Transcript New Rules 2014

NEW RULES 2014
Production Specialist Training
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The Dodd–Frank Wall Street Reform and
Consumer Protection Act, commonly referred to
as Dodd- Frank, was signed into federal law on
July 21, 2010. Passed in response to the 2008
financial crisis and resulting recession, Title XIV,
also known as the “Mortgage Reform and AntiPredatory Lending Act,” brings significant
changes to financial regulation in the United
States and has a significant impact on our
processes.
In accordance with the Dodd-Frank Act, the CFPB has
issued more than 3,000 pages of rules that affect
mortgage lending. Other agencies (VA, HUD and
USDA), were also allowed by law to create their own
rules to comply with the Act. Since no other agency
except HUD created their own rules, the rules the
CFPB put out there apply to all loans except FHA.
Because HUD has their own rules, there are some
portions of the rules where FHA loans will have
slightly different requirements.
The Dodd-Frank Act also established the
Consumer Financial Protection Bureau
(CFPB), which functions as a consumer
protection agency, authorized to write
consumer protection rules and govern
all financial institutions that offer
consumer financial services or products.
The effective date for the new
rules to take effect is for
applications taken on and after
January 10, 2014. More
conservatively, for FHA
transactions, the effective date
is for case numbers assigned on
or after January 10, 2014.
COMMON TERMINOLOGY
APOR
• Average Prime Offer Rate (government index) – this index is
kept up to date in Mortgage Builder by MB. The test
required in the new rules will run automatically in MB.
ATR
• Ability To Repay
AU
• Automated Underwriting (this can be a LP, DU or GUS)
AVM
• Automated Valuation Model
CFPB
• Consumer Finance Protection Bureau
DU
ECOA
HC
• Desktop Underwriter (Fannie’s AU system)
• Equal Credit Opportunity Act
• High Cost
HCM
• High Cost Mortgage (section 32)
HPML
• Higher Priced Mortgage Loan
LP
• Loan Prospector (Freddie’s AU system)
LPMI
• Lender Paid Private Mortgage Insurance
QM
• Qualified Mortgage
RP
• Rebuttable Presumption Loan
SH
• Safe Harbor Loan
FIRST WE’LL DISCUSS THE NEW ORDER ALL
PROCEDURE
We will review a new procedure for you at order all and
doc order time then we’ll review the new rules & how the
flow of the loan is impacted.
New Procedure at Order All
Update Title Fees
Update Title Services and
Insurance on the Closing
HUD2 tab to ensure that a
new TIL is not needed.
If a Prelim HUD wasn’t
received with the title order or
the prelim HUD doesn’t give
a breakdown of title fees,
contact the title company &
request it.
** We do not
lump title
fees
together **
Once a Prelim HUD
with a breakdown is
received, go to:
• Origination – Closing
– HUD1 – Closing
Cost – HUD2
Click on the Title Services and
Insurance … and edit the fees so that
they match the prelim HUD that you
were given from the Title Co. This step
is needed because the Title Co. that
we use when we disclose fees on the
original GFE with RESPA will be
different from the actual Title Co. used
to close the loan a majority of the time
on purchase transactions.
Example of a prelim HUD that doesn’t breakdown the title fees:
The total is $1250.95 but we need a breakdown of each fee so that we can mark the
APR, HC appropriately.
Example of what the breakdown should look like:
(keep in mind that title companies use different software so the view may change slightly depending on the
company being used)
Title Insurance & Title
Policy Limit, Agent’s
portion, underwriter
portion
• NON APR & NON HC
Title Commitment, Title
Search/Exam, Binder
• NON APR & NON HC
Endorsements
• NON APR & NON HC
Settlement fees, Courier,
Service Fees, Closing
Protection Letter
• YES are APR and HC
THIS IS WHAT MB SHOULD LOOK LIKE BASED ON THE PRELIM HUD IN THE PREVIOUS SLIDE:
Lender’s Title Insurance of 325.95 which is not in the APR or HC
Settlement Fee of $600 in the APR & HC
Title Exam & Binder (combined since both are NON APR & NON HC) of $325 not in APR or HC
SURVEY
If the prelim HUD has a survey on it (usually in the 1300 section), ask the title company to move that fee to
the1100 section. In the above example, if the prelim HUD had a survey on line 1302, I would add it to line 1110
and checkmark the APR and HC boxes.
