Compliance Updates

Compliance Corner (6/01/09)

By: Peggy O’Keefe, President

Financial Forms and Services, Inc.

RESPA reform had a new development this May when HUD rescinded an updated definition of “required use” and returned to its pre-reform definition. “Required use” refers to deceptive practices resulting from certain controlled business relationships. Although this was considered a small victory for lenders, the much hoped for regulatory combination Truth-in- Lending and the RESPA failed to materialize. Since there is little time to effect any change by the deadline of next January, it looks as if the reforms of last fall may be final. Truth in Lending and RESPA are two separate regulations and are governed by two different agencies so coordination is that much more difficult.

At this point, we are going forward with the existing revisions to Good Faith Estimate and HUD- 1, and HUD-1A Settlements Statements. HUD has opened a new RESPA page on its www.hud.gov website; it is convenient source for all their latest information and relevant reference materials.

HUD has released a mortgagee letter dated May 29, 2009, and it covers and clarifies the first time homeowner’s tax credit and how its use toward down payments, closing costs and interest rate buy downs.    This letter also has links to the IRS webpage and IRS form 5405. This month FHA also posted on HUDCLIPS the 10/08 version in PDF of the HUD booklet - Fair Housing and Equal Opportunity for All.

We have updated the initial Truth in Lending Disclosure, which includes the addition of new required language such as "You are not required to complete this agreement merely because you have received these disclosures or signed a loan application." New TIL regulations are effective this July.

We had added to inventory a few state disclosures forms most to be used only in certain circumstances and primarily required by brokers. The MLDS was added for California, as were a generic and several state versions of an Advance Fee Disclosure. We added a payment letter for Ohio to deal with special timing disclosure requirements as well as a broker disclosure for DC (which needs to be printed in on red paper!)

We expect a revision to the 1003, URLA, in relation to fraud reporting. No major reformat is anticipated. Fannie and Freddie both stated it would be released in the near future.

Compliance Corner (2/20/09)

By: Peggy O’Keefe, President

Financial Forms and Services, Inc.

On February 18, 2009, President Obama unveiled the Homeowner Affordability and Stability Act. This Act aims directly at the housing and mortgage markets. The major points of this Act are assistance for underwater mortgagors allowing for LTV’s up to 105% for current, agency related conforming loans. The Treasury will continue its support of Fannie Mae and Freddie Mac though the purchase of agency issued securities to keep conforming mortgage rates low, and an announcement of a controversial 75 billion-dollar Homeowner Stability Initiative. This initiative creates new requirements and incentives for loan modifications; allows for certain cramdowns; and provides for community housing support.   The changes to existing FHA programs and tweaking of the Hope for Homeowners program are expected, we will review the details for documentation changes when released in early March.

There has been a flurry of recent updates to existing forms. Among these updates were changes to Fannie and Freddie modification forms. This update is significant because of the anticipated increase in modifications due to Homeowners Stability Initiative. The primary reason for the revision was the removal of the Borrower Waiver Provision. Fannie and Freddie will not require any document redraw which contains this language but the provisions cannot be enforced. Revisions to the 3172, 3179, 3161 and 3192 are in process now.

VA updated its Report of Certification of Loan Disbursement, 26-1820; it carries a December 2007 revision date but only posted recently. The VA Loan Summary 26-0286 was updated to add a new section to the form and carries a new revision date of November 2008.   FEMA updated its FEMA 81-93 form primarily for Paperwork Reduction Act purposes. The FHA Informed Consumer Choice Disclosure was updated for the new 96.5 down payment requirement.

Additionally, we added the following to the forms library: the CIP or Customer Identification Program Checklist, and the VA Escrow Agreement for Postponed Exterior Onsite Improvement, form 26-1949. A Generic Tangible Net Benefit (TNB) Worksheet was added for those states that mandate a worksheet but do not require a specific format. We added a state specific version for Rhode Island to other states specific worksheets that are already in inventory. A new Servicing Disclosure statement was added as a response to REPSA regulation changes.

Three states have a new requirements resulting in additions or changes to the standard form inventory. Mississippi released new statewide recording standards, new margins and information positioning requirements resulting in re-format of most all Mississippi security instruments. These new documents will be available on before the mandatory use date of July 1, 2009. New York now requires a new co-signer disclosure. Pennsylvania is now requiring a notice regarding certain loan features both will be available soon.

Compliance Corner (11/20/08)

By: Peggy O’Keefe, President

Financial Forms and Services, Inc.

At long last, Real Estate Settlement Procedures Act (RESPA) reform was finalized by HUD. This is the first significant RESPA rule change in 30 years. All lenders and brokers will now be required to use a standard Good Faith Estimate (GFE). This new GFE is more than a brief summary of anticipated closing costs it is a multi-page prescribed form detailing important loan terms and providing more insight into costs. The HUD-1 Settlement Statement is also revised. The first two pages are similar in design as the previous versions but there are new line item cross-references to the GFE; additionally, there is a third page covering loan terms as well as detailing any difference in line items between the estimated and actual closing costs. The difference between estimated and actual costs have been capped and it is anticipated by HUD to shave off about $700 per loan in consumer loan fees. Details of this rule change can be found in the Federal Register dated Monday, November 17, 2008. The effective date is 60 days for the new rule, but lenders have until January 1, 2010 to implement the new versions of the HUD-1 and GFE.

HUD released loan limits in its Mortgagee Letter 2008-36. This letter provides notice of the 2009 comprehensive update to the Federal Housing Administration’s (FHA) single-family mortgage limits as a result of the Housing and Economic Recovery Act (HERA). The national loan limit for one-unit homes is pegged to a house price index chosen by the FHFA. The national loan limit for 2009 will remain at $417,000. Please refer to the mortgagee letter for limits in high and low cost areas, as well as 2 to 4 unit properties.

