All posts by Synergy

Best Practices for Vendor Management and Your Mortgage Company

Due diligence is one of the most fundamental but also one of the most important practices in third party risk management. The very basic reality is there will be times when you learn something in doing your due diligence that may change the entire way in which you think about a company, perhaps even causing you to change your mind about engaging in the relationship.

Due Diligence Is Vital to a Successful Third-Party Risk Management Program

Collecting and reviewing due diligence can seem like a very daunting task but it’s one that reaps many benefits, including:

It protects your mortgage company from unnecessary and unwanted exposure to risk. This is important to both your institution and your customers.

Examiners will be satisfied as it’s a regulatory expectation. Regulatory guidance such as OCC Bulletin 2013-29, FDIC FIL 44-2008, and CFPB Bulletin 2012-03 place a strong emphasis on risk-based due diligence and the overall lifecycle of the third-party relationship. It’s highly encouraged to review these regulations when implementing a due diligence process at your institution.

Due diligence procedures also ensure you have set a standard for the minimum requirements to onboard a vendor, which helps set the tone across the institution regarding due diligence expectations. Your institution’s lines of defense will be able to work together more efficiently when they’re all on the same page.

Due diligence helps to inform all of your other third-party risk activities, particularly honing in on risks that must be addressed in the contract or through ongoing monitoring.

The 8 Vendor Due Diligence Best Practices for Your Mortgage Company

Here are 8 vendor due diligence best practices:

Gather the vendor list and perform standard due diligence on all vendors. Request a list from the Accounts Payable Department that you can compare to the vendor list you currently have on file to make sure you’re not overlooking any vendors. Once you have your vendor list ready to go, ensure the appropriate standard due diligence is accessible on each vendor (e.g. Tax ID, Business License, OFAC Check, Certificate of Good Standing). The standard due diligence requirements are dependent on your mortgage company’s policy; however, it’s always a best practice to have some documentation requirements, even on vendors that may pose very little risk to the institution.

Make sure the due diligence performed is tailored to the type of vendor and level of risk associated. In addition to the standard due diligence requests, you’ll want to include additional due diligence requirements based on the type of vendor it is and the vendor’s level of risk to the institution. Be sure to understand each vendor’s regulatory risk and business impact risk. The regulatory impact determines if the vendor is low, medium, or high risk. You should have a list of documentation requirements that is based on each risk level. The business impact will determine if the vendor is critical or non-critical to the institution. There may be additional documentation that needs to be maintained on each vendor dependent on the business impact as well, such as a detailed business continuity plan and results of any corresponding testing.

Due diligence should be completed during vendor selection prior to the contract being executed. It’s imperative to collect due diligence on a vendor before you contractually commit to their products or services. In fact, OCC Bulletin 2013-29, which is the gold standard in third party risk, includes due diligence and third-party selection as one of the lifecycle phases. Pre-contract due diligence in the vendor vetting process will prevent unwanted pitfalls and risk in selecting the wrong vendor, as well as allow you the opportunity to contractually commit them to provide any items they cannot release prior to an agreement being signed.

Due diligence should also be completed on an ongoing basis. Review and make updates periodically. Due diligence is not a one and done deal, and it is not a check-the-box item. Each due diligence document obtained should be reviewed by a qualified individual who can provide an accurate analysis. Depending on your program’s requirements, requests for updated due diligence updates should be made periodically in order to verify the vendor is still meeting expectations.

Always keep in mind the frequency of due diligence. Set reminders to reach out to the vendor for certain types of reports and make sure you’re making timely requests. For example, if the vendor is a public company, set an alert to check their website and gather financials as soon as they are released. Time due diligence to correspond with the most important time-sensitive materials, whether it’s financials or SOC report, etc.

Document all attempts to collect documentation from the vendors. It’s understood that you’re not always going to be able to collect all of the documentation being requested. In this case, it’s vital to document your method of reaching out and the date of each attempt. This is especially important so that you can show senior management, the board, and examiners. They’ll want to see you have a record of this and will appreciate the thoroughness.

Write out the steps in your vendor management program documentation. Make sure you’ve outlined the institution’s vendor due diligence requirements in your program. As changes are made or new guidance is released, be sure to update the documentation to reflect this. It’s important to keep the expectations consistent and current.

Include due diligence as part of your internal audit review of third-party risk management. It’s always prudent to identify problems or potential issues and address them proactively.

When you take the time and effort to properly perform due diligence on your vendors, it will positively impact your mortgage company. Initially, you’re guaranteeing that you’re selecting the vendor that best fits your institution’s needs. By continuing to perform the appropriate due diligence, you’re confirming that they are still the best fit. Finally, you’re gaining the utmost respect and trust from your customers as they can rely on your institution to provide great services and products because your third parties are doing so for you, which in turn is boosting your overall reputation.


Protect Yourself – Mortgage Fraud is on the Rise

The risk of fraud in mortgage application increased at the end of the second quarter, according to the latest quarterly Mortgage Fraud Risk Index released by CoreLogic on Thursday. CoreLogic said that the index rose to 149 for the second quarter, trending up 12 percent from the same period last year and rising 3 percent from the previous quarter.

The report said that Q2 2018 was the seventh consecutive quarterly increase in mortgage fraud risk. The Mortgage Fraud Risk Index is calculated from the aggregation of individual loan application fraud risk scores during the previous quarter.

Compared to 62 percent in Q1, purchase applications accounted for 72 percent of all transactions in Q2, the report indicated, as purchase volumes rose during the spring season. However, it found that refinances were at the lowest level since the index started reporting these trends in 2010, CoreLogic said.

“There is an increase in borrowers applying for loans on multiple properties,” the report said. “While the tight housing inventory and competitive market likely play a role, data also shows investors purchasing multiple properties concurrently and at times dividing loan applications across lenders.”

The index also found an increase in identity discrepancies. It also noted red flags on income reasonability during the quarter.

Regionally, Florida led the states with the most number of metros with the highest fraud risk. In fact, the Lakeland-Winter Haven metro area had the most significant increase in the fraud risk index at 20 percent. According to the report, the increase was due to high-risk flags in this region that included investors rapidly acquiring multiple rental properties, and the potential use of owner-occupant financing to obtain these properties.

Other Florida regions on the list included Miami-Fort Lauderdale-West Palm Beach; Tampa-St. Petersburg-Clearwater; Deltona-Daytona Beach-Ormond Beach; and Orlando-Kissimmee-Sanford.

Oklahoma City, Oklahoma saw a quarter-over-quarter drop in mortgage fraud risk by 24 percent. Memphis, Tennessee also saw a decline of 10 percent.


Interesting Overview of the Current Housing Market


Median incomes have lagged home price increases in hot West Coast markets, raising fears of a housing bubble.

Rents have been falling while prices continue to rise, driven by irresponsible lenders in the jumbo market.

Summer is traditionally the best time to sell a home, but recent headlines show sales activity is starting to slow in markets across the country.

Over the last seven years, home prices in California, Nevada, Oregon, and Washington have surged. Unfortunately, these price surges are the result of speculative activity and not based on consumers’ ability to afford homes over the long run. You can read my first round of analysis from earlier this month here on the United States and Canadian real estate markets.

Rents Are Falling, But Prices Are Surging

Sam Dogen at the Financial Samurai recently showed that rent prices have held steady and even fallen in hot markets such as San Francisco and Seattle over the last year or two. Prices have risen further, while rents have not. This isn’t a good sign.

