Monthly Archives: September 2017

VA Announces Annual Increase in Construction Cost Index and (SAH), (SHA), and (TRA) Grants

Veterans Benefits Administration Circular 26-17-26

Department of Veterans Affairs September 19, 2017

Washington, DC 20420

Annual Increase in Construction Cost Index and Specially Adapted Housing (SAH),

Special Housing Adaptations (SHA), and Temporary Residence Adaptations (TRA) Grants

Purpose. Effective October 1, 2017, the Department of Veterans Affairs (VA) announces that the SAH, SHA, and TRA grant amounts will increase. In order to match the Turner cost of construction increase of 4.88 percent from the Second Quarter 2016 to Second Quarter 2017, the maximum grant amounts for Veterans and Servicemembers eligible for housing assistance under Title 38 U.S.C., Section 2101(a), 2101(b), and 2101A, will increase as follows:

$81,080 – for individuals eligible under Section 2101(a);

$16,217 – for individuals eligible under Section 2101(b);

$35,593 – for individuals eligible under Section 2102A(b)(A); and

$ 6,355 – for individuals eligible under Section 2102A(b)(B).

Rescission: This Circular is automatically rescinded October 1, 2018.

By Direction of the Under Secretary for Benefits

Jeffrey F. London

Director

Loan Guaranty Service

Distribution: CO: RPC 2018

SS(26A1) FLD: VBAFS, 1 each (Reproduce and distribute based on RPC 2018)

(LOCAL REPRODUCTION AUTHORIZED)

Source https://www.benefits.va.gov/HOMELOANS/documents/circulars/26_17_26.pdf

Fannie Mae Provides Additional Guidance on Property Inspections and Servicing-Related Reminders

Lender Letter LL-2017-07                                                September 21, 2017

To: All Fannie Mae Single-Family Sellers and Servicers Reimbursement for Property Inspections and Additional Servicing-Related Reminders

We continue to respond and work with our lenders and servicers to assist homeowners impacted by the recent hurricanes. In doing so, we are providing this Lender Letter with additional guidance and relief. Refer to the disaster resources on our Single-Family and corporate disaster relief pages. As stated in recent Lender Letters related to Hurricanes Harvey and Irma, we will provide reimbursement for property inspection costs incurred by lenders and servicers. We don’t want cost to be an inhibitor to obtaining inspections generally and we want to ensure that inspection costs are not passed on to impacted borrowers. The purpose of this Lender Letter is to describe our reimbursement policies and the process for obtaining them. We also remind servicers of a number of important policies related to inspections, property repair, and reporting of damage. Reimbursement Process We will be utilizing the existing process that is currently in place for expense reimbursement to servicers. All claims must be submitted by the servicer of the loan in the LoanSphere Invoicing™ system. This reimbursement process applies for property inspection costs incurred prior to purchase or securitization of the loan by Fannie Mae, and also for loans currently being serviced. Property Inspections and Reimbursement for Newly Originated Loans Property Inspections Before delivery of a mortgage loan to Fannie Mae where the property may have been damaged by a disaster, we expect the lender to take prudent and reasonable actions to determine whether the condition of the property may have materially changed. We are not prescriptive in how lenders make their representations and warranties around potential impact to property condition as a result of the disaster. “Prudent and reasonable actions” are not restricted to on-site inspection by a licensed or certified appraiser. Lenders may also obtain inspections from appraiser trainees, home inspectors, real estate agents, insurance adjustors, contractors, or any other qualified representatives of their choosing. Technology such as real-time aerial or satellite imagery might also enable lenders to meet this requirement.

PLEASE NOTE We are extending the disaster policies recently communicated in this and recent lender letters to all hurricanes occurring in the U.S. and its territories on or after August 25, 2017 and through the 2017 hurricane season. Where policy termination dates have been identified, we will issue updates as necessary.

Reimbursement The following reimbursement policies will apply to property inspections obtained prior to loan purchase or securitization by Fannie Mae for properties in the disaster area:

 Loans with appraisals: Reimbursement will occur for loans in process that were in the disaster area and have an Appraisal Effective Date prior to the disaster occurring.

 PIW loans: Reimbursement will occur for loans that were closed before the disaster occurred, where the lender intended to sell the loan to us with a property inspection waiver (PIW).

 Lenders, including direct sellers and correspondents who have incurred property inspection costs, will work with the servicer of record to seek reimbursement. (The servicer must submit all requests.)

 We will reimburse for the actual cost of property inspections incurred as a result of the disasters that occurred on or after August 25, 2017, up to a reasonable amount. Note that the reimbursement limits noted below pertaining to existing loans does not apply to newly originated loans, and we are not reimbursing the cost of appraisals.

 Servicers may begin submitting requests for reimbursement on or after October 1, 2017. Reimbursement requests must be made within one year of the invoice date.

