It's well known that on July 30, 2008 the Federal Reserve (Fed) published a final rule amending Regulation Z (which implements the Truth in Lending Act (TILA), and the Home Ownership and Equity Protection Act (HOEPA)). Congress's subsequent passage of additional acts generated further revisions to take effect July 30, 2009. With this date fast approaching it seems a good opportunity to review the changes and the upcoming Truth In Lending (TIL) release.

Below is a recap of the chain of events, as summarized in the Federal Register , Vol. 74, No. 95, on May 19, 2009:

• On July 30, 2008 the Fed published a final rule amending Regulation Z.
• That same date Congress enacted the Housing and Economic Recovery Act of 2008 (HERA), including amendments to TILA known as the Mortgage Disclosure Improvement Act of 2008 (MDIA).
• Subsequently, MDIA was amended with the enactment of the Emergency Economic Stabilization Act of 2008 on October 3, 2008.

As a result, the Fed revised Regulation Z to implement the broader provisions of the amended MDIA, and advanced the effective date of October 1, 2009 originally set by the final rule. The bulk of the changes deal with disclosure requirements, calling for:

• Early, transaction-specific disclosures (i.e. good faith estimates of mortgage loan costs) for loans subject to RESPA, secured by any consumer dwelling - not just principal dwellings.
• Coverage of loans to purchase or construct homes, refinance home loans and home equity loans.
• Delivery of disclosures within 3-business days of application and at least 7-business days before loan consummation.
• The collection of no fees, other than one to obtain the consumer's credit history, prior to delivery of the disclosures.
• Corrected disclosures, if the Annual Percentage Rate (APR) provided in the initial disclosures changes beyond a specified tolerance. Consumers are to receive the corrected disclosures no later than the 3rd business day prior to loan consummation.
• Waiver of the 3-day waiting period for consummation in case of bona fide personal financial emergency.  In this case the consumer must provide a dated written statement describing the emergency, and specifically modifying or waiving the waiting period. All consumers primarily liable on the legal obligation must sign the form, and printed forms for this purpose are prohibited.
• Addition of the following statement to the early disclosure (TIL):  "You are not required to complete this agreement merely because you have received these disclosures or signed a loan application."  ProClose is in the process of adding the required verbiage to our TIL form, AAAK0G.  It will be released to all clients well before the 7/30/09 effective date.

FHA First Time Homebuyer Tax Credit
In support of the American Recovery and Reinvestment Act of 2009, offering homebuyers a tax credit up to $8,000 for purchasing a new home, FHA announced the authorization of the First Time Homebuyer Tax Credit Program. This credit is available to first-time homebuyers purchasing a home between April 8, 2008 and December 1, 2009 and who have not owned a home in the 3 years prior to purchase. Credit applies only to owner-occupied properties. In a May 29, 2009 press release, U.S. Housing and Urban Development Secretary, Shaun Donovan, stated this will ".help stabilize the nation's housing market by stimulating home sales across the country. We believe this is a real win for everyone."

The tax credit can be used as secondary financing as a silent second or require monthly payments. Homebuyers financing through eligible state Housing Finance Agencies and non-profit agencies can use the tax credit towards the down payment or closing costs.

Secondary Financing:

• The buyer may not receive cash back through the FHA-insured first mortgage combined with the tax credit.
• The second lien cannot exceed the total amount needed for the down payment, closing costs and prepaid expenses.
• If payments are required, they must be included within the qualifying ratios and, when combined with the first lien, cannot exceed the borrower's ability to repay the loan.
• To omit payments from the qualifying ratios, payments must be deferred for at least 36 months.
• If the tax credit advance loan has a short repayment term and the borrower fails to repay by the designated deadline, P&I payments begin automatically or the loan converts to a "soft" second.
• A balloon payment before ten years is not allowed.

Another approved use is the purchase of tax credit anticipated by the homebuyer. This applies to FHA-approved mortgagees, FHA-approved non-profit organizations, Federal, State and local governmental agencies and instrumentalities.

Purchase of Tax Credit:

• Proceeds of the sale of the tax credit cannot exceed the anticipated tax credit due the homebuyer based on IRS form 5405.
• A signed certification stating the tax credit is not subject to other indebtedness must be submitted.
• Copies of the borrowers tax refund and/or the IRS 5405 must be retained in the FHA case binder.
• Costs for the purchase of the tax credit are to be nominal, and discounting the anticipated credit to cover the costs and expenses of the transaction must be reasonable and disclosed to the borrower. FHA's views of excessive charges are fees and costs totaling more than 2.5% of the anticipated credit.
• Homebuyers can apply the tax credit to additional down payment (in excess of 3.5%) and closing costs, and to help lower interest rates. Tax credit cannot be applied to down payment below the 3.5%.

Refer to Mortgagee Letter 2009-15 for additional information.

Indiana House Bill 1176 going into effect this July
Indiana house bill 1176 was signed into law by Governor Mitch Daniels in April and is effective July 1st 2009. Under this bill prepayment penalties are not allowed on any ARM loans in the state of Indiana. Originally this practice was prohibited to mortgage brokers but is now extended to everyone. Charging any prepayment fee is considered influencing the appraiser of the property and is a Class A misdemeanor subject to fines up to $10,000.

The bill also requires creditors to provide homeowner protection information to applicants for a mortgage loan.  With this information, the borrower may contact their homeowners' protection to report any suspected violation of any state appraiser laws or inappropriate influence on the appraiser.

