Rules & Regulation Headlines Nov Issue

by 25 Nov 2009


FHA is the big news this month, with 7 updates (well really more than that) under their belt—and they have a huge impact if you are a HUD lender. Because of column space, we will give you the top 3! Of course, a month can’t go by without a couple of Fannie & Freddie updates either. 
FHA’s Version of HVCC – Appraiser Independence – Effective January 1, 2010.  So how is this different from the Home Valuation Code of Conduct (HVCC)? In this ML, FHA adopted a lot of the HVCC language. What they did not adopt is the “Borrower Receipt of Appraisal” paragraph. This means that for FHA, there is NO requirement that the borrower receive a copy of the appraisal at least 3 days prior to closing (unless borrower waived requirement). So no 3-day requirement, and no waiver to worry about.
·        FHA-approved lenders are prohibited from accepting appraisals prepared by FHA appraisers who are selected, retained or compensated in any manner by a mortgage broker or any member of lender’s staff who is compensated on a commission basis tied to the successful completion of a loan.
·        Appraiser who performed appraisal MUST be correctly identified in FHA Connection or administrative sanctions will apply.
·        Lenders must ensure that appraisal and Appraisal Management Company (AMC) fees comply with the following:
o       FHA appraisers are not prohibited from recording the fee the appraiser was paid in the appraisal report.
o       FHA appraisers are compensated at a rate that is customary and reasonable for the market area.
o       The fee for the completion of the appraisal may not include a fee for management or any other activity other than the performance of the appraisal.
o       Any management fees charged must be for actual services related to ordering, processing, or reviewing of appraisals.
o        AMC fees must not exceed what is customary and reasonable for market area.
The following additional clarification is offered on existing FHA appraisal requirements:
·        Conflicts of interest (ML 1996-26) – To avoid conflicts of interest or the appearance thereof, the following are prohibited from ordering or managing an appraisal assignment:
o       Any person who receives commission upon the successful completion of a loan;
o       Any person who reports to any officer of the lender not independent of the loan production staff and process.
FHA Revised Streamline Refinance Transaction – Effective November 17, 2009 – ML 2009-32. Anybody else just see his or her paycheck get smaller? Let’s face it, this one hurts. And it’s a bummer that everybody’s got to lose out so that we could get the “churners” under control.
Revisions for ALL Streamline Refinance Transactions
·        Seasoning – At the time of application, the borrower must have made at least 6 payments
·        Payment History – At the time of loan application acceptable payment history is defined as follows:
o       For mortgages with less than a 12-month history – all payment must be made within month due (no 30 day lates).
o       For mortgages with history greater than 12 months:
§         No more than one 30 day late in the preceding 12 months AND
§         All payments during 3 months preceding application must be made within month due.
·        Net Tangible Benefit – There must be benefit to borrower defined as:
o       Reduction in the total mortgage payment (principal, interest, taxes, insurance, HOA fees, ground rents, special assessments and all subordinate liens).
o       Refinancing from an ARM to a fixed rate mortgage, OR
o       Reducing the term of the mortgage
Reduction in Total Mortgage Payment:   
·        New total mortgage payment is 5 percent lower than the current total payment.
·        Applicable when refinancing from Fixed Rate to Fixed Rate, ARM to ARM, GPM to Fixed Rate, GPM to ARM, 203(k) to 203(b) and 235 to 203(b).
Fixed Rate to ARM: Fixed rate mortgages may be refinanced to one-year ARM provided interest rate on new loan is at least 2 percentage points below the current interest rate.
ARM to Fixed Rate: Interest rate on new mortgage will be no greater than 2 percentage points above current rate of the one-year ARM. For Hybrid ARMs, total new mortgage payment may not increase more than 20 percent.
Reduction in Term: Loan must be underwritten and closed as a rate and term (no cash-out) refinance.
Investment Properties/Secondary Residences: In addition to meeting the total payment reduction requirement, these properties are not eligible for streamline refinances to ARMs.
·        Certification and Verifications
o       Case binder must include signed and dated cover letter on lender’s letterhead stating that borrower is employed and has income as the time of loan application.
o       Lender must verify and document assets needed to close.
o       Payoff statement must be included in case binder.
·        Credit Score – All credit scores, if available, must be entered in FHA Connection.
·        Maximum CLTV – If subordinate financing is remaining, maximum CLTV is 125%.
o       For streamlined refis without an appraisal, CLTV is based on original appraised value of property.
o       For streamlined refis with an appraisal, CLTV is based on new appraised value.
·        TOTAL Scorecard – Lenders should not use TOTAL on streamline refis. If a lender uses TOTAL, that loan must be underwritten and closed at a rate and term (no cash-out) refi.