 The servicer must maintain copies of the property inspection invoice and results in the loan file and must provide to us upon request. Property Inspection, Reimbursement, Repair, and Reporting Policies for Existing Loans Property Inspections Servicers must determine the extent and nature of the damage pursuant to Servicing Guide, D1-3-01: Evaluating the Damage Caused by a Disaster. If the servicer is unable to contact the borrower to make that determination, the servicer must inspect the property. The following table further outlines the servicer’s responsibilities for inspecting impacted properties based on the mortgage loan status prior to the disaster and the occupancy status of a delinquent mortgage loan (according to the last inspection prior to the disaster). For additional information about inspecting properties impacted by disaster, see Servicing Guide, D2-2-10: Requirements for Performing Property Inspections, and the Property Preservation Matrix and Reference Guide. If the property is in an area impacted by disaster and the mortgage loan is… Then the servicer must… current attempt to achieve Quality Right Party Contact (QRPC) to verify damage and determine the borrower’s intent on filing an insurance claim and completing necessary repairs. If the servicer is not able to achieve QRPC, then the servicer must inspect the property. If the initial inspection report shows damage, the servicer must continue monthly property inspections until the damage is remediated. delinquent and the property is occupied or the occupancy status is unknown attempt to achieve QRPC to verify damage and determine the borrower’s intent on filing an insurance claim and completing necessary repairs. If the servicer is not able to achieve QRPC, then the servicer must inspect the property. If the initial inspection report shows damage, the servicer must continue weekly property inspections © 2017 Fannie Mae. Trademarks of Fannie Mae. LL- 2017-07 3 of 4 until the damage is remediated. After the damage is remediated, the servicer must continue monthly inspections. If the initial inspection shows no damage, the servicer must continue monthly inspections. delinquent and the property is vacant immediately inspect the property. If the initial inspection report shows damage, the servicer must continue bi-weekly inspections until the damage is remediated. Once the damage is remediated, the servicer must continue monthly inspections. If the initial inspection shows no damage, the servicer must continue monthly inspections. The servicer must perform the required inspections using the Property Inspection Report (Form 30) or equivalent, and maintain a copy in the loan file (provided to Fannie Mae upon request). The servicer may exercise discretion in determining whether an interior or exterior property inspection is appropriate depending on the individual circumstances. Reimbursement We are updating our expense reimbursement process to accept requests for required inspection costs on current mortgage loans. Servicers should request reimbursement for these inspection costs under the normal process they follow today using our expense reimbursement system. The servicer should utilize the interior property inspection and/or exterior property inspection line items in its request to expedite processing. The following reimbursement policies will apply to property inspections obtained on existing loans with properties in the disaster area:  We will reimburse the servicer $15 for exterior inspections and $20 when an interior inspection is necessary, in accordance with the amounts in the Defined Expense Reimbursement Limits in Servicing Guide, F-1-06: Expense Reimbursement. However, if the servicer already ordered a more expensive FEMA disaster inspection prior to the date of this Lender Letter, we will reimburse the servicer for those costs.  We will reimburse for all mortgage loans in which Fannie Mae holds the risk of loss and the properties are impacted by disaster on or after August 25, 2017.  Servicers may begin submitting applicable requests for reimbursement on or after October 1, 2017.  Servicers must submit reimbursement requests for inspection costs on current mortgage loans within one year of the invoice date.  For inspections costs on delinquent mortgage loans, refer to the expense reimbursement deadlines in Servicing Guide, E-5-01: Requesting Reimbursement for Expenses. Performing Repairs and Addressing Urgent Conditions Servicers must immediately commence repair work for a delinquent mortgage loan if  the last inspection prior to the disaster showed the property as vacant, and  the servicer determines (through the post-disaster inspection or QRPC) that the property is still vacant and there is damage to the property. Refer to the Servicing Guide, D2-2-10: Requirements for Performing Property Inspections and the Property Preservation Matrix and Reference Guide for additional property preservation requirements and guidance. In addition, servicers are encouraged to address urgent conditions immediately and prior to our approval for matters outside the allowable threshold, in accordance with Fannie Mae’s Bid After The Fact (BATF) process in the Property Preservation Matrix and © 2017 Fannie Mae. Trademarks of Fannie Mae. LL- 2017-07 4 of 4 Reference Guide. We will give deference to servicer decisions on such repairs and will approve BATF requests as long as the repairs and associated costs keep with the intended spirit of our disaster assistance policies and are not materially unreasonable or unnecessary. Reporting Uninsured Loss Events Servicing Guide, B-5-02: Uninsured Loss Events, currently requires the servicer to send a complete report of the damage to its Fannie Mae Servicing Representative. Due to the extensive nature of the hurricane disasters, we are removing this reporting requirement for all loans going forward. Servicers are reminded that they must  determine the extent of the damage;  secure the property in accordance with the requirements in the Servicing Guide and the Property Preservation Matrix and Reference Guide, if applicable;  develop plans with the borrower to repair the property; and  assist the borrower in filing for any disaster relief that may be available. ***** If you have questions about this Lender Letter, please reach out to your Fannie Mae customer delivery team, Portfolio Manager, or our Single-Family Servicer Support Center at 1-800-2FANNIE (1-800-232-6643). Carlos T. Perez Senior Vice President and Chief Credit Officer for Single-Family

Source: https://www.fanniemae.com/content/announcement/ll1707.pdf

CFPB Issues Final Rule Regarding Annual Threshold Adjustments for 2018 HOEPA and QM Loans

AGENCY:

Bureau of Consumer Financial Protection.

ACTION:

Final rule; official interpretation.

SUMMARY:

The Bureau of Consumer Financial Protection (Bureau) is issuing this final rule amending the official interpretations for Regulation Z, which implements the Truth in Lending Act (TILA). The Bureau is required to calculate annually the dollar amounts for several provisions in Regulation Z; this final rule revises, as applicable, the dollar amounts for provisions implementing TILA and amendments to TILA, including under the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), the Home Ownership and Equity Protection Act of 1994 (HOEPA), and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The Bureau is adjusting these amounts, where appropriate, based on the annual percentage change reflected in the Consumer Price Index (CPI) in effect on June 1, 2017.

DATES:

This final rule is effective January 1, 2018.

FOR FURTHER INFORMATION CONTACT:

Jaclyn Maier, Counsel, Office of Regulations, Consumer Financial Protection Bureau, 1700 G Street NW., Washington, DC 20552 at (202) 435-7700.

SUPPLEMENTARY INFORMATION:

The Bureau is amending the official interpretations for Regulation Z, which implements TILA, to update the dollar amounts of various thresholds that are adjusted annually based on the annual percentage change in the CPI as published by the Bureau of Labor Statistics (BLS). Specifically, for open-end consumer credit plans under TILA, the threshold that triggers requirements to disclose minimum interest charges will remain unchanged at $1.00 in 2018. For open-end consumer credit plans under the CARD Act amendments to TILA, the adjusted dollar amount for the safe harbor for a first violation penalty fee will remain unchanged at $27 in 2018 and the adjusted dollar amount for the safe harbor for a subsequent violation penalty fee will remain unchanged at $38 in 2018. For HOEPA loans, the adjusted total loan amount threshold for high-cost mortgages in 2018 will be $21,032. The adjusted points and fees dollar trigger for high-cost mortgages in 2018 will be $1,052. For the general rule to determine consumers’ ability to repay mortgage loans, the maximum thresholds for total points and fees for qualified mortgages in 2018 will be 3 percent of the total loan amount for a loan greater than or equal to $105,158; $3,155 for a loan amount greater than or equal to $63,095 but less than $105,158; 5 percent of the total loan amount for a loan greater than or equal to $21,032 but less than $63,095; $1,052 for a loan amount greater than or equal to $13,145 but less than $21,032; and 8 percent of the total loan amount for a loan amount less than $13,145.

I. Background

A. Credit Card Annual Adjustments

MINIMUM INTEREST CHARGE DISCLOSURE THRESHOLDS

Sections 1026.6(b)(2)(iii) and 1026.60(b)(3) of the Bureau’s Regulation Z implement sections 127(a)(3) and 127(c)(1)(A)(ii)(II) of TILA. Sections 1026.6(b)(2)(iii) and 1026.60(b)(3) require the disclosure of any minimum interest charge exceeding $1.00 that could be imposed during a billing cycle and provide that, for open-end consumer credit plans, the minimum interest charge thresholds will be re-calculated annually using the CPI that was in effect on the preceding June 1; the Bureau uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for this adjustment. When the cumulative change in the adjusted minimum value derived from applying the annual CPI-W level to the current amounts in §§ 1026.6(b)(2)(iii) and 1026.60(b)(3) has risen by a whole dollar, the minimum interest charge amounts set forth in the regulation will be increased by $1.00. The BLS publishes consumer-based indices monthly but does not report a CPI change on June 1; adjustments are reported in the middle of the month. This adjustment analysis is based on the CPI-W index in effect on June 1, 2017, which was reported by BLS on May 12, 2017, and reflects the percentage change from April 2016 to April 2017. The CPI-W is a subset of the Consumer Price Index for All Urban Consumers (CPI-U) index and represents approximately 28 percent of the U.S. population. The adjustment analysis accounts for a 2.1 percent increase in the CPI-W from April 2016 to April 2017. This increase in the CPI-W when applied to the current amounts in §§ 1026.6(b)(2)(iii) and 1026.60(b)(3) did not trigger an increase in the minimum interest charge threshold of at least $1.00, and the Bureau is therefore not amending §§ 1026.6(b)(2)(iii) and 1026.60(b)(3).

