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Reminder: 3rd Quarter ended September 30. Remember to get your quality control file audits done for FHA, Fannie Mae, Freddie Mac, etc.

EFFECTS OF HUD’S ANNOUNCEMENT FROM SEPTEMBER 18, 2009

HUD announced several changes on September 18. These changes affect FHA lenders and loans, including the FHA approval process for brokers. Visit our blog to read how HUD’s announcement affects sponsors and brokers.

FHA UPDATE: NEW MORTGAGEE LETTERS

• Multifamily Housing Accelerated Processing Guide: Chapter 9, Environmental Review: Letter 09-27

- Announces the release of a revised and updated Multifamily Housing Accelerated Processing Guide, Chapter 9, with new environmental requirements. (View the entire letter.)

• Appraiser Independence: Letter 09-28

Announces New Requirements, effective January 1, 2010:

- Prohibition of mortgage brokers and commission based lender staff from the appraisal process
- Appraiser selection in FHA Connection must be the appraiser who actually performs the appraisal
- Clarifies and expands their policy regarding Appraisal and Appraisal Management Companies’ (AMC) third party origination fees

Re-affirms Existing Requirements:

- Prevention of Improper Influences on Appraisers
- Appraiser Independence Safeguards
- Mortgagees are reminded that they are they are responsible (along with the appraiser) for the integrity, quality, and thoroughness of the appraisal. (View the entire letter.)

• Appraiser Portability: Letter 09-29

- Addresses the portability of appraisals when a borrower switches the lender during loan processing– effective for all case numbers assigned on or after January 1, 2010.

- “Appraiser shopping” is prohibited. In this case, the first lender must, at the borrower’s request, transfer the case to the second lender. FHA does not require that the appraisal be changed to reflect the new lender, but FHA Connection must reflect the correct lender. (View the entire letter.)

• Appraiser Validity Periods: Letter 09-30

- Announces a change to the validity period for appraisals–reduced from 12 months for proposed construction and 6 months for existing construction to 4 months (120 days) for all appraisals. Effective for all case numbers assigned on or after January 1, 2010. (View the entire letter.)

• Strengthening Counterparty Risk Management: Letter 09-31

Provides notice of several FHA program changes as a result of the enactment of the “Helping Families Save Their Homes Act of 2009” (the HFSH Act):

- It provides limitations on those eligible for the program. Ineligible participants are identified as currently suspended, debarred, under a LDP, under indictment, subject to unresolved findings in a HUD or other government audit, investigation, or review, etc. It is important that you read these specifications in depth.

- Change of lender’s fiscal year end date must be reported to HUD 90 days before change.

- Effective January 1, 2010, all supervised mortgagees (banks and credit unions) must now submit an annual audited financial statement within 90 days of their fiscal year end.

- Mortgagees must use their name as registered with HUD in all advertising and promotional materials related to FHA. Lenders must retain a copy of all advertising for two years.

- Approved lenders are required to notify FHA if individual employees are subject to any sanction or any other administrative action, or if there is a revocation of a State-issued mortgage origination license.

- The HFSH Act expands FHA’s ability to seek civil money penalties against any owners, officers, or directors, for violations of program requirements. (View the entire letter.)

• Revised Streamline Refinance Transactions: Letter 09-32

Announces revised procedures and re-affirms existing procedures regarding Streamline Refinance transactions, to be effective in 60 days or November 18, 2009.

Key Revisions:

- Seasoning set at 6 months

- Minimum payment history standards established

- Net tangible benefit for the borrower at a 5% lower payment with additional provisions pertaining to changing from fixed rate to ARM, and ARM to fixed rate. Investors and second home borrowers are prohibited from refinancing to an ARM.

- Transactions that include a reduction in mortgage term must now be processed and closed as a rate/term refinance.

- If subordinate financing is in place, the maximum combined loan-to-value is set at 125% with or without an appraisal. If there is no new appraisal, the CLTV is based on the original appraisal.

- New maximum mortgage amount for streamline refinances without an appraisal cannot exceed the outstanding principal balance, minus any applicable UFMIP plus the new UFMIP that will be charged on the refinance. A streamline with an appraisal is the lower of outstanding principal balance or 97.75% of the appraised value plus the new UFMIP. Discount points may not be included in the new mortgage.

- If borrower agrees to pay the discount in cash, the lender must verify the availability of funds.

- Certification that borrower is employed and has income.

- If credit score(s) is/are available, the lender must enter the credit score(s) into FHA Connection.

- Lenders should not use TOTAL on streamline refinance transactions. If a lender uses TOTAL, that loan must be underwritten and closed as a rate and term (no cash-out) refinance transaction.

- Mortga
gees may no longer use an abbreviated version of the Uniform Residential Loan Application (URLA). The completed application must be dated and signed prior to underwriting of the loan. (View the entire letter.)

- It is our opinion at MCA that FHA is moving toward changing the streamlined rate reduction refinances as we have known them to correspond with other refinance transactions.

• Annual Base City High Cost Percentage Revisions effective January 1, 2009: Letter 09-33

- Announces the annual base city high cost percentage revisions for multi-family mortgages. (View the entire letter.)

• Home Equity Conversion Mortgage (HECM) – Principal Limit Factors: Letter 09-34

- Announces a change in calculating the maximum HECM loans, effective October 1, 2009. The new factors to be used result in a 10% reduced maximum loan. (View the entire letter.)

