State Compliance Updates

The updates were given at the Mortgage Lending in California, Florida, and Texas: A Compliance Update session at a National Home Equity Mortgage Association compliance conference last week.

A plethora of Texas bills regarding foreclosures, home equity, and insurance among other things, will become effective in September.

One of these, house bill 1547, requires that if the terms on a second mortgage with a rate over 10 percent or a home equity loan regulated by the Office of Consumer Credit Commissioner are negotiated in Spanish, a copy of those terms be provided to the borrower in Spanish, according to Julie Caggiano, vice president and counsel of Aegis Mortgage.

Such a bill reduces the chances of Spanish-speaking borrowers being taken advantage, as was the case of a California couple who was arrested for deceiving Spanish-speaking borrowers into signing loans with terms they didn’t understand as most did not know how to read or write English.

Texas also adopted a new identity theft enforcement protection act similar to the federal Safeguards and disposal rules in that it requires lenders to properly dispose and protection of consumers’ personal information. Closely related is HB 1130, which calls for anyone who requires disclosure of a social security number to adopt a privacy policy, to advise how the personal information is collected, used, and protected, who has access to it, how its going to be protected and be disposed of, Caggiano said.

In California, two bills seeking to rewrite the “points and fees” test of the covered loan law were recently introduced. However, one bill was granted reconsideration and the other one, which would have the yield spread premium in the points and fees test, had that part removed, informed Elizabeth Huber of Hudson Cook LLC.

In connection to closed-end loans of up to $250,000, the points and fees must exceed six percent of the total loan amount to be considered a covered loan. Points and fees include all compensation and fees paid to brokers for the loan transaction.

A March 2005 court decision held that yield spread premiums were not included in the definition of points and fees payable by the borrower at closing under the covered loan law, according to Huber.

In January, the domestic partner registration became effective. The California law extended the same rights, protections, benefits, and duties of marriage to people registered as domestic partners. Therefore, a registered non-borrowing partner is presumed to have community property interest in the property of the borrowing partner who will secure repayment of the loans regardless of whether the non-borrower’s name is on the property title, she added.

David McCrea of Shutts & Bowen LLP presented a Florida compliance update.

A house bill that mainly applies to refinance scenarios allows title insurers to prepare and record a certificate of release that satisfies an outstanding mortgage. A Florida statute requires that lenders record a satisfaction of mortgage within 60 days of payoff of a loan and to separately record satisfaction of mortgage to the borrower. The bill would relieve a lender from responsibility of recording a satisfaction of mortgage if the certificate of release has been recorded by the insurer.

McCrea advised that a fee for providing satisfaction of mortgage not be charged to avoid violating laws.

He also pointed out a recent judicial decision which held that motor vehicle retail installment sales contracts were consummated, for purposes of TILA and Regulation Z, when the buyer became obligated by signing the contracts even though they were contingent on a finance company agreeing to purchase the contracts and the contracts being funded. For purposes of mortgage lending, the case is significant in determining the timing of disclosures related to when a transaction is “consummated” because the court decision indicates consummation occurs when the borrower signs the transaction documents even if the borrower’s application has not been accepted by the lender.