HUD released a two new products, Help for Homeowners (H4H) and FHA secure. H4H is a special refinance program designed at keeping borrowers in there houses who are struggling with their payments. It requires participation with the existing lien holders and requires significant concessions by both the creditors and borrowers. While anticipated to be a popular product it has netted only about one hundred loans so nationwide since its release last month. Because of the lack of interest in this product, changes to it were announced with details forthcoming; therefore, we are unable to finalize any documentation. Unlike H4H, the FHA Secure product has been successful but it is due to expire at year-end, this product is expected to be extended.

Washington continued its focus on mortgage regulation and amended Regulation C (HMDA), revising the reporting of price information on higher-priced mortgage loans. The changes are intended to improve the HMDA data accuracy. Regulation Z, or Truth in Lending, was revised to define a new category of sub-prime mortgages. There are new restrictions on high cost mortgages and HOEPA loans plus additional disclosure triggering requirements. Both are effective, as October 1, 2008 and would have garnered more attention in less extraordinary times.

The state governments are still active requiring new consumer disclosures. Hopes are that the need for many of these state disclosures will diminish with the recent revisions to the GFE and HUD-1 making many of these disclosure requirements redundant. The most recent new state disclosures required are in New York, Maryland and Washington. New York is requiring a disclosure notice for co-signers on all types of consumer loan including mortgages. Washington is requiring two new disclosures one for fixed rate mortgages, the other for ARMS. These disclosures spell out the important terms and features of the loan. Maryland is now requiring a "Tangible Net Benefit" disclosure. All these new disclosures will be added to inventory.

Compliance Corner (8/19/08)

By: Peggy O’Keefe, President

Financial Forms and Services, Inc.

What is old is new again, certainly rings true with the resurgence of the FHA product as it accounted for nearly 30% of all production in July. The flight to vanilla continues as the specialty products are no longer in favor and lenders return to the basics and get re-acquainted with FHA lending. With this renewed popularity in mind, we will take this opportunity to focus on FHA documentation.

Recently two important FHA processing forms were updated, the MCAW and the Addendum to the URLA. The Mortgage Credit Analysis Worksheet (MCAW) was re-issued as the FHA Loan Underwriting and Transmittal Summary, Form HUD- 92900-LT. This replaces the 92900-PUR and the 92900-WS for 203(b) purchases and refinances. Lenders must still calculate the mortgage amount and document that calculation in the credit file. Please note that for the 203(k) product the 92900-LT is to be used in conjunction with the 203(k) Maximum Mortgage Worksheet to determine its maximum mortgage amount.   The Addendum to the Uniform Residential Loan Application (URLA) form HUD-92099-A was revised requiring additional borrower signatures and some routine language changes. The mandatory use date for both these documents is October 1, 2008.

Although the FHA security instruments and notes have not changed, HUD has just released a Request for Comments regarding these Instruments. Once these comments are reviewed, we expect some significant changes in the not too distant future. The current documents were designed on a model format developed nearly 20 year ago and have very different look and feel than the more familiar conventional mortgages and deeds of trust. Please note that although these forms appear “old” the MortgageBuilder inventory of FHA security instruments and notes have been continually maintained and are indeed current.

As of July 31, 2008, the Housing and Economic Recovery Act passed and included FHA Reform. In a nutshell it made permanent FHA loan limits at the greater of $271,050 or 115% of local area median home price, capped at $625,500; streamlined processing for FHA condos; reforms to the HECM’s and to the FHA manufactured housing program. The downpayment requirement on FHA loans goes up to a half point to 3.5%. The effective date for reforms is immediate, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008). Any documentation changes required by the Housing and Economic Recovery Act of 2008 are being researched and will be added to inventory as required.

It should also be mentioned, that both Fannie and Freddie have recently issued letters regarding this use of their taglines on their Notes and Security Instruments. Please be assured that   MortgageBuilder documents are and have always been designed with the proper taglines. In addition, Fannie and Freddie updated its Underwriting Transmittal Form 1003 to reflect new property classification; this update should already be in inventory or will be soon.

Compliance Corner (5/9/08)

By: Peggy O’Keefe, President

Financial Forms and Services, Inc.

Washington remains busy with various bills and proposals affecting the mortgage industry. As expected, President Bush did sign the Economic Stimulus Act of 2008 increasing some loan limits for GSE’s to $729,750. The comment period for RESPA Reform was just been extended to June 13, 2008. This reform has been in the works for years and among many things, it simplifies and or modifies disclosures, particularly the Good Faith Estimate and the HUD-1 Settlement Statement. The Homeowner Rescue Bill passed the House but a veto is probable. We are watching this closely due the potential impact on FHA lending practices and loan documentation.

The recent flurry of new state disclosures and changes to documents subsided this quarter but more and more states are requiring some broker licensing.   As many of you know, Michigan has joined the many states requiring mortgage origination licensing by passing new regulation this spring. The MMLA has followed this closely and its website (www.mmla.net) has all relevant information available.

A breakdown of recent significant changes follows, and lenders should note that we have already made the appropriate changes or additions to the Mortgage Builder document inventory as required:

NEW MEXICO: State law now allows a Deed of Trust as an alternative to a Mortgage as the security instrument. Fannie and Freddie are mandating that change for its security instrument with a 3/08 revision date and its use mandatory by late summer.

PENNSYLVANIA: Fannie Mae/ Freddie Mac reversed its position requiring seal language on all notes; therefore, the multistate note is again valid for in Pennsylvania.