SAFE HARBOR PENALTY FEES

Section 1026.52(b)(1)(ii)(A) and (B) of the Bureau’s Regulation Z implements section 149(e) of TILA, established by the CARD Act.[1Section 1026.52(b)(1)(ii)(D) provides that the safe harbor provision, which establishes the permissible penalty fee thresholds in § 1026.52(b)(1)(ii)(A) and (B), will be re-calculated annually using the CPI that was in effect on the preceding June 1; the Bureau uses the CPI-W for this adjustment. The BLS publishes consumer-based indices monthly but does not report a CPI change on June 1; adjustments are reported in the middle of the month. The CPI-W is a subset of the CPI-U index and represents approximately 28 percent of the U.S. population. When the cumulative change in the adjusted value derived Start Printed Page 41159from applying the annual CPI-W level to the current amounts in § 1026.52(b)(1)(ii)(A) and (B) has risen by a whole dollar, those amounts will be increased by $1.00. Similarly, when the cumulative change in the adjusted value derived from applying the annual CPI-W level to the current amounts in § 1026.52(b)(1)(ii)(A) and (B) has decreased by a whole dollar, those amounts will be decreased by $1.00. See comment 52(b)(1)(ii)-2. The 2018 adjustment analysis is based on the CPI-W index in effect on June 1, 2017, which was reported by BLS on May 12, 2017, and reflects the percentage change from April 2016 to April 2017. The 2.1 percent increase in the CPI-W from April 2016 to April 2017 did not trigger an increase in the first violation safe harbor penalty fee of $27 or the subsequent violation safe harbor penalty fee of $38, and the Bureau is therefore not amending § 1026.52(b)(1)(ii)(A) and (B) for the 2018 calendar year.

B. HOEPA Annual Threshold Adjustments

Section 1026.32(a)(1)(ii) of the Bureau’s Regulation Z implements section 1431 of the Dodd-Frank Act,[2which amended the HOEPA points and fees coverage test. Under § 1026.32(a)(1)(ii)(A) and (B), when determining whether a transaction is a high-cost mortgage, the determination of the applicable points and fees coverage test is based upon whether the total loan amount is for $20,000 or more, or for less than $20,000. Section 1026.32(a)(1)(ii) provides that this threshold amount be recalculated annually using the CPI index in effect on June 1; the Bureau uses the CPI-U for this adjustment. The CPI-U is based on all urban consumers and represents approximately 88 percent of the U.S. population. The BLS publishes consumer-based indices monthly but does not report a CPI change on June 1; adjustments are reported in the middle of each month. The 2018 adjustment is based on the CPI-U index in effect on June 1, which was reported by BLS on May 12, 2017, and reflects the percentage change from April 2016 to April 2017. The adjustment to the $20,000 figure being adopted here reflects a 2.2 percent increase in the CPI-U index for this period and is rounded to whole dollars for ease of compliance.

Under § 1026.32(a)(1)(ii)(B) the HOEPA points and fees dollar trigger is $1,000. Section 1026.32(a)(1)(ii)(B) provides that this threshold amount will be recalculated annually using the CPI index in effect on June 1; the Bureau uses the CPI-U for this adjustment. The 2018 adjustment is based on the CPI-U index in effect on June 1, which was reported by BLS on May 12, 2017, and reflects the percentage change from April 2016 to April 2017. The adjustment to the $1,000 figure being adopted here reflects a 2.2 percent increase in the CPI-U index for this period and is rounded to whole dollars for ease of compliance.

C. Ability To Repay and Qualified Mortgages Annual Threshold Adjustments

The Bureau’s Regulation Z implements sections 1411 and 1412 of the Dodd-Frank Act, which generally require creditors to make a reasonable, good faith determination of a consumer’s ability to repay any consumer credit transaction secured by a dwelling, and establishes certain protections from liability under this requirement for qualified mortgages. Under § 1026.43(e)(3)(i), a covered transaction is not a qualified mortgage if the transaction’s points and fees exceed: 3 Percent of the total loan amount for a loan amount greater than or equal to $100,000; $3,000 for a loan amount greater than or equal to $60,000 but less than $100,000; 5 percent of the total loan amount for loans greater than or equal to $20,000 but less than $60,000; $1,000 for a loan amount greater than or equal to $12,500 but less than $20,000; or 8 percent of the total loan amount for loans less than $12,500. Section 1026.43(e)(3)(ii) provides that the limits and loan amounts in § 1026.43(e)(3)(i) are recalculated annually for inflation using the CPI-U index in effect on June 1. The CPI-U is based on all urban consumers and represents approximately 88 percent of the U.S. population. The BLS publishes consumer-based indices monthly but does not report a CPI change on June 1; adjustments are reported in the middle of each month. The 2018 adjustment is based on the CPI-U index in effect on June 1, which was reported by BLS on May 12, 2017, and reflects the percentage change from April 2016 to April 2017. The adjustment to the 2017 figures being adopted here reflects a 2.2 percent increase in the CPI-U index for this period and is rounded to whole dollars for ease of compliance.

II. Adjustment and Commentary Revision

A. Credit Card Annual Adjustments

MINIMUM INTEREST CHARGE DISCLOSURE THRESHOLDS—§§ 1026.6(B)(2)(III) AND 1026.60(B)(3)

The minimum interest charge amounts for §§ 1026.6(b)(2)(iii) and 1026.60(b)(3) will remain unchanged at $1.00 for the year 2018. Accordingly, the Bureau is not amending these sections of Regulation Z.

SAFE HARBOR PENALTY FEES—§ 1026.52(B)(1)(II)(A) AND (B)

The safe harbor penalty fee amounts remain unchanged at $27 for § 1026.52(b)(1)(ii)(A) (first violation safe harbor penalty fee) and $38 for § 1026.52(b)(1)(ii)(B) (subsequent violation safe harbor penalty fee) for the year 2018. Accordingly, the Bureau is not amending these sections of Regulation Z. The Bureau is amending comment 52(b)(1)(ii)-2.i to preserve a list of the historical thresholds for this provision.