The question I would pose to readers is this: If the housing market is so unstoppable, why are rents not going up anymore? Maybe, more of the surge in housing prices is due to speculation and less due to consumers’ ability to afford the homes. Falling rents should be a flashing red signal for informed buyers. In spite of this, the housing market has continued to charge higher because of loose standards in the jumbo market. I believe the culprit is a new crop of lenders who are outside of Fannie Mae and Freddie Mac regulations on FICO scores and DTI. For example, San Francisco lender Social Finance (SoFi) is offering up to 3 million dollar loans with 10 percent down and “flexible DTI.”

Firms like SoFi are the engine driving the madness in the California housing market. SoFi was founded in 2011, right at the start of the new housing boom, and by 2014, they started making jumbo mortgage loans for only 10 percent down. Here’s what Michael Tannenbaum, former Vice President of SoFi, had to say about their loans in 2016, “Sixty-five percent of the business we do is first-time home buyers; it’s a big deal we’re opening up to the jumbo first-time market.” A year later, he was gone. Other gems from the San Francisco Chronicle article – SoFi’s average loan at the time was $800,000 and two-thirds were in California. I shudder to think what their average loan size and DTI is now. Also, in addition to not being big fans of debt to income ratios, SoFi isn’t big on using other traditional measures like FICO scores to evaluate borrowers. In 2016, they declared their company a “FICO Free Zone” in a press release. Said a former business development associate, “The volume of applications coming in was crazy.” Other sources reported on the wild sex culture at the firm. As for their underwriting practices? As long as housing prices went up, they were more or less irrelevant. But, if prices go down, SoFi and their backers stand to lose a lot of money.

The housing market is typically strongest in the summer. So why are all these negative headlines piling up?

Savvy real estate investors and home buyers know the best time to sell residential property is from late spring through summer, and the best time to buy is during the period from Thanksgiving through the end of January – the dead of winter. There is some interesting psychology to this. The average days on market for properties are much higher in the winter than during the summer, so you have more motivated sellers and fewer buyers. Also, sellers, including banks, are more likely to accept offers further below asking price during this period. It might be that buyers don’t see the potential of properties in snow-covered cities like Chicago and Minneapolis. But you also see the same effect occur in places with milder winters, like Dallas-Fort Worth and San Francisco. Conversely, the best time to sell a property is during the summer. Most buyers with school-age children won’t even consider moving them during the school year, and homes and yards look their best during the summer.

Portland is seeing properties start to pile up at higher price points. Seattle is reporting a “slight slowdown.” Listings are piling up in Orange County, California, and foreclosures are up. The Wall Street Journal put out an article two days ago titled, “Housing Market Stumbles at Beginning of Summer.” Pending home sales just hit a 4-month low, and the National Association of Realtors justifies it by blaming it on “low inventory,” rather than a lack of buyers willing and able to pay asking prices.

You can deny that the media is accurately reporting on this, but you can’t deny that the headlines are changing. In the last couple of years, instead we would be seeing headlines like “6 Ways to Win a Bidding War,” or “Good Luck Buying a Home in This Hot Housing Market.” All these new and negative articles are from markets that I predicted would see the most trouble and have the greatest discrepancies between prices and incomes. Here’s the map I showed in the first article again. Note that all these article headlines that are specific to a metro area are coming from relatively unaffordable markets. My theory is that the West Coast markets that have appreciated so much have done so not because they are great places to live, but because there are jumbo lenders with lax standards and buyers for the loans in the mortgage-backed securities market. The markets with a higher percentage under Fannie and Freddie’s conforming loan limits have risen more in line with median incomes, influenced by stricter underwriting guidelines that ensure that home buyers can actually afford the homes they are buying.

U.S. Home Prices, 2012-2017. Core Logic

The general mood is that the market is softening right now, especially at the high end. As interest rates continue to rise beyond buyers’ ability to qualify for mortgages, listings will pile up further and prices will fall. Also, the effects of last year’s tax bill will start to be noticed among consumers, many of whom have yet to figure out that they won’t be able to deduct the majority of their state and local income/property taxes. SALT is now limited to $10,000. Consumers have noticed their paychecks are bigger, but if I know the American consumer like I think I do, that money is being spent and not socked away to pay their higher after-tax deduction property bill.

I’m not predicting the end of the world. For property prices to go down an inflation-adjusted 15-20 percent from peak to trough is a perfectly normal market cycle. It does sting, though, if you put 10 percent down on a two million-dollar home and have to turn around pay money at closing when selling 3 years later.

The first domino that would cause housing prices to fall 15-20 percent in real terms is for mortgage rates to normalize. However, Donald Trump has expressed concern that the Federal Reserve is hiking rates too quickly and is putting pressure on the Fed to top short-term rates out at 2.5 percent. Trump obviously understands how rate hikes affect the real estate market. He has a good point. If the Fed only hikes rates by 50 basis points from here and mortgage rates follow suit, then housing prices will stay higher than they would be if the Fed hiked aggressively. Instead, if they hike 150-200 basis points, then I estimate that housing prices will fall more than 15-20 percent. With over 75 percent of California buyers financing their purchases and DTI ratios already stretched, mortgage rates are of paramount importance to buyers. The risk with the first approach is that inflation runs higher and negatively effects the economy. But, keeping interest rates low and letting inflation run a little higher will serve to give home buyers more equity in their homes and hide the drop in home prices relative to incomes. If the Federal Reserve takes this course, the decline in home prices will not be as severe. However, all bets are off if the Fed decides to aggressively hike rates. Homebuilders, mortgage companies, and small to mid-size banks with concentrated West Coast exposure are still best avoided, as the market does not seem to be adequately accounting for the risks of rising rates, or just how bad their business practices have been.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.\


How Much Do You Know About OFAC Compliance For Mortgage Companies ?

While OFAC may not be included in the top 10 issues facing your company, how familiar are you with the requirements? Are you confident that your company’s OFAC program is robust or, at least, meeting minimum requirements?

OFAC, an office of the U.S. Treasury, administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals, and it acts under Presidential wartime and national emergency powers to impose controls on transactions and to freeze assets under U.S. jurisdiction.

All U.S. persons, must comply with OFAC’s regulations. Financial regulators evaluate OFAC compliance programs to ensure compliance with the sanctions. In the creation and implementation of an OFAC compliance program, a risk-based approach is what is expected. The basic requirements are to block accounts and other property of specified countries, entities, and individuals and prohibit or reject unlicensed trade and financial transactions with specified countries, entities, and individuals.

Of special note, in2009, OFAC issued a final rule entitled “Economic Sanctions Enforcement Guidelines” to provide guidance by explaining the procedures that OFAC follows in determining the appropriate enforcement response to apparent violations of its regulations. As noted in the FFIEC BSA/AML Examination Manual (2014), “some enforcement responses may result in the issuance of a civil penalty that, depending on the sanctions program affected, may be as much as $250,000 per violation or twice the amount of a transaction, whichever is greater. The Guidelines outline the various factors that OFAC takes into account when making enforcement determinations, including the adequacy of a compliance program in place within an institution to ensure compliance with OFAC regulations.”

