charges that can change at settlement
Required services that you can shop for (if you do not use companies we identify)
Title services and lender’s title insurance (if you do not use companies we identify)
Owner’s title insurance (if you do not use companies we identify)
Initial deposit for your escrow account
Daily interest charges
Homeowner’s insurance

Violations/Penalties. Currently no statutory damages or penalties are available for violations. HUD plans to request that Congress revise RESPA to add damage and penalty provisions to various requirements. Originators can cure tolerance violations between GFE and HUD-1 by reimbursing the borrower any excess within 30 calendar days after settlement.

8.  Application means the submission of a borrower’s financial information in anticipation of a credit decision related to a federally related mortgage loan, which shall include
A specific property address
Borrower’s name
Social Security Number
Monthly income
Applicant’s best estimate of property value
Loan amount sought.
Receipt of the above information from a consumer triggers the GFE disclosure.
Remember, some state laws have tougher trigger rules for the early disclosures (GFE, TILA, Settlement Costs Booklet.)

9. Good Faith Estimates (GFE).  On RESPA-related purchase and refinance transactions, a (GFE) must be delivered or placed in the mail not later than the third business day after the creditor receives the consumer’s written application.
When a Mortgage Broker receives an application and provides the GFE, the lender is not required to provide an additional GFE.
The lender or broker may not require, as a condition for issuing a GFE, that an applicant submit supplemental documentation to verify the information provided on the application.
Lenders may not impose a fee for preparing the GFE other than a fee limited to the cost of a credit report.
When a GFE is mailed, the applicant is deemed to receive the GFE three calendar days after mailing, exclusive of Sundays and legal public holidays.
Information an applicant provides before the issuance of a GFE may not later be used to establish “changed circumstances”  that is an exception to the tolerance limits on fee changes unless the loan originator can demonstrate that the information changed, the information was inaccurate, or the loan originator did not rely on the information.

10.  Loan Terms Availability. The estimate of all settlement service charges must be available for at least ten (10) business days  except for:
The interest rate
Interest rate-dependent charges, which consist of: The credit or charge for the interest rate chosen; The adjusted origination charges, and; The per diem interest.
If the consumer does not express intent to continue with an application within 10 business days, or such longer time as may be specified by the originator, then the loan originator is no longer bound by the GFE.
The new rule does not address whether the loan originator can require that the intent be expressed in a certain manner, such as a written statement, within the 10 days.
HUD contemplates that if a GFE is issued before the rate is locked, a revised GFE would be issued once the rate is locked to show the revised information.
If the interest rate is locked, then the rate and rate-dependent charges may not change during the lock period, subject to changed circumstances and other exceptions.
The GFE binds the loan originator unless, based on changed circumstances or other exceptions, the loan originator provides a revised GFE within three business days of the applicable event, or the originator rejects the loan.

11. Changed Circumstances.
Acts of God, war, disaster or other emergency.
New borrower information not previously relied upon in providing the GFE.
Boundary disputes; flood insurance requirement; environmental problems.
Information about credit quality, loan amount, property value, etc. that changes or, in the course of loan processing, is found to be inaccurate after the GFE has been provided to the borrower.

12. Items Not Considered Changed Circumstances
The specific items listed in #1, Application are the minimum items that must be received by originators to provide a GFE and originators are presumed to have relied on such information when issuing a GFE, therefore, the items may not form the basis for a change in circumstance unless the information changes or is found to be inaccurate.
Market price fluctuations by themselves. For example: an appraiser raises its prices by $50 after the originator issue the GFE for the loan.

13. Managing Changed Circumstances
If changed circumstances result in higher costs that exceed allowable tolerances; result in the borrower not being eligible for the loan sought, or the borrower  requests changes, to avoid being bound by the most recent GFE, then the originator must provide a revised GFE within three business days of receiving information sufficient to establish the changed circumstance.
When the settlement of a newly constructed home is anticipated to occur more than 60 days from the time a GFE is provided, the originator may provide the GFE with a clear and conspicuous disclosure stating that at any time up until 60 days prior to closing the originator may issue a revised GFE. Failure to provide such separate disclosure precludes the originator from issuing a new GFE under the new home exception.