Miscellaneous: The HUD 92561, Hotel and Transient Use form has been update with a new OMB date. The IRS 4506T, Request for Tax form, was revised with minor modifications. Changes to the FHA Mortgage Credit Analysis Worksheet still have not been published

Compliance Corner (2/12/08)

By: Peggy O’Keefe, President

Financial Forms and Services, Inc.

As this article is written, the big news in the mortgage industry is the Economic Stimulus Act of 2008 and sitting on desk of President Bush waiting signature. If the Act is signed as expected, it will temporarily increase maximum loan limits in certain “high cost” areas to as much as $729,750. Without passage of this Act, the loan limits for 2008 remain at 2007 levels.

The new limits will allow “jumbo” loans to be purchased or insured by Fannie, Freddie and FHA; this increase in loan limits combined with lower interest rates should increase refinance and purchase activity and lower delinquencies thus boosting the beleaguered housing and mortgage market. Permanent increases in loan limits are expected for FHA.

If anticipated changes occurs for FHA lending we expect the release of a revision to the Mortgage Credit Analysis Worksheet, form 92900WS. In the meantime, FHA issued updates to this form and well as the 92900PUR, 92900B, 92651 and 92800 for new OBM dates.

The recent flurry of new state disclosures and changes to documents continued.   A breakdown of the recent state changes follows, and lenders should note that we have already made the appropriate changes or additions to the Mortgage Builder document inventory as required:

CALIFORNIA: A revision to the notary format was effective January 1, 2008. We subsequently revised the CA security instruments and Fannie and Freddie issued permission to make this change. Moreover, real estate agents acting as a mortgage brokers should check with the Department of Real Estate for revised DRE forms.

MASSACHUSETTS: The recently state prescribed disclosures, specifically the "Important Notice of Loan Terms" (one for bankers and one for brokers), have been rescinded. Unfortunately, this is whipsaw regulation and subsequent rescission is becoming more commonplace in Massachusetts.

MAINE: A Tangible Net Benefit Disclosure form was issued in December and subsequently revised in January, changing the form slightly and exempting most lenders from its mandatory use.

NEW YORK: When the lender names MERS as nominee at closing, the street address of MERS must appear on the Mortgage. Please note this is also a requirement in Indiana.

NORTH CAROLINA: Effective April 1, 2008 for loans originated by a mortgage brokers but closed in a wholesale lender’s name, the broker’s name must appear on the face of the security instrument. The purpose of this is to improve the paper trail back to broker - originators. Fannie and Freddie issued approval to make this change on their instruments.

TEXAS: Fannie/Freddie issued a revision to the Texas Home Equity Affidavit (form 3185) to reflect recent changes in Texas Law.

Compliance Update August, 2007

This July, the long awaited Short Form/Master Forms were issued by Fannie Mae and Freddie Mac. These new versions of security instruments were released for 26 states, and unfortunately Michigan was not one of those states. We are in the process of designing these documents for MortgageBuilder inventory and will have the initial 26 states completed early this Fall. Additional states will be added as they issued.

In order to use the short form version of the security instruments the Master Form (title page) must be submitted for recording along with the standard long version of the form. Once that is successfully accomplished, the lender may use the new short form for recording purposes. The short form is essentially the standard mortgage or deed of trust minus the covenant paragraphs. This will reduce the cost of recording as the short form is just 3 or 4 pages rather than 17 plus pages of the standard security instrument.

HUD posted in the Federal Register that the LIBOR index has been approved for FHA insured ARM's effective in late August. We are awaiting more details from FHA regarding the language needed for the notes, riders and disclosure. Once the necessary information is received we can create the new instruments. And on the subject of LIBOR, this summer Fannie Mae discontinued its ARMs plans which use the Fannie Mae LIBOR index; however, the WSJ LIBOR index products are still available.

COMPLIANCE UPDATE MAY, 2007

As an update to Non Traditional Mortgage Guidance, the joint regulators released disclosure models to assist lenders with compliance of Interest-Only and Payment Option Mortgages. Although these specific forms are not required, our clients found them helpful sod we have added them to the standard form inventory.

Otherwise the summer has been fairly quiet with typical modifications to existing forms, but there was one new disclosure of note. All lenders making loans in Texas must provide the new disclosure titled NOTICE OF PENALTIES FOR MAKING FALSE OR MISLEADING WRITTEN STATEMENTS. Use of this disclosure is mandatory September 1, 2007.

For those frustrated by the length and the recording costs of the conventional security instruments relief is in sight. Fannie Mae and Freddie Mac will make their jointly developed master short form uniform security instruments available soon. The short form instruments are significantly shorter than the existing version therefore reducing recording costs in states where recording fees are based on the number of pages recorded. More details will be available once the forms are released. Financial Forms and Services, Inc. will add these forms to the standard document package. At this point there are over 30 states where the "master form" format is acceptable, more state are expected to follow. The current versions of the security instruments will still be valid.

Considering the recent headlines regarding failures in the sub prime market and the spike in foreclosures and delinquencies, the mortgage industry is under a lot of scrutiny and I would like to briefly revisit the topic Non Traditional Mortgage Guidance.

Mortgage loans falling under the broad definition of Non Traditional Lending will be of particular interest to investors, regulators and auditors. Non Traditional Loans can be many things but Option Arms, loans with prepayment penalties and negative amortization, balloon features are obvious regulatory red flags. The regulators are looking for clear and informative promotional material and product descriptions to insure consumers have the information and understanding for the risks associated with certain product choices. Although there is no prescribed disclosure that a lender can use to assure regulatory compliance such as we have with Truth in Lending or RESPA, but that does not mean that disclosures are not required. Many investors offer consumer product disclosures, we strongly suggest they be used. Use of materials such as the revised CHARM booklet, ARM comparisons, Monthly Option ARM statements are also strongly encouraged and often required. In short, Lenders should expect those loans to be carefully reviewed and should be prepared to defend and as you know, good documentation helps.