Save out of this sub screen.
ENTER THE OWNER’S TITLE INS AMOUNT ON LINE 1103 – SHOULD NOT
BE MARKED APR OR HC
If the Owner’s Title Insurance is being paid by the
Seller, it should be in the seller’s column.
Then click in the Print? field and click on the
lookup to change it to S – Print Seller Side
Column.
Do a final check - all APR fees should
also be marked HC.
Enter the Recording charges on line 1202 and Click
save to exit the screen
CHECK THE APR TO SEE IF A NEW TIL IS REQUIRED
Go to Origination – Closing – Truth in Lending – Mortgage Truth in Lending and
review the current APR and difference.
If the difference is a negative number or if it is positive but less than .125, no further action
is needed.
If it is a positive number and is more than .125 and a TIL needs to be re-disclosed.
The Difference is a positive amount
and it is more than .125 so a new TIL is
needed!
Take Action!
The Difference is a negative
number so the APR decreased
so no TIL is needed.
Take Action!
Email [email protected] and request that a new TIL be sent due to the
changes in the title fees.
*This is important – do not wait! If a revised TIL needs re-disclosed, we must wait 3
days to close. So acting now will alleviate issues at Doc Order time.
Example: If we re-disclose a TIL on Monday, the first available closing date would
be Thursday.
DO NOT update any fees on the GFE. This process is only to
update title fees on the Closing HUD2 tab to determine if a
revised TIL is needed.
This process has been added to the Processor Manual – approx. page 179 (Order All section).
The following wording will appear on your title order forms in the comments section:
Based on the regulatory changes resulting from the Dodd-Frank Financial Reform Act, we require
a breakdown of title fees to accompany every preliminary HUD. The breakdown is needed so that
we can categorize each fee appropriately in order to run all necessary fee tests.
Disclosing additional Fees
If a fee needs re-disclosed to a borrower (condo questionnaire, subordination fee, etc.)
after you have already updated the title fees on the HUD2 tab, you’ll need to add that new
fee to the HUD2 tab manually at the same time that it is added to the GFE.
Now we’ll discuss the new doc request procedure
New Procedure at Doc Order
Confirm Title Fees
New Procedure at Doc Order – Confirm Title Fees
HUD Tab 1
You will no longer click the “repull from GFE” button on the HUD1
Closing Cost screen.
IF you do, it will wipe out the title fees that you have updated at Order
All. *This is why you must manually add fees to the HUD2 tab when a
fee is re-disclosed.
Those fees will no longer flow over to the closing HUD tabs now that
we aren’t clicking on the “repull from GFE” button.
HUD Tab 2
Click on the Title Services & Insurance …
Call the Title Co. to verify all fees listed in the Title
Services and Insurance are still accurate. *The
fees should have been updated at Order All time.
If the title fees did change from Order All to now, follow
the instructions in the Order All section of the manual to
update the HUD2 Closing tab. Once the fees are
updated, go to Origination- Closing – Truth in
Lending – Mortgage Truth in Lending and review the
current APR and the difference.
If the difference is a negative number or if it is positive but
less than .125, no further action is needed; however, if it is
a positive number and is more than .125 a new TIL needs
to be redisclosed.
Take Action!
*Important! If a revised TIL needs re-disclosed,
we must wait 3 days to close. Contact the Loan
Officer immediately.
****REMINDER - we are no longer lumping title fees together. ****
The above process has been added to the Processor Manual – approx. page 232 (Doc Order section).
Reminder – Fees added to the GFE
When a fee is added to one of your files (inspection fee, subordination fee, condo
questionnaire, etc.), email your Loan Officer immediately. Let them know that we only
have 3 days to re-disclose this fee. If we don’t re-disclose within 3 days, we can’t collect
this fee from the borrower at closing. BE PROACTIVE.
Ask the LO if they would like you to contact Compliance to get a new GFE out to the
borrower.
Use the APR list to determine if a fee should
be in the APR. If a fee is in the APR, the HC
should also be marked.
