Proposed New GFE lacking?
Is HUD's proposed new GFE sufficient to meet the requirements of the Truth-in-Lending Act (TILA) to provide borrowers with an Itemization of Amount Financed (Itemization)? The new GFE doesn't provide for a clear separation of the fees, at least not in as detailed a fashion as the IAF.
Mortgage lenders and brokers tend not to provide borrowers with an Itemization because TILA provides an exception from the requirement to provide an Itemization if the GFE provided meets the requirements of RESPA. But, examining the proposed new GFE, many compliance professionals are concerned it is not detailed enough to meet the TILA Itemization exemption. One assumes that if the new GFE meets the requirements of RESPA, it still falls under the TILA exception, and a separate Itemization is not necessary, but that is an assumption and, like all assumptions, has the potential to cause problems.
For some mortgage compliance professionals, this is a major concern. Some are working with MBA and HUD to get some solid resolution of this issue, but there is no firm answer.
There is also a concern about how a compliance department can validate the APR using the information provided in the new GFE format.
These and other questions have prompted many mortgage industry trade groups (and hundreds of members of Congress) to ask HUD to hold off on the implementation of the new GFE (now scheduled for January 1, 2010) until HUD (which regulates and enforces RESPA) and the Federal Reserve Board (which regulates and enforces TILA) can get in sync. So far, HUD hasn't budged.
(For more information see the Final Rule.)
Some mortgage compliance professionals also believe that until there is some clarification of this issue it might be better to provide the Itemization under the Regulation Z 226.18 (c) requirement instead of taking advantage of the GFE exception. There is an advantage in using the Itemization as a reconciliation tool against the GFE and the HUD-1, especially for APR purposes. The concern, given the limitations of the new GFE, is the Federal Reserve could remove the Itemization exception, necessitating the need for the Itemization on all mortgage loan transactions anyway.
Co nsumers may compare the new GFE and HUD-1 to the TIL disclosure and be confused. Many recommend that the Itemization be provided on all mortgage loan transactions.
Software providers and document providers (like MBS ProClose) are working hard to "map" the specific fees in order to make sure the GFE is accurate after the January 1, 2010 implementation date and the appropriate fees flow to the TIL disclosure.
Fed Says TILA Fulla Holes; Proposes Patches
The Federal Reserve Board in late July proposed major changes to the Truth-in-Lending Act, including a ban on incentive payments to mortgage originators that are based on a loan's interest rate and a change to the way loan programs are disclosed to prospective borrowers (by adding loan-specific disclosure forms to the current requirement to provide the four-box TIL disclosure). The Fed also wants to factor into the APR more closing costs than is currently mandated.
The Fed claims its proposed disclosure forms are compatible with another set of disclosures mandated by HUD under RESPA. But Inman News reported "the Fed's revisions, if finalized, would still fall short of meeting calls by the (mortgage) industry and lawmakers for regulators to draw up a single loan disclosure form that meets both TILA and RESPA requirements...While the Fed and HUD appear to be moving closer to a long-standing industry desire to have a single set of loan disclosures, significant differences remain in the approaches taken to ensure lenders comply with TILA and RESPA."
The proposals are open for comment for 120 days after they are published in the Federal Register. Anyone - individuals, trade associations and companies - can submit comments. All comments are read and taken into consideration. Comments can and do influence final rulemaking.
Read more about the proposal. See a "Key Questions" form the Fed wants loan providers to give to prospective borrowers. And see proposed new loan disclosure form.
Third Time The Charm? FTC Again Delays Enforcement of "Red Flags" Rule
It's happened again.
Because of continued confusion over which companies and institutions the Federal Trade Commission's Red Flag rule applies to, the agency delayed enforcement of the controversial rule for the 3 rd time. The compliance date - which was August 1, 2009 - is now November 1, 2009 for entities not subject to the oversight of other federal regulators. (Institutions subject to the oversight of other federal regulators had to have their red flags program in place by November 1, 2008.)
The FTC intends to use the additional time to further educate the industry about the rules and specifically to whom they apply, "some entities are still not sure whether they're covered or not."
The rule requires institutions to establish a way to identify potential threats, find ways of detecting such threats and install measures to prevent them. Employees must be educated about the rule. The rule requires creditors and financial institutions billing customers after providing services to implement programs to identify, detect, and respond to warning signs ("red flags") that could indicate identity theft. The Wall Street Journal says the rule "is aimed at preventing the loss of billions of dollars as the result of theft of consumer and taxpayer personal information. A survey commissioned in 2006 by the FTC revealed that more than nine million Americans have their identities stolen each year at a total estimated loss of $15.6 billion."
Failure to comply with the rule may subject a company to penalties of up to $3,500 per violation and could increase a company's exposure to negligence claims.