B. HOEPA Annual Threshold Adjustment—Comments 32(a)(1)(ii)-1 and -3

Effective January 1, 2018, for purposes of determining under § 1026.32(a)(1)(ii) the points and fees coverage test under HOEPA to which a transaction is subject, the total loan amount threshold is $21,032, and the adjusted points and fees dollar trigger under § 1026.32(a)(1)(ii)(B) is $1,052. When the total loan amount for a transaction is $21,032 or more, and the points and fees amount exceeds 5 percent of the total loan amount, the transaction is a high-cost mortgage. When the total loan amount for a transaction is less than $21,032, and the points and fees amount exceeds the lesser of the adjusted points and fees dollar trigger of $1,052 or 8 percent of the total loan amount, the transaction is a high-cost mortgage. The Bureau is amending comments 32(a)(1)(ii)-1 and -3, which list the adjustments for each year, to reflect for 2018 the new loan amount dollar threshold and the new points and fees dollar trigger, respectively.

C. Ability To Repay and Qualified Mortgages Annual Threshold Adjustments

Effective January 1, 2018, for purposes of determining whether a covered transaction is a qualified mortgage under § 1026.43(e), a covered transaction is not a qualified mortgage if, pursuant to § 1026.43(e)(3), the transaction’s total points and fees exceed 3 percent of the total loan Start Printed Page 41160amount for a loan amount greater than or equal to $105,158; $3,155 for a loan amount greater than or equal to $63,095 but less than $105,158; 5 percent of the total loan amount for loans greater than or equal to $21,032 but less than $63,095; $1,052 for a loan amount greater than or equal to $13,145 but less than $21,032; or 8 percent of the total loan amount for loans less than $13,145. The Bureau is amending comment 43(e)(3)(ii)-1, which lists the adjustments for each year, to reflect the new dollar threshold amounts for 2018.

III. Procedural Requirements

A. Administrative Procedure Act

Under the Administrative Procedure Act, notice and opportunity for public comment are not required if the Bureau finds that notice and public comment are impracticable, unnecessary, or contrary to the public interest. 5 U.S.C. 553(b)(B). Pursuant to this final rule, in Regulation Z, comments 32(a)(1)(ii)-1.iv and -3.iv, 43(e)(3)(ii)-1.iv, and 52(b)(1)(ii)-2.i.E in supplement I are added to update the exemption thresholds. The amendments in this final rule are technical and non-discretionary, as they merely apply the method previously established in Regulation Z for determining adjustments to the thresholds. For these reasons, the Bureau has determined that publishing a notice of proposed rulemaking and providing opportunity for public comment are unnecessary. The amendments therefore are adopted in final form.

B. Regulatory Flexibility Act

Because no notice of proposed rulemaking is required, the Regulatory Flexibility Act does not require an initial or final regulatory flexibility analysis. 5 U.S.C. 603(a), 604(a).

C. Paperwork Reduction Act

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 35065 CFR part 1320), the Bureau reviewed this final rule. No collections of information pursuant to the Paperwork Reduction Act are contained in the final rule.

List of Subjects in 12 CFR Part 1026

Advertising

Consumer protection

Credit

Credit unions

Mortgages

National banks

Reporting and recordkeeping requirements

Savings associations

Truth in lending

Authority and Issuance

For the reasons set forth in the preamble, the Bureau amends Regulation Z, 12 CFR part 1026, as set forth below:

PART 1026—TRUTH IN LENDING (REGULATION Z)

1.The authority citation for part 1026 continues to read as follows:

Authority: 12 U.S.C. 2601, 2603-2605, 2607, 2609, 2617, 3353, 5511, 5512, 5532, 5581; 15 U.S.C. 1601 et seq.

2.In Supplement I to part 1026—Official Interpretations:

a.Under Section 1026.32—Requirements for High-Cost Mortgages, under 32(a) Coverage, under Paragraph 32(a)(1)(ii), paragraphs 1.iv and 3.iv are added.

b.Under Section 1026.43—Minimum Standards for Transactions Secured by a Dwelling, under 43(e) Qualified mortgages, under Paragraph 43(e)(3)(ii),paragraph 1.iv is added.

c.Under Section 1026.52—Limitations on Fees, under 52(b) Limitations on Penalty Fees, under 52(b)(1)(ii) Safe harbors, paragraph 2.i.E is added.

 

Source: https://www.federalregister.gov/documents/2017/08/30/2017-18003/truth-in-lending-regulation-z-annual-threshold-adjustments-credit-cards-hoepa-and-atrqm

CFPB Issues Proposed Policy Guidance Regarding Disclosure of Loan-Level HMDA Data

WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) today issued a rule amending the 2015 updates to the Home Mortgage Disclosure Act (HMDA) rule. The Bureau has temporarily changed reporting requirements for banks and credit unions that issue home-equity lines of credit, and clarified the information that financial institutions are required to collect and report about their mortgage lending.

“The Home Mortgage Disclosure Act is a vital source of information on the health and fairness of the mortgage market,” said CFPB Director Richard Cordray. “Today’s amendments show that the Consumer Bureau is committed to ensuring that financial institutions are able to comply with the rule, and to promoting transparency across the largest consumer financial market in the world.”

The Home Mortgage Disclosure Act—originally enacted in 1975—requires most lenders to report information about the home loans that they originate or purchase, as well as applications received. Banking regulators and the public can use this data to monitor whether financial institutions are serving the housing needs of their communities, to assist in distributing public-sector investment in order to attract private investment to areas where it is needed, and to identify possible discriminatory lending patterns.

As directed by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB updated the HMDA regulation in 2015 to improve the quality and type of data reported by financial institutions. Most of the updated requirements take effect in January 2018, and the industry is working to bring operations into compliance.

Reporting Threshold

Under rules that are scheduled to take effect in January 2018, financial institutions would have been required under the Home Mortgage Disclosure Act to report home-equity lines of credit if they made 100 such loans in each of the last two years. Today’s final rule has increased that threshold to 500 loans through calendar years 2018 and 2019 so that the Bureau can consider whether to make a permanent adjustment. This change was initially proposed in July 2017.

This temporary increase in the threshold will provide time for the Bureau to consider whether to initiate another rulemaking to address the appropriate level for the threshold for data collected beginning January 1, 2020.

Clarifications and Technical Corrections

Today’s final rule contains a number of clarifications, technical corrections, and minor changes to the HMDA regulation. These include clarifying certain key terms, such as “temporary financing” and “automated underwriting system.” The changes finalized today will also, for example, establish transition rules for reporting certain loans purchased by financial institutions. Another change will facilitate reporting the census tract of a property, using a geocoding tool that will be provided on the Bureau’s website. These changes were initially proposed in April 2017.

The CFPB is committed to well-tailored and effective regulations and has sought to carefully calibrate its efforts to ensure consistency with respect to consumer financial protections across the financial services marketplace.

