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The Department of Housing and Urban Development has posted a new settlement on its website, alleging violations of the Real Estate Settlement Procedures Act of 1974. 

The settlement is between HUD, Grand Texas Home, Inc., its owners and officers, and Grand Title Company.

As its core allegations under the settlement, HUD generally states:

• Grand Title did not operate as a bona fide independent title agency,
• Grand Homes failed to provide consumers with the required ABA disclosures, and
• Grand Homes required consumers to use its affiliate, Grand Title.

The defendants agreed to pay HUD $200,000.

Certain language from the settlement is of particular note.  For example, the agreement expressly permits Grand Homes to select the title insurer so long as Grand Homes “pays the title costs.”  While this language appears in the pertinent regulatory provisions, certain persons at HUD sometimes argue that payment of the title costs is not sufficient, because the costs generally are baked into the home prices.

The agreement also sets forth a laundry list of items that HUD presumably views as undermining the bona fides of a affiliated title company.

For a complete copy of the settlement agreement, click here.

Tags: Consumer Protection, HUD & FHA, Mortgage Banking - General, RESPA, Regulations by the Editor
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The Federal Deposit Insurance Corporation has issued guidance that the agency says provides comprehensive information to give servicers and financial institutions “all of the tools necessary to implement a systematic and streamlined approach to modifying loans.”  The guidance is said to be based on the agency’s loan modification program initiated at IndyMac Federal Bank.

The press release states in part:

The Program is designed to achieve affordable and sustainable mortgage payments for borrowers and increase the value of distressed mortgages by rehabilitating them into performing loans. Under the terms of the Program, borrowers receive a loan modification with a maximum 38% down to 31% housing-to-income ratio through the use of interest rate reduction, amortization term extension, and in some cases, principal deferment. This loan modification process improves the value of the troubled mortgages for investors while helping many borrowers experiencing financial difficulties remain in their homes.

The FDIC implemented this approach to loan modifications on August 20th after IndyMac Bank, FSB failed on July 11, 2008. As of November 20th, 2008 IndyMac has sent out more than 23,000 modification letters to eligible borrowers and has completed more than 5,300 modifications after verifying the borrowers’ income. Thousands more are in the pipeline.

Although foreclosures are costly to lenders, borrowers and communities, the number of foreclosures continues to rise while the pace of modifications remains too slow. Currently, 1.6 million total loans are over 60 days delinquent. Through the end of 2009, the FDIC estimates that there will an additional 3.8 million new loans over 60 days past due. Today’s release of the FDIC’s “Mod in a Box” guide will provide the industry with the necessary tools to facilitate streamlined and systematic loan modifications to help stem foreclosures, halt the decline in home prices and provide needed stability to the broader economy.

The guidance includes a Summary of the Loan Modification program, a substantial appendix containing various additional information, and certain related materials.

For a full copy of the press release, click here.

Tags: Bailouts, Consumer Protection, Distressed Assets, FDIC, Federal Bank Regulators, Foreclosure, Loan Servicing, Loss Mitigation, Mortgage Banking - General, Regulations by the Editor
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After delay and anticipation, the Department of Housing and Urban Development officially published the new final rule under the Real Estate Settlement Procedures Act of 1974.

The Summary to the new rule states:

This final rule amends HUD’s regulations to further RESPA’s purposes by requiring more timely and effective disclosures related to mortgage settlement costs for federally related mortgage loans to consumers.  The changes made by this final rule are designed to protect consumers from unnecessarily high settlement costs by taking steps to: improve and standardize the Good Faith Estimate (GFE) form to make it easier to use for shopping among settlement service providers; ensure that page 1 of the GFE provides a clear summary of the loan terms and total settlement charges so that borrowers will be able to use the GFE to identify a particular loan product and comparison shop among loan originators; provide more accurate estimates of costs of settlement services shown on the GFE; improve disclosure of yield spread premiums (YSPs) to help borrowers understand how YSPs can affect borrowers’ settlement charges; facilitate comparison of the GFE and the HUD-1/HUD-1A Settlement Statements; ensure that at settlement borrowers are aware of final costs as they relate to their particular mortgage loan and settlement transaction; clarify HUD-1 instructions; expressly state that RESPA permits the listing of an average charge on the HUD-1; and strengthen the prohibition against requiring the use of affiliated businesses.