COMPLIANCE UPDATE MARCH 2007

Opportunities and challenges in the mortgage market during the past few years brought about the emerging popularity of many non-traditional mortgage products such as option ARMs and loan with features such as with prepayment penalties and no amortization or negative amortization. Recent record default levels have many regulators and legislatures looking closely at the industry in general and at these non-traditional products in particular. At this point most of the regulatory action has been in its early stages, but it is well underway.

This past fall, the federal financial Institutions regulatory agencies published guidance on nontraditional lending (FFIEC Guidance) covering supervised mortgage lenders. In turn, state-banking supervisors along with the AARMR (American Association of Mortgage Regulators) issued guidance covering licensed mortgage lenders (independent mortgage bankers and brokers) that mirrored the federal guidance. Thus far, more than half the states have adopted this guidance and still many more are expected soon.

The principal thrust of this guidance is to require clear disclosure to the borrowers regarding nontraditional product risk. There is also a regulatory concern of the impact of non traditional and subprime products have on the entire mortgage market. We have seen the following activity as a result.

The Mortgage Banker's Association of America is putting together task force, Project Clarity, to draft a "Tangible Benefit" Disclosure. This will be a voluntary form meant to combat payment shock and clearly list the pro's and con's' of a particular loan to the borrower in order for them to make an informed decision.   This action by the MBA also has the intended potential of warding off a regulatory trend that could require lenders to assume more fiduciary responsibility by imposing "suitable standards". Suitability standards require lenders to provide borrowers with the product that best suits borrowers needs.

In January, the Federal Reserve Board posted a revision to the 1987 version of the Consumer's Handbook Adjustable Rate Mortgages (CHARM booklet) and is required to be used by October 1, 2007. The revisions are many and most notably dedicate a lot of space to Option and Hybrid Arm scenario and explanations.

The states have been active in the disclosure arena as evidenced by the controversial Ohio SB 185, this regulation impacts all lenders doing business in Ohio. The Ohio Mortgage Bankers association is running seminars to help lender navigate through this complex regulation and many resources for lenders are available on the Web. SB 185 went into effect on January 1, 2007.

Rhode Island passed its Home Loan Protection Act at the beginning of this year that requires new disclosures. In order for lenders to have time to sort through the new regulation, it has extended implementation date until April 1, 2007. Details can be found on the Rhode Island Website. Additional disclosures for Rhode Island and Ohio are being added to the MortgageBuilder inventory.

COMPLIANCE UPDATE DECEMBER 2006

This fall was a period of various updates and changes from investors and regulatory agencies. The more significant of these updates are as follows:

IRS: On October 2, 2006, the IRS began accepting 4506T requests in an electronic format for a fee of 4.50 per tax year. The paper request was free but took longer to receive. More information is available on the IRS Website at www.irs.gov.

FHA: HUD updated its Home Inspection Notice form 92564CN. The new form can be used immediately and must be used for Applications taken on or after December 1, 2006.

Please note the form no longer needs to be signed or included in the case binder. The form remains essentially the same but was redesigned to increase impact on the applicant. The OMB number had also expired.

Fannie and Freddie: Freddie Mac has joined forces with Fannie Mae to make available 83 non-executable Spanish translations of the Fannie Mae/Freddie Mac Uniform Instruments to help lenders and others in the residential mortgage industry better serve Spanish-language dominant consumers in becoming homeowners. The collaborative effort was aimed at helping close the Hispanic and overall minority homeownership gap. These "read -along" forms are available for download at either Fannie or Freddie's websites. These documents should not be used as recordable instruments since they are in Spanish.

Freddie Mac: Freddie has added to its suite of ARM loan instruments loan instruments with a First Business Day Lookback with either an assumable option during life of loan or assumable after the initial interest period. Loan originators may use these loan instruments for any applicable ARM or interest only ARM loans they originate whether or not the loans are to be sold Freddie Mac. Seller/Servicers should refer to their Freddie Mac purchase contracts to determine if loans originated using these loan instruments are eligible for sale to Freddie Mac.

Fannie Mae: Fannie updated its fixed rate Loan Modification Agreement, form 3179 and added two more forms for step mortgages and adjustable rate mortgages, forms 3161 and 3162. The mandatory use date for the 3179 is June 1, 2007, the two new forms and the revisions can

be used immediately.

Joint Regulatory Agencies: Regulators have caught the attention of lenders with a recently issued interagency guidance that addresses the risks posed by residential mortgage products that allow borrowers to defer repayment of principal and sometimes interest. Two additional related documents, Proposed Illustrations of Consumer Information for Nontraditional Mortgage Products and an addendum to the May 2005 Interagency Credit Risk Management Guidance for Home Equity Lending, were also issued for lenders to consider. Comments are due in December and new disclosures regarding HELOCs are anticipated.

COMPLIANCE UPDATE AUGUST 2006

As the summer winds down, compliance developments trickle through at a leisurely pace. No major developments occurred but as usual there have been the ongoing changes and updates to existing regulations.   The more significant of these updates are as follows:

Federal Issues:

VA: The Veterans Housing Opportunity and Benefits Act of 2006 was signed into law June 15, 2006. This impacted the Loan Guaranty Program and temporarily increased the funding fee from 3.3 to 3.35 for loans with less than 5 percent down for the next fiscal year beginning October 1, 2006. The Hybrid Arm loans were also addressed allowing for 2 percent annual adjustment when the initial rate is fixed for 5 or more years. Details are available on the VA website at: http://www.homeloans.va.gov/circulars/26_06_05.pdf.

