Compliance Update

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

As of July 30, 2009 there will be several new changes regarding early disclosure law, closing restrictions as well as changes to Regulation Z and RESPA so I thought now might be a good time to bring some of this stuff to everyone’s attention so that when underwriting the compliance piece of the mortgage application we get it right. The changes fall under The Mortgage Disclosure Improvement Act (MDIA) and will affect all mortgage applications for any consumer purpose mortgage transaction subject to the Real Estate Settlement Procedures Act (RESPA).

The MDIA will broaden the category of application which requires early disclosure of mortgage applications which will result in the securitization of a consumers dwelling including second and vacation homes and applies to purchase transactions, refinances and assumptions. The new rule will not apply to HELOC application. Under the new rule, estimated disclosures must be given no later than three business days after receipt of application for any consumer purpose mortgage and should include a Good Faith Estimate of Settlement Charges (which need not contain an itemization of the amount financed), Truth in Lending disclosure as well as a Servicing Transfer Disclosure.

It should also be noted that “Business day” will now be defined as a day the creditor’s office is open and is conducting normal business. Additionally if the application reaches the creditor through an intermediary agent or broker, the application is considered received when it reaches the creditor rather than when it reaches the intermediary agent or broker. If the application is denied or withdrawn within three business days of receipt than early disclosure is not required.

Currently HUD’s Regulation X defines “application” as the submission of a borrower’s financial information in anticipation of a credit decision whether written or computer generated. If the submission indicates no particular property than the application should be considered a pre-approval and not an application for RESPA covered mortgage loans. Under the new MDIA requirements the early disclosures must contain the following statements: “You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.” This statement must be grouped together with the required early disclosures.

The new MDIA requirements will also allow a restriction on fees charged by the lender. Neither a creditor nor any other person may impose a fee on a consumer before the consumer has received the early disclosures other than a reasonable fee for obtaining a credit report so collection of appraisal fees upfront is prohibited except under the circumstance of a face to face application where the borrower was directly provided the early disclosures.

There will also now be a waiting period prior to consummation of the mortgage application if revised disclosures must be provided to the borrower due changes in the terms and conditions of the mortgage application which result in an increased APR of more than 1/8th of percentage point in a regular transaction or more than 1/4th of one percentage point in an irregular transaction from the time that the early disclosures were provided to the final loan terms. Under the new rules the new the corrected early disclosures must be received by the consumer not later than three business days before consummation of the mortgage.

What this means for everyone is that if you are required to provide the borrower revised disclosures because the terms of the conditions of the transactions are changing to such a point that the APR will increase by the aforementioned ratio’s, than you must wait at least 3 business days from the receive of the corrected disclosures to close the mortgage. The consumer can execute a waiver of the three day period under certain circumstances such as financial emergencies however the waiver must be received in writing.

These are the larger points where the new guidelines are concerned however there additional changes including changes to section 32 regulation as well rescission rules. Further guidance can be obtained on HUD’s website or other government regulatory agencies such OTS and FDIC.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

When to Downgrade AUS Findings to a Refer

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

Very recently I had a conversation with a fellow underwriter who, while she was underwriting a case which was rated an Approve/Eligible, found several items of concern within the loan documentation as submitted by the borrower. These items where located in standard documents submitted to establish income and assets sufficient to close.

Her concern was that although the case was rated an Approve/Eligible, the documents which caused concerned could not be assessed by the AUS in determining overall case acceptability from an underwriting standpoint. Her next question was when is it acceptable to downgrade a case to refer and possibly proceed by rejecting an application which has been otherwise approved by Total.

The answer to this question is really pretty simple. Whenever you, the underwriter personally feels that the overall case file exceeds the risk threshold of a case that would otherwise be acceptable than downgrade the case to refer, proceed with manual underwriting and if necessary, reject the loan.