This final rule follows a March 14, 2008, proposed rule and makes changes in response to public comment and further consideration of certain issues by HUD.  In addition, this rule provides for an appropriate transition period.  Compliance with the new requirements pertaining to the GFE and settlement statements is not required until January 1, 2010. However, certain provisions are to be implemented upon the effective date of the final rule.

HUD notes the rule is a “major rule” under the Congressional Review Act, 5 U.S.C. Chapter 8, therefore having a 60-day delayed effective date and being submitted to Congress for review.

The rule is effective January 16, 2009. 

To obtain a copy of the rule, please click here.

Tags: Consumer Protection, HUD & FHA, Mortgage Banking - General, RESPA, Regulations by the Editor
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The Department of Housing and Urban Development has issued new permanent loan limits for single family home loans insured by the Federal Housing Administration.

Beginning January 1, 2009, the FHA limits for single-family home mortgages will be $271,050 in low cost areas and up to $625,500 in high cost areas.  The new rule results in a reduction from $729,750 that was established in February 2008. 

The press release states:

For several years, FHA’s loan levels were below the cost of the average home in communities across the nation. As a result, families who needed FHA mortgage insurance to qualify to buy a home were effectively locked out of the process. In some cases, borrowers turned to exotic subprime loans.

FHA mortgage insurance makes home financing more available to low-income and first time homebuyers. This is because the mortgage is backed by the full faith and credit of the government, freeing lenders from assuming the risk of default.

Higher FHA loan limits do not cost the government any money because the FHA Insurance Fund is fully supported by premiums paid by borrowers who receive FHA-insured mortgage loans.

The Housing and Economic Recovery Act pegs the national conforming mortgage loan limit to a house price index chosen by the new Federal Housing Finance Agency (FHFA). For 2009, the national conforming limit will remain at the current level of $417,000.

The Act says that the new FHA loan limits will be set at 115 percent of the median house price in a given area, as determined by HUD, but can not be lower than 65 percent of the conforming loan limit (the national floor). Also, the FHA mortgage limit cannot exceed 150 percent of the national conforming loan limit (the national ceiling).

The Act also pegs the national mortgage limit for FHA-insured reverse mortgages to the national conforming loan limit. The FHA product known as the Home Equity Conversion Mortgage (HECM) will therefore have a national mortgage limit of $417,000. Unlike the new forward mortgage loan limits, the new HECM loans limits are effective on loans insured or after November 6, 2008. This is the first time that a single limit applies to these mortgages nationwide. As in previous years, the special exception areas of Alaska, Hawaii, Guam, and the Virgin Islands may have higher loan limits. Starting in January 2009 counties in those areas may have loan limits of 115 percent of area median prices, where that amount is above $417,000, up to a ceiling of $625,500.

For a copy of the full press release, please click here.

Tags: Consumer Protection, Economic Stimulus, FHA Insurance, HUD & FHA, Legislation, Mortgage Banking - General, Regulations, Reverse Mortgages by the Editor
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The Department of Housing and Urban Development has sent to the Federal Register for publication on November 14 the revised regulations under the Real Estate Settlement Procedures Act of 1974.

The new rule, which consists of nearly 300 pages of double-spaced text, includes a revised Good Faith Estimate and HUD-1.

HUD’s original proposal had included a so-called closing script, which had been sharply criticized by a number of industry participants.  The agency discarded this proposed change.

The proposed rule’s change to the definition of “required use” had also been the focus of substantial criticism.  HUD rejected this criticism, and includes language that would prevent companies from providing an incentive to consumers for using an affiliate.  This language appears to be targeted at homebuilder affiliates.