FHA: A congressional measure to raise FHA loan ceilings and lower down payment requirements to 0 percent from 3 percent passed the House this summer. No changes in regulation yet as this measure moves through congress but we will keep you posted on this important development should it occur.

The Federal Reserve System, as part of Truth-In- Lending (Regulation Z), published the new HOEPA cost trigger for 2007, it is 547.00 and goes in to effect January 1.

State Issues:

In Michigan, MSDHA approved lenders should take notice a complete revamp of the Single Family Housing (SFR) lending documents in an effort to make them more "user friendly". Approved lenders can access complete details from the lender portal within the MSHDA website. Changes to these documents were processed in August.

The State of Massachusetts lengthy and complicated lending regulations were streamlined with the passage of Massachusetts SB 2278. Effective July 1st, several consumer disclosures requirements were eliminated. To view these changes in their entirety go to http://www.mass.gov/legis/laws/seslaw06/sl060063.htm

JUNE 2006 COMPLIANCE UPDATE

The past few months have been quiet ones with little new regulation or compliance changes and of those that we have seen were simply technical amendments. Even the document changes were generally of a housekeeping nature, for example FHA tweaked the 203K Worksheet a few times, and VA did the same with its Request for Certificate of Eligibility. The Feds made a minor change to the FEMA form. The states were quiet too primarily issuing typical changes such as changes recording requirements and broker licensing rules. The investors were more a bit more active the past few months, especially Countrywide, who have made many revisions to its equity document line and we expect several more changes to come.

Although things were quiet there always seems to be something interesting happening somewhere. Recently in Kansas, House Bill 2755 was passed that amended its lending statutes. The new rule states and I paraphrase "neither lender nor person acting on the behalf of a lender can disclosure to the appraiser the amount of the proposed loan or the preferred value of any real estate intended to secure the loan."   It will be interesting to see the impact of this change on appraised values since statistically most all appraised values come in at sales price.

Also of interest, Fannie Mae issue Announcement 06-04 to address predatory lending. As of June 1, 2006, Fannie Mae will not purchase or securitize a mortgage where total pricing and fees charged to the borrower can not exceed the greatest of five percent of the mortgage amount or a maximum dollar amount of $1000.00. Of course discount points are excluded if bona fide but lenders should take care with what are considered "junk fees". The curtailing of those fees is the point of this change.

COMPLIANCE UPDATE QUARTER ENDING FEBRUARY 15, 2006

As we have come to expect each new year, the loan limits have increased for 2006. The FHA maximum loan amount for a single family unit is $200,160, the Ginnie Mae pooling limit for VA loans as well as the Conventional loan limit was increased to $417,000. These limits are higher in certain locations and/or for 2 to 4 unit properties. Fannie Mae also revised its Selling Guide at the beginning of the year; this revision incorporates the 2006 lending limits and many past letters and announcements in addition to other enhancements.

Also new this year are the new appraisal formats from Fannie and Freddie which were introduced last year and embraced for the first time by FHA. Significantly, FHA will no longer require certain cosmetic property repairs to be made or escrowed for prior to closing. FHA continued to make another move toward closer alignment with conventional lending practices by rescinding its list of allowable closing costs. FHA now allows lenders to charge and collect from mortgagors reasonable and customary costs to close the mortgage, with a few exceptions detailed in Mortgagee Letter 2006-4.

On the state level, changes are continually occurring but there were recently a few of note, North Dakota repealed its Short Term Redemption Act and the North Dakota security instruments were changed accordingly. California passed it Domestic Partner Act and a changes were made by Fannie Mae (and are allowable to Freddie Mac) to the martial status section of the California version of 1003.

On a federal level there has been some significant activity (other than the new Fed Chairman). First, the FCC issued a Final Rule in December for the Telephone Consumer Protection Act. The final rule specifically addressed the unsolicited facsimile transmission issue, the new rule will exempt established business relationships (EBR) from being prohibited as "Junk Fax" but the final rule is not yet in place. Lenders should carefully review the final notice when it is finally published in the Federal Register. Secondly, the Office of the Comptroller of the Currency (“OCC”), the Board, the Federal Deposit Insurance Corporation (“FDIC”), the Office of Thrift Supervision (“OTS”), and the National Credit Union Administration (“the Agencies”) proposed Interagency Guidance on Nontraditional Mortgage Products. These Agencies have noticed the increased consumer demand and mortgage market activity in Interest Only and Payment Option ARM products, they expressed concern over the impact these products will have on consumers and for overall credit risk to lenders. The agencies' emphasis in this "guidance" was greater disclosure to the consumer of the risks and a detailed description of the features found in these loans and tightening of underwriting standards - especially regarding loans negative amortization. We expect final guidance from the agencies later this year. The comment period ends March 29, 2006.

COMPLIANCE UPDATE QUARTER ENDING NOVEMBER 15, 2005

We have seen a lot of activity from regulators and agencies, much of which was in response to the tragic hurricanes in the gulf coast.

The Federal Reserve Board, Fannie, Freddie, FHA and other agencies and regulators have kept both lenders and servicers busy sorting through many directives regarding the aftermath Hurricanes Katrina and Rita. Many new websites concerning disaster relief have been established by these agencies that outline policy changes in detail. Some of the charges are as follow: In lender letter 05-05, Fannie Mae provided additional guidance for underwriting and servicing such as providing list of mortgages most likely to have incurred damage with information provided by FEMA. Property inspections were called for as well as approvals for disposition property insurance proceeds. Underwriting flexibility was noted as evidenced by allowing certain debt such as hurricane related debt to be excluded from debt to income ratios. Freddie Mac issued a bulletin on October 7th outlining servicing relief measures in order to enable more distressed borrowers to keep their homes. To address the challenges of property valuation the regulatory agencies, The Federal Reserve Board, regulatory agencies and HUD all issued directives allowing for temporary exemptions to existing standard appraisal requirements.