As we commonly see in compliance news, OFAC issues penalties for noncompliance and the outcomes are financially and reputationally damaging. Remember that violations can result in criminal penalties for willful violations and fines may range up to $20 million and imprisonment of up to 30 years. Take special note of the following:

Civil penalties for violations of the Trading With the Enemy Act can range up to $65,000 per violation;

Civil penalties for violations of the International Emergency Economic Powers Act can range up to $250,000 or twice the amount of the underlying transaction for each violation; and

Civil penalties for violations of the Foreign Narcotics Kingpin Designation Act can range up to $1,075,000 for each violation.

So, knowing all of this, there are pitfalls to avoid. Being familiar with OFAC requirements is good; however, a comprehensive understanding of how OFAC intersects with your company’s operations is something else. And, this ‘something else’ is where we should be or heading towards. Take a look at the list below and see if your company’s OFAC compliance program needs any fine tuning.

Responsibility: Has your company defined and documented roles and responsibilities to specific staff members? Have appropriate noncompliance consequences been documented and communicated to appropriate staff members?

Policies and procedures: Yes, you’re hearing this once again. Does your company have an established OFAC policy as well as procedures and processes to adequately meet OFAC compliance program requirements?

Monitoring: This process needs to occur internal and external to your company. Internally, how often is your company measuring its risk appetite with OFAC? How often is the OFAC risk assessment reviewed, updated, and presented to the Board? From an external perspective, how often does your company evaluate the effectiveness of any vendors that assist with OFAC compliance?

Connection to other BSA requirements or elements: Important crossovers exist, such as:

CIP: How effective and comprehensive are OFAC processes within the CIP process at your company?

Beneficial Ownership Rule: Have procedures and processes been updated to include the identification of beneficial owners of your company’s business entity clients in the OFAC process?

Independent reviews/audits: Whether an internal or external review is performed, how thorough is the audit in determining your company’s compliance with OFAC requirements?

Avoiding the pitfalls is crucial. Taking the right steps will help:

Proper oversight by the Board and senior management. Tone from the top and adequate employee training are must haves.

Strong BSA compliance policy and effective internal controls aid in compliance with OFAC requirements.

Since much of BSA is a risk-based approach, review and update at least annually the BSA and OFAC risk assessments and adjust the compliance programs accordingly.

Keep current with changes to the SDN list and sanctions communicated by OFAC. Do not rely on vendors at face value. Due diligence is a must.

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Around the Industry:

Effective Now

The Fed, FDIC, and OCC jointly issued a statement detailing rules and associated reporting requirements that are immediately affected by the enactment of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). The Fed also issued a statement describing how the Board will not take action to enforce certain regulations and reporting requirements for firms with less than $100 billion in total consolidated assets.


Still Confused about the New HMDA Law ? Here’s the Latest Help

By Leslie A. Sowers & J. Eric Duncan

January 1, 2018, marked the official start of a new and complex regulatory era for financial institutions subject to the Home Mortgage Disclosure Act (HMDA) and Regulation C. On that day, the majority of the amendments to Regulation C under the Bureau of Consumer Financial Protection’s October 2015 and September 2017 final rules took effect. Those amendments, collectively referred to herein as the “New HMDA Rule,” were sweeping. They dramatically altered the coverage of institutions subject to HMDA, the loan transactions and applications that must be reported, and the data points that must be collected, recorded, and reported to the appropriate federal regulator.

In the six months that have passed since these changes went into effect, mortgage lenders and other covered institutions have faced a number of common implementation issues, from open questions and ambiguities not addressed by the New HMDA Rule to challenges caused by the volume and complexity of the new requirements. We discuss some representative examples of these issues below.

Moving Targets

One of the biggest implementation challenges presented by the New HMDA Rule results from the manner in which the Bureau is issuing instruction and guidance. Unlike the Bureau’s other rules, the statute, implementing regulation, and official staff commentary do not provide all of the information HMDA reporters need in order to comply. Among various other documents and tools issued by the Bureau, HMDA reporters must also consult the Filing Instructions Guide (FIG), a 151-page document that provides the file, data, and edit specifications required for reporting HMDA data, including the possible values and other information that may be reported for each data point. Before the New HMDA Rule, Appendix A to Regulation C and the related commentary contained much of this information, including the various “codes” that related to each data point.

Why is this shift in approach noteworthy? Removing this information from Regulation C allows the Bureau to issue and change this information without going through the time-consuming notice and comment rulemaking process. While this approach allows the Bureau to make adjustments timelier, which is beneficial, these adjustments are made without requesting public comments and without helpful explanation as to the purpose of the changes. In fact, the Bureau has revised the 2018 FIG seven times since it was first issued in January 2016, the most recent of which occurred in February. Is your HMDA team keeping up with each of these revisions and how it may impact your HMDA collection and reporting process?

For example, under the New HMDA Rule, institutions must report the name of the automated underwriting system (AUS) used to evaluate the application and the result generated by the system, if applicable. In cases where a company uses more than one AUS to evaluate an application or the system or systems generate two or more results, the New HMDA Rule lays out a complex waterfall approach for deciding which results to report. Additional questions arise in the context of particular AUS types, such as the USDA’s Guaranteed Underwriting System (GUS). GUS results can be a challenge to report because GUS generates two separate results for each file, and those results may correspond to more than one code available (e.g., Accept/Unable to Determine), but an institution may report only one AUS result per AUS reported.

The Bureau changed the codes available for reporting AUS results in the most recent revision to allow lenders reporting GUS results to use “Code 16 – Other.” The FIG instruction to “Code 16 – Other” states that more than one AUS result may be entered in the free-form text field, as applicable. The Bureau’s only explanation of this change was: “Updated allowable codes for AUS results produced by the Guaranteed Underwriting System (GUS).” This comment fails to explain what prompted this change and what it means for reporters; this is particularly troubling since the Bureau previously gave informal advice to report only one of the GUS results before it issued the February FIG revisions.

Will the Bureau continue to modify the FIG this year? All reporters must record the data collected for HMDA on a loan/application register within 30 calendar days after the end of each calendar quarter in which final action is taken. Therefore, if more changes are made to the FIG, each reporter will be required to update its recorded entries and revise its procedures (and/or systems) going forward for each change.

Regardless, you should be expecting additional changes that may impact your recorded entries and your process. We are still awaiting the Bureau’s release of additional reporting tools, including the geocoding tool, which provides institutions that use it correctly with a safe harbor when reporting the census tract. In addition, the Bureau announced in December 2017 that it intends to open a rulemaking to reconsider various aspects of the New HMDA Rule such as the institutional and transactional coverage tests and discretionary data points, and the latest regulatory agenda indicates that this process is not scheduled to begin until 2019.

Rate-Set Date for Calculating Rate Spread

For loans and approved but not accepted applications that are subject to Regulation Z (other than an assumption, a purchased loan, or a reverse mortgage), institutions must report the Rate Spread, which is the difference between the loan’s annual percentage rate (APR) and the average prime offer rate (APOR) for a comparable transaction as of the date the interest rate is set. A number of questions arise when trying to determine the appropriate rate-set date to use for purposes of this calculation.

For example, which rate-set date should an institution use for an approved not accepted application that had a floating interest rate? In such cases, the interest rate was arguably never “set.” While some institutions have concluded the most defensible approach is to use the date on which the applicant was provided the early disclosures required under Regulation Z, the New HMDA Rule does not directly address the question. Complications can also arise in identifying the rate-set date for “repriced” transactions and transactions in which a borrower changes from one loan program to another program that is subject to different pricing terms. The requirements for these situations are complex and potentially ambiguous and can trip up companies that have not sufficiently thought through their approach to such scenarios.