The FTC created a website full of practical tips on spotting the red flags of identity theft, taking steps to prevent the crime, and mitigating the damage it inflicts. The site also teaches how to put in place a written Identity Theft Prevention Program.
The Massachusetts Mortgage Bankers Association and Bankers Advisory produced a summary of the rule, and the FTC wrote an article about the rule suitable for employee newsletters and bulletin board postings.
Maryland Says: Create Bad Docs, Go to "A" Block
Maryland amended its Mortgage Fraud Protection Act to prohibit knowingly creating a document containing a deliberate misstatement, misrepresentation or omission with the intent that the document is relied on by a mortgage lender, borrower or any other party to the mortgage lending process. HB 79 (Chapter 126) is effective October 1, 2009.
Connecticut tells Mortgage Fraudsters: Fines and Time
Connecticut created the crime of residential mortgage fraud. Effective October 1, 2009, a single instance of mortgage fraud is a Class D felony, punishable by a maximum of five years in prison and $5,000 in fines. Multiple instances are Class C felonies, punishable by up to 10 years in prison and $10,000 in fines. The new law says a person commits residential mortgage fraud "when, for financial gain and with the intent to defraud, such person...knowingly makes any material written misstatement, misrepresentation or omission during the mortgage lending process with the intention that a mortgage lender, mortgage correspondent lender or mortgage broker...a borrower or any other person that is involved in the mortgage lending process will rely on such written misstatement, misrepresentation or omission...knowingly uses or facilitates the use or attempts to use or facilitate the use of any written misstatement, misrepresentation or omission during the mortgage lending process with the intention that a mortgage lender, mortgage correspondent lender...borrower or any other person that is involved in the mortgage lending process relies on it...receives or attempts to receive proceeds or any other funds in connection with a residential mortgage closing that the person knew or should have known resulted from an act or acts constituting residential mortgage fraud...or conspires with or solicits another to engage in an act or acts constituting residential mortgage fraud." The new law says prosecutors need only "show that the party accused did the act with the intent to deceive or defraud. It shall be unnecessary to show that any particular person was harmed financially in the transaction or that the person to whom the deliberate misstatement, misrepresentation or omission was made relied upon the misstatement, misrepresentation or omission." The new law defines the mortgage lending process as "the process through which an individual seeks or obtains a residential mortgage loan, including solicitation, application, origination, negotiation of terms, underwriting, signing, closing and funding of a residential mortgage loan and services provided incident to such mortgage loan, including the appraisal of the residential property." For more information see Connecticut SB 949.
Louisiana Throws LO Licensing Exemptions into the Bayou
Louisiana passed HB810, its version of the SAFE Act, effective July 31, 2009. Like many states, Louisiana eliminated many of its licensing exemptions, bringing more loan originators under its jurisdiction. For more information, read a useful one-page summary of the legislation. Many of our clients have asked about the SAFE Act and whether their individual loan originators are subject to its education provisions. Read general information about the SAFE Act and the Nationwide Mortgage Licensing System. MBS has developed expertise in the Act and is happy to provide general information.
Oregon Goes Negative on NegAm Loans
Oregon , like many states, imposed restrictions on negative amortization loans. Effective January 1, 2010, mortgage bankers, mortgage brokers or loan originators may not make, negotiate or offer to make or negotiate negative amortization loans without evaluating and verifying borrower's ability to repay the loan. A negative amortization loan is generally structured so payments start out smaller than the interest due; the difference is added to the loan balance, or, as the bill describes it, a mortgage loan "that is structured in such a way that a borrower in any period may make a scheduled loan payment that is insufficient to pay accruing interest." Additionally, if you advertise in a language other than English, you must provide the GFE and TIL disclosure in that language and you must notify the borrower that other loan documents are in English and the borrower should "obtain appropriate assistance with any necessary translations." The state will develop and distribute translated versions of the GFE and TIL in the three languages other than English most commonly spoken in Oregon. For details on the legislation see Oregon bill HB2188.
Maine Maniacal on Predatory Loans & SAFE ACT
Maine passed its version of the SAFE Act under Part B Article 13 of LD 1439. Underwriters and processors acting as independent contractors must now obtain a license. The law also requires all application forms, solicitations and advertisements to contain the unique identifier (from the Nationwide Mortgage Licensing System - NMLS) of the person originating the mortgage loan. The SAFE Act provisions go into effect July 31, 2010.
Maine's anti-predatory lending laws were also amended to prohibit lenders from making a loan without regard to the borrower's ability to repay and requires lenders making a higher-priced mortgage loan secured by a first lien on a principal dwelling to establish an escrow account for the borrower. The anti-predatory lending changes, including new prepayment penalty restrictions are effective immediately, except the escrow requirements do not become effective until April 1, 2010.