The final rule is available at:

http://files.consumerfinance.gov/f/documents/201708_cfpb_final-rule_home-mortgage-disclosure_regulation-c.pdf 

The CFPB is also releasing today an executive summary of the final rule, updates to technical filing instructions, and other implementation materials.  The CFPB hopes that these materials will help financial institutions understand and implement the changes adopted in the final rule.

The regulatory implementation materials are available here: 

https://www.consumerfinance.gov/policy-compliance/guidance/implementation-guidance/hmda-implementation/

The technical instructions are available here:

 https://www.consumerfinance.gov/data-research/hmda/for-filers

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The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers  to take more control over their economic lives. For more information, visit consumerfinance.gov.  

Source: https://www.consumerfinance.gov/about-us/newsroom/cfpb-temporarily-changes-mortgage-data-rule-reporting-threshold-community-banks-and-credit-unions/

Freddie Mac Announces Guide Bulletin 2017-21

SUBJECT: EXTENSION OF CERTAIN HURRICANE-RELATED REQUIREMENTS AND PROPERTY INSPECTION REIMBURSEMENT FOR ELIGIBLE DISASTER AREAS This Guide Bulletin announces that our temporary selling and Servicing requirements related to Hurricane Harvey and Hurricane Irma in Bulletins 2017-14, 2017-16 and 2017-19 are extended to Mortgages and Borrowers whose Mortgaged Premises or places of employment are located in Eligible Disaster Areas impacted by all hurricanes on and after August 25, 2017 and through the 2017 hurricane season. However, the temporary suspension of foreclosure sales and evictions will only apply to Mortgaged Premises located in an Eligible Disaster Area as a result of Hurricane Harvey, Hurricane Irma and now Hurricane Maria. In the event of another hurricane, all previously announced selling flexibilities will be available as of the date of the Federal Emergency Management Agency (FEMA) major disaster declaration in Eligible Disaster Areas without further instruction from Freddie Mac. Freddie Mac selling-related systems will be updated as soon as possible after the disaster. We are also announcing details concerning property inspections and reporting requirements for Mortgages with properties in Eligible Disaster Areas.

TEMPORARY SELLING REQUIREMENTS Property inspection fee reimbursement Freddie Mac will reimburse Sellers through September 30, 2018 for property inspections completed prior to the sale or securitization of Mortgages secured by properties in Eligible Disaster Areas as a result of a 2017 hurricane:  Freddie Mac will reimburse Sellers after the Mortgage has been sold or securitized  The original appraisal must have been obtained prior to the area having been declared an Eligible Disaster Area  Freddie Mac will reimburse Sellers for actual inspection costs not to exceed $75 for an individual Mortgage  The Seller must maintain copies of the inspection invoice(s) in the Mortgage file More details regarding the reimbursement process will be posted on our Natural Disaster Relief web page. We will follow up with a Single-Family Update e-mail when additional information is available.

TEMPORARY SERVICING REQUIREMENTS FOR MORTGAGES IMPACTED BY HURRICANE MARIA Suspension of foreclosure sales For Mortgages secured by properties located in Eligible Disaster Areas affected by Hurricane Maria, Freddie Mac is requiring Servicers to suspend all foreclosure sales beginning on the date that FEMA declared the area to be an Eligible Disaster Area and lasting through December 31, 2017. However, if the Mortgaged Premises was identified as vacant or abandoned prior to Hurricane Maria, and the Servicer has completed its property inspection and confirmed that there is no insurable damage or ability to receive FEMA funds on the Mortgaged Premises, the Servicer may choose to proceed with the foreclosure sale on that Mortgage prior to December 31, 2017. TO: Freddie Mac Sellers and Servicers September 25, 2017 | 2017-21

Suspension of evictions:

Freddie Mac is notifying counsel providing default related legal services to suspend all eviction activities as of the date of this Bulletin for Borrowers with Mortgaged Premises in locations designated as an Eligible Disaster Area as a result of Hurricane Maria. We will continue to assess the damage and will reevaluate our requirements as circumstances dictate.

TEMPORARY SERVICING REQUIREMENTS FOR MORTGAGES IMPACTED BY AN ELIGIBLE DISASTER Reimbursement process for property inspections of Mortgaged Premises in Eligible Disaster Areas Effective for all property inspections conducted on and after August 29, 2017 of Mortgaged Premises in an Eligible Disaster Area As announced in Bulletins 2017-14 and 2017-19, Freddie Mac is aware that Servicers may need to conduct a property inspection of a Mortgaged Premises in an Eligible Disaster Area that would not normally be reimbursable in accordance with Guide Sections 9202.12 and 9701.9. As a result, we are announcing a temporary process for Servicers to seek reimbursement of the actual costs, subject to applicable expense limits, for exterior property inspections completed in accordance with Section 8404.2 and interior property inspections completed in accordance with Section 8202.11. For exterior property inspections, Servicers must use expense code 404005 (Exterior Property Inspection) with an expense limit of $15. For interior property inspections, Servicers must use expense code 404007 (Interior Property Inspection) with an expense limit of $20. However, if a Servicer already ordered or obtained a “FEMA inspection” where the cost exceeded the normal expense reimbursement amounts, Freddie Mac will reimburse those amounts if incurred prior to the date of this Bulletin. Servicers may temporarily submit property inspection reimbursement requests once per month via an Excel® spreadsheet to NPL_Invoices@freddiemac.com. The e-mail subject line should reference “Disaster related property inspection reimbursement request,” and the spreadsheet must include the following information for all Mortgages that a Servicer is seeking reimbursement for that month:  Freddie Mac Loan Number  Seller/Servicer Payee Code  Expense Code  Reimbursement request amount  Property inspection expense date paid  Vendor Name A Servicer unsure of its Seller/Servicer Payee code should send an e-mail request to 104_Expense@freddiemac.com. A property inspection completed on a Mortgage that was 60 or more days delinquent would already be required, and so is eligible for reimbursement in accordance with Sections 9202.12 and 9701.9. In this instance, Servicers must submit expense reimbursement requests in accordance with those Guide sections, and not through the temporary process described above.

EDR for Eligible Disasters We remind Servicers to report:  All Mortgages that are affected by an Eligible Disaster and are 31 or more days delinquent to Freddie Mac via EDR transmission within the first three Business Days of the month following the month the Servicer learned of the Eligible Disaster  Default action code 09 (Forbearance) for each month while the disaster forbearance plan status is relevant  Default action date (report the forbearance plan start date, which date may be prior to the Mortgage becoming 31 or more days delinquent)  Default reason code 034 (Eligible Disaster Area) for Mortgages where the Borrower’s Mortgaged Premises or place of employment is located in an Eligible Disaster Area  Default action code AW to notify us of the date of the Servicer’s first quality right party contact (QRPC) with the Borrower, which date must only be reported one time, in the month following the month when the event took place  Default action code AX to notify us of the date of the Servicer’s last QRPC with the Borrower, which date must only be reported one time, in the month following the month when the event took place Servicers should review Guide Exhibit 82, Electronic Default Reporting Transmission Code List, and the Electronic Default Reporting Quick Reference Guide for details on EDR.