On the subject of appraisals, back in the spring, Fannie and Freddie introduced new appraisal formats, as a reminder these new formats must be used after November 1st for Fannie Mae and January 1st for Freddie Mac.

FHA also stayed busy issuing mortgagee letters. In letter 2005-40, FHA made revisions to single family loan origination areas; generally all lending areas have been expanded, the number of branches needed to originate on a national basis were reduced and single office lenders originating via the internet or national call centers were allowed to apply for approval for nationwide direct lending. In letter 2005-42, FHA announced the last of a series of system changes to the Mortgage Record Changes were ready to implement. In letter 2005-43, HUD announced Revised Refinance Transactions, and will now insure 95% LTV (based on appraisal estimates) cash out transactions under certain conditions.

Odds and Ends of Note: IRS form 4506T was recently updated twice this fall. HOEPA triggers effective January 1, 2006, are 8% or $528 annually adjusted amount, whichever is greater. North Dakota repealed its the Short Term Redemption Act. California passed new notary laws which changed acknowledgement language.

COMPLIANCE UPDATE QUARTER ENDING AUGUST 15, 2005.

The reason for Fannie Mae and Freddie Mac's recent revision to the Uniform Residential Loan Application (URLA) is a great illustration of challenges lenders face complying with multiple consumer regulations mandated from several sources. When the ECOA rules regarding joint credit changed in 2004, Fannie Mae and Freddie Mac addressed these issues by revising the URLA last year. However, some Lenders were not satisfied that the language change was extensive enough for proper compliance to Federal and State (California) regulations. They found themselves in a bind between using the mandated form and believing that the language may not meet their needs. As a result of lender concerns Fannie and Freddie changed the URLA to address the revised ECOA rules and we now have a less ambiguous form. In addition to the joint credit language the URLA was also modified the Government Monitoring section as a result of HMDA technical changes which had been another sticking point. Please note that the last revision is not required until year end. Lenders doing business in California should look at the revised forms carefully to make sure it meets with its interpretation of CA joint credit rules. We have created an optional California version of the URLA which uses the specific state statute language. Fannie and Freddie did authorize use this optional language. The Statement of Assets and Liabilities form 1003A did change as well as the Spanish versions of both forms.

Of course FHA and VA were not to be left out, they made revisions to the URLA Addendum, (form 92900A) which had included changes made to address streamlined condominiums but rescinded that particular change as HUD had yet to receive the required program approval.

Other changes to commonly used forms and handbooks also occurred recently. There is a new revision of the Uniform Underwriting and Transmittal summary (form 1008) addressing new condo codes mandatory November 1st. In June, Fannie Mae announces changes to its INTERESTFIRST documents and in August Freddie Mac announced changes to its INITIAL INTEREST documents. HUD updated its popular 4165.1 Handbook - Endorsement of Home Mortgage Insurance Programs (Single Family) and VA updated its 26-1805, Request for Determination of Reasonable Value. All these revisions have already been made or are in process.

On the compliance horizon, RESPA is back, HUD has released its proposed Good Faith Estimate it is available on HUDCLIPS now. HUD is actively seeking Lender input this time around prior to issuing any edicts. Settlement costs continue to be a contentious issue now made more confusing due to recent court rulings. Some rulings have favored the consumer and/or HUD's position that settlement cost markup are not allowable some ruling have favored the lenders. These ruling have now made it appear that what may be a fair practice in one state may not be in another. One thing is for certain is this ambiguity is not going away anytime soon.

Compliance updates for the week of ending July 29, 2005.

Fannie Mae announced revisions to the Uniform Residential Loan Application (Form 1003) and the Uniform Underwriting and Transmittal Summary (Form 1008).

Revisions to the Uniforn Loan Application 1003 were the addition of borrower’s acknowledgment of joint credit, technical changes to race/ethnicity categories under HMDA, changes to language to accommodate for community property ownership by non-spouses, revisions to the attestation to make it clearer to borrowers that they are allowing access to certain information, and clarifications to the borrower’s authorization for lender to include borrower’s sex, race, and ethnicity based on appearance and surname if the borrower declines to provide it. The form URLA has also redesigned on a 11inch page( letter size) with a total of 5 pages, however it may be reformatted to legal size. The changes also affect the Statement of Assets and Liabilities (1003A), the Bilinqual URLA (1003s) and the Bilinqual Statement of Assets and Liabilities (1003As). The new forms can be used immediately, but MUST be used for loans with an application date on or after January 1, 2006.

Revisions to the Uniform Underwriting and Transmittal summary include changes to the new condominium project codes, which were discussed in Announcement 05-03. Section I - Borrower and Property Information – Project Classification has been updated to reflect the new codes. The new form can be used immediately, but is required for loans with a delivery date on or after November 1, 2005.

Compliance Corner (5/20/05)

The compliance emphasis for the past few months has been on appraisals. In March, Fannie and Freddie announced revised appraisal forms mandatory in November for Fannie Mae and
January 1, 2006 for Freddie Mac. This came on the heels of a jointly issued FAQs (frequently asked questions) release in March from all the major federal regulators. The FAQs clarified existing standards in appraisal and real estate lending regulations. The major concern of this release was the independence of the collateral valuation process.

