Mortgage Industry Update

Like most businesses, the mortgage industry faced a number of changes during 2009. Several new regulations became effective as the housing market recovered from an unprecedented slump, many of which had unforeseen impacts to the relocation industry such as the Home Value Code of Conduct (effective May 1, 2009). This code limits the contact loan originators, including those reporting to anyone compensated by the outcome of the loan, may have with an appraiser. The code only applies to Fannie Mae and Freddie Mac loan products, and it does not affect government loan products such as FHA and VA. It has also received its fair share of blame for conservative mortgage appraisals resulting in numerous transactions not closing.

Additional examples include:

The Housing and Economic Recovery Act (HERA) amends the Truth in Lending Act (TILA) implemented through Regulation Z and includes a number of provisions such as the Mortgage Disclosure Improvement Act (MDIA). This directly impacts the TILA requirements concerning early and final disclosures to home buyers and addresses the timing of when fees can be charged. The changes became effective July 30, 2009 on all new applications going forward.

Changes were made to provide a better understanding to borrowers about their mortgage and prevent deceptive lending practices. Regulation Z extends the TILA early disclosure requirement to “any extension of credit secured by the dwelling of a consumer.” This means early disclosures are required for refinances and home equity loans. Loans for rental properties are exempt.

Changes include:

• Initial TILA disclosure – new seven-day waiting period
• Timing for re-disclosing TILA based on Annual Percentage Rate (APR) changes
• Fee collection rules

The first-time homebuyer tax credit has been extended.

• The maximum tax credit for first time homebuyers remains at $8,000
• The tax credit has been expanded to include existing home owners who have been in their home for at least 5 years up to a maximum credit of $6,500
• The tax credit is only allowed for the purchase of a principle residence made after November 6, 2009 and before April 30, 2010 with closing prior to July 1, 2010
• The tax credit is claimed on a tax return to reduce the income tax liability
• The tax credit does not require payback
• The limits have been revised to $125,000 for singles and $225,000 for couples. The credit is proportionately reduced as incomes approach $145,000 and $245,000 respectively

Fannie Mae and Freddie Mac announced that the use of trailing spouse income to qualify for a new loan is no longer allowed.

Condominium review standards have undergone the following changes:

• New projects now require that 70% of the units are sold (conveyed or under contract) prior to approval
• No single entity can own more than 10% of the units in any given project
• No more than 15% of the units in any project can be 30 days or more delinquent on their homeowner association (HOA) dues
• No more than 30% of the units in any given project can currently have FHA financing in place

Files with Guaranteed Buyouts (GBOs) are now required to have a copy of the executed contract of sale between the transferee and the relocation management company to further document the release of liability on the departure property. This is in addition to the equity statement already required.

Loans with a 95% Loan-to-Value (LTV) ratio seldom, if ever, offer mortgage insurance.

Duplicate Housing benefits are not able to be used as qualifying income unless the benefit is paid for the life of the loan, or until the transferee’s old house is sold and closed.

Higher Price Mortgage Loan or HPML, adopted as part of the Home Ownership and Equity Protection Act (HOEPA) to provide greater protection against predatory lending practices, was implemented on October 1, 2009.

Any first mortgage secured with a primary residence that has an annual percentage rate (APR) of 1.5%+ above the Average Prime Offer Rate or APOR (3.5% above for subordinate loans) is defined as an HPML. What’s the APOR? It’s a newly created index developed by the federal government, based on Freddie Mac’s Primary Mortgage Market Survey, a weekly survey of lender rates. Lenders will need to compare the loan’s final APR with the APOR that’s published on the day of rate lock to determine if the loan is an HPML or not.

Some examples of HPML loans are:

• All subprime and Alt-A loans
• Jumbo loans that charge a higher rate due to larger loan amount
• First lien home equity loans, which charge the same APR regardless of lien position
• Mortgages with private mortgage insurance, since that cost is calculated into the APR
• Mortgages that roll upfront closing costs into the APR

The end of the year will present the opportunity to eliminate some of the less favorable regulations, with the goal of enticing more homebuyers into the market to take advantage of what are historically low mortgage rates.