The year 2010 brings many regulatory compliance changes that will require careful planning, timely implementation and ongoing training to all individuals involved in the loan flow process. Although some effective dates have already occurred, the actual implementation of these requirements has placed greater burden on lenders to be sure of functionality, and especially training. Proper risk management is best combined with appropriate instructional reviews.
I would like to take this opportunity to thank those of you who have written me to discuss regulatory compliance issues or to comment on the articles I have written for this publication. In the coming year, I will be exploring other important facets of mortgage loan originations that directly affect the industry’s many compliance needs and will offer further advocacy of consumer protection initiatives.
Best wishes for a safe, sound, and prosperous New Year!
RESPA (Regulation X)
Good Faith Estimate (GFE)
HUD-1 and HUD-1A Settlement Statement
The final regulation requires substantial changes to Real Estate Settlement Procedures Act (RESPA) disclosures, including the Good Faith Estimate (GFE), the HUD–1/1A Settlement Statements, and the Settlement Cost Booklet. The U.S. Department of Housing & Urban Development (HUD) continues to issue comments on compliance requirements by updating their frequently asked questions, known as “New RESPA FAQs.” Implementation is effective on Jan. 1, 2010.
Loan originators must understand the regulatory changes and how the changes affect RESPA documents. Classroom, Webinar or online training should be conducted to familiarize loan officers with the revised disclosures; inevitably, customers will have questions when they review their mortgage disclosures. Lenders must be entirely familiar with and able to implement GFEs that properly conform to all tolerances and data fields.
Truth-in-Lending (Regulation Z)
Initial TILs
High Cost Mortgage Loans
Higher-Priced Mortgage Loans
Timing of Disclosures (Proposal)
►Initial Truth-in-Lending. On July 30, 2009, new requirements became effective. These requirements: (1) broaden the coverage of the type of loan that must receive an early disclosure; (2) mandate that basically any mortgage loan subject to RESPA and secured by the consumer’s dwelling must receive an early disclosure; (3) includes new timing requirements for the delivery of disclosures; and (4) restricts the collection of any fees beyond the credit report fee until the consumer has received the initial disclosures.
►High-Cost Mortgage Loan. Effective Oct. 1, 2009, new requirements were mandated for determining and verifying repayment ability. There is also a new prohibition on prepayment penalties if the total monthly debt payment, including the mortgage, exceeds 50 percent of the monthly gross income.
►Higher-Priced Mortgage Loans. Effective Oct. 1, 2009, “higher-priced mortgage loans” became subject to a new set of requirements. A “higher-priced mortgage loan” is specifically defined as a consumer purpose loan secured by the principal dwelling where the Annual Percentage Rate (APR) exceeds the Average Prime Offer Rate (APOR) by certain percentage points. Any consumer closed-end mortgage, including purchase money, is affected. New requirements for loans that fall into this category are:
1. Lenders are required to consider the borrower’s repayment ability.
2. Lenders are required to verify that repayment ability.
3. Certain types of prepayment penalties are now prohibited.
4. Establishment of new escrow parameters.
►Timing of Disclosures. The Federal Reserve Board has issued a Regulation Z proposal that affects the content, format, and timing of existing mortgage loan disclosures. The proposed changes would affect closed-end mortgages (such as purchase money loans, refinances and seconds), as well as home equity lines of credit. The proposal, when it is finalized and becomes effective, will have an impact on disclosures given at application and it will contain limits on lender practices. The final regulation will be issued in early 2010.
HMDA (Regulation C)
New Reporting Spread
►Effective Oct. 1, 2009, a lender will report the spread between a loan’s annual percentage rate (APR) and the new comparable called the average prime offer rate (APOR): The spread must be reported if it is equal to or greater than 1.5 percentage points for first lien loans or 3.5 percentage points for subordinate lien loans.
Submit your questions …
Do you have a regulatory compliance issue that you’d like to see addressed in the Regulatory Compliance Outlook Column? If so, e-mail your issue or concern to Jonathan Foxx at
[email protected].
Jonathan Foxx, former chief compliance officer for two of the country’s top publicly-traded residential mortgage loan originators, is the president and managing director of Lenders Compliance Group, a mortgage risk management firm devoted to providing regulatory compliance advice and counsel to the mortgage industry.