14. Required Provider Disclosure is eliminated. Under the previous rule if the lender required the use of a particular provider for a settlement service, certain information regarding the provider had to be disclosed. There is an alternative method in the new rule.

15. Seller-Paid Fees.  If a seller pays for a charge that was shown on the GFE, the charge must be listed in the borrower’s columns on page 2 of the HUD-1. The charge must then be offset by listing a credit to the borrower in the amount of the charge on one of the blank lines in lines 204 to 209 and the charge must be included as a seller charge on one of the blank lines in lines 506 to 509.

16. P.O.C. Items  The settlement agent must show the party making the payment outside of closing.

17. The Required Use Issue Background: Homebuilders conditioned the sale price on whether or not the consumer would use the builder’s own mortgage company. In some states lenders sued under various legal theories. The National Association of Homebuilders (NAHB) then brought suit to assert the right of its members to require the use of any affiliate. It is very difficult to obtain a ruling that restricts the owner of real estate from using sales incentives such as legitimate consumer discounts. Further, RESPA does not prevent a settlement service provider or anyone else from offering a discount for the use of an affiliate. HUD applauds the use of affiliated and preferred businesses if the costs of using these services are lower than the costs associated with similar services from other providers, a fact not lost on the NAHB. The issue was: Can a homebuilder tie a discount to the use of one of its affiliates.
The New Approach.  The new final rule limits tying such a discount to the use of an affiliated settlement service provider. HUD narrowed the definition of required use: “Required use means a situation in which a person’s access to some distinct service, property, discount, rebate or other economic incentive, or the person’s ability to avoid an economic disincentive or penalty, is contingent upon the person using or failing to use a referred provider of settlement services. In order to qualify for the affiliated business arrangement exemption, a settlement service provider  may offer a combination of bona fide settlement services at a total price (net of the value of the associated discount, rebate or other economic incentive) lower than the sum of the market prices of the individual settlement services and will not be found to have required the use of the settlement service providers as long as
The use of any such combination is optional to the purchaser; and
The lower price for the combination is not made up by higher costs elsewhere in the settlement process.
This definition may mean that a seller cannot require that an Owner’s Policy be issued by a particular title company, even if the seller pays for the policy, and may prohibit builder incentives entirely, including non-cash incentives.

Because of the controversial nature of this topic, lenders must monitor court decisions and additional changes in HUD rules to remain current.  The department has a mixed record in clearly communicating changes to the industry.  

18. Average Charge Pricing..  An average charge may be used (when preparing the GFE) by any settlement service provider that secures a service from a third party on behalf of the borrower or seller. A settlement service provider may define a class of transactions based on the period of time [no less than 30 days nor more than six months], type of loan, and geographic area. For example, a settlement service provider might calculate an average charge for all purchase money mortgages in the States of Georgia and South Carolina in a specified period of time. Alternatively, a settlement service provider could establish the class of transactions in which it would use a single average charge broadly, e.g., all transactions in engages in for a period of time, regardless of loan type or location.

The settlement service provider must recalculate the average charge at least every six months, and must use the same average charge for every transaction within the class. The average charge shall be no more than the average amount paid for a settlement service by one settlement service provider to another settlement service provider. The total amounts paid by borrowers and sellers based on an average charge may not exceed the total amounts paid to the providers of the service for the particular class of transactions.
An average charge may not be used if the charge is based on the loan amount or value of the land, such as transfer taxes, daily interest charges, reserves or escrow, and all insurance (e.g mortgage insurance, title insurance, and hazard insurance). The settlement service provider making use of an average charge must maintain all documents used to calculate the average charge for at least three years after any settlement with an average charge.

19. Volume Discounts.  HUD will give “further consideration” to a change allowing negotiated and volume discounts provided they adequately protect consumers and provide adequate market flexibility and consideration to small business concerns. There was not anticipated date identified.

