How CFPB’s Amendment to TRID Affects Your Business

TRID mazeThe Consumer Financial Protection Bureau (CFPB) finalized an amendment to the TILA/RESPA Integrated Disclosure Rule (TRID) that has been in effect since October of 2015. While the rule makes no changes to the Loan Estimate or Closing Disclosure forms or their timelines for delivery, there are some items in the amendment that may affect your business processes, and we’ll take a quick look at them here.

  1. Information sharing with parties to the transaction: The new rule makes it clear that the borrower’s Closing Disclosure may be shared with other parties to the transaction (i.e. the real estate agent and the seller.) This codifies long-established practice in many States, and removes uncertainty that was thrown into the mix when the original TRID rule was promulgated. The CFPB is working on additional specific guidance on providing separate CD forms to the borrower and seller. NOTE: this Federal regulation will not change practices in any State that might explicitly prohibit such sharing of information at the state level.
  2. Housing Assistance / HFA Loans: In the final rule, the CFPB provides guidance that certain loans made by housing finance agencies and other non-profit housing groups will retain their partial disclosure exemption from the TRID rule even when recording fees and transfer taxes are charged to the borrower. The CFPB hopes that this will increase the number of these transactions that receive the exemption, thereby increasing the number of such loans made.
  3. Co-Op Loans to be Covered by TRID: The new rule extends the scope of TRID to cover all loans made on cooperative housing units (“Co-Ops”), where the buyer is technically buying into the Corporation running the housing project instead of purchasing real property in the traditional sense. Co-ops are quite prevalent in the New York metropolitan area, as well as elsewhere on the East Coast, and this change will probably have more impact on general business processes than the others listed here.
  4. Tolerance for Total of Payments Disclosure: Under the old TIL disclosure, the total of payments box was calculated specifically using the finance charge. With the roll-out of TRID, the marriage between finance charge and this disclosure was removed, but no accuracy tolerances were put in place. This rule changes that by adding an accuracy tolerance to the total of payments disclosure that mirrors the one that has been in place for the finance charge itself.

Finally, the CFPB also put out another request for comment on a proposal to address when creditors specifically may use a Closing Disclosure (instead of a Loan Estimate) to determine if a charge was disclosed in good faith. The uncertainty around acceptable situations for this has created what many compliance officers call the “black hole” – especially when closings are delayed. See the CFPB Website for more information.

The mandatory compliance date for all provisions of the rule listed above is OCTOBER 1, 2018.

Happy Originating,

Peter



Real Estate Institute offers top-rated Mortgage Loan Originator Continuing Education and Pre-License courses in all three formats: Classroom, Live Webinar and Online, Self-Study. These courses were designed BY loan originators FOR loan originators covering topics you need to know to navigate today’s ever-changing lending landscape.

Not So Fast: HUD Rescinds MI Premium Cut

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As you may have heard in various media reports, HUD issued Mortgagee Letter 2017-07 on Friday, January 20, rescinding the annual Mortgage Insurance Premium (MIP) cuts announced in Mortgagee Letter 2017-01. While there has been much news and opinion analysis on this story, the only effect on your daily business is the annual MIP will not change effective with closings on or after January 27.

The actual impact on the mortgage market is likely very minimal, with the most likely outcome being that some loans on which disclosures were sent to borrowers between January 10th and 20th – showing the reduced premium – will have to be re-disclosed. Before re-disclosing, I suggest doing a quick double-check to ensure that the change has been applied throughout the loan file, including the APR on the Loan Estimate. It remains to be seen whether the new administration will decide to move forward with any premium cuts in the months to come.

Peter

FHA Lowers Mortgage Insurance Premiums Again

OLYMPUS DIGITAL CAMERAToday, HUD released Mortgagee Letter 2017-01, announcing a reduction in the FHA annual mortgage insurance premium by 20-25 basis points across the board and eliminating MI surcharges on loans over $625,500 in high-cost areas. This announcement, sure to please originators across the country, comes on the heels of the FHA Mutual Mortgage Insurance Fund (MMIF) once again reaching its statutory-mandated reserve of 2% in 2016.

The premium cut goes into effect with closings/disbursements on or after January 27, 2017. This is a slight departure from typical FHA policy changes which are usually implemented by the date the case number is obtained. Note, the UPFRONT MI Premium (UFMIP) is not changing and remains at 1.75% for forward mortgages.

The new annual premiums, effective January 27th, are highlighted below.

Happy originating!

Peter

NMLS Reminders for a Successful CE Season

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According to the NMLS, the number-one question they receive from Mortgage Loan Originators is, “Do I need to do CE?” If you’re not sure, you should log into NMLS to review your education requirements. Your Course Completion Record will indicate whether you still need to earn Continuing Education this year. The NMLS has prepared a quick guide to help you navigate your record.

