Monitoring Mortgage Underwriting
The Federal Housing Administration, the government agency that insures a bigger and bigger portion of home loans, plans to rely more heavily on lenders to police mortgage brokers.Continue reading
Landmark Reverse Loan Services expands hours for NATIONAL coverage
Landmark Reverse Loan Services is expanding their operations and their hours. Starting January 1st, Landmark Reverse will be fully staffed and operational from 6:00am PST to 7:00pm PST to ensure the entire nation properly serviced during normal business hours. In addition, Landmark Reverse is excited to introduce their Regional Solution which will allow smaller lenders to submit THEIR approved appraiser so Lanmark Reverse can offer HVCC and FHA Compliant appraisal requests. Finally, local lenders can order appraisals with local appraisers whom they have prior working relationships.
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Mortgage brokers no longer allowed to order FHA appraisals…
Federal Housing Administration Policy Changes
The Federal Housing Administration (FHA) today announced several significant policy changes that are intended to improve their exposure to risk. The changes, effective January 1, include:
- Modification of Procedures for Streamline Refinance Transactions
- Adoption of Home Valuation Code of Conduct Guidelines (some not all)
- Updated Appraisal Validity Period
- New Appraisal Portability Regs
- New Requirement of Lenders to Submit of Audited Financial Statements for Review
- Adjustments to the Approval Process for Participation in FHA Loan Origination
- Increased Net-Worth Requirements for Lenders
Grabbing the attention of mortgage professionals was FHA’s decision to adopt language from HVCC appraisal guidelines. The HVCC, which has been the subject of heated debate within the industry, was implemented by Fannie Mae and Freddie Mac on May 1, 2009. At that time the FHA decided not to adhere to the policy. This undoubtedly increased demand for FHA loan products as originators quickly learned of the multitude of problems associated with HVCC. The new requirements will prohibit any commissioned based lender staff member from ordering an FHA appraisal.
FHA will not require the use of AMCs or other third party organizations for appraisal ordering, if lenders do use AMCs and/or other third party organizationsFHA-approved lenders must ensure that:
- FHA Appraisers are not prohibited by the lender, AMC or other third party, from recording the fee the appraiser was paid for the performance of the appraisal in the appraisal report.
- FHA Roster appraisers are compensated at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.
- The fee for the actual completion of an FHA appraisal may not include a fee for management of the appraisal process or any activity other than the performance of the appraisal.
- Any management fees charged by an AMC or other third party must be foractual services related to ordering, processing or reviewing of appraisalsperformed for FHA financing.
- AMC and other third party fees must not exceed what is customary and reasonable for such services provided in the market area of the property being appraised.
FHA issued five new mortgage letters explaining the policy changes. Here are links to each mortgagee letter:
Mortgagee Letter 09-28: Appraiser Independence
Mortgagee Letter 09-29: Appraisal Portability
Mortgagee Letter 09-30: Appraisal Validity Periods
Mortgagee Letter 09-31: Strengthening Counter Party Risk Periods
Mortgagee Letter 09-32: Revised Streamline Refinance Transactions
Studies Detail HUD’s Risk for HECM Loans
Home Values, Loan Amounts, and Seniors
Home values, loan amounts, and the way seniors use home equity conversion mortgages impact the Federal Housing Administration’s potential liability for its reverse mortgage program, recent studies show.
If the Department of Housing and Urban Development had used the same home appreciation models for fiscal year 2010 as it did in prior years, there would be no need for a $798 million subsidy appropriation for the HECM program, HUD officials told the Government Accountability Office in a study mandated by Congress.
And reverse mortgages with term or tenure plans are much less likely to be assigned to the FHA than line-of-credit loans, a Federal Reserve Board economist found in her own research of the HECM program.
HUD made a number of improvements to its cash flow model in 2008, partly because of a HUD Office of the Inspector General’s audit that found material weaknesses, said the GAO in a July 30 report. That year HUD began to incorporate national house price appreciation and interest rate forecasts from IHS Global Insight, an independent source for economic and financial forecasts, the report said.
