Compliance executives warn that revisions to mortgage regulations are happening at an unprecedented level, and service providers are lining up to help lenders comply. A new rule on high-cost loans conflicts with the hard-money lending model -- which considers only the collateral.
Patton Boggs LLP noted in its newsletter this month that the U.S. Department of Housing and Urban Development reissued its Frequently Asked Questions for the rules under the Real Estate Settlement Procedures Act being implemented on Jan. 1, 2010. The revised FAQs deleted a clarification that interest paid through month end on FHA loans that closed earlier in the month not be considered a prepayment penalty.
"This response raised eyebrows in the mortgage industry because under the Truth in Lending Act, a prepayment penalty includes interest charges for any period after prepayment in full is made," the newsletter said.
New prohibitions by the Federal Reserve Board impact loans closed on or after Oct. 1, a recent consumer newsletter from the Federal Deposit Insurance Corporation indicated. Lenders and mortgage brokers are prohibited from pressuring appraisers for higher values. In addition, servicers will be required to credit payments on time and advise borrowers when late charges are deducted from regular monthly payments.
The fed's new rule on higher-priced mortgages also takes effect on Oct. 1, the FDIC said. Lenders will be required to assess a borrower's repayment ability, including verifying income and assets. Prepayment penalties are prohibited in some circumstances.
MRG Document Technologies, which announced that its services help lenders comply with predatory lending restrictions, said higher-priced loans under the fed's new rules include first mortgages that are 150 basis points higher than comparable loan programs and junior liens that are 350 BPS higher. Lenders are also required to establish escrow accounts, though they can allow cancellation after 12 months.
Residential hard-money loans would appear to be prohibited under the feds' new rule because they typically are approved based only on the collateral itself without regard to a borrower's ability to repay.
An upgrade to Compliance EAGLE addresses reforms to the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act and the Mortgage Disclosure Improvement Act, a statement last week indicated. Compliance EAGLE evaluates loans against compliance regulations and standards as well as federal, state and local laws.
"There have been more major revisions and new regulations in 2009 than any year in recent memory," Leonard Ryan, president of Compliance EAGLE developer QuestSoft, said in the news release.
Updates included with Vendor Compliance Manager 2.0 meet regulatory requirements, address contract management issues and address vendor relationship management, an Aug. 26 announcement indicated. The system's dashboard and reporting features help centralize functions that are often scattered.
Wolters Kluwer Financial Services' initial home loan disclosures are now available from within the eMagic.com LLC service fulfillment platform, a news release Monday said.
Fredric Gooch will handle loan documents in Texas for DocuTech Corp., a Sept. 8 press release stated. The Lone Star State requires that all mortgage documents be prepared or reviewed by a licensed attorney. Gooch was DocuTech's in-house counsel before forming his own practice. He will continue to advice DocuTech on compliance matters.
"The final quarter of 2009 and beginning of 2010 will bring more regulatory changes to lenders than anytime this decade," the statement said. "Some of the regulatory changes lenders will have to adjust their loan documents for include the TILA and the RESPA, which includes dramatic changes to the Good Faith Estimate for initial disclosures."
In an Aug. 31 news release, DocuTech boasted that it added 21 new customers during the prior three months. It's the sixth consecutive quarter that at least 20 new customers were added.
"The lenders are choosing DocuTech because of the cost savings that come with guaranteed compliance, as well as the time savings associated with automated document and disclosures processes that integrate seamlessly with the leading operation systems," DocuTech stated
Exotic adjustable-rate mortgages have a higher probability of compliance violations, according to the Consumer Mortgage Audit Center -- which advises delinquent borrowers that they can potentially disrupt the lender's foreclosure process by taking loan documents to attorneys who locate violations.