20. New Definition of Title Service.   Any service involved in the provision of title insurance including but not limited to title examination, evaluation, preparation, policy issuance, processing and administrative services required tp perform those functions. The term also includes the services of conducting a settlement. Certain clarifications are needed in those states where Title Agents are used.

21. New Servicing Disclosure.  The revised Servicing Disclosure Statement eliminates the need to deliver the Statement at the time of application in the case of a face-to-face interview; eliminates the requirement that each applicant sign an acknowledgment of receipt of the Statement and provides that the Statement does not have to be issued if the application is denied within three business days of receipt.  It contains the following model provisions based on different situations:
We may assign, sell, or transfer the servicing of your loan while the loan  is outstanding.
We do not service mortgage loans of the type for which you applied. We intend to assign, sell, or transfer the servicing of your mortgage loan before the first payment is due.
The loan for which you have applied will be serviced at this financial institution and we do not intend to sell, transfer, or assign the servicing of the loan.

22. HUD-1 Settlement Statement Instructions

This material is for educational purposes only. Nothing herein is intended or should be construed as legal advice or legal opinion applicable to any set of facts or to any individual or entity’s general or specific circumstances. The course instructor is not an attorney.

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Questions

1) Will the new GFE help the industry, hurt the industry, or make no difference?
2) Will the new GFE help consumers, hurt consumers, or make no difference?
3) What are your company’s plans for complying with the new GFE?

Please note, the author of this blog post is Gordon W. Schlicke
 
Sec 226.2
General Business Day Definition.  With regard to the timing of mandatory disclosures, the definition of a general business day is: “A day on which the creditor’s offices are open to the public for carrying on substantially all of its business functions.  This definition is also is used for purposes of the rule prohibiting the collection of a fee (other than a fee for obtaining a consumer’s credit history) before the consumer receives the early disclosures.  However, for purposes of rescission under Sec.226.15 the term means all calendar days except Sundays and the legal public holidays.
Consumer Fees. Prohibits consumer fees in connection with the consumer’s application for a mortgage loan before receiving the GFE disclosure. Permits a fee for obtaining the consumer’s credit history before the consumer has received the GFE provided the fee is bona fide and reasonable in amount.

Sec. 226. 17
GFE Redisclosure. If closed-end credit disclosures are given before the date of consummation of a transaction and a subsequent event makes them inaccurate, the creditor shall disclose before consummation: (1) any changed term, unless the disclosure was based on “best known information at the time” and labeled as such, and (2) all changed terms, if the APR at time of consummation varies from the APR disclosed earlier by more than .125% in a regular transaction (FRM) and .250% in an irregular transaction (ARM).

Sec. 226.19
GFE Timing. On RESPA-related purchase and refinance transactions, requires the Good Faith Estimate (GFE) be delivered or placed in the mail not later than the third business day after the creditor receives the consumer’s written application. If the GFE is mailed, the consumer is considered to have received it three business days after mailing. There are no further rules regarding the delivery of disclosures by overnight courier, electronic transmission.

An application is received when it reaches the creditor in any of the ways applications are normally transmitted–by mail, hand delivery, or through an intermediary agent or broker. If an application reaches the creditor through an intermediary agent or broker, the application is received when it reaches the creditor, rather than when it reaches the agent or broker.

Seven Business Day Waiting Periods.  The creditor shall deliver or place in the mail the good faith estimates required of this section not later than the seventh business day before consummation of the transaction. The seven business-day waiting period begins when the creditor delivers the early disclosures or places them in the mail, not when the consumer receives or is deemed to have received the early disclosures.

For example, if a creditor delivers the early disclosures to the consumer in person or places them in the mail on Monday, June 1, consummation may occur on or after Tuesday June 9, the seventh business day following delivery or mailing of the early disclosures.

If the APR disclosed is not accurate then the creditor must make corrected disclosures of all changed terms including the APR so that the consumer receives them not later than the third business day before consummation.