To read the rest of the story – visit Reverse Mortgage Alert
MetLife Releases Study on Reverse Mortgages
As more seniors tap into their home equity to deal with the growing uncertainties of retirement, a report released by the MetLife Mature Market Institute calls for a comprehensive approach to educate and protect seniors on how to use home equity for financial planning.
Approximately 14% of seniors are taking cash out of their house through either a home equity loan or reverse mortgage, according to “Tapping Home Equity in Retirement: The MetLife Study on the Changing Role of Home Equity and Reverse Mortgages,” released yesterday. It found 35% viewed their home as collateral for a loan.
The study, jointly conducted with the National Council on Aging, indicates that older homeowners are using home equity to increase income security, to deal with unexpected expenses, and to improve debt management, according to a news statement. It highlights options such as using a reverse mortgage for delaying Social Security collection, consolidating credit card debt, and for paying out-of-pocket home and health care expenses with the credit line option.
“Our research on baby boomers indicates that they are more open than previous generations to tapping home equity and considering reverse mortgages to help fund their retirement,” said Sandra Timmermann, director of the MetLife Mature Market Institute, in the statement. “With the right guidance and policy protection, reverse mortgages can be an important financial option for boomers who do not have adequate savings.”
The report emphasizes that consumer education must be part of any new efforts aimed at increasing the use of reverse mortgages.
“The financial services industry, policymakers, and consumer advocates cannot be complacent about the potential benefits and risks of using home equity to address the challenges facing older Americans,” said Barbara R. Stucki, director of the NCOA’s Reverse Mortgage Initiative, in the statement. “We need to work together to educate consumers, create cost-effective financial products, and promote public policies that strengthen consumer protections for older homeowners.”
To complement the study, MetLife released “The Essentials: Reverse Mortgages,” a free guide to consumers.
30-day Rescission Period Dropped from California Bill
A California Assembly committee struck the controversial 30-day rescission period as one of several amendments to a reverse mortgage bill Monday, a spokeswoman for Assemblyman Mike Feuer, the bill’s author, said today.
The Assembly Committee on Banking and Finance, on a nine to zero vote, also approved three other amendments suggested by the committee’s chief consultant Mark Farouk to clarify cross-selling prohibitions and counseling funding by lenders.
The bill, AB 329, now goes to a vote by the full assembly, said Feuer’s spokeswoman Arianna Smith. She said Feuer, who is not on the Banking and Finance Committee, accepted the amendments and is “still happy with moving the bill forward.”
In a bill analysis presented to the committee on Monday, Farouk explained the justification supporting the 30-day rescission is to mirror the rescission period for annuity contracts. But he questioned if the rescission was necessary or practical since the bill sets up clear prohibitions on selling or recommending investment products related to the reverse mortgage transaction. He stated in the analysis that by the time the loan closes, the borrower has been through counseling and has waited 30 to 90 days for funding during the underwriting process.
He also pointed out the complications of unwinding a reverse mortgage transaction. “If a borrower were allowed to rescind the transaction how would the lender recoup money from liens that may have been paid off? Additionally, what if the borrower has spent a substantive amount of the funds from the transaction?” Farouk wrote.
In addition, the committee approved amendments that would clarify the prohibition of cross-selling annuities or other insurance or financial products. One clarified the time frame to “prior to closing of the reverse mortgage or before the expiration of the right of the borrower to rescind the reverse mortgage agreement.” Federal law allows for a three-day rescission period. The other amendment would not prevent a lender from offering title, hazard or other insurance products that are “customary and normal under a reverse mortgage transaction.”
The committee also approved a suggested amendment that would not prevent a counseling agency from receiving funding from a lender that is unrelated to reverse mortgages and is provided as part of “charitable or philanthropic activities.”
Sen. McCaskill To Keep Pushing for Reverse Mortgage Reform
Missouri Sen. Claire McCaskill, who has described reverse mortgages as “very dangerous,” will continue to push for further reforms of the reverse mortgage market, her spokeswoman said, after the Senate did not consider her amendment to a federal fraud enforcement bill that passed today.
“Here’s the problem: we’ve got the people closing these loans that have no skin in the game,” McCaskill said during a Senate hearing on April 23, according to a transcript. “Guess who’s insuring all these loans? We are. The taxpayers.”
McCaskill previously inserted provisions to regulate reverse mortgages into the Housing and Economic Recovery Act, which was passed last summer.
