Rules and Regulation Headlines - July

by 07 Jul 2009

Fannie Clarifies Guideline Changes: Underwriting, Eligibility & Property Related Updates (Announcement 09-19)Sweeping changes in the 9-page Announcement 09-19. There are so many minor little changes that can trip you up. Date of documents, the “highly recommended” (translation = you better do it or else!) 4506-T, Verbal VOE (seriously they label it Verbal VOE but then say you can get a written VOE within 10 day’s in lieu of a Verbal VOE, ugh!!), changes to how you calculate reserves, etc. At the end of the day, you better get to know all of these changes so you can head off problems with loans that could have been avoided. Space does not permit us to print ALL of the changes, but here are just a few: * Existing homes documentation reduced from 120 to 90 days * New construction documentation reduced from 180 to 120 days * Borrowers can use a credit card to pay up to two percent of fees (such as lock-in, origination, commitment, credit report and appraisal fees, etc.) outside of closing * Lender must document that borrower has sufficient liquid funds (reserves) to cover these cost (in addition to funds necessary for other costs and down payment). * Recalculate credit card payment for debt ratio calculation * Borrowers are NOT required to pay credit card prior to closing if all of the above are met * “Highly recommended” that the 4506-T transcripts be received and reviewed prior to closing * Copy of the transcripts and explanation of any discrepancies must be kept in the loan file * Trailing Spouse Income No Longer Allowed * Required for all borrowers within 10 days of closing (note date) (verbal or written VOE) * Only 60 percent of retirement account balances can be used toward reserves (down from 70 percent) * Only 70 percent of stocks, bonds and mutual funds can be counted toward reserves (down from 100 percent)There is more, but expect lenders to start implementing these rules before updates to DU are made. You should assume these guidelines are effective immediately as lenders are highly encouraged to implement these changes immediately. FHA: Using First Time Home Buyer Tax Credit (ML 2009-15)HUD originally issued this notice on May 15, 2009 only to pull it a few hours later. The original version was very different and did not specifically recognize the tax credit as an actual ‘asset’ of the borrower that could, in fact, be sold.This triggered wagging tongues and lots of rumors, most of them claiming that FHA was going to let homebuyers “use” the tax credit as down payment. Nobody stopped to think from where the money was going to come. And now we are left with the painful truth that the entities that have the power to provide initial down payment assistance do not have any money.Secondary FinancingSecondary financing can be provided by government agencies or instrumentalities of government (such as a state associated FHA approved non-profit agency). Conditions: * No cash back to borrower. * Loan amount can’t exceed total needed for down payment, closing costs and prepaids. * Secondary financing may be “soft” (silent) OR require monthly repayment. * If payments are required, they must be included in ratios. * If payments are deferred, the deferment must be at least 36 months in order to exclude the payment from qualifying ratios. * If the tax credit advance loan has a short term for repayment and the borrower fails to repay by the designated deadline, principal and interest payments begin automatically or the loan converts to a “soft” second. * No balloon payments before 10 years * May be used for the initial 3.5 percent down payment requirement.Purchase of Tax CreditFHA approved lenders, FHA approved non-profits, government agencies and instrumentalities of government may purchase the credit. It is possible that parties benefiting from the transaction may purchase the tax credit as well, i.e. the seller, etc. Conditions are as follows: * Proceeds of the sale of the tax credit may not exceed the anticipated tax credit due. * Borrower must sign certification that tax credit is not subject to offset of other debt. * Copy of form IRS 5405 must be retained in the case binder. * Costs associated with purchase cannot exceed 2.5 percent of anticipated credit. * Only funds derived from the sale of the tax credit to government agencies and instrumentalities of government (such as a state associated FHA approved non-profit agency) are eligible for use towards the 3.5 percent down payment requirement. * Sale proceeds derived from a FHA approved mortgagee, property seller, or any other party that directly or indirectly benefits financially from the transaction may not be used towards the 3.5 percent down payment requirement. Only for closing costs, additional down payment, or buy down of interest rate. FHA Extends Property Flipping Waiver for Mortgagee Acquired and Foreclosed Homes (Effective 5-15-09)This