CONCLUSION If you have any questions about the changes announced in this Bulletin, please contact your Freddie Mac representative or call the Customer Support Contact Center at (800) FREDDIE.

Sincerely,

Christina K. Boyle Senior Vice President Single-Family Sales and Relationship Management

Source: http://www.freddiemac.com/singlefamily/guide/bulletins/pdf/bll1721.pdf

The Smart Move to Make After The Equifax Breach

With the angry glare of the public eye squarely focused on Equifax after announcing a massive breach and blamed it on a computer server flaw other companies had fixed months before, the company is waiving fees on credit freezes. Which is good news because it’s the only thing that’s going to save your bacon.

The company had previously offered victims a free year of credit report monitoring — but customers and advocates were quick to point out that this wouldn’t actually stop anyone’s identity from getting exploited from the data heist affecting nearly 143 million Americans. Hackers would still be able to open up new credit cards and go on spending sprees, apply for other loans or mortgages, and leave you holding the bag for the debt or the bad name.

 

Source : https://www.nbcnews.com/business/consumer/amp/one-move-make-after-equifax-breach-n800776

10 Traits of Successful People

Those who enjoy success, financial or otherwise, have a different perspective to the rest of us. They do not tolerate people who do not support their success, people who are not on their team. They take the long term view, often forgoing short term benefits, like holidays, for long term achievements, the result of hard work. They never stop learning and are not afraid to ask for help and are willing to make mistakes and take responsibility for them.

They could come from any background but these qualities make them successful over time.

1. They Are Driven
They obsessively pursue their goals achievement by achievement, iteration by iteration until they are in no doubt that their goal has been achieved. They do not have time to watch TV and all the simulations it hypnotizes people with. They are driving energy into their financial success.

2. They Sacrifice Present Comfort for Future Success
Often wealthy people started with low income and made space in their finances for some investment, whether in their education, financial instruments, property or some other asset that will add value over time. To make that space they often forgo the attractions of the latest fancy car or restaurant dinner.

3. They Are Self Confident
Self Confidence means never playing the victim, recognizing, instead, that attributing negative emotions to the actions of others disempowers them. Victims blame others for their circumstances and so they place all their power with others. Successful people realise that their power lies within them and that they must act to make changes. People who experience business success will always have to be tough in taking criticism and rejection, and you have to be self confident to do that.

4. They Limit Debt
Debt is a thorny issue. It is hard in the modern business environment to avoid debt, but expensive, unproductive debt is a millstone around the neck. Credit cards, over droughts, car loans, house loans, all these are profoundly unproductive and expensive. The value of what is bought with the money often depreciates, sometimes immediately after you’ve bought it, and the interest is expensive. Financially successful people will only borrow money to invest in assets that will yield a return in the future and in this way the cost of credit will pay for itself.

5. They Take Responsibility for Their Circumstances
Business success is dependent upon accepting that there will be bumps in the road, obstacles in the stream and difficult people in their lives. Financially successful people know that to blame others for the circumstances they find themselves in, especially bad circumstances, is self defeating, placing the power to effect change on others. Even if circumstances are difficult, there are always options. Taking responsibility opens them up to those options.

6. Long Term Perspective
The long term is the future, where we all end up. Planning for the long term future will help you make stable investment and business decisions. We have all heard of lottery winners whose wealth evaporates before them with nothing to show for it afterwards. This is the result of spending for the short term. Money invested with the long term in mind will generate wealth over time.

7. They Give Value
The essence of what people want from their wealth is value. Those who give value can expect to receive wealth in return for that value. Those who consistently give value can consistently expect to receive money in return, whether it is a business making a product or a craftsman plying his or her trade or an employee doing the best job possible.

8. They Know Education Is An Investment
Education can take the form of an expensive course or simply reading a book, listening to an audio book in the car on the way to work or asking for advice from a trusted source. Either way knowledge is the product and knowledge allows you to learn from others so that you can take the shortcuts and not make as many mistakes as if you did not have the knowledge. It’s simple really.

9. They Are Goal Oriented
There are those who, in their jobs, are only willing to do just enough to avoid being fired and they spend their lives veering from one dead end job to another. Financially successful people are goal oriented and pursue that goal with all the energy they can muster, and if that means working extra hours or travelling or getting advice from a mentor then they will do that to achieve the goal.

10. They Are Passionate
Their drive to achieve success is fueled by passion, the excitement, fulfillment and intensity of self actualization. The passionate pursue success not merely for themselves but for the service of all.

Financially successful people are driven to succeed by their passionate desire to provide service to the world. They do this by offering value, going the extra mile where it is never crowded. They take the long term view, avoiding debt and they constantly update their knowledge with education.

Source: http://www.viralnovelty.net/10-things-financially-successful-people-consistently/

HUD Announces New Reverse Mortgage Rules

The House of Representatives could soon consider a bill that would bring several changes to the Consumer Financial Protection Bureau’s “Know Before You Owe mortgage disclosure rule”, also known as the TILA-RESPA Integrated Disclosure rule or TRID.

The new bill is called the “TRID Improvement Act of 2017,” and has yet to be officially introduced into the House, but the bill was discussed on Capitol Hill on Thursday during a meeting of the Financial Institutions and Consumer Credit Subcommittee of the House Financial Services Committee.

The bill is sponsored by Rep. French Hill, R-Arkansas.

According to the Republican arm of the House Financial Services Committee, the TRID Improvement Act of 2017 would amend the Real Estate Settlement Procedures Act and the Truth in Lending Act to expand the time period granted to a creditor to cure a good-faith violation on a loan estimate or closing disclosure from 60 to 210 days.

The bill would also amend RESPA to “allow for the calculation of a simultaneous issue discount when disclosing title insurance premiums.”

Additional details about the bill can be seen in a discussion draft of the bill that was posted Thursday to the House Financial Services Committee’s website. Click here to read the discussion draft in full.

The bill’s proposed changes come just over a month before the CFPB’s finalized updates to TRID rule officially take effect on Oct. 10, 2017.

The Federal Register published the rule last month, marking the 60-day period until the amendments take effect.

The bureau released the updates back in July, answering industry calls asked for greater clarity and certainty on the controversial rule.

For much more on the history of TRID, click here.

During the hearing, the Financial Institutions and Consumer Credit Subcommittee also discussed a number of other bills, including the “Community Institution Mortgage Relief Act of 2017.”

That bill, which is set to be formally introduced by Rep. Claudia Tenney, R-New York, would amends the Truth in Lending Act to direct the Consumer Financial Protection Bureau to “exempt from certain escrow or impound requirements a loan secured by a first lien on a consumer’s principal dwelling if the loan is held by a creditor with assets of $50 billion or less.”

The bill would also require the CFPB to provide certain exemptions to the mortgage loan servicing and escrow account administration requirements of the Real Estate Settlement Procedures Act for servicers of 30,000 or fewer mortgages.

“The legislation discussed in the Subcommittee today will better allow financial companies to serve their customers,” Subcommittee Chairman Rep. Blaine Luetkemeyer, R-Missouri. “From banks and credit unions to attorneys, we’ve seen an impeded ability for businesses across the nation to offer financial services and guidance. In order to preserve consumer choice and financial independence, Congress must tackle regulatory reform and simplify rules. The policies outlined in today’s legislation start to break down those barriers.”

Source : https://www.housingwire.com/articles/41253-house-to-consider-bill-to-change-trid-rules

Pending TRID Changes Are on the Way

The House of Representatives could soon consider a bill that would bring several changes to the Consumer Financial Protection Bureau’s “Know Before You Owe mortgage disclosure rule”, also known as the TILA-RESPA Integrated Disclosure rule or TRID.

The new bill is called the “TRID Improvement Act of 2017,” and has yet to be officially introduced into the House, but the bill was discussed on Capitol Hill on Thursday during a meeting of the Financial Institutions and Consumer Credit Subcommittee of the House Financial Services Committee.

The bill is sponsored by Rep. French Hill, R-Arkansas.

According to the Republican arm of the House Financial Services Committee, the TRID Improvement Act of 2017 would amend the Real Estate Settlement Procedures Act and the Truth in Lending Act to expand the time period granted to a creditor to cure a good-faith violation on a loan estimate or closing disclosure from 60 to 210 days.

The bill would also amend RESPA to “allow for the calculation of a simultaneous issue discount when disclosing title insurance premiums.”

Additional details about the bill can be seen in a discussion draft of the bill that was posted Thursday to the House Financial Services Committee’s website. Click here to read the discussion draft in full.

The bill’s proposed changes come just over a month before the CFPB’s finalized updates to TRID rule officially take effect on Oct. 10, 2017.

The Federal Register published the rule last month, marking the 60-day period until the amendments take effect.

The bureau released the updates back in July, answering industry calls asked for greater clarity and certainty on the controversial rule.

For much more on the history of TRID, click here.

During the hearing, the Financial Institutions and Consumer Credit Subcommittee also discussed a number of other bills, including the “Community Institution Mortgage Relief Act of 2017.”

That bill, which is set to be formally introduced by Rep. Claudia Tenney, R-New York, would amends the Truth in Lending Act to direct the Consumer Financial Protection Bureau to “exempt from certain escrow or impound requirements a loan secured by a first lien on a consumer’s principal dwelling if the loan is held by a creditor with assets of $50 billion or less.”

The bill would also require the CFPB to provide certain exemptions to the mortgage loan servicing and escrow account administration requirements of the Real Estate Settlement Procedures Act for servicers of 30,000 or fewer mortgages.

“The legislation discussed in the Subcommittee today will better allow financial companies to serve their customers,” Subcommittee Chairman Rep. Blaine Luetkemeyer, R-Missouri. “From banks and credit unions to attorneys, we’ve seen an impeded ability for businesses across the nation to offer financial services and guidance. In order to preserve consumer choice and financial independence, Congress must tackle regulatory reform and simplify rules. The policies outlined in today’s legislation start to break down those barriers.”

 

Source: https://www.housingwire.com/articles/41253-house-to-consider-bill-to-change-trid-rules

What are the Compliance Risks With Electronic Documents ?

By Rachael Sokolowski

In the satirical 1980s film Risky Business, a Chicago teen’s parents leave him home alone while they go on vacation. The result is a series of unintended mishaps, involving prostitution and a pop-up brothel, high speed chases and a waterlogged Porsche, stolen furniture and a crack in his mother’s prized Steuben glass egg. Joel, the teenager, manages to restore the house to order, including the Steuben egg on the mantle, just as his parents walk in. Although Joel’s mother notices a crack in the glass egg, she does not ask how the crack happened or why there is a crack. She only asks how Joel could have let the crack happened and simply expresses her disappointment.

With its humorous depiction of how one simple decision can set off a series of catastrophic events, the movie Risky Business may have some bearing in the mortgage industry in the way electronic mortgage documents and data are handled. All may appear to be fine at the end of the process, but there could be a series of unintended issues along the way which may contribute to a less than perfect conclusion. For starters, there is a disconnect between the representation of the data in the document and the electronic data used by mortgage technology systems. Throughout the life of the loan, from origination, closing, servicing, and securitization, the document and the data from the document operate in parallel universes, much like Joel and his parents.

In today’s mortgage processing of paper documents, there is a reliance on humans, instead of technology, to determine inconsistencies. With paper, the only way to automate the processing of the information on the documents is to extract the data and this is typically performed after closing. The extraction may be done in one of two ways. In one method, a person manually keys the information on a document into a system. To reduce the error rate and to improve accuracy, two or three different people enter the data and the inputs are cross-checked against each other for inconsistencies. The accuracy rate varies between 98 and 99 percent for this type of manual keying.

A second approach is to automatically recognize text and numbers on the paper document. Automatic recognition involves utilizing technology, such as optical character recognition (OCR) and business rules about the document, to determine the letters and numbers. OCR systems, just as counterpart systems for voice recognition, make mistakes and are not 100 percent accurate. To have confidence in the quality of the data, regardless of whether it is input by hand or by technology, a certain amount of human intervention is required to audit inconsistencies, to perform exception processing and to control data quality.

Regardless of the method, after extraction, there must be a check for inconsistencies. If the data representing the loan amount was extracted incorrectly, this will have major consequences for the downstream systems processing the loan. Eyes must compare the two sets of information to assure a match. This process is commonly referred to in the industry as “stare-and-compare.” A person stares at the paper document or an image of the paper document and compares it with the data in the system. There is always a human involved in the final stage of the extraction process for a quality review of the data. But, it is not fiscally feasible to have a person to perform this check on every document in every mortgage loan. This creates the possibility for inconsistency in those loans that are not subjected to a compliance check.

This whole process from data extraction to stare-and-compare may happen more than once. It may occur in the loan origination system (LOS) and/or the lender’s system and/or the servicing system and/or the loan delivery system for the investor and/or whatever technology touches the mortgage. Each time data is re-entered into a system, there is a risk of error and inconsistencies. Paper will never be eliminated in the mortgage process or at least not in our lifetimes. But where in the process should these parallel universes be checked to determine that they are in sync? Before closing or after closing? And which entity in the entire loan process should be responsible for the verification of the data on the document and the data used by mortgage systems?