The NMLS also reminds MLOs that:

  • You may not complete the same CE course as last year.
  • Pre-license education courses do not count toward CE. However, MLOs do not need to take continuing education in the same calendar year in which they took an NMLS-approved 20-hour pre-license course.
  • Nearly half of all state agencies have a state-specific CE requirement. See the
    NMLS 2016 State-Specific Education Requirements Chart for the number of hours and other requirements.

  • Several state agencies have early CE or renewal deadlines. Check the state-specific education requirements chart for details.

Real Estate Institute offers top-rated 2016 CE courses in all three formats: Classroom, Live Webinar and Online, Self-Study. Try our courses and find out what it’s like to take CE that’s relevant and interesting.


LOAN ORIGINATORS: IDFPR RESCINDS PROPOSED EDUCATION RULE, ADOPTS UST

Breaking_NewsIn a surprise move, the IDFPR Division of Banking has rescinded the Mortgage Loan Originator (MLO) education rule it proposed in late April, which called for an additional three hours of Illinois-specific pre- license education and an additional three hours of Illinois-specific continuing education annually. The Division of Banking also confirmed plans to move ahead with adopting the Uniform State Test (UST) for loan originator license applicants in Illinois, effective June 1, 2016. For those unfamiliar, the UST covers general state-level regulatory information applicable in most states and is included as a part of the National Component of the SAFE exam that all potential licensees must pass.

Illinois State Test Component Removed Effective 6/1/2016

WHAT DOES THIS MEAN FOR YOU?

  • If you are currently licensed as a mortgage loan originator in Illinois, this has no impact on you. You may continue to originate as you have been doing.
  • If you are not yet licensed in Illinois but have already passed BOTH the National Component AND the Illinois State components of the SAFE exam, your Illinois license application will not be affected by this change. Whether or not you have actually filed the application, you do not have any additional requirements and may apply for licensure at any time if you have not already done so.
  • If you are not yet licensed in Illinois AND you have passed the National exam with UST (meaning you enrolled for and passed the National SAFE exam AFTER April 1, 2013), you will be able to apply for an Illinois MLO license on or after 6/1/2016 (do not apply before this date). This situation also applies to anyone who enrolled in and passed the STAND-ALONE UST, which was available in 2013 and early 2014.
  • If you are not yet licensed in Illinois AND you have not passed the Illinois exam AND you enrolled for and passed the National SAFE exam WITHOUT UST (you enrolled for the National exam BEFORE April 1, 2013), you have two options:

    Option 1: Enroll in the Illinois State Component exam BEFORE June 1st, 2016 and pass that exam on your first take OR;

    Option 2: Enroll for and pass the current version of the National exam with UST. Yes, this will require you to re-take the full national component, as there is no longer a stand-alone UST option.

If you have any questions about which exam(s) you have taken and passed, you can find that information by logging into the NMLS (on the State side), clicking the “COMPOSITE VIEW” tab at the top right, then clicking “View Individual” at the top center and finally clicking “Testing Information” on the left navigation bar. You can also contact the NMLS Call Center at 855-665-7123 with questions about your status.

Refer to the IDFPR press release announcing this change.


Real Estate Institute has helped thousands of LOs pass the SAFE exams with Prep-to-Pass. Our recently updated test prep program includes the most recent NMLS content outline revisions. Try sample practice tests for free at our website.

Is the CFPB Finally Listening on TRID?

TRID maze
According to the folks over at National Mortgage Professional Magazine, the CFPB has quietly begun drafting a Notice of Proposed Rulemaking. For those unfamiliar with the process, this is the first step in issuing a new or revised administrative rule, and typically opens the door for public comments on the topic at hand before the rule is actually drafted/released.

In this case, the topic at hand is the TILA-RESPA Integrated Disclosure Rule – or TRID – which totally revamped the mortgage disclosure process beginning in October of 2015. Since the new rules took effect, lenders have been struggling to comply with what they believe the CFPB wants, which in some areas is still unclear as the CFPB has not issued formal written guidance on many topics.

While there are positives that have come out of TRID – namely the effectiveness of the simplified Loan Estimate form that replaced the GFE for most transactions – there also have been many speedbumps. For example, many technology providers lagged behind in releasing updates to origination, document preparation and other software, which led to lenders issuing non-compliant Loan Estimates and Closing Disclosures. In fact, recently Moody’s estimated that up to 90% of loans originated in the first few months of the rule’s effective date contained at least one TRID-related defect.

A large mortgage lender – W.J. Bradley – closed its doors in March after being unable to sell a large number of loans with TRID compliance issues. This event, along with consistent industry prodding for help in understanding CFPB expectations through formal written guidance may have led to Director Cordray’s decision to revisit the rules.

