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Mortgage Compliance News | Mortgage Compliance Newsletter | Mortgage Regulations
News about complying with mortgage laws, rules and regulations.

Compliance Bulletin

Recent changes to mortgage regulations

Sept. 9, 2010


Trade associations are urging the U.S. Department of Housing and Urban Development to use the formal rulemaking process instead of less formal channels to impose changes that impact implementation of the Real Estate Settlement Procedures Act. Updates to a federal banking regulator guide address recent revisions to the Truth in Lending Act. A compliance service provider is warning that disclosures on most adjustable-rate mortgages are faulty.

There are still many unanswered questions about the November 2008 revisions to Regulation X, which implements RESPA, the Consumer Mortgage Coalition said in an Aug. 11 letter to HUD. The group claims that loans originators are at an increased risk of litigation because of the lack of clarity.

While the coalition praised HUD's issuance of Frequently Asked Questions, a recently published first edition of HUD's RESPA Roundup concerns the group because the content and form of the new item can be read to alter RESPA requirements even though it is just an informal staff interpretation, and it dodges the rulemaking process. In addition, it seems to contradict a clear area of the regulation.

"We urge HUD to bring clarity to RESPA, and, when HUD does change RESPA requirements, to permit the industry the time it takes to accommodate changing requirements," the letter stated.

A coalition of trade groups including the Consumer Mortgage Coalition, the American Bankers Association and the Mortgage Bankers Association recently submitted a letter to HUD. The groups wrote in about inquiries from the public about the legality of per-transaction compensation paid to real estate agents and real estate brokers by home warranty companies. The federal housing agency also was asked about the scope of services agents and brokers can be paid for.

"The distinction between prohibited and permissible conduct is
fundamental to RESPA, and it has ramifications throughout consumer mortgage lending," the trade groups wrote in their joint letter. "If HUD is to establish new rules affecting this fundamental RESPA distinction, because that rule would apply across all real estate settlement services, including mortgage lending, we believe a full rulemaking is required."

Title XIV of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Mortgage Reform and Anti-Predatory Lending Act, was drafted to ensure borrowers are given loans they can afford and understand, Day Pitney said in a recent client release. In addition to ensuring suitability and verifying income directly with the Internal Revenue Service, mortgage originators are required to review a variety of documents verifying the borrower's qualifications.

An originator will be deemed to have adequately qualified a borrower if the loan meets the definition of a "qualified mortgage." Among the requirements are the prohibition of negative amortization, balloon payments and payment-option adjustable-rate mortgages. Total fees and points are limited to 3 percent on qualified mortgages, while loan terms are limited to 30 years.

"The act provides a safe harbor provision for those mortgages that meet the definition of 'qualified mortgage' -- establishing a presumption in favor of the mortgage originator that the mortgagor is able to pay the loan," Day Pitney said. "The full effect of this new legislation has yet to be determined and will become clearer when federal regulatory agencies create the regulations that will implement much of this new legislation."

Interagency examination procedures for Regulation Z (12 CFR 226), which implements the Truth in Lending Act, 15 USC 1601 et seq, were issued Wednesday by the Office of the Comptroller of the Currency. Reg Z was recently amended to reflect changes to the Home Ownership and Equity Protection Act, Mortgage Disclosure Improvement Act and Helping Families Save their Home Act -- among other legislation.

The OCC said HOEPA amendments outlaw unfair, abusive or deceptive home mortgage lending practices, establish advertising standards and address the timing of certain mortgage loan disclosures. MDIA changes broaden HOEPA requirements for good faith estimates by requiring such GFEs for certain dwelling-secured loans. Notifications are required under the Helping Families Save their Home Act when a mortgage is sold or transferred.

The Comptroller's Handbook for TILA compliance is online at

On Oct. 1, California lenders will have to provide GFEs in Spanish, Chinese, Tagalog, Vietnamese or Korean if any of those languages were used to negotiate loan terms verbally or in writing, ISI Translation Services said in a statement. The requirement was part of California Assembly Bill 1160, which was signed into law last year by Gov. Arnold Schwarzenegger.

The Federal Trade Commission recently published for comment proposed versions of three notices under the Fair Credit Reporting Act that were revised to reflect recent legal developments and improve the clarity and usefulness of the notices, Patton Boggs LLP reported. Comments must be received by Sept. 21.

Loantech LLC claims that lenders on nearly all ARMs are issuing faulty loan information as a result of the flawed re-design of the HUD-1 disclosure. Lontech says the revised disclosure wrongly presumes that all loans have the same limitation on rate and payment changes -- causing a misstatement of "future worst case scenario rate increases." Hybrids are an example of loans that are misstated.

Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of in 2000.

[email protected]

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