 
New Mexico Home Loan Protection Act SB 342
New Mexico Senate Bill 342 passed requiring mortgage loan originators, and loan processors and underwriters acting as independent contractors to obtain a license under the NM Mortgage Originator Licensing Act (NMMLOLA). Pre-license 20-hour education requirements, passing test score, fingerprinting for background checks, credit reports, and demonstration of financial responsibility are some of the license requirements. A "qualified manager" must also be established, and will have a mortgage loan originator license, at least 2-years verifiable experience and is serving only one mortgage loan company.

SB 342 not only amends the Home Loan Protection Act, it also creates new restrictions on "home loans" aiming to prevent predatory lending practices. The home loan section focuses on the following items, among others:

• Establishing Borrower's Ability to pay
• Limiting fees on loan modifications
• Eliminating prepayment penalties
• Prohibiting negative amortization
• Late-payment fee restrictions
• Interest rate adjustment maximums set on ARM loans
• Prohibition on LTVs higher than 80% on owner-occupied residences where no escrow account is created by the creditor
• High Cost Loan limitations and prohibited practices

Compliance Analyzer, incorporated into ProClose, is updated to include new home loan tests in the state of New Mexico.

Virginia Mortgage Loan Originator Act
Reminder: Virginia House Bill 2031 goes into effect July 1, 2009, establishing mortgage loan originator licensing procedures under Chapter 16.1 of Title 6.1 of the Code of Virginia.  Virginia will join the Nationwide Mortgage Licensing System (NMLS). NMLS will accept applications starting August 3, 2009.  Mortgage loan originators, and any individual acting as an independent contractor engaging in mortgage loan origination activities as a loan processor or underwriter, are urged to apply as soon as possible though the license is required July 1, 2010.

Qualification for a license with NMLS includes:

• Application form and application fee
• Pre-licensing 20-hour minimum education requirement
• A 75 % passing score on a National Mortgage Test
• Criminal Background check
• Finding of financial responsibility, character and general fitness including a satisfactory credit report

Oklahoma Secure and Fair Enforcement for Mortgage Licensing Act
On May 13, 2009, Governor Brad Henry signed SB 1062, the Oklahoma Secure and Fair Enforcement for Mortgage Licensing Act. Like Virginia, Oklahoma is also participating in the Nationwide Mortgage Licensing System (NMLS) and following their licensing requirement criteria bulleted in the article above. Oklahoma requires a passing score on a state mortgage test and fingerprints for criminal background checks. Loan originators must meet all requirements by July 31, 2010.

West Virginia SAFE Mortgage Licensing Act (WVSMLA)
Governor Joe Manchin III signed West Virginia SB 532 May 15, 2009. The bill, which is effective July 1, 2009, establishes the requirements and obligations of mortgage loan originators, and loan processors and underwriters acting as independent contractors. Each mortgage loan originator must register with and maintain a valid unique identifier from the Nationwide Mortgage Licensing System (NMLS). Originators already licensed before July 1, 2009 must meet the new requirements by January 1, 2011; whereas, other individuals must be registered and meet the requirements by January 1, 2010.  Following are some of the criteria for licensing that must be met:

• An independent credit report
• Fingerprint submission for criminal background check
• 20 Pre-license education hours
• 75% passing score on qualified written test

BB&T
The BB&T Builder Subsidy Program is discontinued effective June 1, 2009.  Loans locked prior to June 1, 2009 will be honored.  BB&T also sent two reminders to lenders that taglines are required on each page of FNMA/FHLMC Uniform Instruments (including Security Instruments, Notes and Riders).  MBS-ProClose includes taglines on the bottom of all FNMA/FHLMC Uniform Instruments already as a standard.

Franklin American
On May 22, 2009 Franklin American introduced their new product Conventional Conforming High Balance. High Balance locks became available May 26, 2009.

Announced June 16, 2009 and effective immediately, the November 2008 version of VA Form 26-0286 "VA Loan Summary Sheet" is required by Franklin American. Item #15 "Prior Loan Type" must be completed if "Regular ("Cash-Out") Refinance" was chosen in Item 14. MBS-ProClose provides the current version of this form as AADT1V.

Flagstar Bank
All conventional loan products with a loan term greater than 30-years were suspended by Flagstar Bank effective June 12, 2009. 35 and 40-year loan term options were removed from the following products:

• FNMA Fixed Rate (#5313)
• FNMA MyCommunity (#5325)
• FNMA 3/1, 5/1 & 7/1 LIBOR ARMs (5331)
• FHLMC Home Possible (5335)
• FNMA High Balance (5346)

A fully executed VA Form 26-8937 (Verification of VA Benefits) is required on or after July 1, 2009 for all VA loans having an "Image Package Received" status. In particular the form is needed on VA Purchase, Cash-Out and IRRRLs. This document is in the MBS-ProClose form library as AAXPJ1.

Taylor, Bean & Whitaker
On May 4, 2009, TB&W lifted the suspension of their TX Home Equity loan product effective immediately. No 40-year terms will be accepted.

Wells Fargo
Effective June 8, 2009, Wells Fargo will no longer purchase a temporary buydown on conventional 3/1 ARM loans. Wells Fargo also released a reminder to all lenders to indicate the project classification code on the Uniform Underwriting Transmittal Summary (FHLMC 1077 or FNMA 1008) when the property is located in a condominium, PUD or cooperative project. Loans missing project classification code information will be suspended.