While the NMP article indicates a “possible TRID rewrite,” I wouldn’t expect a massive overhaul of the key components that we’re becoming accustomed to in the origination community – namely the Loan Estimate and Closing Disclosure. Instead, what I believe is likely to happen is a clarifying tweak to some of the more confusing areas of the regulation, such as the sections dealing with construction and other non-traditional lending products, and (fingers crossed) significantly more written industry guidance to help us understand what we need to do to comply with CFPB expectations. If this is the case, that should make the secondary market (especially in the nonconforming space) much more comfortable in purchasing loans, which should result in an easing of credit availability and – one would hope – a reduction in loan turn-times which skyrocketed industrywide after October 1, 2015. It also may lead to a long-term reduction in compliance costs, which would make many small and midsized players in our industry very, very happy.

More on this as it develops. Until then, happy originating!

Peter

Here Come the Changes! Fannie Mae Sets Release Weekend for Desktop Underwriter™ 10.0

Here Come the Changes! Fannie to release DU 10.0

Well, we finally know a *LITTLE* more about Fannie’s plan to release the brand-spanking-new version of Desktop Underwriter™ (DU™).

If you took Real Estate Institute’s live Mortgage continuing education class last year, you heard me talk about Fannie’s plans to revamp and update their underwriting engine to take into account “new and improved” (*your mileage may vary) credit report data that the mortgage industry has not previously utilized. The data to which I’m referring is called trended credit data, and it incorporates much more information about consumers than most of you have ever seen before.

Right now, our mortgage credit reports are basically “snapshot” reports – that is, they show the consumer’s payment history, current balance, credit limit, dates opened, etc. That data is updated typically once per month from each reporting account, and what we know about our customer is what is reported on that day from that creditor. Thus, if Joey Bagadonutz is someone who pays off his credit cards in full each month, but his outstanding balance on the day the account reports to the bureaus is $3,500, we see that balance as $3,500 with no indicator of how long it has been that high. Now, imagine that the limit on Joey’s account is $4,000. Our current underwriting algorithms see him as a SIGNIFICANT CREDIT RISK because of his credit utilization. Not good for Joey.

With trended data, not only will we be able to view the outstanding balance and limit, we’ll be able to see how much Joey has paid on his accounts each month for the past two years! For a guy like Joey who pays his account in full, this is fantastic; we’ll be able to really dig into his excellent credit history beyond today’s “well, he’s never been late.” Thus, Joey gets a better risk evaluation, which leads to a better rate, which leads to happy Joey, pink unicorns, rainbows and Santa Claus! Can’t get any better than this, right?

Well, if you’re Joey, yes.

However, if you’re someone who carries a balance each month, not so much. Let’s say you’re working with Bubba Buysalot on a purchase of a new home. Bubba is a guy who has 6 open credit cards, is under 50% utilization on all of them, and has never missed a payment. In today’s credit world, our algorithms see him as a TOP-TIER RISK LEVEL because of his utilization and payment history. Good for Bubba. Now, with the new trended data, we dig deeper and see that Bubba has made just the minimum payment on all six accounts and his balance over time has been increasing. Now, Bubba is no longer a top-tier borrower. He gets a worse risk evaluation (due to the fact that those who make minimum payments default on debt at a rate 3 to 5 times higher), which leads to a higher rate or a declined loan, which leads to sad Bubba, rain clouds, bee stings and Lucy pulling away the football when he tries to kick it.

You can see both sides of this coin, right? Deeper information and improved risk assessment is good for creditors, Fannie Mae and MBS investors, but it’s not good for every applicant.

OK. So WHEN is this new version of DU coming out? Good question. According to Fannie’s preview document released at the end of January, we can expect the rollout to occur on the weekend of June 25, 2016. We also can expect a series of training webinars and informational communications in the months leading up to the roll-out date. As of right now, all we really know is that this new release will evaluate trended credit data, as well as simplify the process for applicants with multiple financed properties. We’ll learn a lot more when Fannie issues the release notes sometime later this month. It will be interesting to see if they also incorporate some of the other changes they’ve been working on, such as creating a way for DU to evaluate borrowers with non-traditional credit histories, or if those will be relegated to a future release.

Now that you have this knowledge, it’s time to get out there and start educating your prospective borrowers about it, especially those who are sitting on the fence about purchasing a home. While you’re at it, start informing your referral sources, too! I’m sure there are gaggles of real estate agents and financial planners out there who’d like to know about these changes well in advance.

More to come when the Release Notes are, well, released. Until then…

Happy Originating!

Peter



Real Estate Institute is an NMLS-Approved Course Provider, #1400102. Each year, thousands across the country choose Real Estate Institute for its mortgage pre-license, SAFE test prep and continuing education programs. If you have questions about your education requirements, our compliance experts are available at 800-995-1700 from 8 a.m. – 6 p.m. (Central Time), Monday through Friday.

Mortgage Originators – The Changes Aren’t Over Yet

Magnifying-glass-showing-changeWe all knew this was coming (and, honestly, given the increasing importance of Mortgage Industry Standards Maintenance Organization (MISMO) standards in keeping our loan-level data compliant, is probably long overdue) but just when we thought we might be getting a breather from front-end form changes for a while…

The Uniform Residential Loan Application (you know it as the 1003) is undergoing a facelift. According to Fannie and Freddie, the redesign should be complete by the summer of 2016. It will likely come with a nice trial period before its use becomes mandatory. Given the expanded dataset that is being phased-in in the coming years with the CFPB’s updated HMDA rule, expect to see the government monitoring information section expanded, along with a re-aligning of the data fields to more closely match information used in evaluating applications under current GSE underwriting guidelines. In fact, this project is probably very closely related to the significant updates that Fannie has told us will be coming to Desktop Underwriter next year.

You can bet that we’ll have more information on this for you as the new form is released. Until then, drink a cup of Auld Lang Syne to TRID, and here’s to a great 2016!

Happy Originating,

Peter

BREAKING NEWS: TRID Delayed

TRID Deadline ExtendedIn response to what the CFPB claims was a “technical error in the regulatory process” – but likely has everything to do with continued concern from creditors about their ability to implement and guarantee compliance with the new disclosure rules by August 1 – the effective date of the new Loan Estimate and Closing Disclosure has been delayed two months to October 1, 2015.

Many lenders are calling TRID the biggest change in the mortgage industry since the 1960s. Understanding the new TILA-RESPA integrated disclosures is critical for anyone working with the real estate industry, from loan originators to real estate agents, to real estate attorneys.

Real Estate Institute has been offering courses for mortgage loan originators that provide an in-depth look at the disclosure changes for a year. The newest course designed to prepare Illinois attorneys who support both buyers and sellers of residential real estate has been very popular. New TRID course content for Illinois real estate agents will be released this summer.

 

What Mortgage Companies Need to Know About Advertising to Stay Out of Trouble

Gavel_Regulation NSurely you’ve seen the recent headlines. The Consumer Financial Protection Bureau (CFPB) is cracking down on mortgage companies for unfair and deceptive advertising practices. These companies are incurring multi-million-dollar fines for improper advertising.  Understanding the rules is critical. Here’s an overview of what you need to know about REGULATION N: Mortgage Acts and Practices (Advertising) to stay out of the headlines.

Regulation N Defined

Regulation N is a CFPB regulation that is intended to ensure that mortgage credit is not advertised in a misleading manner and that there are no material misrepresentations made – either explicitly or implicitly – about any term or mortgage credit product in a commercial communication (advertisement).

Under Regulation N, it is unlawful to:

  • Misrepresent the amount of interest a consumer will be charged, including any misrepresentations of, or failure to disclose, negative amortization.
  • Misrepresent the APR, simple interest rate, periodic rate or any other rate. (This is also prohibited separately in Regulation Z.)
  • Fail to disclose whether separate payment of taxes or insurance is required or misrepresent the extent to which those payments are included in the consumer’s mortgage payment or loan amount.
  • Misrepresent the existence, amount or duration of a prepayment penalty.
  • Using the word “fixed” to describe an ARM, unless the term “Adjustable Rate Mortgage” is clearly used before the term fixed and it is obvious that the loan is an ARM.  (For example, you can’t advertise a “five-year fixed” unless that really is a loan that amortizes over five years with no rate change.  You can, however, advertise “an adjustable rate mortgage with an initial fixed rate period of five years after which time the interest rate may adjust once per year.”
  • Misrepresent the type of mortgage credit product.  For example, it is illegal to lead a customer to believe that a balloon loan is a fully-amortizing mortgage.
  • Misrepresent the amount of the loan, or the amount of cash or credit available to the consumer, including claiming that no payments are required in a reverse mortgage.  (The payment is made when the loan matures, and the borrower can also make payments at any time during the term.)
  • Advertise or imply that the mortgage company or loan product is sponsored by or affiliated with the government.
  • Insinuate that the advertisement in question is coming from the borrower’s current servicer when it is in fact not.
  • Tell consumers that they are pre-approved or guaranteed for a loan when that is not true.
  • Promise a refinance or loan modification unless that refinance or modification has actually been underwritten and approved and cannot change.

Finally, under Regulation N, all advertisements must be retained by the lender for a period of 24 months after their last publication or broadcast.

Helpful Hint for Prospective MLOs

If you’re thinking of becoming a loan officer, you will need to know Regulation N for the National SAFE mortgage loan originator exam. This is the licensing test that prospective loan officers need to pass to become a state-licensed mortgage loan originator. For more help preparing for the NMLS / SAFE test, try out these free practice tests.

 


Real Estate Institute encourages all readers to consult with a qualified attorney on all matters of law or regulation, as no blog post can or should be a substitute for competent legal counsel.