Assume consummation on a FRM is scheduled for Thursday, June 11 and the early disclosures for a regular mortgage transaction disclose an APR of 7.00%. However, the lender learns that the APR at consummation will be 7.15%. The creditor must make sure the consumer receives new disclosures on or before Monday, June 8. If re-disclosure occurs after this day, the consummation date must be moved into the future. 

Waiver of Disclosure Waiting periods. If a consumer determines that an extension of credit is needed to meet a bona fide personal financial emergency, the consumer may shorten or waive the waiting period after the consumer receives accurate TILA disclosures that reflect the final costs and terms. To shorten or waive a waiting period, the consumer must give the creditor a dated written statement that describes the emergency, specifically modifies or waives the waiting period, and bears the signature of all the consumers who will be primarily liable on the legal obligation. Creditors may not use pre-printed forms for this purpose.

For example, a consumer might receive the initial early disclosures with the expectation of closing the loan within 60 days. However, the consumer’s financial circumstances might change in the interim, creating a need to consummate the loan immediately. If the APR stated in the early disclosures is no longer accurate, after receiving a corrected disclosure the consumer can provide a signed statement describing the financial emergency in order to waive the three-business-day waiting period and close.

Consumer Notice.  Required disclosures in this section now must contain the following language:
You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.
Imposition of fees.  Neither a creditor nor any other person may impose a fee on a consumer in connection with the consumer’s application for a mortgage transaction before the consumer has received the disclosures required this section. A fee may be imposed for obtaining the consumer’s credit history before the consumer has received the disclosures required provided the fee is bona fide and reasonable in amount.

Sec. 226.24
New Advertising Rules.  The new standard complements the existing clear and conspicuous standard that applies to open-end credit disclosures. Advertisements may include only the simple annual interest rate, or the rate at which interest will accrue along with and not more conspicuously than the disclosed APR.  Additionally, if an advertisement includes a simple annual interest rate, such as a teaser rate, and more than one rate may apply to the loan’s term, the advertisement must include
• Each simple annual rate of interest that will apply
• The time period for which the rate will apply; and
• The loan’s APR

If an advertisement states any payment amount, the ad must include
• The amount of each payment that will apply during the loans’ term, including any balloon payment
• The period of time each payment will apply; and
• The fact that the payments do not include taxes and insurance premiums if a first-lien loan

Prohibited Advertising Practices include unfair, deceptive acts or anything associated with abusive lending practices or otherwise not in the borrowers best interest. These are
• Using the term “fixed” when advertising a variable–rate loan transaction with a planned payment increase without including information about the time period for which the rate or payment is fixed and stating “ARM” if applicable.
• Comparing the advertised rate or payment to an actual or hypothetical rate of payment without disclosing the rates or payments that will apply during the entire loan’s term and that they do not include taxes and insurance, if applicable.
• Misrepresenting that a loan is government endorsed.
• Using the name of the borrower’s current lender without including the actual advertiser’s name and disclosing that the current lender is not associated with the advertisement.
• Making a misleading claim that debt will be eliminated or waived rather than replaced.
• Using the term “counselor” to refer to a for-profit mortgage broker or creditor
• Providing an advertisement in one language while providing required disclosures in another.

A New Category: Higher-priced loans. Definition: A consumer credit transaction secured by a consumer’s principal dwelling with an annual percent rate (APR) that exceeds the average prime mortgage offer rate for a comparable transaction as of the date the interest rate is set by