amendment to HUD’s property flipping rules was originally announced June 09, 2008. It added the “mortgagee acquired” (typically through foreclosure or other means) property to its list of properties exempt from the 90 day holding period.There is actually a long list of properties that are exempt from the 90 day holding period and I figured now was a good time to give you a friendly reminder along with a Mortgage Talking Points flyer FHA - "Full Speed Ahead" on Foreclosures to give to your Realtors. This is great deal-making info that many are not aware of.Properties Exempt From 90 Day Holding Period * HUD REO’s * Owned by fed, state or local gov’t agencies * Owned by state or federally chartered financial institutions * Owned by Fannie Mae or Freddie Mac * Inherited properties * Employer owned from employee transfers * Non-profits on HUD’s approval list to purchase REO’s at a discount * Properties in designated federal disaster area * Builder selling newly built home * Foreclosed or mortgagee “acquired” propertiesReview the title report carefully on these transactions to be sure that there has been no title change that has occurred in the 90 days previous to the contract that was in addition to the qualifying entity “acquiring” the property. If there is, make sure that the property still qualifies for the waiver. What’s New With The SAFE Act? (Effective 7-31-09)Under the Federal law, the SAFE Act requires that all states have in place a system of licensure meeting minimum standards for mortgage loan originators by July 31, 2009. The major standards under the SAFE Act that state regulatory agencies, mortgage loan originators, and the Nationwide Mortgage Licensing System and Registry (NMLS&R) must meet include at a minimum: * National Testing of Mortgage Loan Originators * Criminal History Record Information Checks * Credit Report Checks * Nationally Approved Pre-Licensure and Continuing Education * Surety Bond/Recovery Fund RequirementsEach state regulatory agency will establish its own deadlines within the deadlines established in the SAFE Act. For licensed mortgage loan originators (MLO’s) who were licensed before July 31, 2009 under a state law that was in existence before July 31, 2008? A state must bring such individuals into compliance with the provisions of the SAFE Act no later than January 1, 2011. Non-Licensed MLOs are mortgage loan originators who did not hold a license as of July 31, 2009. This may be due to the fact that no law existed in the state, they were exempt from licensing (including HUD exemption) under the state law, or were not in the industry. A state must bring such individuals into compliance with the provisions of the SAFE Act no later than July 31, 2010. For MLO’s employed by depository institutions, they must be registered with the Nationwide Mortgage Licensing System and Registry. As part of this registration process, mortgage loan originators must furnish to the Registry, background information and fingerprints for a background check.Email George Marentis, Attorney, at georgem@compliancemadesimplell c.com VA Suspends Master Certificates of Reasonable ValueMCRVs are issued by VA and establish a reasonable value for projects involving proposed construction of five or more similar properties.A builder would send VA a request for an MCRV that includes all home models proposed to be constructed in a project or subdivision. The MCRV locked in the reasonable value for 6 months and there was no need for individual appraisals and NOV’s to be issued. While saving time and locking in a value for six months is a great thing for veteran buyers in a stable or appreciating market, it stinks for the buyer in a declining market. Since VA recognized that there was potential disservice to the veteran buyer, they have discontinued the practice of issuing MCRVs.USDA Updates No Swimming Pool RuleSo, the “no swimming pool” rule for SFHGLP has been rescinded (May 28, 2009) but there is a catch—and it’s a big one: “…dwellings, which include in-ground swimming pools are now allowed, as long as any contributory value of the swimming pool is not financed in the loan amount.”This value of the pool (yes, there are circumstances where a pool may have no value) will be deducted from the loan amount. So, let’s say the sale price is $100,000. The “contributory value” of the pool is $3000 (as stated in the appraisal), the base loan amount will be $97,000 plus the guarantee fee is added back (if financed). So much for 100 percent financing! And your borrower will need to come to the table with $3000. But, it might not be a bad deal if they want an in-ground pool.More detailed updates can be found at MortgageCurrentcy.com – Interpreting the rules and regulation changes for loan officers, processors, underwriters, and owners/managers. Mortgage Talking Points®, charts and checklists included.

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