HUD was busy this past few months restating and reshaping its policies to somewhat loosen its standards to make FHA lending more accessible potential homebuyers. In April FHA revised its payment to income and debt to income ratios form 29% and 41%, to 31% and 43%, respectively. HUD also made changes to the procedure for scoring and documenting FHA insured loans using TOTAL Scorecard allowing greater tolerance before requiring a rescore and generally reducing documentation requirements.   They also announced new Five Year Hybrid Arm with a 2/6 caps, to become more competitive with conventional products, previously the Hybrid ARM was limited to a 1/5 cap.

In contrast to HUD, state regulators kept lenders busy with tweaks and changes to their lending regulations generally tightening lending standards. Some examples were these recent changes. New Jersey issued new limits for High Cost Loans in March. Utah modified prepayment requirements for subordinate loans not subject to HOEPA. Massachusetts lowered its LTV limits for state chartered banks. Virginia also capped LTV limits for principal only amortizing loans.

Compliance update for March 25th.

STATE ISSUES:

New Jersey: New limits for High Cost Loans to 365.674.13

See Bulletin 04-25 at: http://www.state.nj.us/dobi/bulletins/blt04_25.pdf]

Utah: Utah Senate Bill 157 modified its Consumer Credit Code and impacts prepayment fees for a subordinate loan not subject to HOEPA.

FEDERAL ISSUES:

The major regulators jointly issued frequently asked questions (FAQs) concerning the independence of the collateral valuation process. The FAQs clarify existing standards in appraisal and real estate lending regulations. Major points are as follows

The guidance applies to both commercial and residential transactions.

A regulated institution may not accept a borrower-ordered appraisal.

A regulated institution should not unduly influence the appraiser or in any way suggest the property's value.

Loan production staff may use a revolving, board approved list to select a residential appraiser, provided the development of the list is not under their control. Staff responsible for the development of the list should be independent of the loan production process.

The appraiser must sign the certification page of the appraisal report.

A regulated institution should ask relevant questions of an appraiser to ensure the appraiser is independent of the transaction.

If a staff appraiser prepares an appraisal, that appraiser must be independent of the lending, investment, and collections functions.

Subject to certain qualifications, a regulated institution may accept an appraisal transferred from another regulated institution or from a financial services institution. A regulated institution is expected to perform a more thorough review when accepting appraisals from another financial services institution.

A regulated institution should review broker-ordered appraisals thoroughly.

A regulated institution should be the party to remit payment to the appraiser. A regulated institution may seek reimbursement from the borrower.

Documentation (that is, an engagement letter) should be available to indicate that the financial services institution (not the borrower) ordered the appraisal and that the appraiser has no direct or indirect interest, financial or otherwise, in the property or the transaction.

A regulated institution should perform a compliance review on all appraisals.

A regulated institution may grant conditional approvals to prospective borrowers before obtaining an appraisal.

The agencies' appraisal regulations allow regulated institutions to use an appropriate evaluation of the real estate in lieu of an appraisal for transactions with a value of $250,000 or less, business loans of $1 million or less, or subsequent transactions (transactions involving an existing extension of credit at the lending institution).

A regulated institution should ensure independence in the ordering process for an appraisal even if the appraisal was not required under the agencies' appraisal regulations.

A value from the taxing authority alone is insufficient to be considered an evaluation.

A regulated institution may use an existing appraisal or evaluation to support a subsequent transaction, as long as the credit file documents the facts and analysis that support the institution's conclusion that the appraisal or evaluation remains valid.

More information at:
http://www.occ.treas.gov/occ_current.htm

UPDATE FOR MARCH 13, 2005

Four new Texas Home Equity forms posted to our Fannie Maes Webstite today.  New Fannie Mae Texas Home Equity Fixed/Adjustable Rate Note (with conversion option) (Form 3529.44), as well as the accompanying Rider (Form 3188.44) (ARM Plan Nos. 2726 and 2728). In addition, Fannie Mae Texas Home Equity Fixed/Adjustable Rate Note (without conversion option) (Form 3528.44), along with the accompanying Rider (Form 3187.44) (ARM Plan Nos. 2727 and 2729).  The ARM Plans for these new Texas 50(a)(6) documents are standard 7/1 and 10/1 LIBORS.

Compliance update for the week of February 21st, 2005:

Freddie Mac: Freddie Mac has released two new One-Year LIBOR ARM products: Freddie Mac Adjustable Rate Note 5542 & Rider 5142, 1-Year LIBOR Index, Assumable after Initial Period, First Business Day of Preceding Month Lookback ) and Freddie Mac Adjustable Rate Note 5541 and Rider 5141, 1-Year LIBOR Index, Assumable during Life of Loan, First Business Day of Preceding Month Lookback.

Freddie Mac also introduced Home Possible Mortgages "to meet the needs of more low- to moderate-income Borrowers. The Home Possible Mortgage suite provides low-downpayment options and credit flexibility. The suite also includes Home Possible Neighborhood Solution^SM Mortgages designed to help firefighters, law enforcement officers, healthcare workers and teachers who live in the communities they support."

See new chapter A34 in their Seller's guide for Home Possible Mortgages information and requirements .

HUD: Hud has officially discontinued for the 92068F with no replacement and 27050C Homeowners Fact sheet (use 92900 B in it place).

Compliance update week of February 7th.

STATE: New recording requirements in MONTANA, 3 inch top margin, 1 inch bottom and sides on page 1. 1 inch bottom sides and top on all subsequent pages, Return after recording address on upper left corner (it may be in recording margin). Effective in July 2005. You should check your FHAs the new security instruments have these margins already in the design.

