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American Home Mortgage (AHM) introduces new Non-Conforming Power 3, 5, 7 & 10 MTA/LIBOR Stated Income/Full Asset Programs - program code of AH.  These 30-year loans use a "discounted start rate" (payment rate) during the initial fixed periods of 3, 5, 7 or 10-years depending on your program.  Deferred interest (Negative amortization) is possible during this initial fixed period.  At the first interest rate change date, the minimum monthly payment changes to an interest-only payment based on the fully indexed rate (not applicable for the Power 10).  After the conclusion of the 10th year, the loan will be recast for the P&I to fully amortize the loan over the remaining 20-year term.

Aurora Loan Services adds new 5/6 Hybrid LIBOR ARM product option to their recent Choice Advantage program (Dec. 2006).  This first-lien product features four flexible payment options: minimum payment, interest only, P&I based on remaining term and 15-year P&I payments.  Negative amortization is likely with the minimum payment option.  Possible candidates for this program include young professionals, real estate investors and short-term homeowners.  Other Choice Advantage products include a 5/1 Hybrid LIBOR ARM and closed-end second.

Trend Towards Electronic Filing and Recording Continues

In the last couple of years, the electronic filing and recordation of documents has become very popular in the mortgage industry.  In March 2007, this trend continued with two new laws in Idaho and Virginia.

In Idaho, the state legislature passed a bill which permits recording authorities to accept real property documents in electronic format.  This bill was passed pursuant to the Uniform Real Property Electronic Recording Act.  It becomes effective on July 1, 2007.

In Virginia, the state legislature passed a similar bill, which allows documents to be notarized electronically.  The bill states that only people commissioned as electronic notary publics are permitted to perform electronic notarizations.  It becomes effective on July 1, 2008.

Electronic filing and recording are relatively new options for the mortgage industry, but they may present a more efficient way of conducting business.  Mortgage Lenders should determine whether electronic filing and recording is permissible in their jurisdiction and whether it makes sense for them.

California Proposal Creates New Disclosure Requirement for Adjustable Rate Mortgage Loans

On February 22, 2007, the state legislature of California proposed a bill that affects the disclosure requirements of adjustable rate mortgage loans.  Specifically, mortgage lenders who offer adjustable rate mortgage loans would need to disclose certain information about rates in their audio and written advertisements. The disclosure would require the following language:

"This advertised rate of _____ is not the actual interest rate.  It is the payment rate. If the borrower chooses to pay this advertised rate, the principal balance of the loan will increase."

This proposal will have a substantial effect on mortgage lenders who offer adjustable rate mortgage loans. These mortgage lenders should monitor this proposal to ensure they will not improperly advertising these loans in the future.

Nontraditional Mortgage Guidance

On September 29, 2006, the Board of Governors of the Federal Reserve (Fed), the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS), the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration jointly issued the Final Guidance on Nontraditional Mortgage Products.  In general, the guidance addressed the risks associated with mortgage products that allow borrowers to defer payments of principal and interest.  The guidance applies to all federally regulated institutions including federally chartered banks, Savings and loans, and credit unions.

The agencies issued this guidance because many lenders began offering nontraditional mortgage loans such as interest-only mortgages and payment option adjustable rate mortgages.  These products provide borrowers with lower initial payments in exchange for higher payments in the future.  The agencies were unsure whether the borrowers understood the risks behind these products.  In order to address these risks and protect borrowers, the agencies issued a guidance that discussed three major goals:

• Ensure that loan terms and underwriting standards are consistent with prudent lending practices, including consideration of a borrower's repayment capacity;
• Recognize that many nontraditional mortgage loans are untested in a stressed environment.  These product need strong risk management standards, capital level proportionate with risk, and an allowance for lease losses that reflect the collectibility of the portfolio; and
• Ensure that consumers have sufficient information to clearly understand loan terms and associated risks prior to making a product or payment choice.

After the agencies issued this guidance, nontraditional mortgage loans continued to create questions and concerns in the mortgage industry. As a result, many states have decided to adopt some form of the agencies' guidance. Thirty states currently possess some form of nontraditional mortgage guidance. The states that currently possess some form of the guidance are:

ProClose® is committed to providing you with the most up to date news regarding nontraditional mortgage guidance.  As more states create nontraditional mortgage guidance, ProClose® will keep you updated to ensure that you comply with all applicable laws.