• 1.5 or more percentage points for loans secured by a first lien on a dwelling, or 3.5 or more percentage points for loans secured by a subordinate lien on a dwelling
In this new category, loans are priced higher than prime mortgage loans and priced between prime and Section 32 loans. The section prohibits creditors from extending credit based on the value of the property (equity loans) without regard to the consumer’s repayment ability as of consummation of the loan, including the consumer’s reasonably expected income, current obligations, employment, assets other than the collateral, and mortgage related obligations. Requires creditors to verify income and assets relied upon in making the loan. Prohibits prepayment penalties except under limited conditions. Requires creditors to establish escrow accounts (for first lien loans) for taxes and insurance, but permits creditors to allow borrowers to opt out of the escrows 365 days after loan consummation (this is effective April 1, 2010 and October 1, 2010 for manufactured homes.)
The new category should not be confused with existing HOEPA loans, often referred to as Section 32 loans. Higher-priced loans have lower triggers than HOEPA loans and therefore encompass more loans. Additionally, the rule for higher-priced loans applies to purchase money mortgages, which are excluded from HOEPA’s coverage. But like, HOEPA, the final rule for higher-priced loans excludes home equity lines of credit (HELOC’s) and construction and reverse mortgage loans.

Sec. 226.32
Prepayment Penalty Rules. A mortgage transaction subject to the high-priced loan section may provide for a prepayment penalty if, under the terms of the loan:
• The penalty will not apply after the two-year period following consummation;
• The penalty will not apply if the source of the prepayment funds is a refinancing by the creditor or an affiliate of the creditor;
• At consummation, the consumer’s total monthly debt payments (including amounts owed under the mortgage) do not exceed 50 percent of the consumer’s monthly gross income;
• The amount of the periodic payment of principal or interest or both may not change during the four-year period following consummation.

Sec. 226.34
Borrower’s Repayment ability. Prohibits lenders from extending mortgage credit to a consumer based on the value of the consumer’s collateral without regard to the consumer’s repayment ability as of consummation, including the consumer’s current and reasonably expected income, employment, assets other than the collateral, current obligations, and mortgage-related obligations.
Reserve Accounts. Defines mortgage-related obligations as property taxes, premiums for mortgage-related insurance required by the creditor as set forth in §226.35(b)(3)(i), and similar expenses.
Requires verification of repayment ability. Lender must verify amounts of the consumer’s income or assets that it relies on to determine repayment ability, including expected income or assets, by the consumer’s Internal Revenue Service Form W–2, tax returns, payroll receipts, financial institution records, or other third-party documents that provide reasonably reliable evidence of the consumer’s income or assets.
Requires verification of the consumer’s current obligations. Lender must determine the consumer’s repayment ability using the largest payment of principal and interest scheduled in the first seven years following consummation of the loan and take into account current obligations and mortgage-related obligations; the ratio of total debt obligations to income, or the income the consumer will have after paying debt obligation.

Sec. 226.35(b)(3)
Establishing Escrow Accounts for principal dwellings, including structures that are classified as personal property under state law. For example, an escrow account must be established on a higher-priced mortgage loan secured by a first-lien on a mobile home, boat or a trailer used as the consumer’s principal dwelling. Also applies to higher-priced mortgage loans secured by a first lien on a condominium or a cooperative unit if it is in fact used as principal residence.
Administration of escrow accounts requires creditors to establish before the consummation of a loan secured by a first lien on a principal dwelling an escrow account for payment of property taxes and premiums for mortgage-related insurance required by creditor.
Optional insurance items.  Does not require that escrow accounts be established for premiums for mortgage-related insurance that the creditor does not require in connection with the credit transaction, such as an earthquake insurance or debt-protection insurance.
Limited exception. A creditor is required to escrow for payment of property taxes for all first lien loans secured by condominium units regardless of whether the creditor escrows insurance premiums for a condominium unit.

Sec. 226.36(a)(b) effective 10/1/2009
Mortgage broker defined. The term “mortgage broker” means a person, other than an employee of a creditor, who for compensation or other monetary gain, or in expectation of compensation or other monetary gain, arranges, negotiates, or otherwise obtains an extension of consumer credit for another person, even if the consumer credit obligation is initially payable to such person, unless the person provides the funds at consummation out of the person’s own resources, out of deposits held by the person, or by drawing on a bona fide warehouse line of credit.
Appraiser defined. An appraiser is a person who engages in the business of providing assessments of the value of dwellings. The term “appraiser” includes persons that employ, refer, or manage appraisers and affiliates of such persons.