·        Uniform Residential Loan Application (URLA) – Short form URLA’s are no longer allowed.
New Maximum Loan Calculation for Streamline Refi’s WITHOUT an Appraisal
Outstanding principal balance* MINUS UFMIP refund PLUS new UFMIP.
New Maximum Loan Calculation for Streamline Refi’s WITH an Appraisal
The lower of:
·        Outstanding principal balance* MINUS UFMIP refund, PLUS closing costs, prepaids , and new UFMIP; OR
·        97.75 percent of the new appraised value PLUS new UFMIP.
*May include interest charged when payoff is not received on first day of the month but may not included delinquent interest, late charges, or escrow shortages.
Note: Discount points may not be included in the new mortgage. If borrower has agreed to pay, lender must verify assets to pay them.
FHA Appraisal Assignment Rule From Lender to Lender – Appraisal Portability – Effective January 1, 2010.  ML 2009-29 This letter HUD specifically states that it’s NOT OKAY for lenders to order second appraisals just to get higher values or to ‘get around’ repairs.  Duh!! I get calls all the time from Realtors whose buyers, after receiving a disappointing FHA appraisal, have been told by another lender, “Let me do the loan. We’ll order another appraisal.” Not any more! 
Appraisal Transfer and Client Name Change in Report
·        When a borrower switches lenders, the first lender MUST, at the BORROWER’S request, transfer the case to the second lender.
·        FHA does not require that the client (lender) name be changed on the appraisal when it is transferred.
·        In accordance with Uniform Standards of Professional Appraisal Practice (USPAP) the lender is NOT permitted to request that the appraiser change the name of the client on the appraisal report unless it is a new appraisal assignment. The second lender may engage in a new appraisal assignment with the original appraiser strictly for the purpose of the client name change. The new client name should include the lender and HUD.
Fannie Mae Tightens Credit. Also Streamlines MI--All in Announcement 2009-29 (Effective Dates November 1 & December 12, 2009) Some real positives for Fannie loans and MI coverage requirements -- Fannie intends to simplify MI option. Financed MI – quite possibly the best MI option available – and Fannie seems to finally “get it”. Fannie is removing some barriers to this old dog – get back into school with your favorite MI Rep. And Credit Scores Jump Again. The only exceptions are nontraditional credit and Refi Plus or DU Refi Plus loans.
The new MI minimum coverage level options are now available to all DU loans (Versions 7.0, 7.1 and 8.0) and manually underwritten loans. Fannie differentiates the coverage requirements at the 20 yr mark – see table 1. And for the minimum coverage level choice, Fannie with assess a LLPA – see table 2. Wide use of the minimum coverage options will help preserve capital of the MI companies and thereby improve the capacity of the industry -- somebody at Fannie was thinking…
Credit Scores are jumping again – 620 minimum is now required for all FNMA loans. Manually underwritten loans are higher depending upon the transaction type – pretty much went up 20 points across the board from previous rules. The only exceptions are nontraditional credit and Refi Plus or DU Refi Plus loans.
Important dates:
  • Applications November 1, 2009 for manually underwritten loans
  • Applications December 12, 2009 – DU loans -- Corresponding with DU Version 8.0 release
Freddie Encourages (with a capital E) Use of Manual Overlay Due to LP Delay – (Effective November 1, 2009)
Changes to underwriting requirements published July 10, 2009 were to be implemented for all applications as of October 1, 2009. There has been a delay with the update of LP for new messaging. The new effective date will now be November 1, 2009. HOWEVER, you are encouraged to begin underwriting to the new standards now using a manual overlay tool provided online. This overlay will help to translate existing LP messages into new underwriting and documentation requirements.
USDA Clarifies Medical Deductions & Annual Income Calculations
What triggered the notice was the fact that RD staff started receiving numerous calls and e-mails from lenders who had been told that they could deduct the pre-tax insurance premiums that employees were paying out of their gross annual wages.  This false rumor began spreading across the United States and RD felt they had to send out a policy clarification.
The IRS does allows various programs to give individuals tax advantages to offset health care costs however these programs cannot be used as income eligibility deductions for the Guaranteed Rural Housing loan program. These IRS allowed programs include:
·        Health savings accounts (HSAs).
·        Medical savings accounts (Archer MSAs and Medicare Advantage MSAs).
·        Health flexible spending arrangements (FSAs).
·        Health reimbursement arrangements (HRAs).
Just because a person pays $300 per month towards their Health Savings Account (HSA) for example, does not mean RD will allow a borrower to deduct $3,600 off their gross wages in order to income qualify for the GRH loan program.


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Should CFPB have more supervision over credit agencies?