PRIOR EMAIL SENT – THIS PROCEDURE CHANGED!
** changed procedure to allow production Specialists to request a new GFE**
From: Kelly Welch
Sent: Sunday, August 25, 2013 10:55 AM
To: A - Total Team - All Employees
Subject: Redisclosing Fees on the GFE - PROCEDURE CHANGE
CHANGE IN PROCEDURE!!!!
Beginning today, please request a GFE re-disclosure from Compliance if you add a fee. A fee that may be
added might include a second appraisal or field review, a subordination fee, escrow waiver fee, or a condo
questionnaire fee.
The only time that you do not have to put in a request for a re-disclosed GFE is when a rate is locked.
Compliance pulls a report daily that lists the previous day’s locked loans. They will automatically send out a
locked GFE and copy you and your processor in on the email.
If processors are aware of an additional fee, they should notify the loan officer so the loan officer can
request the GFE re-disclosure.
Thank you!
Time
for
Now we’ll talk about the new rules and how it
will affect the flow of a loan
ABILITY TO REPAY (ATR) & QUALIFIED MORTGAGES (QMS)
Ability to Repay
Requires a reasonable, good-faith
determination that a consumer
has the ability to repay a loan. It
requires validation and
consideration of such factors as
the consumer’s income or assets,
debts, employment status, and
credit history; and all mortgagerelated expenses.
Qualified Mortgages - In order for a loan to be categorized as a QM, there are restrictions on
the loan features, terms, points and fees (no more than 3% of total loan amount for loans of
$100,000 or greater). In addition, the loan must be underwritten to specific guidelines,
including a maximum debt-to-income ratio of 43%, unless the loan meets other secondary
market guidelines. We will only originate loans categorized as QM loans.
Safe
Harbor
FHA
Rebuttable
Presumption
Five Types of
QM loans:
FHA Safe
Harbor
Safe
Harbor –
Temporary
Exemption
Rebuttable
Presumption
Explanation of all five types of QM loans
Safe Harbor
(all loan types except FHA) –
this is the standard to which
all loans are compared
•
•
•
•
•
Max points and fees of 3%
Max DTI of 43%
No risky loan features (no PPP, no term over 30 years, no neg am, no IO, no balloon)
Not a Section 35 loan – Not a HPML
JUMBO loans must fall into this category because they never have an approve/eligible…
therefore 43% is max DTI on a jumbo loan
Safe Harbor – Temporary
Exemption
(all loan types except FHA)
•
•
•
•
Max points and fees of 3%
DU or LP approved if DTI exceeds 43%
No risky loan features
Not a Section 35 loan – Not a HPML
Rebuttable Presumption
(all loan types except FHA)
•
•
•
•
Max points and fees of 3%
Max DTI of 43% or DU/LP approved
No risky loan features
Is a Section 35 loan – is a HPML
FHA Safe Harbor
•
•
•
•
Max points and fees of 3%
Max DTI per FHA guidelines or FHA approve/eligible
No risky loan features
Not a Section 35 loan – Not a HPML
FHA Rebuttable Presumption
•
•
•
•
Max points and fees of 3%
Max DTI per FHA guidelines or FHA approve/eligible
No risky loan features
Is a Section 35 loan – is a HPML by FHA definition
Section 35 = Higher Priced Mortgage Test (HPML)
If the test does not pass, the loan is a Rebuttable Presumption (RP) loan
The test will fail if the APR is > APOR by more than 1.5% (all but FHA)
FHA – The test will fail if the APR is > APOR by more than 1.15% + (monthly) MIP factor
Appraisals for HPML Loans
Appraisal Requirements – Establishes criteria for appraisals for these loans, including an interior inspection.
“Flipped” Properties - May require an additional appraisal, at no charge to the borrower.