What Data to Report

What data an institution must report often depends on the action taken on the file and whether the institution relied on the information as part of the credit decision made. In particular, the reporting requirements associated with counteroffers demonstrate the complexity involved in implementing this aspect of the New HMDA Rule.

Suppose an institution makes a counteroffer to lend on terms different from the applicant’s initial request. If the applicant declines to proceed with that counteroffer or fails to respond, the institution reports the action taken as a denial based on the original terms requested by the applicant. On the other hand, if the applicant agrees to proceed with consideration of the counteroffer, the institution reports the action taken as the disposition of the application based on the terms of the counteroffer. In such cases, how the file is reported may also depend on whether the institution’s conditional approval is subject to only customary commitment or closing conditions or also includes any underwriting or creditworthiness conditions. Companies must have procedures and systems that address all of the potential scenarios to ensure accurate reporting and update them as needed when unique scenarios arise.

Collection of Expanded GMI Data

The New HMDA Rule significantly expanded and complicated the requirements for collecting Government Monitoring Information (GMI) data regarding an applicant’s race, ethnicity, and sex. As a result, institutions have faced certain issues in updating their collection procedures and forms to ensure they offer applicants appropriate options, such as the ability to select one or more race or ethnicity subcategories even if the applicant has not selected a race or ethnicity aggregate category. These requirements can pose challenges depending on how a company’s existing systems or processes were designed, especially in the context of online applications, where forms may be coded to automatically trigger the selection of a main category when a subcategory is selected.

Does the New HMDA Rule require online application forms to allow an applicant to skip these questions entirely? Is it permissible to structure the electronic interface to require the applicant to make at least one selection in order to move on to the next page, even if only by checking a box to specifically indicate they do not wish to provide the information? The New HMDA Rule fails to directly address these questions, and institutions must make decisions on the best way to proceed based on their own operations and the regulatory language and then apply a consistent, reasonable approach.

MLO NMLSR Identifier

The New HMDA Rule added a requirement to report an individual mortgage loan originator’s (MLO) National Mortgage Licensing System & Registry identifier (NMLSR ID) for a loan or application. Questions often arise in this context when multiple MLOs are involved in a single transaction because, for example, an MLO leaves the company or multiple MLOs work on an application together as part of a team. In those cases, which individual’s NMLSR ID must be reported? The New HMDA Rule requires the company to report the NMLSR ID of the MLO with primary responsibility for the transaction as of the date of action taken. The regulation does not provide additional guidance with respect to what constitutes primary responsibility, but instead provides a company some discretion to develop reasonable policies to make that determination.

In order to address these situations, an institution should establish and follow a reasonable, written policy for determining which individual MLO has primary responsibility for the reported transaction as of the date of action taken. When creating that policy, companies should also consider the requirements under various other federal and state laws that have requirements for identifying the MLO(s) for a transaction, such as Regulation Z’s requirement to disclose the primary loan originator’s name and NMLSR ID (if any) on certain loan documents, as those other requirements may influence this determination.

Final Thoughts

As the common issues described above illustrate, there is still much to consider and work through in implementing the New HMDA Rule during its first year. You should be putting in the extra time and dedicating extra resources to audit your information and to identify questions and pain points. Institutions should have already recorded their first quarter data for 2018 under the new requirements. Use this opportunity to carefully test and review that data and the relevant internal processes for the issues above as well as any other potential gaps or questions unique to your own operations.

In situations where there are open questions and multiple reasonable interpretations, the key is consistency. Develop a well-reasoned, consistent approach based on the language in Regulation C, the commentary, and the FIG. Review the other guidance available on the Bureau’s website, submit questions to the Bureau, and consult with counsel. Document your analysis process to demonstrate your good faith efforts to comply. Any identified issues should be addressed as soon as possible so you can have a consistent approach moving forward and only have a few months of past entries to correct. If you wait until 2019 to review, you will have to correct an entire year’s worth of entries retroactively should you find any issues.


