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UNDERWRITING & PROCESSING TIPS

Based on some common findings from quality control audits, we have compiled a list of three tips from the month of August.

1. We are seeing TIL Disclosures on FHA loan files with conventional parameters. Remember on the initial TIL disclosure, the FHA late fee is 4% (not 5%) and the loan is assumable with conditions.

2. The Servicing Disclosure dated January 16, 2009, is now mandatory–any older version is unacceptable. Make sure it is properly completed with appropriate boxes checked.

3. We continually have problems determining compliance with the advance disclosures for TIL and RESPA. Remember, if the application and all disclosures are not completed in a face-to-face interview with signatures, use a date stamp showing “documents mailed to applicant(s) on September 3, 2009.” The date stamp should be on both the original as mailed and the file copy. When the original is returned by the applicant, the processor should remove the file copies to eliminate duplicate copies in the file.

FHA UPDATE

• Electronic Annual Certification to Replace Title II Yearly Verification Report: Letter 09-25. “Effective September 1, 2009, all program participants seeking renewal as an FHA-approved mortgagee must complete the electronic Annual Certification as a component of the renewal process [which replaces the paper Yearly Verification Report].” (View the entire letter.)

• Eligibility of Projects for Mortgage Insurance where Construction has Started: Letter 09-26.. This letter “temporarily authorizes and establishes policy for Section 220, 221(d) and 231 mortgage insurance programs for multi-family proposals that were unable to complete construction due to a loss of funding..” (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.

For information about our FHA, VA, or HECM reference manuals with regulations and policies updated quarterly, visit our website.

FANNIE MAE UPDATE

• Retirement of HomeStyle® Construction-to-Permanent: Announcement 09-28.. “Fannie Mae will be retiring the HomeStyle Construction-to-Permanent mortgage product… Effective immediately, lender applications for HomeStyle Construction-to-Permanent approval will no longer be accepted. Closed HomeStyle Construction-to-Permanent loans must be purchased by Fannie Mae from existing approved lenders by November 30, 2009.” (View the entire announcement.)

• Reminder: From Announcement 09-19, dated June 8, 2009: “Form 4506-T Lender Tips.”. On or after September 1, 2009, “Fannie Mae’s updated policy regarding use of IRS Form 4506-T to validate borrower income documentation (Announcement 09-19) requires the lender to:

- have all borrowers (regardless of income source) complete and sign Form 4506-T at both application and closing

- add the execution of Form 4506-T with the IRS (directly or through an authorized vendor) to their written quality control (QC) plan (refer to the Selling Guide, Subpart D1, Lender QC Process, for details about lender QC requirements)” (View the entire announcement.) If you need help complying with this rule, give us a call.

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

FREDDIE MAC UPDATE

• Single-Family Seller/Servicer Guide: Bulletin 2009-22.. This bulletin makes several changes to selling requirements, including guidance regarding area median income changes, amending appraisal requirements for super conforming mortgages, and updates for several forms and exhibits. (View the entire bulletin.)

• Off-cycle Update to Exclusionary List: Industry Letter dated August 21, 2009.. The Freddie Mac Exclusionary List has been updated and may now be accessed via the Freddie Mac Selling System, MIDANET, MultiSuite, and Loan Prospector.

“As a reminder…Seller/Servicers [are required] to represent and warrant that they have not employed and will not employ any person listed on the Freddie Mac Exclusionary List as a Principal in connection with any Mortgage sold to Freddie Mac or in connection with any function related to such a sale.” (View the entire industry letter.)

REGULATION Z REVISIONS IN EFFECT JULY 30, 2009

On July 30, the new Regulation Z changes for the Truth in Lending Act (TIL) became effective. As part of Regulation Z, the Mortgage Disclosure Improvement Act (MDIA) revised TIL requirements surrounding early and final disclosures to homebuyers, as well as discussing when fees are allowed to be collected. (Read the Federal Reserve Board’s press release at www.federalreserve.gov/newsevents/press/bcreg/20090508a.htm.)

A Few Highlights:
– Creditors must “give good faith estimates of mortgage loan costs (‘early disclosures’) within three business days after receiving a consumer’s application for a mortgage loan and before any fees are collected from the consumer, other than a reasonable fee for obtaining the consumer’s credit history.
– Creditors [must] wait seven business days after they provide the early disclosures before closing the loan
– Creditors [must] provide new disclosures with a revised annual percentage rate (APR), and wait an additional three business days before closing the loan, if a change occurs that makes the APR in the early disclosures inaccurate beyond a specified tolerance [.125%].”

UPDATE: DEADLINE FOR RED FLAGS RULE EXTENDED TO NOVEMBER 1

Last week the Federal Trade Commission announced a three month extension of the Red Flags Rule deadline. The FTC moved the deadline from August 1 to November 1, to give creditors and financial institutions more time to implement a written Identity Theft Prevention Program, also known as a Red Flag Policy. (For more information on this FTC requirement, see www.ftc.gov/opa/2009/07/redflag.shtm or contact us with questions.)