She is now raising concerns about misleading advertising, the industry’s fast growth, increasing fraud, and the taxpayers’ potential liability. McCaskill said that the rules she tried to introduce into the bill that passed today were needed to prevent the same types of abuses that occurred in subprime mortgage lending from spreading to the reverse sector.
“If we do not learn from our mistakes, we are doomed to repeat them, so I urge all my colleagues to become knowledgeable about this reverse mortgage area, get word to their constituents to be careful about these reverse mortgages,” she said. “They are very dangerous.”
McCaskill introduced the amendment to the Fraud Enforcement and Recovery Act of 2009. The amendment included provisions that would have required borrowers to certify that they live in the home and report when they terminate residence; required that a home purchased with a HECM be owned and occupied for at least 180 days; and required counselors to report suspected fraud and abuse.
The Senate passed the bill on a 92 to 4 vote today without considering McCaskill’s amendment, her spokeswoman Maria Speiser said.
Speiser said in an email today that she doesn’t know in which bill McCaskill will reintroduce the amendment, “but I do know she will continue to pursue this issue.”
New Loan Limit… It’s here!
Under ARRA, the national FHA loan limit for HECM will increase from $417,000 to $625,500 (from 100 percent to 150 percent of the conforming limit). HECM loan mortgagors do not undergo the same procedures for credit approval as do mortgagors for forward mortgages.  FHA does not deem the credit approval process to be complete until the HECM loan is closed. Therefore, HECM loans closed on or after the date of this Mortgagee Letter are subject to the higher maximum dollar amounts.Â
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           In those areas, the maximum claim payable by FHA is 150 percent of the Freddie Mac conforming limits. To avoid potential cases where a claim could be less than the national limit, as adjusted for the special exception areas, HUD had decided not to make the adjustment. Therefore, these few special exception areas will have the same $625,500 limit as all other areas.
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FHA will, for a limited time, allow HECM loans that received case number assignments but did not close prior to the effective date of this mortgagee letter to be closed using either the old limit that was used to originally calculate the loan, or the new limits as prescribed herein. An option will be made available in FHA Connection for the lender to choose which rate to use. This option will be available until April 30, 2009.
Minnesota Attorney General Pushes Reverse Mortgage Legislation
Minnesota’s legislators and attorney general, concerned about disreputable mortgage brokers and lenders taking advantage of seniors, have introduced a bill that would allow borrowers to rescind a reverse mortgage for up to 30 days.
The legislation, introduced in both the state House of Representatives and Senate yesterday, states that borrowers would be able to rescind a reverse mortgage for up to 30 days after “execution,” a term that suggests rescission could occur after a loan has been made. Once seniors notify the lender that they want out of the loan, they have 15 days to return any money received, according to the legislation, and any mortgage filed in connection with the loan would be null and void upon rescission.Â
During a press conference yesterday, Minnesota Attorney General Lori Swanson told reporters that the bill was aimed at preventing another subprime crisis in the reverse mortgage industry, according to an account in the St. Paul Pioneer Press.
“Some brokers and lenders who contributed to the mortgage meltdown are now sliding over into the reverse mortgage business, and we need to make sure that history does not repeat itself with imprudent reverse mortgage loans made to seniors,” Swanson said during the press conference. Â
Beyond the controversial 30-day rescission period, Minnesota’s proposal would make buyers of reverse mortgages responsible for the actions of the originator. The bill also includes a broad suitability requirement, which would require lenders to reasonably believe that reverse mortgages were suitable for borrowers. In addition to requiring independent counseling, the bill would limit the sales of financial products in conjunction with a reverse mortgage.
The HVCC Changes YOUR business…
Washington, DC – Federal Housing Finance Agency (FHFA) Director James B. Lockhart announced that Fannie Mae and Freddie Mac will implement a revised Home Valuation Code of Conduct (Code) effective May 1, 2009. The Code is based on an agreement between the Enterprises, the New York State Attorney General Andrew Cuomo and FHFA to improve the reliability of home appraisals. Following a comment period on the original Code, modifications were made by the Enterprises to reflect comments received. The revisions will facilitate implementation in the marketplace.