HUD Publishes Semiannual Regulatory Agenda

Vol. 83 Monday, No. 112 June 11, 2018 Part IX Department of Housing and Urban Development Semiannual Regulatory Agenda VerDate Sep<11>2014 20:24 Jun 08, 2018 Jkt 244001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\11JNP9.SGM 11JNP9 daltland on DSKBBV9HB2PROD with PROPOSALS3 27148 Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Unified Agenda DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 24 CFR Subtitles A and B [Docket No. FR–6087–N–01] Semiannual Regulatory Agenda AGENCY: Department of Housing and Urban Development. ACTION: Semiannual regulatory agenda. SUMMARY: In accordance with section 4(b) of Executive Order 12866, ‘‘Regulatory Planning and Review,’’ as amended, HUD is publishing its agenda of regulations already issued or that are expected to be issued during the next several months. The agenda also includes rules currently in effect that are under review and describes those regulations that may affect small entities, as required by section 602 of the Regulatory Flexibility Act. The purpose of publication of the agenda is to encourage more effective public participation in the regulatory process by providing the public with advance information about pending regulatory activities. FOR FURTHER INFORMATION CONTACT: Aaron Santa Anna, Assistant General Counsel for Regulations, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street SW, Room 10276, Washington, DC 20410–0500; telephone number 202–708–3055. (This is not a toll-free number.) A telecommunications device for hearingand speech-impaired individuals (TTY) is available at 800–877–8339 (Federal Relay Service). SUPPLEMENTARY INFORMATION: Executive Order 12866, ‘‘Regulatory Planning and Review’’ (58 FR 51735, October 4, 1993), as amended, requires each department or agency to prepare semiannually an agenda of: (1) Regulations that the department or agency has issued or expects to issue, and (2) rules currently in effect that are under departmental or agency review. The Regulatory Flexibility Act (5 U.S.C. 601–612) requires each department or agency to publish semiannually a regulatory agenda of rules expected to be proposed or promulgated that are likely to have a significant economic impact on a substantial number of ‘‘small entities,’’ meaning small businesses, small organizations, or small governmental jurisdictions. Executive Order 12866 and the Regulatory Flexibility Act permit incorporation of the agenda required by these two authorities with any other prescribed agenda. HUD’s regulatory agenda combines the information required by Executive Order 12866 and the Regulatory Flexibility Act. HUD’s complete Unified Agenda is available online at, in a format that offers users a greatly enhanced ability to obtain information from the Agenda database. The Department is subject to certain rulemaking requirements set forth in the Department of Housing and Urban Development Act (42 U.S.C. 3531 et seq.). Section 7(o) of the Department of Housing and Urban Development Act (42 U.S.C. 3535(o)) requires that the Secretary transmit to the congressional committees having jurisdictional oversight of HUD (the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services), a semiannual agenda of all rules or regulations that are under development or review by the Department. A rule appearing on the agenda cannot be published for comment before or during the first 15 calendar days after transmittal of the agenda. Section 7(o) provides that if, within that period, either committee notifies the Secretary that it intends to review any rule or regulation that appears on the agenda, the Secretary must submit to both committees a copy of the rule or regulation, in the form that it is intended to be proposed, at least 15 calendar days before it is to be published for comment. The semiannual agenda posted on is the agenda transmitted to the committees in compliance with the above requirements. HUD has attempted to list in this agenda all regulations and regulatory reviews pending at the time of publication, except for minor and routine or repetitive actions, but some may have been inadvertently omitted, or may have arisen too late to be included in the published agenda. There is no legal significance to the omission of an item from this agenda. Also, where a date is provided for the next rulemaking action, the date is an estimate and is not a commitment to act on or by the date shown. In some cases, HUD has withdrawn rules that were placed on previous agendas for which there has been no publication activity. Withdrawal of a rule does not necessarily mean that HUD will not proceed with the rulemaking. Withdrawal allows HUD to assess the subject matter further and determine whether rulemaking in that area is appropriate. Following such an assessment, the Department may determine that certain rules listed as withdrawn under this agenda are appropriate. If that determination is made, such rules will be included in a succeeding semiannual agenda. In addition, for a few rules that have been published as proposed or interim rules and which, therefore, require further rulemaking, HUD has identified the timing of the next action stage as ‘‘undetermined.’’ These are rules that are still under review by HUD for which a determination and timing of the next action stage have not yet been made. The purpose of publication of the agenda is to encourage more effective public participation in the regulatory process by providing the public with early information about the Department’s future regulatory actions. HUD invites all interested members of the public to comment on the rules listed in the agenda. J. Paul Compton, Jr., General Counsel. OFFICE OF HOUSING—COMPLETED ACTIONS Sequence No. Title Regulation Identifier No. 137 ……………….. 24 CFR 3280 Manufactured Home Construction and Safety Standards 3rd Set (FR–5739) ……………………. 2502–AJ34 VerDate Sep<11>2014 20:24 Jun 08, 2018 Jkt 244001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4702 E:\FR\FM\11JNP9.SGM 11JNP9 daltland on DSKBBV9HB2PROD with PROPOSALS3 Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Unified Agenda 27149 DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD) Office of Housing (OH) Completed Actions 137. Manufactured Home Construction and Safety Standards 3rd Set (FR–5739) E.O. 13771 Designation: Regulatory. Legal Authority: 42 U.S.C. 5401 et seq.; 42 U.S.C. 3535(d) Abstract: This proposed rule would amend the Federal Manufactured Home Construction and Safety Standards by adopting certain recommendations made to HUD by the Manufactured Housing Consensus Committee (MHCC). The National Manufactured Housing Construction and Safety Standards Act of 1974 (the Act) requires HUD to publish all proposed revised construction and safety standards submitted by the MHCC. This proposed rule is based on the third set of MHCC recommendations to update and improve various aspects of the Manufactured Housing Construction and Safety Standards. HUD has reviewed those proposals and has made several editorial revisions to the proposals which were reviewed and accepted by the MHCC. This rule proposes to add new standards that would establish requirements for carbon monoxide detection, stairways, fire safety considerations for attached garages, and for duplexes. Completed: Reason Date FR Cite Withdrawn ……….. 04/04/18 Regulatory Flexibility Analysis Required: Yes. Agency Contact: James Martin, Phone: 202 708–6423. RIN: 2502–AJ34 [FR Doc. 2018–11248 Filed 6–8–18; 8:45 am] BILLING CODE 4210–67–P VerDate Sep<11>2014 20:24 Jun 08, 2018 Jkt 244001 PO 00000 Frm 00003 Fmt 4701 Sfmt 9990 E:\FR\FM\11JNP9.SGM 11JNP9 daltland on DSKBBV9HB2PROD with PROPOSALS3


Fannie Mae Selling Guide Announcement SEL-2018-05

Selling Guide Announcement SEL-2018-05

June 5, 2018

Selling Guide Updates The Selling Guide has been updated to include changes to the following:

MH Advantage™ Properties

Inspection of Manufactured Homes with Structural Modifications

Project Standards Updates

Flash Settlement for MBS

Desktop Underwriter® (DU®) Bankruptcy and Mortgage Delinquency Assessment

HomeStyle® Energy in DU

HomeStyle Renovation Forms

Miscellaneous Selling Guide Updates

Each of the updates is described below. The affected topics for each policy change are listed on the Attachment. The Selling Guide provides full details of the policy changes. The updated topics are dated June 5, 2018. The highlighted Selling Guide PDF is back by popular demand! Beginning with the June 2018 Selling Guide update, Fannie Mae is again providing a highlighted version of the Selling Guide PDF to enable a simple way to quickly identify the most recent significant updates made to the Selling Guide. The topic title and edited paragraphs are highlighted in yellow to help you identify where changes were made. (Note that deleted topics and paragraphs are not identified.) The highlighted Selling Guide PDF is intended to be used as a companion tool in conjunction with your review of the corresponding Selling Guide Update Announcement. MH Advantage Properties We are pleased to introduce the MH Advantage initiative. MH Advantage is manufactured housing that is designed to meet specific construction, architectural design, and energy efficiency standards that are more consistent with site built homes. The goal of this initiative is to help bridge the gap in affordable housing by encouraging more consumers to consider manufactured homes as an alternative to site built homes. Loans secured by MH Advantage properties are afforded a number of flexibilities over standard manufactured housing, including higher LTV ratios, standard mortgage insurance, and reduced loan-level price adjustments. Examples of the physical characteristics for MH Advantage include  specific architectural and aesthetic features, such as distinctive roof treatments (eaves and higher pitch roofline), lower profile foundation, garages or carports, porches, and dormers;  construction elements including durability features, such as durable siding materials; and  energy efficiency standards (minimum energy ratings apply). MH Advantage is open to all manufacturers. Participating manufacturers will enter into an agreement with us allowing them to attach an “MH Advantage Sticker” to the home in proximity to the home’s HUD Data Plate. The Sticker identifies the home as having been designed to accommodate the physical characteristics for an MH Advantage property. The lender will confirm the presence of the Sticker, and additional information about site improvements to the property, but is not responsible for confirming the physical characteristics of the home.


