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2011 How Regulation and Underwriting Will Affect Mortgage Lending Marianne Collins, SVP Insight Bank Challenges Regulation Interest Rates Underwriting Unemployment Falling Homeownership Rates 2010 Regulation HVCC Appraiser independence MDIA Extended processing time REG Z HPML U/W & Escrow changes SAFE Act Loan officer licensing RESPA New GFE & HUD1 2011 Regulation Loan Officer Compensation Truth in Lending Changes and Proposals HMDA FCRA Dodd-Frank Financial Reform Consumer Finance Protection Bureau Loan Officer Compensation Federal government has taken on the role of telling private companies how they can pay their employees Lenders will no longer be able to pay loan officers less for products with thin margins Lenders will have to make the choice of discontinuing some loan products or raising rates to keep them How is this benefitting the consumer? Truth-in-Lending Changes New Truth in Lending disclosure as of 1/30/11 New ARM disclosures Must show maximum possible rate in 1st 5 years Must give advice on refinancing to avoid payment increases, with no guarantee of a refinance Proposal to include all closing costs in APR, with a 2nd APR calculation taking some closing costs out of the calculation for determining if the loan is an HPML Proposal to add another 3 days to the process by allowing the borrower the right to a refund of all fees for 3 days after signing the initial Truth-in Lending disclosure HMDA (Home Mortgage Disclosure Act) Currently, lenders must report the following for all applications: Application date Loan Type Property type Loan purpose Occupancy status Loan amount Action taken and date of action MSA, state, County census tract Borrower’s ethnicity, race and sex Income Type of institution that purchased the loan Rate spread if HPML or high cost loan HMDA Lenders will have to start reporting the following additional data: Borrower’s age Credit score Total points and fees The difference between the APR and a benchmark rate (benchmark TBD) Appraised value The presence of contractual terms that would allow payments that are not fully amortizing The number of months after which an introductory rate may change FCRA As of 1/1/11 borrowers must now receive a credit score disclosure form that informs them of the following: Their credit score What their score means How the score is used Range of scores Factors that adversely effect their score The right to dispute Their credit score could effect their cost of credit How they rank with scores of other consumers Dodd-Frank Financial Reform 500 new laws, 115 apply to mortgage lending (will amount to tens of thousands of pages of rules) Credit-risk retention rule for non-qualified mortgages, in addition to several underwriting requirements, including a maximum debt-to-income ratio (yet to be determined by the Federal Reserve Board) Creates the Consumer Financial Protection Bureau “Dodd-Frank will make the largest financial institutions bigger than ever. It will destroy small and regional banks”, Congressman Spencer Bachus-Chairman, House Financial Services Committee Consumer Financial Protection Bureau A far reaching independent bureau within the Federal Reserve, created under Dodd-Frank Funded by a certain percentage of the Federal Reserve’s budget. Additional funding may be available through Congressional appropriations (taxpayer money) Responsible for Fair Lending Enforcement and rule making for all consumer related regulations (except merchants and auto dealers) Supervisory authority over depositories with more than 10 billion in assets Can require reports and examinations of smaller depositories Exclusive enforcement authority over non-banks that provide mortgage-related services Tasked with changing the GFE (again) to combine it with the Truth-in-Lending disclosure Underwriting Higher Credit Score Requirements Tighter Appraisal Requirements Condominium requirements Increased documentation Increased waiting periods after shortsales, bankruptcies and foreclosures Interest Rates Cost of Regulation and compliance Agency repurchases Government borrowing Lack of purchasers of Mortgage Revenue Bonds Agency add-ons (Fannie/Freddie based on credit score, LTV, CLTV and condos) Unemployment Last week’s unemployment numbers: Initial claims 454,000 (up 51,000 from the prior week) Continuing claims 3.99 million Bankruptcies up 9% in 2010 ($1,530,078 consumers), and are expected to keep climbing in 2011. “2010, The Year of the Short Sale” Short Sales have tripled since 2008 Foreclosures - Many more to come Falling Homeownership Rates 2010 4th quarter = 66.5% Down from 67.2% 1 year ago Lowest level since the end of 1998 Black households from 46% to 44.8% Hispanic households from 48.4% to 46.8% White households from 74.5 to 74.2% Lenders Tough Times for Mortgage Brokers Many lenders getting out of wholesale Lenders will be reducing and limiting compensation to brokers, due to the lenders cost of lending regulation, compliance, and compensation rules Tough Times for Mortgage Bankers The cost of regulation and compliance Burden of repurchases FHA’s increased net worth requirements Tough Times for Small Depository Institutions The cost of regulation and compliance Decision to exit the market Changing the Buyer’s Mindset (Convincing buyers that owning a home is still a great investment) In 2011 HUD expects it’s foreclosure inventory to increase by 50% Shadow inventory (90-day+ delinquencies, foreclosures and REO not listed for sale) estimated at 2-4 million units Housing inventory expected to remain elevated for some time “These are not problems, they are opportunities” The Good News Mortgage interest & real estate taxes are still tax deductible MI companies are back in the business of approving loans MI premiums have gone down for strong borrowers Tax deductibility of mortgage insurance has been extended for another year Rates are still low Just remember that old saying… “Now is the time to buy!”