Prohibited Acts: Misrepresentation of value of consumer’s dwelling.
In connection with a consumer credit transaction secured by a mortgage, no creditor or mortgage broker, or affiliate of a creditor or mortgage broker shall directly or indirectly coerce, influence, or otherwise encourage an appraiser to misstate or misrepresent the value of such dwelling.

Examples of actions that violate this paragraph include:
• Implying to an appraiser that current or future retention of the appraiser depends on the amount at which the appraiser values a consumer’s principal dwelling;
• Excluding an appraiser from consideration for future work because the appraiser reports a value of dwelling that does not meet or exceed a minimum threshold;
• Telling an appraiser a minimum reported value of a consumer’s principal dwelling that is needed to approve the loan;
• Failing to compensate an appraiser because the appraiser does not value a dwelling at or above a certain amount; and 
• Conditioning an appraiser’s compensation on loan consummation.

Examples of actions that do not violate this paragraph include:
• Asking an appraiser to consider additional information about a dwelling or about comparable properties;
• Requesting that an appraiser provide additional information about the basis for a valuation;
• Requesting that an appraiser correct factual errors in a valuation;
• Obtaining multiple appraisals of a principal dwelling, so long as the creditor adheres to a policy of selecting the most reliable appraisal, rather than the appraisal that states the highest value;
• Withholding compensation from an appraiser for breach of contract or substandard performance of services as provided by contract;
• Taking action permitted or required by applicable federal or state statute, regulation, or agency guidance.

A creditor who knows, at or before loan consummation, of a violation of this section in connection with an appraisal shall not extend credit based on such appraisal unless the creditor documents that it has acted with reasonable diligence to determine that the appraisal does not materially misstate or misrepresent the value of such dwelling.

______

These changes apply to all lenders equally: bank, broker, consumer finance company, credit union.
Questions: 
1) In your own opinion, why has the federal government handed down these new rules?
2) These rules went into effect Oct 1, 2009.  So far, have these new rules had a negative or positive effect on your clients? What about your own business?
3) With the more stringent rules for loans that fall into the High Priced Loan category, are underwriting guidelines getting tougher, weaker, or staying the same?

Here’s the follow up Q&As from our class last week:

Here’s the Neighborhood Watch website where you can see the WA State (well, actually all 50 states) list of the lenders and brokers with the highest default rates on FHA loans.

More concerning news on FHA’s capitalization problems. We should all be prepared for, and be an advocate for higher downpayment requirements, higher MIPs, and tighter UW guidelines next year.  There’s no good reason for taxpayers to have to bailout this trainwreck.  The MIP fund has always been self-supporting. 

There was a conversation going on at one of the tables regarding how the subprime meltdown is really “nobody’s fault.” I mentioned I wrote an article on this theme in 2007. Here it is: “What the Space Shuttle Challenger Disaster Can Teach us About the Current Mortgage Lending Crisis.”

Here’s the Credit Suisse graph showing the coming recasts of Pay Option ARM loans through 2012.

Here’s the story about HUD possibly adding sexual orientation as one of the protected classes. They’ll start with renters and move on from there.

New favorite TV show: Lie To Me.

You Tube Channel for JSchlicke showing a recent foreclosure auction taking place at Factoria.

Rural Development (USDA) Maps for WA State.

The article I wrote on Paramount Equity’s Consent Order. Is a similar business decision like this ethically justifiable?

Regarding the appeal of HVCC, I found HR-3044 which just calls for an 18 month moratorium. It’s in committee. I wouldn’t hold my breath.

I think that’s it! Thank you so much for coming to class and remember to renew your license!