Requirements for Loans Secured by MH Advantage Properties The following table describes the requirements for delivery of loans secured by MH Advantage properties. Requirements Property Eligibility The lender must confirm the following by reviewing photographs in the appraisal report:  the property is MH Advantage as evidenced by MH Advantage Sticker;  the HUD Data Plate and HUD certification labels are present;  the presence of a driveway leading to the home (or to the garage or carport, if one is present); and  the presence of a sidewalk connecting either the driveway, or a detached garage or carport Appraisal  Manufactured Home Appraisal Report (1004C), and  Completion Report (1004D), if applicable Eligible Transactions  MH Advantage loans follow the same DU eligibility requirements as manufactured homes, with the exception that the maximum LTV ratio is increased to 97% for certain purchases and limited cash-out refinances. All requirements that pertain to loans with LTV ratios 95.01 – 97% apply.  The CLTV ratio may be up to 105% with Community Seconds.  Loans may be originated as HomeReady and subject to all HomeReady requirements.  HomeStyle Renovation and HomeStyle Energy may also be combined with MH Advantage. Underwriting  Lenders must use DU to underwrite.  The “Manufactured Home: MH Advantage” Subject Property Type must be used (even if the property is in a project). Mortgage Insurance MH Advantage loans are subject to standard mortgage insurance coverage requirements; the deeper coverage required for manufactured homes does not apply. Delivery A new Special Feature Code (SFC) 859 is required at delivery in addition to SFC 235. There are no other new requirements related to loan delivery. MH Advantage loans are delivered using:  ConstructionMethodType (Sort ID 51): “Manufactured”  ManufacturedHomeWidthType (Sort ID 33): “MultiWide” or “SingleWide”  If the property is located in a condo, co-op, or PUD, the related project data points are also required. Loan-Level Price Adjustments (LLPA) The 50 basis point LLPA that is applicable to manufactured housing does not apply to MH Advantage. All other standard requirements that apply to manufactured housing apply to MH Advantage. NO T E : The Eligibility Matrix, Loan-Level Price Adjustment Matrix, and Special Feature Codes documents have all been updated to reflect these changes. For more information about MH Advantage, see our website. Effective Dates Beginning today, lenders can:  underwrite MH Advantage loans in DU Version 10.2,  submit MH Advantage loans to EarlyCheck to validate the data via a new set of MH Advantage edits,  deliver whole loans to us, and © 2018 Fannie Mae. Trademarks of Fannie Mae. SEL- 2018-05 3 of 8  deliver loans in an MBS with pool issue dates after May 1, 2018. Inspection of Manufactured Homes with Structural Modifications Currently, the Selling Guide requires that when a manufactured home has an addition or a structural modification and is not located in a state with an agency responsible for inspecting these modifications, then the property must be inspected by a licensed professional engineer. The engineer must certify that the addition or structural change was completed in accordance with the HUD Manufactured Home Construction Safety Standards. With this update, if the state does not have this requirement, then the structural modification must be inspected and the structural modifications be deemed structurally sound by a third party who is regulated by the state and is qualified to make the determination. Certification of compliance with HUD Manufactured Home Construction and Safety Standards is no longer required. Effective Date Lenders can take advantage of this change immediately. Project Standards Updates In response to lender feedback, we have made several updates to our condo, co-op, and PUD project policies. These updates will simplify our policies and increase flexibilities when originating loans secured by units in a project. The following table describes the updates. Refer to the Selling Guide for additional details and clarifications. Summary of Project Standards Updates Single-Entity Ownership  Waive the single-entity ownership requirement when the purchase transaction will result in a reduction in the single-entity ownership concentration (maximum single entity ownership 49%, no delinquent dues, no pending or active special assessments)  Exempt units held by non-profits, affordable housing programs (including units subject to non-eviction rent regulation codes), or institutions of higher education from the percentage of single entity ownership calculation  Allow single-entity ownership in projects with 21 or more units to increase to 20% Commercial Space  Exempt commercially owned or operated parking spaces from the project’s commercial space calculations  Increase commercial space to 35% Established Project Definition  Allow a new condo project to be reviewed as an “established” project if it meets all the requirements for an established project other than the 90% unit conveyance policy. Allow 80% conveyance if the developer is holding back units as rental stock if additional requirements are met. Investment Property Transactions  Allow investor transactions to be eligible for Limited Review for LTV, CLTV, and HCLTV to 75% FHA Project Review  Allow delivery of conventional loans secured by units in established condo projects approved by FHA’s HUD Review and Approval Process (HRAP) Two-to Four-Unit Condo Projects  Waive project review requirements, with the exception of some basic requirements that apply Projects Consisting of Manufactured Homes  Allow Full Review of established condo projects  Condo and PUD projects subject to community land trusts, deed restrictions, leasehold estates, or shared equity arrangements may be eligible under the Fannie Mae Project Eligibility Review Service (PERS) Legal Non-Conforming Zoning  Align project standards policy to standard appraisal policy that requires the appraiser to comment on the market response to legal non-conforming zoning © 2018 Fannie Mae. Trademarks of Fannie Mae. SEL- 2018-05 4 of 8 Projects Operating as a Hotel or Motel (“Condotel” Policy) Clarify criteria for identifying projects that operate as hotels or motels. The HOA and/or project cannot:  be licensed or managed/operated as a commercial hotel, motel, resort, or hospitality entity  restrict owners ability to occupy the unit during any part of the year  require owners to make their unit available for rental pooling (daily or otherwise)  require that the unit owners share profits from the rental of units to the HOA, management company, or resort or hotel rental company Live-Work Condo Projects  Simplify current policy with the requirement that live-work projects be primarily residential in nature and must be in compliance with local zoning or development regulations for live-work projects Limited Equity Co-ops  Allow limited-equity co-ops to be evaluated through the PERS process for project approval (both streamlined PERS and standard PERS) – limited equity feature must be related to an affordable housing preservation program and is in compliance with our requirements on resale restrictions when applicable In addition to these changes, we also took the opportunity to streamline and reorganize some of the content. For example, we removed the topic pertaining to detached condos. It was replaced with a new topic that clearly describes the requirements that apply to projects and transactions for which a project review is waived. We also removed duplicate content that appeared in multiple topics, such as Project Type Codes. These are now listed in their entirety in only one topic. Effective Dates Lenders may apply these changes when reviewing projects immediately. The weekend of June 23, 2018 the following systems will be updated to support these changes:  DU Version 10.2,  Collateral Underwriter® (CU®),  Uniform Collateral Data Portal® (UCDP®),  EarlyCheck™, and  Loan Delivery – Whole loans can be delivered beginning June 23, 2018, and loans in MBS with pool issue dates on or after July 1, 2018 Condo Project Manager (CPM) will be updated to align with these changes in August 2018. In the interim, lenders may continue to use CPM for projects that do not require the additional flexibilities described in this announcement. For projects that are newly eligible under these expanded eligibility requirements, lenders may complete the applicable project review outside of CPM. Flash Settlement for MBS Last year we eliminated Flash MBS processing fees and instead offered Flash MBS as an acceptable, standard, and no cost delivery option. This has reduced selling costs and increased flexibility for same month pooling and allowed lenders to receive book-entry delivery on Fannie Mae MBS as soon as 72 hours. In our continuing effort to increase pooling flexibility, we will now allow lenders to receive book-entry delivery on Fannie Mae’s published Majors as soon as 48 hours after we receive the Loan Delivery submission. This reduced time-line for book-entry turnaround is only applicable for Fannie Mae’s published Majors. Single issuer MBS must still be delivered 72 hours prior to book-entry. © 2018 Fannie Mae. Trademarks of Fannie Mae. SEL- 2018-05 5 of 8 Additionally, we are updating the Pool Settlement Calendars to reflect the 5 th business day before the end of the month as the last date to submit Single Family MBS, allowing for an additional day of pooling. Effective Date The change to Flash Majors will occur with MBS delivered on or after July 1, 2018. The change to the Pool Settlement Calendars will begin with the July Calendar. Desktop Underwriter Bankruptcy and Mortgage Delinquency Assessment The Selling Guide has been updated to include the policies related to bankruptcy and mortgage delinquency assessment that were described in the DU Version 10.2 June Update Release Notes. When inaccurate information exists in a credit report, lenders will have the ability to instruct DU to disregard (in the eligibility assessment) inaccurate bankruptcy or mortgage delinquency information, or disregard a bankruptcy that was due to extenuating circumstances. Effective Date These changes will apply to new loan casefiles submitted or resubmitted to DU on or after the weekend of June 23, 2018. See the DU Version 10.2 June Update Release Notes for additional information. HomeStyle Energy in DU The Selling Guide has been updated to align with updates to DU regarding HomeStyle Energy mortgage loans. Because these updates will allow DU to identify transactions having energy-related improvements, the Selling Guide policy requiring lenders to manually confirm HomeStyle Energy requirements outside of DU has been removed. Effective Date These changes will apply to new loan casefiles submitted or resubmitted to DU on or after the weekend of June 23, 2018. See the DU Version 10.2 Release Notes for additional information. NO T E : As specified in the DU Version 10.2 Release Notes, two new fields are being added to DU to identify HomeStyle Energy loan submissions: Energy Improvement Amount and PACE Loan Payoff Amount. An amount must be entered in one or both of these fields for DU to be able to underwrite the loan casefile as HomeStyle Energy. If a lender’s loan origination system cannot be updated with these two new fields by June 23, the lender can access the DU user interface to enter the data. Alternatively, we will allow lenders to continue to manually apply the HomeStyle Energy policies to DU loan casefiles until their systems have been updated. HomeStyle Renovation Forms We have posted model Renovation Loan documents and related Summary Pages that may be used in connection with HomeStyle Renovation Loans. The following special purpose model documents are now available:  Multistate Renovation Contract – Fannie Mae Model Document (Form 3730), and  Multistate Renovation Loan Agreement – Fannie Mae Model Document (Form 3731). Also, the following model riders are now available:  Multistate Renovation Loan Rider to Security Instrument – Fannie Mae Model Document (Form 3732), and  Multistate Renovation Loan Investor Rider to Security Instrument – Fannie Mae Model Document (Form 3733). © 2018 Fannie Mae. Trademarks of Fannie Mae. SEL- 2018-05 6 of 8 The Selling Guide has been updated to include references to these new forms. Effective Date These documents may be used immediately; however, because they are model documents, usage is strictly optional. Miscellaneous Selling Guide Updates Multiple Appraisals. Earlier this year, we clarified the policy in B4-1.3-12, Quality Assurance regarding second appraisals. With this update, we moved a similar policy that existed in B4-1.1-02, Lender Responsibilities, to a more appropriate location in the Guide, B4-1.2-02, Appraisal Age and Use Requirements. The multiple appraisal policy is now clearly described in the two topics where lenders are most likely to look for that information. Primary Mortgage Insurance Absence Reason Code 97. Currently, if a loan is delivered without mortgage insurance, one of two codes is required:  MI Code 95 – No MI Based on Original LTV  MI Code 97 – MI Canceled Based on Current LTV We have updated the Approved Mortgage Insurers and Related Identifiers, published on our website and referenced in the Selling Guide, to reflect that Primary MI Absence Reason Code 97 may only be used for non-flow deliveries. This code is only appropriate for non-flow deliveries because it indicates that even though the original LTV ratio was greater than 80%, no mortgage insurance is required because mortgage insurance was canceled based on a new value obtained after origination. (Note that this update did not result in a direct change to the Selling Guide text.) ***** Lenders who have questions about this Announcement should contact their Customer Delivery Team. Carlos T. Perez Senior Vice President and Chief Credit Officer for Single-Family © 2018 Fannie Mae. Trademarks of Fannie Mae. SEL- 2018-05 7 of 8 Attachment Section of the Announcement Updated Selling Guide Topics MH Advantage Properties  B2-1.2-01, Purchase Transactions  B2-1.2-02, Limited Cash-Out Refinance Transactions  B2-2-04, Guarantors, Co-Signers, or Non-Occupant Borrowers on the Subject Transaction  B2-3-02, Special Property Eligibility and Underwriting Considerations: Factory-Built Housing  B4-1.2-01, Appraisal Report Forms and Exhibits  B4-1.4-01, Factory-Built Housing: Manufactured Housing  B4-1.4-10, Property Inspection Waivers  B4-2.2-05, Requirements for Review of Detached Condos (Topic deleted)  B4-2.2-08, Additional Requirements for Review of Condo, Co-ops, and PUD Projects Comprised of Manufactured Homes (Topic deleted)  B5-2-01, Manufactured Housing  B5-2-03, Manufactured Housing Underwriting Requirements  B5-2-04, Manufactured Housing Pricing, Mortgage Insurance, and Special Feature Code Requirements  B5-5.1-02, Community Seconds Loan Eligibility  B5-6-02: HomeReady Mortgage Loan and Borrower Eligibility  B7-1-02, Mortgage Insurance Coverage Requirements Inspection of Manufactured Homes with Structural Modifications  B2-3-02, Special Property Eligibility and Underwriting Considerations: Factory-Built Housing Project Standards Updates  B2-3-01, General Property Eligibility  B2-3-02, Special Property Eligibility and Underwriting Considerations: Factory-Built Housing  B2-3-03, Special Property Eligibility and Underwriting Considerations: Leasehold Estates  B4-1.4-01, Factory-Built Housing: Manufactured Housing  B4-2.1-01, General Information on Project Standards  B4-2.1-02, Waiver of Project Review  B4-2.1-03, Ineligible Projects  B4-2.2-01, Limited Review Process  B4-2.2-02, Full Review Process © 2018 Fannie Mae. Trademarks of Fannie Mae. SEL- 2018-05 8 of 8 Section of the Announcement Updated Selling Guide Topics  B4-2.2-03, Full Review: Additional Eligibility Requirements for Units in New and Newly Converted Condo Projects  B4-2.2-04, Geographic-Specific Condo Project Considerations  B4-2.2-05, FHA-Approved Condo Review Eligibility  B4-2.2-06, Project Eligibility Review Service (PERS)  B4-2.3-01, Eligibility Requirements for Units in PUD Projects  B5-2-02, Manufactured Housing Loan Eligibility  B5-5.1-04, Community Land Trusts Flash Settlement for MBS  C3-7-06, Settling the Trade Desktop Underwriter® Bankruptcy and Mortgage Delinquency Assessment  B3-5.3-09, DU Credit Report Analysis HomeStyle Energy in DU  B4-1.4-10, Property Inspection Waivers  B5-3.3-01, HomeStyle Energy for Improvements on Existing Properties HomeStyle Renovation Forms  B5-3.2-06, HomeStyle Renovation: Renovation Contract, Renovation Loan Agreement, and Lien Waiver  B8-4-01, Riders and Addenda  B8-5-03, HomeStyle Renovation Mortgage Documentation Requirements