FANNIE MAE: Fannie issued 4 new Interest First ARM notes:

3535 for plans 3516, 3505, 3518 use Rider 3187

3537 for plan 3514 use Rider 3189

3536 for plan 3513 use Rider 3111

3534 for plans 3515, 3504, 3517 use Rider 3182.

SPECIAL UPDATE JANUARY 31, 2005.

VA released an Errantum to Circular 26-04-12 dated December 10, 2004. In summary the VA Hybrids allowed for a 5 percent life time caps for those fixed/ adjustable loans with first adjustment periods of less than 5 year and a 1 year annual cap. It also allowed for a 6 percent lifetime cap for those loans with first adjustment periods of 5 or more years and for loans with a 6 % lifetime cap VA allowed for a 2 % first adjustment.   This has not changed, what has been clarified concerns the second and subsequent adjustments are limited to 1% - EVEN IF the first adjustment was 2% -the second adjustment and those thereafter must be 1%. Please check your notes, rider and disclosures and programming to make sure you have 1% for the subsequent adjustments not 2%.

Compliance update for the week of January 7th.

FREDDIE MAC: Freddie updated there initial interest notes on their website Freddiemac.com, go to forms and documents in single family, then to notes and you can pull up the most recent version. Not mandatory until April - but if lenders are using for interest only they may need to use revised forms now.

HUD: Per Mortgagee letter 2005-1, HUD now allows for the Get your Home Inspected disclosure (92564cn) to be incorporated in any sales agreement not just the FHA version, if the disclosure is not part of the sales agreement then it needs to be reexecuted and the stand alone form of the 92564 can be used.   HUD letters 2005-2 to 2005-5 also released- no forms impacted. All letters available on HUDCLIPs.

Compliance update for the week of December 27th 2004,

FHA: HUD issued Mortgagee Letter 2004-46 which hikes the maximum insurable mortgage amount to $172,632 for single family homes for most areas and $312,895 for high cost areas such as California. Other mortgagee letters also released covering Total Scorecard and Property Flipping policies and procedures. Letter available on HUDCLIPS.

Freddie Mac- released letter 2004-5 in December with a selling guide update and new conventional loan limits.

State Issues: Annual rate changes for escrow accounts announced in Wisconsin - .72% and Connecticut - 1.5%.

National Regulations: FACT Act, effective July 1,2005 lenders must develop procedures to properly dispose of consumer information obtained from consumer reports to protect consumers against indenty theft.

Compliance update December 14, 2004.

VA issued Circular 20-04-12, dated December 10, 2004 effective immediately.

The VA changed the maximum guaranty amount of $60,000, for certain loans in excess of $144,000, to an amount equal to 25 percent of the Freddie Mac conforming loan limit. In orther words VA loans can now be guaranteed up to the Fannie/Freddie limits. Veterans on active duty that are deemed eligible to receive disability and are awaiting discharge may be entitled to a waiver of the funding fee not just active duty servicepeople. The Native American Direct Loan program has been extended to December 31, 2008.

Tthe “traditional” Adjustable Rate Mortgages (ARMs)have been reinstated in a manner similar to that by which HUD insures adjustable rate mortgages under section 251 of the National Housing Act. The legislation provides authority through September 30, 2008. VA can now guaranty a 1 year ARM program. New caps to the hybrid ARMs have been increased to 2%/6% for loans with a fixed interest rate of 5 or more years

December 6, 2004 update: Per Fannie Announcement 04-08 and Freddie Mac press release of November 30, 2004, the 2005 Loan Limits are:

$359,650 for mortgages on one-family properties (up from $333,700);
$460,400 for mortgages on two-family properties (up from $427,150);
$556,500 for mortgages on three-family properties (up from $516,300); and
$691,600 for mortgages on four-family properties (up from $641,650).

For first and second mortgages on properties in Alaska, Hawaii, Guam and the U.S. Virgin Islands limits are 50 percent higher. Second mortgages limits are 179, 825 (combined first and second can not exceed 359,650 for loans sold to Fannie).

Compliance Corner (11/24/04)

By: Peggy O’Keefe, President

Financial Forms and Services, Inc.

Just the FACTS…or so it seems in compliance circles as of late. The FACT Act (Reg. V, the Fair and Accurate Credit Transaction Act) regulations are final and many of its provisions are effective December 1, 2004. The provision creating the most recent discussion in mortgage industry is Section 212, Disclosure of Credit Score. This section requires Mortgage Lenders that use credit scores to provide the mandated “Notice to Home Loan Applicants” disclosure to its applicants. Although the disclosure is brief and rather generic the completion of this form is unique to each lender, lenders must report any and all sources used to arrive at a credit score. This mandated disclosure form is now part of the standard forms library and should be reviewed by each lender to ensure it meets with its particular needs.

In their recently revised Pamphlet 26-7, change 4, VA is requiring lenders to disclose to the veteran how long it will take to recoup the closing costs for Interest Rate Reduction Refinance Loans (IRRLs). The Rate Reduction Certification form has been modified to include the disclosure of this calculation.

We have had a few questions regarding the Fannie Mae’s recent statement on Mandatory Arbitration. Simply stated, Fannie will not accept loans with mandatory arbitration language. The standard Fannie Mae/Freddie Mac security instruments and notes DO NOT contain this language so no language modification is required. This is not the case with many custom sub-prime lending documents where mandatory arbitration clauses are common. Those loans will require a waiver of the arbitration language prior to any sale to Fannie Mae.

Looking at the future compliance issues we are monitoring the discussions of zero down payment FHA mortgage loans and a possible change in the VA guaranty to conforming loan limits levels. Any changes to forms as a result will be made as needed.