Thanks for a thoroughly enjoyable class today and all your kind words in the evals.  Here’s the follow up:

Q: Where can I find out what interest rate the Fed will use so I can figure out if I have a high cost loan?
Here’s some insight from a great article by Blank Rome:

“…the measuring stick is the “average prime offer rate,” which is defined in the Final Rule as an annual percentage rate derived from average interest rates, points and other loan pricing terms that are currently offered to consumers by a representative sample of lenders for mortgage transactions that have low-risk pricing characteristics.At least initially, the Fed will use information derived from Freddie Mac’s Primary Mortgage Market Survey (“PMMS”), but may eventually develop its own tables. The average prime offer rate for both fixed and adjustable rate loans will be published in a table and updated at least weekly.
A loan is considered higher-priced if its APR exceeds the applicable average prime offer rate by 1.5 percentage points or more for first lien loans and 3.5 percentage points or more for junior lien loans.Unlike the HOEPA APR test, which compares the loan’s APR to the applicable Treasury security yield as of the 15th day of the month immediately preceding the month in which the application is received, the Final Rule requires that the loan’s APR be measured against the applicable average prime offer rate “as of the date the interest rate is set.” The Official Staff Commentary clarifies that if a loan’s rate is initially set at one level but then changed prior to closing, a lender must use the last date the interest rate is set before closing.”

Remember, there’s a “general business day” definition which we use when sending out our EARLY disclosures and there’s a “precise business day” definition which we will use when counting the days after we’ve had to re-disclose prior to signing. See page 8 of this MBAA PDF.   The MBAA is correct. The industry deserves an answer from the FRB on this conflict.

I’ve emailed Sam a PDF copy of the MDIA color coded matrix.

Here is a list of WA State Housing Counseling Agencies

Here is more info on sociopaths.

and finally, Cookie Monster wanted to know why a “lady” was chosen to represent “justice”

See you next year for exam prep!

Here’s the follow up from today.

There’s a “general business day” definition which we use when sending out our EARLY disclosures and there’s a “precise business day” definition which we will use when counting the days after we’ve had to re-disclose prior to signing. See page 8 of this MBAA PDF.

Q: Where can I find out what interest rate the Fed will use so I can figure out if I have a high cost loan?
Here’s some insight from a great article by Blank Rome:

“…the measuring stick is the “average prime offer rate,” which is defined in the Final Rule as an annual percentage rate derived from average interest rates, points and other loan pricing terms that are currently offered to consumers by a representative sample of lenders for mortgage transactions that have low-risk pricing characteristics.At least initially, the Fed will use information derived from Freddie Mac’s Primary Mortgage Market Survey (“PMMS”), but may eventually develop its own tables. The average prime offer rate for both fixed and adjustable rate loans will be published in a table and updated at least weekly.
A loan is considered higher-priced if its APR exceeds the applicable average prime offer rate by 1.5 percentage points or more for first lien loans and 3.5 percentage points or more for junior lien loans.Unlike the HOEPA APR test, which compares the loan’s APR to the applicable Treasury security yield as of the 15th day of the month immediately preceding the month in which the application is received, the Final Rule requires that the loan’s APR be measured against the applicable average prime offer rate “as of the date the interest rate is set.” The Official Staff Commentary clarifies that if a loan’s rate is initially set at one level but then changed prior to closing, a lender must use the last date the interest rate is set before closing.”

The book written by Plato about Socrates’ journey to find the meaning of the word “justice” is called Plato’s Republic. You can get a used copy for $5. A great read. If you liked Ari’s way of solving ethical dilemmas, here is THE book.  Also, available used for under $5. You don’t need all the fancy analysis books, just the plain jane Nicomachean Ethics.

More on The Sociopath. Recognize anyone in your life that fits the profile?  1 in 25…

Here’s the story about HUD possibly adding sexual orientation as one of the protected classes. They’ll start with renters and move on from there.

Here’s a link to the state’s usury law FAQ page.

Here’s a link to the website where you can run a database report on which lenders have high default rates on their FHA originations.

Here’s the Credit Suisse graph showing the coming recasts of Pay Option ARM loans through 2012.

Great analysis from CR (my favorite finance and econ blogger) on how there will be two housing bottoms. Remember, Amir talked about this toward the end of class.

Great article today on the economy, again from CR. I’ll put this in next month’s email newsletter so you’re getting a sneak preview.

