Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
On December 6, the CFPB announced the filing of a complaint and proposed final judgment in the U.S. District Court for the District of Nevada against a non-bank mortgage company for allegedly deceiving veterans about the benefits of refinancing their mortgages in violation of the Consumer Financial Protection Act. According to the complaint, during in-home presentations, the company would allegedly use flawed “apples to apples” comparisons between the consumers’ mortgages and an Interest Rate Reduction Refinancing Loan (a loan, guaranteed by the Department of Veterans Affairs, which allows veterans to refinance mortgages at lower interest rates). The Bureau alleges the presentations misrepresented the future cost savings of the refinance by (i) inflating the future amount of principal owed under the existing mortgage; (ii) overestimating the future loan’s term, which underestimated the future monthly payments; and (iii) overestimating the total monthly benefit of the loan after the first month.
If ordered by the court, the judgment would require the company to pay $268,869 in redress to consumers and a civil penalty of $260,000; it would also prohibit the company from misrepresenting the terms or benefits of mortgage refinancing.
Fannie Mae issues Selling Guide updates, removes requirement to use Market Conditions Addendum for appraisals
On August 7, Fannie Mae issued Selling Guide update SEL-2018-06, which announces, among things, the removal of the requirement to use the Market Conditions Addendum (Form 1004MC) for appraisals and clarification of the policies regarding disbursement of HomeStyle Renovation funds. Specifically, effective immediately, the Selling Guide provides that lenders are no longer required to use Form 1004MC for appraisals as the agency’s Collateral Underwriter program provides market trend information for lenders and Fannie Mae to measure and manage market risks. However, appraisers remain responsible for analyzing market conditions and reporting them in the Neighborhood section of Fannie Mae’s appraisal forms. The update also clarifies that for HomeStyle Renovation funds disbursed using a wire transfer, the lender must obtain written consent to release the funds. Additionally, the update clarifies that all mechanics liens must be cleared or waived by the final disbursement of funds—a lien waiver is not required at each disbursement stage. The announcement also notes that the previously released information regarding Fannie Mae’s high loan-to-value refinance option (covered by InfoBytes here) is now available in the Selling Guide.
On May 31, the Department of Veterans Affairs (VA) issued Circular 26-18-14 to clarify requirements regarding lender certifications for VA-guaranteed loans. The circular reminds lenders originating VA loans that the lender must certify to the VA that the loans “were made in full compliance with the law and loan guaranty regulations” regardless of the type of VA-guaranteed loan being initiated. The circular highlights that the lender certification is required on the Interest Rate Reduction Refinance Loans (IRRRL). The circular is effective through July 1, 2020.
On May 30, Ginnie Mae issued All Participants Memorandum APM 18-04 announcing changes to pooling eligibility requirements for Department of Veterans Affairs (VA) loans. The changes are in response to the “Loan Seasoning for Ginnie Mae Mortgage-Backed Securities” provision of the regulatory relief bill, Economic Growth, Regulatory Relief, and Consumer Protection Act, S.2155/ P.L. 115-174. (See previous InfoBytes coverage here.) APM 18-04 requires that, in order to be eligible for Ginnie Mae securities, the date of the VA refinance loan must be on or after the later of (i) 210 days after the date of the first payment made on the loan being refinanced; and (ii) the date of the sixth monthly payment made on the loan being refinanced. The new eligibility criteria is effective with mortgage-backed securities guaranteed on or after June 1.
Ginnie Mae also announced June 1 that it has temporarily restricted VA single family-guaranteed loans pooled by three mortgage lenders. Upon conclusion of the temporary restriction, each of the three lenders must demonstrate that (i) prepayment speeds are more consistent with equivalent lenders, and (ii) improved performance is sustainable.
As previously covered by InfoBytes, the VA recently released policy guidance in response to the regulatory relief bill, which includes a similar loan seasoning requirement as Ginnie Mae.
VA issues policy guidance on VA refinance loans in response to the Economic Growth, Regulatory Relief and Consumer Protection Act
On May 25, the Department of Veterans Affairs (VA) issued Circular 26-18-13 discussing the impact of “The Protecting Veterans from Predatory Lending Act of 2018” (the Act), which was included in the recently enacted bipartisan regulatory relief bill, Economic Growth, Regulatory Relief and Consumer Protection Act, S. 2155, previously covered by InfoBytes here. The Act addresses “loan churning” of VA-guaranteed refinance loans and sets out new requirements for VA eligibility. As of May 25, a lender (broker or agent included), a servicer, or issuer of an Interest Rate Reduction Refinance Loan (IRRRL) must, among other things:
- Recoup Fees. Certify that certain fees and costs of the loan will be recouped on or before 36 months after the loan note date;
- Establish a Net Tangible Benefit. Establish that when the previous loan had a fixed interest rate (i) the new fixed interest rate is at least 0.5 percent lower or (ii) if the new loan has an adjustable rate, that the rate is at least 2 percent lower than the previous loan. In each instance, the lower rate cannot be produced solely from discount points except in certain circumstances; and
- Apply a Seasoning Period. Follow a seasoning requirement for all VA-guaranteed loans. A loan cannot be refinanced by an IRRRL or a VA cash-out refinance (if the new principle amount is less than the loan being refinanced) until (i) 210 days after the date of the first payment made on the loan and (ii) the date of the sixth monthly payment is made on the loan.