It is important to remember that the AUS, more particularly Total Scorecard is designed to assess overall risk using the data that we as underwriters provide. Using complex mathematical equations, it reviews LTV, ratio information, proposed monthly housing expense and so on to determine if the case is an acceptable risk for HUD purposes. It in no way will complete an analysis’s the collateral nor does it specifically review the documentation provided by the borrower to determine if circumstances that may be present in this documentation may impede the borrowers ability to repay the mortgage debt in a timely manner. Only the underwriter can do this and determine through due diligence if these circumstances exist.

In looking at the case file that was discussed with my underwriter friend, she had determined by reviewing the borrowers bank statements that the borrower demonstrated consistent overdrafts in her checking account more particularly her checking account balance was going down to zero about 2 to 3 days after each pay period. Additionally she could see wire’s coming into the borrowers account from several individuals not present on the loan application as if the borrower was borrowing money from friends and relatives each and every month.

When considering this and the fact that the purchase would result in an $800.00 increase in the borrowers housing expense, that the borrower had no savings pattern and was receiving a gift for closing, the underwriter was concerned about the borrowers overall financial behavior and her ability to repay the debt. In addition it was noted that although the borrowers credit score was acceptable (due to a rapid rescore) the borrowers overall credit was not. Multiple outstanding collections were still appearing on the borrowers credit report as was prior late payments and although through rapid rescore the borrowers credit score was sufficient to receive an Approve/Eligible, review of the borrowers overall demonstrated an overall disregard for timely repayment of debts. These items were the two main items that caused concern where the case file was concerned but not the only issues. The end result was the down grade of the case to refer and ultimate loan rejection.

As you can see there is more than one factor that goes into overall case underwriting and more often than not, these factors can not be assessed by AUS alone. Only due diligence in underwriting can determine what factors create an increase risk where the case is concerned. With this in mind it is important to understand that as underwriters you can and should downgrade AUS results when necessary in order to weed out potential default cases. As always, Happy Underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

VA Cash Out Refinance Transactions

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

Just want to bring to everyone's attention something that could be extremely useful in the market today and that is the VA cash out refinance program. As we are all aware, FHA lowered the maximum LTV on cash out refinance transactions beginning for all case numbers ordered on or after April 1, 2009 to 85% from 95% which caused some low groans in the industry. VA on the other hand is still out there allowing 100% LTV on cash out refinance transactions and better than that, investors in the secondary market are still purchasing them.

In addition, VA has moved to guarantying 25% of the Freddie Mac conforming loan limit for the county in which the property is located so there are no longer and crazy calculations to appease the investors in the secondary market where these types of transactions are concerned. Considering this, if a lender has the ability to originate VA insured mortgages a 100% cash out refinance transaction for eligible veterans should not be a hard sell.

When calculating the maximum mortgage under these circumstances, a lender can lend up to 100% of the appraised (NOV) value plus any EEM improvements as well as the VAFF. In others words the borrower would have the full benefit of 100% of the appraised value and the VAFF would be financed on top of the for a total LTV of say 103.30% assuming the case was a subsequent use case. Processing procedures are the same for this type of transaction, full or alternative documentation standards as are all government loan transactions so there are no additional items that need to be addressed. In short, if your firm has an investor who will purchase them, they any approved VA broker or lender can originate them.

Further guidance where the 100% LTV guidelines are concerned can be found in the VA Lenders Handbook, which is located on VA’s website. Be sure however to check with your investors to make sure that they will purchase them. Most of the investors that I am working with at this point still have the minimum 620 credit score requirement in place for the VA as well as FHA and the rule appears to apply to the 100% cash out transactions as well so make certain you review any other additional guidelines that might impede your ability to get them sold.

For those of you brokers out there that are not signed up with VA yet, well now might be a good time to get the ball rolling. Broker approval where VA is concerned is actually pretty simple, you just need a sponsoring lender to provide you with evidence (a letter) indicating that they will be sponsoring you where the VA Home Loan Guaranty program is concerned and you mail this off with a $100.00 check as a couple of other things and you should have your approval in about a month. Hope the heads up was helpful and as always, happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)