VA Provides Lender’s Certification Requirement for VA-Guaranteed Loans

Lender’s Certification Requirement for VA-Guaranteed Loans 1. Purpose. The purpose of this Circular is to provide clarification on the regulatory requirement that all Department of Veterans Affairs (VA) guaranteed loans require lender certifications. 2. Background. Recently, VA Regional Loan Centers and Lenders have inquired as to the validity of the Lender Certification in conjunction with Interest Rate Reduction Refinance Loans (IRRRLs). The Lender Certification is required on IRRRLs whether or not underwriting is required. This is supported in 38 CFR 36.4340(k). This section states that: “Lenders originating loans are responsible for determining and certifying to VA on the appropriate application or closing form that the loan meets all statutory and regulatory requirements. Lenders will affirmatively certify that loans were made in full compliance with the law and loan guaranty regulations as prescribed in this section.” 3. Action. Lender’s certification applies to all VA-guaranteed loans, and is not contingent upon the type of VA loan. 4. Rescission: This Circular is rescinded July 1, 2020. By Direction of the Under Secretary for Benefits Jeffrey F. London Director Loan Guaranty Service Distribution: CO: RPC 2021 SS (26A1) FLD: VBAFS, 1 each (Reproduce and distribute based on RPC 2021)


The Latest on Home Flipping and FHA Buyers

Home flippers often claim that the renovations and repairs they do on homes before selling them preps the property for a new first-time homebuyer, but that’s becoming less and less the case.