2nd appraisal may be required if seller acquired
2nd appraisal may be required If seller acquired
property 90 or fewer days prior to agreement and
property 91-180 days prior to agreement and price is
price is 10% greater OR
20% greater
Delivery - Appraisal MUST be delivered no later than 3 business days prior to loan closing (CANNOT WAIVE)
QM loans - Points and Fees
On a QM loan, the maximum points and fees that can be charged is based on the
following chart based on total loan amount:
$100,000 or
more
3%
Under $100,000
to $60,00
$3,000
Under $60,000
to $20,000
5%
Under $20,000
to $12,500
$1,000
Under $12,500
8%
The following fees will be included in the
qualified mortgage points and fees test
Origination fee –
this includes any
origination fee you
charge and the
underwriting and
processing fee
Discount points
Single premium
upfront PMI
(conventional loans)
Single Premium PMI
Single premium upfront private mortgage insurance will not be excluded from the QM points and fees test. We would only
be able to exclude refundable PMI and currently no PMI insurer’s refundable PMI meets the definition that the CFPB
noted in their rule. Therefore, all single premium PMI will be included in the maximum fees and points calculation.
Discount Points
We are not going to exclude up to 2 bonafide discount points from the QM points and fees test. The burden of proof on
whether the discount point is bonafide is difficult to prove.
Qualified Mortgage requirements with FHA
FHA will only insure loans that meet their guidelines for qualified mortgages. Their mortgages can be
either safe harbor or rebuttable presumption loans. FHA guidelines for rebuttable presumption loans is
different than the CFPB guideline.
FHA Safe harbor qualified mortgage – allows for APR of less than the combined annual mortgage
insurance premium and 1.15 % over APOR
FHA Rebuttable presumption qualified mortgage – for an APR of more than the combined annual
mortgage insurance premium and 1.15% (see amounts below) over APOR
Utilizing monthly mortgage insurance as of 1/10/14
Monthly MIP – FOR LOAN AMOUNTS UNDER $625,500
15 year loans and less >90% LTV = .70 + 1.15 = 1.85%
15 year loans and less <=90% LTV = .45 + 1.15 = 1.60%
Terms over 15 years <=95% LTV = 1.30 + 1.15 = 2.45%
Terms over 15 years >95% = 1.35 + 1.15 = 2.50%
The CFPB rule on safe harbor versus rebuttable presumption uses the “higher priced
loan” definition of the APR 1.5% over APOR, so FHA’s policy is more aggressive
allowing more loans to fall into safe harbor thus less future lawsuits.
The following fees are exempt from the QM Points and Fees calculations:




Housing counseling fees
Rehab consultant fees
Housing counseling
Consultant Fees 203K
Housing Finance Agency loans are exempt from the qualified mortgage regulations.
Streamline refinances are NOT exempt from the QM regulations.
HIGH COST MORTGAGES & HOMEOWNERSHIP COUNSELING
 List of Counselors - A provision of the Real Estate Settlement Procedures Act (RESPA) requires that all applicants
receive a list of HUD-approved Home Ownership Counselors in their area.
o Compliance will include a new disclosure with the initial RESPA disclosures
o The disclosure used immediately will give a link to the list of housing counselors but as soon as MB
integration is completed, the list of 10 closest counselors to the borrower’s current address will be sent
to the borrower.
o Disclosure name “Homeownership Counseling Disclosure”
o Disclosure has the verbiage “The counseling agencies on this list are approved by the U.S. Department of
Housing and Urban Development (HUD), and they can offer independent advice about whether a particular set of
mortgage loan terms is a good fit based on your objectives and circumstances, often at little or no cost to you.
This list shows you several approved agencies in your area. You can find other approved counseling agencies at
the Consumer Financial Protection Bureau's (CFPB) Web site: www.consumerfinance.gov/mortgagehelp or by
calling 1-855-411-CFPB (2372). You can also access a list of nationwide HUD-approved counseling intermediaries
at http://portal.hud.gov/hudportal/HUD?src=/ohc_nint.”
 Website that gives housing counselors: www.consumerfinance.gov/mortgagehelp
o Click on Housing Counselors
o Enter in the Zip Code of the property where the borrower lives now & choose Find a Counselor
o The list of counselors nearest where the borrower lives now will appear
TESTS THAT GET RAN IN MORTGAGE BUILDER
The tests that will run in Mortgage Builder with warnings and hard stops are the following:
1.
2.
3.
4.
Section 32 Test
QM Points and Fees Test
QM DTI
Section 35 Test
The tests will run automatically in MB and will be checked at the following stages:
1.