Considering the significant opposition to the rule, and the nature of the rule in its final form, there is a good chance the rule will be challenged.

For a copy of the HUD press release, please click here.

Tags: Consumer Protection, HUD & FHA, Mortgage Banking - General, RESPA, Regulations by the Editor
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The Department of Housing and Urban Development has issued Mortgagee Letter 08-29, “Hope for Homeowners Origination Guidance.”

In the Mortgagee Letter, HUD states: 

The Housing and Economic Recovery Act of 2008 amends the National Housing Act to authorize a new temporary FHA mortgage insurance program called the HOPE for Homeowners (H4H) Program. Under this Program, certain borrowers facing difficulty in paying their mortgages will be eligible to refinance into affordable FHA-insured mortgages.  The H4H Program is effective for endorsements on or after October 1, 2008 through September 30, 2011.

While underwriting mortgages for the H4H Program presents unique challenges for the industry, FHA has confidence in its approved mortgagees to exercise their ingenuity in meeting these challenges, while adhering fully to this mortgagee letter, without compromising their ability to make and support sound underwriting decisions.  The information, directions, and guidance provided in this mortgagee letter reflect statutory requirements as well as the standards, policies and regulations adopted by the Board of Directors (Board) for the H4H Program.

The Mortgagee Letter then discusses the following 12 topics:

1. Eligibility of borrowers, mortgages and properties
2. Consumer protection and disclosure requirements
3. Appraisal requirements
4. Terms and interest rates
5. MIP
6. Calculating the maximum mortgage amount
7. Underwriting and qualifying borrowers
8. Documentation requirements
9. Prohibitions on subordinate financing
10. Equity and appreciation sharing
11. Extinguishment of subordinate liens
12. Monitoring and program compliance

For a copy of the full Mortgagee Letter, please click here.

Tags: Appraisals, Consumer Protection, Distressed Assets, Economic Stimulus, FHA Insurance, Foreclosure, HUD & FHA, Loan Modifications/Workouts, Loan Servicing, Loss Mitigation, Mortgage Banking - General, Regulations by the Editor
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The Department of Housing and Urban Development has issued Mortgagee Letter 08-30, “Hope for Homeowners Servicing Guidance.”

In the Mortgagee Letter, HUD states: 

The Housing and Economic Recovery Act of 2008 amends the National Housing Act to authorize a new, temporary Federal Housing Administration (FHA) mortgage insurance program called the HOPE for Homeowners Program (also referred to as the H4H Program).  Under the Program, a borrower facing difficulty paying his or her mortgage will be eligible to refinance into an affordable FHA-insured mortgage.  The H4H Program is effective for endorsements on or after October 1, 2008, through September 30, 2011.

This mortgagee letter provides HUD-approved servicing mortgagees with servicing and loss mitigation guidance on the new H4H Program.  The information, directions and guidance provided in the mortgagee letter reflect statutory requirements and the standards, policies and regulations adopted for the H4H Program by the Board of Directors of the H4H Program.

HUD then addresses the following topics:

• Background;
• Prohibition against subordinate financing;
• Refinancing;
• Capital Improvements;
• Defaults and loss mitigation;
• Impact of first payment defaults; and
• Sale and payoff.

For a full copy of the Mortgagee Letter, please click here.

Tags: Bailouts, Consumer Protection, Distressed Assets, Economic Stimulus, FHA Insurance, Foreclosure, HUD & FHA, Legislation, Loan Modifications/Workouts, Loss Mitigation, Mortgage Banking - General, Regulations by the Editor
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The Department of Housing and Urban Development has posted a new settlement agreement entered into between HUD and an Arizona developer for alleged violations of the Interstate Land Sales Act.

This ILSA settlement is the third this year.  There was only one settlement per year posted during the period 2005-2007. 

Under the terms of the settlement, the developer agreed to pay the government $45,000, and also to send offers of rescission to all persons who purchased lots from the developer.  The offer must include a full refund of all monies paid in connection with the purchase in exchange for a return of the deed.