According to new data from ATTOM Data Solutions, the percentage of home flips that were sold to homebuyers who secured financing through the Federal Housing Administration (FHA)—which are predominantly first-time homebuyers—dropped to 15.9 percent in the first quarter of 2018, a 10-year low.

Rising home prices have made home flipping a lucrative practice, as the total dollar volume of home flips has been more than $10 billion every quarter since 2016. But it’s also gradually priced out many of the first-time homebuyers home flippers claim to serve. The median price of a home flip rose to $215,000 in the first quarter of 2018, the highest since prior to the housing bust in 2008.

The FHA, a division of the Department of Housing and Urban Development (HUD), provides insurance on mortgages for qualified borrowers, typically people with lower credit scores or those without the means for a down payment. The FHA insures mortgages with as little as a 3.5 percent down payment. This helps expand credit to lower income buyers or first-time buyers.

FHA buyers aren’t always first-time homebuyers, and first-time homebuyers aren’t always FHA buyers, but there’s considerable overlap. So far in 2018, 82 percent of buyers who purchased single-family homes through the FHA were first-time buyers, according to the HUD.

So while the percentage of home flippers who sold to FHA borrowers isn’t a perfect measure for first-time homebuyers, it serves as a good barometer, particularly when looking at the general trend.

The percentage of home flippers who sold to FHA buyers fell below 5 percent during the housing bubble in 2005, as the same easy credit that inflated the bubble and caused it to burst made securing FHA insurance on a mortgage unnecessary; mortgage lenders were more than willing to offer financing to practically anyone with a pulse.

After the bubble burst in 2008 and mortgage lending ground to a halt, home flippers sales to FHA buyers peaked at 34 percent in the second quarter of 2010, as FHA insurance was one of the few ways to lure a lender into a mortgage.

The steadily declining rate at which home flippers sell to FHA buyers certainly has something to do with mortgage credit getting more relaxed over the past few years. If borrowers have other attractive financing offers, some will take it. But as home prices rise, so does the premium home flippers can charge, and many first-time buyers will inevitably get left behind.


The Latest Developments at the CFPB

The acting director of the Consumer Financial Protection Bureau (CFPB) often says that the only reason he hasn’t burned the agency down is because it’s illegal.

Mick Mulvaney, the staunchly conservative White House budget director, has taken extensive steps to restrain and reform the CFPB while insisting he would do just enough to meet its legally mandated actions. He has worked to undo years of the bureau’s most controversial rules while laying the groundwork for a massive reduction in the CFPB’s reach and authority, including calling on Congress to strip its powers.

Just this week, Mulvaney dismissed the members of three CFPB advisory boards, including a consumer advocate panel he’s legally required to meet with twice each year.

Here are five ways that Mulvaney, who fought against the CFPB’s creation as a member of the House, has transformed it from within during his six months atop the agency.

Structural changes and political hires

Mulvaney has used his vast power and independence to sway the CFPB by pairing career bureau staffers hired for policy chops with highly paid political appointees. He’s also rearranged the bureau’s structure, making a broad array of powers subject to his appointees’ control.

Mulvaney’s top aides have overseen efforts to slim down the bureau and make it more responsive to the financial services industry.

The acting director brought on Brian Johnson and Kirsten Sutton Mork in senior roles, giving them oversight of most day-to-day bureau functions. The former aides to Rep. Jeb Hensarling (R-Texas), the House Financial Services Committee chairman, were key to his legislative and investigative efforts to tame the CFPB.

Hensarling led the House GOP’s push to repeal most of the CFPB’s powers and launched probes of the bureau’s regulatory actions through his subpoena power.

Mulvaney, a former Financial Services panel member, said the arrangement mirrored other federal agencies and balanced out a staff composed mainly of Democratic Sen. Elizabeth Warren’s (Mass.) acolytes.

Mulvaney also stoked rage among the CFPB’s progressive supporters and some small financial institutions when he dismissed this week the members of three key advisory groups.

CFPB officials downplayed the furor among consumer advocacy groups and insisted that board members only cared about “their taxpayer funded junkets to Washington, D.C., and being wined and dined by the Bureau.”

Board members called the claim outrageous and some offered to cover their own expenses.

“We give two days of our time working, sitting at our table from morning until night, digging into these weighty issues,” Josh Zinner, the CEO of the Interfaith Center on Corporate Responsibility, said Wednesday. “They have no actual rationale for dismissing these boards, and now they’re just resorting to name calling. It’s absurd.”

Retreat on payday lending crackdown

Mulvaney has reversed the CFPB’s wide crackdown on short-term, high-interest loans.

The acting director opposes the bureau’s October 2017 rule targeting “payday” loans and sought to delay it through several means. He delayed the compliance date for the first portion of the rule in January, and started the lengthy regulatory process to rewrite it.

The CFPB filed a joint motion with a group of payday lenders suing against the rule, asking the court to delay its effective date until their case is completed.

Mulvaney has also dropped several cases against payday lenders but insists the bureau is pursuing several others under its legal mandate to enforce fair lending laws.

But his step back from the CFPB’s efforts to tackle payday lending has enraged the bureau’s liberal allies and its former director, Richard Cordray, who issued the payday rule shortly before stepping down to run for Ohio governor.

Call for complaints about CFPB’s own actions

The CFPB has issued several formal requests for complaints on almost every aspect of its own regulatory and enforcement actions.

Banks, lenders and financial services firms have griped for years about the bureau’s aggressive oversight. But the official call for complaints will give the CFPB a wealth of documented rationale meant to justify major reversals in bureau policy.

The requests target the ways the CFPB crafts regulations, begins investigations, issues subpoenas and penalizes firms it believes have violated laws.

“Regulation by enforcement is done,” Mulvaney said in April. “Financial services providers should be allowed to know what the law is before being accused of breaking it.”

Cost-cutting measures

The 2010 Dodd-Frank Act empowers the CFPB director to request from the Federal Reserve as much money as they deem necessary each fiscal quarter, and the Fed is obligated to provide the funding.

Mulvaney requested $0 during his first fiscal quarter in charge of the bureau, saying he’d instead use the CFPB’s $177 million emergency reserve account with the Fed’s New York branch.

The fiscal hawk former congressman is mulling ways to slash the CFPB’s expenses, including personnel changes or relocations. He’s also floated reducing the amount of outside scholarship conducted by CFPB employees the bureau sponsors.

Rebranding push

Mulvaney has tried to drag the CFPB as far as possible from its roots as Warren’s brainchild. He’s insisted the agency should be called by its formal legal name, the Bureau of Consumer Financial Protection, despite the frequent use of shorter names by other federal entities.

The acting director has said he wants to bring the CFPB in line with noncontroversial regulators, such as the Federal Deposit Insurance Corporation.

“I don’t want us to be Elizabeth Warren’s baby, because as long as you’re associated with one person, be it me or her, you’re never going to be taken as seriously as a bureaucracy, as an oversight regulator as you probably should,” Mulvaney said in April.

The bureau has also adopted a less flashy, more traditional logo, though its website still sports Cordray-era neon green.


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