2.
3.
4.
Submitted to Processing – when the “in processing” date is entered on the Registration screen
Submitted to Underwriting – when the processor enters the “submitted” date
Clear to Close – when the status is changed by the underwriter to “clear to close”
Printing of Closing Docs – when the closer accesses the Closing Print Group
The tests will be run based on the application date being entered in Mortgage Builder on the Registration Screen. If the
application date is January 10, 2014, that will trigger most of the new rule functionality in MB. Some calculations, like the
ATR/QM payments and QM DTI, will run regardless of application date.
To view the test page – in Mortgage Builder – go to Origination –
Closing – Truth in Lending Testing – TIL Tests Summary – Closing
The tests will run based on
criteria set up in Mortgage Builder
admin by us beforehand.
YOU DO NOT NEED TO DO ANY MATH
Mortgage Builder will enter the APOR and all other indexes for
the tests to run.
The tests for Section 32 will run with any item checked in the HC
column on the GFE.
The tests for QM will run with any item checked in the QM
column on the GFE.
QM DTI test
The QM DTI turns Yellow on the origination summary screen when
the DTI is between 40% to 43%.
The QM DTI turns Red on the Origination Summary screen when the
DTI exceeds 43%.
If this DTI is either Red or Yellow, please review to make sure you
have an Approve/Eligible on your AU findings. If the DTI does end up
being more than 43% then the file must have an AU with
Approve/Eligible in file.
WHAT TO DO WHEN A WARNING POPS UP –
If a warning pops up
for failing the
SECTION 32 TEST:
Notify the Mortgage
Specialist immediately
The Mortgage Specialist will
have to adjust (lower) fees on
the loan until the test passes
Mortgage Specialist will
email Compliance to resend
GFE with Change of
Circumstance to the borrower
Compliance will resend out the GFE with
Change of Circumstance to the borrower
If a warning pops up for
failing the
QM POINTS AND FEES
TEST:
Notify the Mortgage
Specialist immediately
The Mortgage Specialist will
have to adjust (lower) fees on
the loan until the test passes
Mortgage Specialist will email Compliance to
resend GFE with Change of Circumstance to the
borrower
Compliance will resend out
the GFE with Change of
Circumstance to the
borrower
If a warning pops up for
failing the QM DTI TEST:
Check to see if the
loan has an
“approve/eligible”
from GUS, DU or
LP
If it does have an
approve/eligible
then the loan will
meet the Safe
Harbor –
Temporary
Exemption
If the loan is an
FHA loan,
underwriting will
determine
eligibility based
on current DTI
restrictions (up
to when the new
Manual
underwriting
restrictions take
place, there is
not any change
in FHA
underwriting
regarding DTI’s)
If the loan does not
have an
“approve/eligible”,
then notify the
Mortgage
Specialist of the
high DTI.
The Mortgage
Specialist must
re-underwrite the
loan to meet the
43% maximum
restriction or
change loan
programs until
the loan has an
“approve/eligible”
Jumbo loans will
always need to
meet the 43%
maximum DTI
because they will
never have an
“approve/eligible”
If a warning pops
up for failing the
SECTION 35
TEST:
Does the
flipping rule
apply?
Appraisal
with interior
inspection
required
2nd appraisal
may be
required if seller
acquired
property 90 or
fewer days prior
to agreement
and price is
10% greater
OR
2nd appraisal
may be
required if
seller acquired
property 91180 days prior
to agreement
and price is
20% greater
THIS IS NOT
THE END OF
THE WORLD
The test will run off of
the APOR at application
time until the loan is
locked. Once the loan is
locked, the test will run
off of the APOR at lock
date. The accurate test
is run when the loan is
locked so the result CAN
change once the loan is
locked.