Thanks for coming to class. Here’s the follow up:

There’s a “general business day” definition which we use when sending out our EARLY disclosures and there’s a “precise business day” definition which we will use when counting the days after we’ve had to re-disclose prior to signing. See page 8 of this MBAA PDF.   Wells Fargo and other lenders have PDFs that give us a visual to refer to with a calendar and some examples.  The only problem that I’m still encountering is that some lenders are using the precise definition of a business day (unless the Saturday happens to be a legal holiday) for the re-disclosure waiting period and some are using the general definition only for early disclosures.  The MBAA is correct. The industry deserves an answer from the FRB on this conflict.

Here’s the blog post from CR with Emile Brinkmann, MBA Chief Economist’s testimony before the Senate Committee on Banking, Housing and Urban Affairs at a hearing titled, “The State of the Nation’s Housing Market” with information on CR’s prediction on when interest rates will start going up.

There was a question as to why hard money lenders will only lend on commercial property or for real property used primarily for business use.  Here’s a link to the state’s usury law FAQ page. The answer is because that lender would like to exceed our state’s usury rate.

A designated broker will need to take 9 hours of CE next year, even though LOs licensed since 07 will get a break from CE in 2010. 

Thanks for all your great questions and here’s to a great fall 09! 

Here’s the follow up from class.

Q: Do we have to resubmit our fingerprints?
A: Yes all LOs will be submitting a new set of fingerprints to the NMLS.

Q: Does a designated broker have to retake the LO exam?
A: Yes.

The name of the Northwest Multiple Listing Service Form that George referred to in class is NMLS Form 22 which helps with the automatic extension of the closing date.

Q: Where can I find out what interest rate the Fed will use so I can figure out if I have a high cost loan?
Here’s some insight from a great article by Blank Rome:

“…the measuring stick is the “average prime offer rate,” which is defined in the Final Rule as an annual percentage rate derived from average interest rates, points and other loan pricing terms that are currently offered to consumers by a representative sample of lenders for mortgage transactions that have low-risk pricing characteristics.At least initially, the Fed will use information derived from Freddie Mac’s Primary Mortgage Market Survey (“PMMS”), but may eventually develop its own tables. The average prime offer rate for both fixed and adjustable rate loans will be published in a table and updated at least weekly.
A loan is considered higher-priced if its APR exceeds the applicable average prime offer rate by 1.5 percentage points or more for first lien loans and 3.5 percentage points or more for junior lien loans.Unlike the HOEPA APR test, which compares the loan’s APR to the applicable Treasury security yield as of the 15th day of the month immediately preceding the month in which the application is received, the Final Rule requires that the loan’s APR be measured against the applicable average prime offer rate “as of the date the interest rate is set.” The Official Staff Commentary clarifies that if a loan’s rate is initially set at one level but then changed prior to closing, a lender must use the last date the interest rate is set before closing.”

Mark Palmer mentioned an FTC website article whereas CLA lenders will have to disclose their overages prior to the close of escrow. I’ve asked Mark to foward the link and will upload it here when I receive it.

We had some great debate regarding the definition of a business day. Well I’ve finally figured out why there is so much confusion and a big thanks to Annette Jensen from Neighborhood Mortgage in Bellingham for being the most diligent compliance person I’ve met in a while. The reason why we were disagreeing about how to count days is because there are two definitions of a “business” day. There’s a “general business day” definition which we use when sending out our EARLY disclosures and there’s a “precise business day” definition which we will use when counting the days after we’ve had to re-disclose prior to signing. See page 8 of this MBAA PDF.   Wells Fargo and other lenders have PDFs that give us a visual to refer to with a calendar and some examples.  The only problem that I’m still encountering is that some lenders are using the precise definition of a business day (unless the Saturday happens to be a legal holiday) for the re-disclosure waiting period and some are using the general definition only for early disclosures.  The MBAA is correct. The industry deserves an answer from the FRB on this conflict.

Thanks for a fun class!