FHA UPDATE

HUD frequently publishes updates, known as Mortgagee Letters, containing new policies and other information for lenders. Since our last newsletter, HUD has published four additional letters. Below is a brief summary of all four:

• Home Equity Conversion Mortgage Refinancing of Existing Loans: Letter 09-21. This letter discusses a technical correction for the HECM program, and reiterates guidelines for refinancing HECM mortgages.

“FHA will insure all loans that were originated for the purpose of refinancing an assigned loan that is not in a due and payable status for reasons that cannot be corrected, such as death of the last mortgagor or conveyance of title by all mortgagors, but closed on or after October 6, 2008, the date of the Final Rule.” (Click here to view the entire letter.)

• Revised Temporary Authority for Multifamily Hubs to Process Waiver Requests Pertaining to the Three-Year Rule for Section 223(f) Apartments: Letter 09-22. This letter “rescinds and replaces ML 2009-06… [and] sets forth the Department’s revised policy to grant temporary authority to Multifamily Hub Directors to waive the Three-Year Rule for Section 223(f) applications, for the purpose of providing liquidity to recently constructed or substantially rehabilitated, self-sustaining properties that are unable to secure permanent long term financing due to the freeze in the capital markets…” (Click here to view the entire letter.)

• Making Home Affordable Program: FHA’s Home Affordable Modification Loss Mitigation Option: Letter 09-23. This letter “announces a new FHA Loss Mitigation option, the FHA-Home Affordable Modification Program (FHA-HAMP). FHA-HAMP will provide homeowners in default a greater opportunity to reduce their mortgage payments to a sustainable level. This Mortgagee Letter is effective August 15, 2009… FHA-HAMP can be utilized only if the mortgagor(s) does not qualify for current loss mitigation home retention options…”

A Few Highlights/Guidelines:
– Partial claim up to 30 percent of the unpaid principal balance as of the date of default combined with a loan modification
– Mortgagor must successfully complete a three month trial payment plan, making each scheduled payment on time.
– Servicer must obtain an executed Hardship Affidavit (available at https://www.hmpadmin.com/portal/docs/mod_docs/hamphardshipaffidavit.pdf) from every mortgagor and co-mortgagor seeking an FHA-HAMP
– Front end debt to income ratio must be as close as possible, but not less than, 31 percent
– Back end debt to income ratio must not exceed 55 percent
– Mortgagee may receive an incentive fee of up to $1,250 (Click here to view the entire letter.)

• Housing Tax Credit Coordination Act of 2008: Letter 09-24. This letter “describes the additional authority granted under HERA and the Department’s implementation of Sections 2832 and 2834 of the Act.

– Section 2832 of HERA requires the Secretary to implement administrative and procedural changes to expedite the approval of multifamily housing projects utilizing FHA mortgage insurance programs with either Low-Income Housing Tax Credits or tax-exempt housing bonds…
– Section 2834 of HERA provides three substantive changes to the Department’s processing of certain FHA mortgage insurance applications.” (Click here to view the entire letter and the details of all changes.)

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

FANNIE MAE UPDATE (Coming next newsletter)

1. Make sure that the application and initial disclosures have correct dates. If they are mailed, be sure to date stamp when they were sent in the mail, to stay in compliance with the three day rule.

2. For Prepaid Finance Charges (PFC’s), make sure that they are disclosed accurately on the initial TIL, and clearly marked on the initial Good Faith.

• Energy Efficient Mortgages – Increase in the Dollar Amount of Energy Efficient Improvements: Letter 09-18. “In addition to the base FHA maximum mortgage amount limit, which is calculated on the value of the home, the mortgage loan amount for an Energy Efficient Mortgage (EEM) can be increased by the cost of effective energy improvements…

The maximum amount of the portion of the EEM for energy improvements is the lesser of 5% of:
o the value of the property, or
o 115% of the median area price of a single family dwelling, or
o 150% of the conforming Freddie Mac limit.” (Click here to view the entire letter.)

• Condominium Approval Process – Single Family Housing: Letter 09-19. FHA “is implementing a new approval process for Condominium Projects to insure mortgages on individual units… FHA will now allow lenders to determine project eligibility, review project documentation, and certify to compliance of Section 203(b) of the NHA and 24 CFR 203 of HUD’s regulations.

…[this letter] provide[s] guidelines and instructions on options available to lenders to receive mortgage insurance on condominium units which are located in a project.” (Click here to view the entire letter.)

• Processing Pre-Application Firm Invitation and Firm Commitment Extension Requests: Letter 09-20. This letter discusses FHA’s “policy to grant temporary authority to Multifamily Hub/Program Center Directors to grant one extension, for up to 90-days, of the pre-application firm invitation letter and one 120-day extension of an issued Firm Commitment. The authority granted under this Mortgagee Letter expires December 31, 2009.” (Click here to view the entire letter.)