It is time to ask why this disconnect exists and whether this is causing operational and compliance issues for the industry. There are operational and technological solutions to reduce the risks. There is no need for these parallel universes.

The only way to eliminate the need to stare-and-compare is to capture the loan information once, and to minimize the reliance on paper documentation. Processing documents in this way is the premise of an electronic Mortgage, or eMortgage, and is often referred to as “lights-out” processing. In the early 2000s, the Mortgage Industry Standards Maintenance Organization (MISMO) with support from the Government-Sponsored Enterprises (GSEs), developed a standard representation for eMortgage documents called the SMART document. The MISMO specification carries the data of the document in a standardized format with a direct link to the visual presentation in a single, self-contained electronic document. It is possible to automatically verify that the data provided for machine consumption matches the information presented to humans. The SMART document is currently in use today for the electronic promissory note document and only for that one document.

A SMART document eNote eliminates the need for stare-and-compare. So, why not use this electronic specification for all loan documents? In the case of the promissory note document, there are special considerations since the document is a negotiable instrument. The promissory note is as good as cash and there needs to be an assurance that the document has not been tampered with—such as the loan amount changing after the document was signed. It is also important to know who is the holder or possessor of the electronic document. Since it is easy to make copies of and/or change an electronic document, the industry agreed to designate a registry to identify the “authoritative copy” or the electronic equivalent of the paper original and to ensure the electronic document had not changed in any way after the last borrower signed the document. Since 2004, the Mortgage Electronic Registration Systems “eRegistry” provides this information. The GSEs have defined delivery requirements for accepting electronic promissory notes and MISMO defines the eMortgage as “A mortgage loan where the closing documents—through an eClosing process that includes, at a minimum, the Promissory Note—are created, accessed, presented, executed, transferred, and stored electronically.”

This definition narrows what can be described as an eMortgage. Only loans with an electronic promissory note document qualify. And despite this legal and technical infrastructure for electronic mortgages, the number of eMortgages remains static at around one percent of all mortgages. Why is this?

The issue is the age of the SMART document specification that the GSEs require for delivery. This version was developed in the early 2000s. The industry has been slow to upgrade the SMART document specification to accommodate all loan documents, including the eNote, by using the updated MISMO Version 3 SMART document specification. With this version, there is a single reference model for all data about a loan throughout its lifecycle as well as all the data necessary for mortgage documents. The reference model also includes metadata information (such as the type of document), audit trails, and the ability to add information about document signers and signatures. Version 3 holds much promise for the industry to be widely used for all mortgage documents in the future as any mortgage document can be represented in the MISMO standard. However, there is a risk that the industry is mimicking the paper processes and will still rely on stare-and-compare for detecting inconsistencies. Why is this when a technology solution exists that does not require human intervention?

The MISMO eMortgage workgroup has developed different types of electronic documents to meet varying requirements. Four types of SMART documents are defined: Basic, Retrievable, Tamper Evident and Verifiable and these are known as document profiles. The profiles build on each other and become more extensive, from Basic to Verifiable much like a set of nesting Russian Matryoshka dolls. The most rudimentary one is the Basic profile. It contains the minimal amount of information wrapped up in a SMART Doc structure that includes the view (most typically a PDF), the document’s type (e.g., promissory note, closing disclosure, loan estimate, etc.), and, if the document is signed, information related to signatures. The intent of this profile is for electronic documents where the data is not used in the loan processing. An example would be the mortgage servicing disclosure. The Retrievable profile adds MISMO standard data to what is defined in the Basic profile and uses PDF/A for the view of the electronic document. PDF is an open International Standard Organization (ISO) standard and PDF/A guarantees future presentation of the electronic document despite technology changes and provides a mechanism to prevent changes to the document. The retrievable profile is used when the document data’s needs to be carried with the PDF image. There is no linkage between the data and the PDF for automatic processing to verify that the data matches the viewable representation of the document.

The GSEs have defined an industry dataset and electronic document format to support the closing disclosure forms, called the Uniform Closing Dataset (UCD). It uses the data and requirements for MISMO Version 3 SMART documents in the Retrievable profile. By requiring the use of the SMART document, the closing disclosure’s data is delivered along with electronic representation of the document. But one problem remains since there is no way to systematically check that the data in the UCD dataset matches what the borrower viewed before signing at the closing table. This disconnect introduces the potential for inconsistencies and furthers the reliance on stare-and-compare. This risk increases when the data comes from different sources which is very common for the closing disclosure.

And now, what is next for the eNote? The eNote needs a higher level of security that the electronic document has not been altered. The MISMO SMART document Tamper Evident profile requires an audit trail of events and a final digital signature for evidence of tampering. This digital signature is used for identification on the MERS eRegistry. This is necessary for the eNote. There must be confidence that the document and its data, such as the loan amount, have not changed since the borrower signed at the closing table. Is the Tamper Evident profile sufficient for the eNote? At present the GSEs believe so. But just like the closing disclosure, the possibility exists that the data does not match the PDF and, again, furthers the reliance on stare-and-compare after closing.

A solution for this situation exists in the Verifiable Profile. It includes all the features of the Tamper Evident profile plus links between the MISMO data and the information presented in the viewable image of the document. This provides a systematic and automated way to validate that the two match. The Verifiable Profile matches what is in place today for eNotes. The GSEs are currently not requiring this profile. For the eNote, the possibility exists that the data does not match the PDF. There is a risk here.

At some point in the process, a check that the data matches the document needs to occur. But where? And how? There are currently two different approaches: automated or manual. With an automated approach, the validation is pushed to the beginning of the loan process. The check that the data matches the document is an automated validation that can occur at any point in the loan process including before closing, during closing and after closing. Manually checking the data and documents is performed by humans after closing has occurred and only on a random set of documents. But is this operationally the right point for this check? Would it not make more sense to perform this check before closing? Or include technological solutions that do not require human intervention for inconsistencies such as those that were implemented years ago for the eNote?

Right now, it is unclear when the validation should occur and who should do it. The assurance that the data matches the document is performed in redundant and costly systems and processes that do not always have a technological mechanism to communicate with each other. There are impacts to staff and costs. What happens in the future when the technology provider of the eNote is no longer in business and there are errors in the data used to service and securitize the loan? Which entity will be responsible?

Technology should be used to remove mundane and labor intensive tasks. Technology should be leveraged to overcome the operational difficulties that arise when data is generated from different sources. But that is not the case for the closing disclosure or for eNotes as a MISMO Version 3 SMART document. Instead, the industry is relying on decades old processes for verification of information from paper documents. This is risk-e business, with a potential crack in the system.

Rachael Sokolowski, president of Magnolia Technologies LLC, is a recognized leader and technology evangelist in the mortgage banking industry. She can be reached at RSokolowski@MagnoliaTech.com.

Source: http://www.mortgagecompliancemagazine.com/technology/risk-e-business-undetected-compliance-risk-data-electronic-documents/

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