• Loan Modification: Letter 09-35

- Mandates that the interest rate on loan modifications be reduced to not more than 50 basis points above the FHA and FHLMC current weekly primary rounded to the nearest .125%, as of date of modification. The modified loan amount is then amortized over a 30-year period. (View the entire letter.)

• Revised Eligibility: Letter 09-36

- Reminds appraisers and lenders that as of October 1, 2009, appraisers listed on FHA’s Appraisal Roster who are not state certified will be removed from the roster. (View the entire letter.)

• Flood Zone Requirements and Responsibilities of FHA Mortgagees and Appraisers: Letter 09-37

- Reminds mortgagees and FHA Roster appraisers of their “responsibility to determine if a property is located within a Special Flood Hazard Area…[and reiterates FHA’s] eligibility requirements for properties located in such zones.” (View the entire letter.)

To view all HUD Mortgagee Letters for the year, visit the official website http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/index.cfm.

*We offer FHA, VA, and HECM reference manuals with regulations and policies updated quarterly. For more information, visit our website or call 877-226-3216.

FANNIE MAE UPDATE

• Notice: Refi Plus – Update: MBA Delivery Date for Loans with LTVs above 105 Percent, dated 9/4/09

- “The effective date for MBS delivery of Refi Plus loans with LTVs above 105 percent under the CQ prefix…[is] October 1, 2009.” (View the entire announcement.)

• Energy Loan Tax Assessment Programs: Lender Letter 07-2009

- “This Lender Letter is intended to alert lenders to issues concerning ELTAPs [Energy Loan Tax Assessment Programs] in the underwriting and servicing of Fannie Mae mortgages. …Typically, homeowners repay ELTAP loans via their property tax bill, and in the event of non-payment, the ELTAPs have priority over Fannie Mae’s mortgage lien.” (View the entire announcement.)

• Updates to Minimum Credit Scores, Mortgage Insurance, Pricing for Certain Desktop Underwriter Loans, Biweekly Loans, and Special Feature Codes: Announcement 09-29

“Following is a brief summary of the changes:

- Changes to minimum credit score requirements;
- A number of changes to mortgage insurance coverage requirements, including a new minimum level of coverage and corresponding loan-level price adjustment (LLPA), retirement of Lower-Cost and Reduced MI options, and changes to financed mortgage insurance;
- Changes to pricing for Flexible mortgages and improved pricing for Expanded Approval® (EA) recommendations, and changes to EA special feature codes (SFC);
- Retirement of biweekly mortgage loans; and
- Changes to SFC requirements for MyCommunityMortgage® (MCM®) and other transactions.” (View the entire announcement.)

To view all Fannie Mae Announcements and Letters for the year, visit https://www.efanniemae.com/sf/guides/ssg/2009annlenltr.jsp.

FREDDIE MAC UPDATE

• Home Affordable Modification Program: Bulletin 2009-23

“Makes the following changes to the Home Affordable Modification Program (HAMP) requirements:

- Evaluate and process Mortgages for HAMP in Workout Prospector [effective November 1, 2009]
- Use the property value provided in Workout Prospector
- Collection and reporting of Government Monitoring Data
- Incorporating requirements for first-lien Servicers
- Revising our program activity reporting requirements
- Recordation of the Modification Agreement
- Capitalization and reimbursement of property inspection fees
- Permits Servicers to utilize temporary waivers” (View the entire bulletin.)

• September 25 Bulletin 2009-18 Single-Family Advisory E-mail

- Freddie Mac announced a one month extension for effective dates for underwriting requirements published in the July 10 Single-Family Seller/Servicer Guide (Guide) Bulletin 2009-18 (which “revised…underwriting requirements with respect to borrower income, capacity, assets, and required documentation.”)

- The changes “will now be effective for all mortgages with application dates on or after November 1, 2009, and Freddie Mac settlement dates on or after February 1, 2010.” (View the entire announcement.)

To view Freddie Mac news, visit http://www.freddiemac.com/singlefamily/.

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While the final rules are not yet in effect, it appears they will be implemented after a “notice and comment period.” Although these changes raise many questions which will require upcoming information from HUD/FHA, the following reflects our views on how this will affect lenders and brokers.

It is clear from the language of the press release that HUD is trying to make it easier for brokers to do FHA business, while at the same time putting more responsibility and accountability on both the broker and the Sponsor to make justified loans. HUD stated in the press release that “these lenders must have skin in the game,” which seems a clear indication that brokers and Sponsors will be held more accountable for loans produced than in the past.

Given the apparent intent of this new rule, it seems that the Sponsor will now be responsible to see that brokers are in compliance with the Quality Control expected by FHA, and presumably desired by the Sponsor. These Quality Control programs help ensure loans that comply with all regulations and laws, as well as minimize losses from bad loans. It is likely that even though the net worth requirements for brokers will be reduced or eliminated, Sponsors will continue to require Quality Control Plans and Quality Control audits in order to do business with them.

As HUD/FHA comes out with further announcements, we will keep you updated through our newsletter and social networks. Visit HUD’s website to read the entire press release from September 18, 2009.

Keeping up with changing regulations can be a daunting task. Mortgage Compliance Advisors offers lending manuals for FHA, VA, and HECM that are easy to use and updated quarterly. For more information, visit www.MortgageComplianceAdvisors.com or call 877-226-3152.