The last lot sold in this matter was in 2005.  Recent Arizona market conditions could make this remedy particularly unappealing for the developer.

For a copy of the settlement, please click here.

Tags: Consumer Protection, Fraud, HUD & FHA, Interstate Land Sales, Regulations, Unfair or Deceptive Acts by the Editor
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The Department of Housing and Urban Development has issued Mortgagee Letter 2008-28, entitled Prohibition on Mortgagee Funded Home Equity Conversion Mortgage (HECM) Counseling.

The Housing and Economic Recovery Act of 2008 requires that the HECM mortgage must be executed by a borrower who received adequate counseling from an independent third party that is not directly or indirectly associated or compensated by a party involved in (i) originating or servicing the mortgage, (ii) funding the loan, or (iii) the sale of annuities, investments, long-term care insurance or any other type of financial or insurance product.

The Mortgagee Letter states:

Lenders can no longer pay HUD-approved counseling agencies, directly or indirectly, for counseling services through either a lump-sum payment or on a case-by-case basis.  An example of prohibited indirect funding is Lenders funneling payment for HECM counseling through a nonprofit, foundation, association or any other entity or organization that is a branch of,  affiliated with or associated with a lending institution.

Lenders may continue to pay for other types of housing counseling not associated with the HECM program, including pre-purchase and foreclosure prevention counseling, under certain conditions, as addressed in 24 CFR Part 214, regulations for HUD’s Housing Counseling Program. 

This Mortgagee Letter rescinds paragraph 2 of the section entitled Payment of Counseling Fee in Mortgagee Letter 08-12.

For a full copy of the Mortgagee Letter, please click here.

Tags: Consumer Protection, Downpayment Assistance, HECM, HUD & FHA, Legislation, Mortgage Banking - General, Regulations by the Editor
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The Department of Housing and Urban Development has announced that $50 million will be granted among various housing counseling agencies.

HUD indicated that the grants assist families in becoming first-time homeowners and remaining homeowners after their purchase.   HUD stated that the counselors provide homeownership counseling, and also offer financial literacy training to renters and homeless individuals and families.

HUD’s press release states, in part:

Since 2001, HUD has increased funding to 2,300 approved housing counseling agencies by 150 percent. More than $47 million will support 21 national and regional organizations and 376 state and local housing counseling agencies. In addition, HUD is awarding $3 million to two national organizations to train approximately 2,600 counselors who will receive the instruction and certification necessary to effectively assist families with their housing needs.

National and regional agencies distribute much of HUD’s housing counseling grant funding to community-based grassroots organizations that provide advice and guidance to low- and moderate-income families seeking to improve their housing conditions. In addition, these larger organizations help improve the quality of housing counseling services and enhance coordination among other counseling providers.

Counseling agencies will use $4 million to help assist senior citizens seeking reverse mortgages or Home Equity Conversion Mortgages (HECM). These agencies will provide counseling for the rapidly growing number of elderly homeowners who seek to convert equity in their homes into income that can be used to pay for home improvements, medical costs, and other living expenses.

The organizations that provide housing counseling services help people become or remain homeowners or find rental housing, and assist homeless persons in finding the transitional housing they need to move toward a permanent place to live. Grant recipients also help homebuyers and homeowners realistically evaluate their readiness for a home purchase, understand their financing and downpayment options, and navigate what can be an extremely confusing and difficult process.

In addition, grantees help combat predatory lending by helping unwary borrowers avoid unreasonably high interest rates, inflated appraisals, unaffordable repayment terms, and other conditions that can result in a loss of equity, increased debt, default, and even foreclosure. Likewise, foreclosure prevention counseling helps homeowners facing delinquency or default employ strategies, including expense reduction, negotiation with lenders and loan servicers, and loss mitigation, to avoid foreclosure. With foreclosures on the rise nationwide, these services are more important than ever.

For a full copy of the press release, please click here.

Tags: Consumer Protection, Financial Literacy, HUD & FHA, Mortgage Banking - General by the Editor
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