Income and
assets must
be fully
documented
No PPP (we don’t
have any programs
currently with a
PPP)
2nd appraisal
must be at
Lender’s
expense
Appraisal
MUST be
delivered no
later than 3
business
days prior to
loan closing
(CANNOT
WAIVE)
The loan will be
labeled a RP loan
(rebuttable
presumption) and
have the
following
restrictions:
Borrower must
escrow
ERW requires
residual income
be met
Production Specialist - Notify the
Underwriter on the submission cover page
that the loan is a RP loan so they can
review & stip accordingly
Underwriting will review the loan to
determine which category the loan falls
into and using the drop down on the UW
status screen, choose the correct
category. The categories again are:
IF the loan is an RP loan, the Underwriter
will stip the following for U conditions:
IF the loan is not an RP loan, the
Underwriter will stip the following for
Closing condition:
•
•
•
•
•
Safe Harbor
Safe Harbor – Temporary Exemption
Rebuttable Presumption
FHA Safe Harbor
FHA Rebuttable Presumption
• “U condition”– make sure appraisal has interior inspection, flipping rule
is reviewed, escrow is required, income and assets are verified as
submitted
• “U condition” - Appraisal Valuation Acknowledgement signed by
borrower minimum of 3 days prior to closing date because loan is RP
loan (rebuttable presumption), waiver is NOT allowed.
• “Closing condition”– SET UP OF ESCROW IS REQUIRED
• Appraisal Valuation Acknowledgement signed by borrower
Underwriter will review residual
income on all RP loans because
we are unsure who the loan will
be delivered to. If the loan DOES
NOT MEET ERW requirements
for residual income, then stip for
loan NOT to be sold to ERW. The
residual income form must be
submitted in the credit package
for delivery. Save on all files if
the residual income passes the
test.
Primary Residence
• $2500 or greater = no
min reserve
requirement
• >= $800 < 2500 = 3
months liquid PITI
reserves
• < 800 = Not eligible for
purchase
Second Home or
investment
• $2500 or greater =
no min reserve
requirement
• <2500 = Not
eligible for
purchase
Underwriter to save
the Residual Income
calculation
(in the Income &
Debt Worksheet –
page 3) to Blueprint
as the “Residual
Income Evaluation”
ECOA VALUATIONS – APPRAISAL DELIVERY
Copies Free of Charge - Requires disclosure that
borrowers have the right to receive copies of all
written valuations (not just appraisals) sent to them
free of charge, regardless of whether credit is
extended, denied, incomplete or withdrawn.
Valuations that would need to be sent:
• Appraisal
• 2nd appraisal
• Desk review
• Field review
• Any review of an appraisal (LOL)
• Compliance inspection
• AU findings if a value is given (LP Open Access loans will still have the valuation, DU findings will
not)
• AVM (Automated Valuation Model)
Disclosures – There will be two new disclosures
sent with RESPA & one sent when the appraisal is
emailed to the borrower
Appraisal Disclosure
Appraisal Waiver
Appraisal Valuation Acknowledgement
Prompt Delivery - Valuations must be delivered to
the borrower promptly and generally no later than
3 business days prior to closing
We have a system set up that once the
appraisal is reviewed and approved by the
underwriter, the appraisal will be sent to the
borrower by our compliance department.
If an AU or AVM is utilized in the valuation
process, then the underwriter will note this
on the Valuation page in MB and compliance
will email the valuation method to the
borrower.
These disclosures will be added by Jan 10 so
will apply with all loans after that date.
Compliance will send the appraisal &
disclosure to show the borrower received the
appraisal
The old Conventional waiver form will be
removed from the print groups.
If the loan is a Rebuttable Presumption loan,
the borrower CANNOT waive this receipt and
must have the appraisal 3 days prior to
closing.
Compliance to verify the two new forms are
being sent to each borrower.
Compliance will verify the acknowledgement
is received and uploaded to BluePrint
Loan Originator Compensation
Expanded Definition
of “Loan Originator”
Prohibitions
Licensing/Registration
Loan
Documents
Includes Assumptions staff and anyone else who may discuss terms or conditions of
a loan, or refer a borrower to someone who does.
Continues to prohibit compensation from being based on any of the transaction’s terms or
conditions; and compensation by both the consumer and another person, such as a
creditor.
All loan originators (LOs) must be licensed or registered, and meet specified and
training requirements. Newly hired LOs are subject to a background and credit
check.
Company name and NMLS number AND LO name and NMLS number must appear on
the 1003, Security Note, and the Security Instrument (Mortgage or Deed of Trust).
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MISCELLANEOUS ITEMS
Time
for