The circular is rescinded on January 1, 2020.
On May 22, Fannie Mae issued Lender Letter LL-2018-02, which updates options related to the high loan-to-value (LTV) refinance option released in September 2017 (LL-2017-05). Fannie Mae, at the direction of the Federal Housing Finance Authority and in conjunction with Freddie Mac, increased the minimum refinance LTV ratio from 95.01 percent to 97.01 percent for one-unit, principal residences. Additionally, there are no minimum credit score requirements or a maximum debt-to-income ratio for most high LTV refinances. The Lender Letter also notes that the Loan-Level Price Adjustment Matrix on Fannie Mae’s website is updated to include the high LTV refinances and provides specific loan delivery requirements.
Freddie Mac announced the same LTV ratio change in Guide Bulletin 2018-8. The bulletin also announced, among other things, a “Credit Fee in Price” cap structure, effective on January 1, 2019, for applicable refinance mortgages. According to the bulletin, the pricing cap is designed to balance affordability to the consumer and risk to the lender. The pricing cap structure is related to the LTV ratio of the refinance and occupancy type of the property. Other updates include, (i) clarification of income stability and credit inquiries; (ii) concurrent transfers of servicing; and (iii) investor reporting change initiative.
On April 5, the Department of Veterans Affairs released FAQs regarding policy guidance for VA Interest Rate Reduction Refinance Loans (IRRRL). The FAQs address a range of questions regarding the IRRRL policy guidance issued in February (previously covered by InfoBytes here), including noting that the requirement to provide the Lender Certification disclosure with initial disclosure documents has been removed. If a Lender Certification is necessary, the lender will be required to provide the document at closing. Additionally, the FAQs clarify that, while the lender will need to be able to demonstrate that the Veteran’s Statement was sent to and received by the veteran in the initial disclosure package, the VA will not require the veteran’s signature until the final statement given with the closing documents.
On February 8, Ginnie Mae announced that it had sent notices to a small number of issuers in the Ginnie Mae multi-issuer mortgage-backed security (MBS) program warning them about their VA mortgage loan prepayment speeds, which deviated from the norm and put the veteran benefit at risk. According to Ginnie Mae, the notices require the issuers to create a “corrective action plan that identifies immediate strategies to bring prepayment speeds in line with market peers.” Issuers unable to correct their performance risk losing access to Ginnie Mae multi-issuer pools. The warnings are a result of a task force formed between Ginnie Mae and the Department of Veterans Affairs (VA), to address refinance speeds and aggressive marketing in the VA loan space.
As previously covered by InfoBytes, Ginnie Mae also issued APM 17-06 which imposes tougher pooling standards on certain refinance loans. Additionally, the VA issued new policy guidance for its Interest Rate Reduction Refinance Loans (IRRRL) disclosures in an effort to assist borrowers in deciding whether the IRRRL is in their best interest, previously covered by InfoBytes here.
On February 1, the Department of Veterans Affairs released Circular 26-18-1, which informs lenders about new policy guidance for Interest Rate Reduction Refinance Loans (IRRRL) disclosures. Effective April 1, lenders are required to provide the Veteran’s Statement disclosure and the Lender Certification disclosure (if applicable) with the initial disclosure documents, which should be no later than three business days after receiving an application, and should confirm delivery in the Loan Guaranty Certificate process. According to the circular, the early disclosure of the Veteran’s Statement will assist the borrower in making informed decisions about whether the IRRRL is in their best interest. The circular also provides details for lenders about what specific information needs to be included in the Veteran’s Statement throughout the loan process.
Last week, Ginnie Mae announced an All Participants Memorandum, APM 17-06, regarding pooling eligibility for refinance loans. According to Ginnie Mae, the purpose of the December 7 Memorandum is to expand the pooling restrictions announced last year in APM 16-05 to address frequent loan churning and quick prepayments. Specifically, for pool issuances on or after April 1, 2018, all streamline and cash-out refinance loans are eligible for Ginnie Mae I Single Issuer Pools and Ginnie Mae II Multiple Issuer Pools only if (i) six consecutive borrower monthly payments are made; and (ii) the first payment due date of the refinance loan must be at least 210 days after the first payment due date on the original loan. Refinance Loans that are fully underwritten and meet certain criteria will not be subject to the new pooling restrictions.
APM 16-05 remains effective until APM 17-06 becomes effective on April 1, 2018. Ginnie Mae will continue active monitoring for unusually rapid prepayment rates and will institute sanctions for noncompliance. Ginnie Mae also plans to publish revised pooling standards for premium rate loans in early 2018.
- Jonice Gray Tucker to discuss "Trends in regulatory enforcement" at the American Bar Association Banking Law Committee Meeting
- Jessica L. Pollet to discuss "Your career is impacting your life..." at the Ark Group Women Legal Conference
- Jon David D. Langlois to discuss "Successors in interest updates" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Brandy A. Hood to discuss "Keeping your head above water in flood insurance compliance" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo