Mortgage Loan Origination

As the Mortgage Bankers Association gathers for its Regulatory Compliance conference next week in Washington, DC, Mayer Brown’s Consumer Financial Services group will be addressing all the hot topics.

Melanie Brody will be talking about the Equal Credit Opportunity Act (ECOA) on a panel called “Fair Lending and Equal Opportunity Laws” on Sunday, September 16.

Senators Mark Warner (D-VA) and Mike Rounds (R-SD) recently introduced Senate Bill 3401 to facilitate access to residential mortgage loans for consumers who are self-employed or otherwise receive income from nontraditional sources. The lawmakers indicated that lenders have shied away from loans to those consumers due to overly strict or ambiguous federal requirements for documenting the consumers’ income. The bill would, if enacted, provide mortgage lenders greater flexibility in documenting income during the underwriting process. They call the bill the Self-Employed Mortgage Access Act.

Federal regulations require that for most closed-end, dwelling-secured loans, a lender must make a reasonable and good faith determination that the consumer will have a reasonable ability to repay the loan, based on (among other factors) the consumer’s verified income. To take advantage of a presumption of compliance with that requirement, most lenders follow the regulations’ Qualified Mortgage (QM) guardrails, described in part in Appendix Q of the regulations. Appendix Q generally dictates the type of income documentation a lender must obtain.

For example, for a self-employed individual (any consumer with a 25 percent or greater ownership interest in a business), Appendix Q requires that a lender seeking to make a QM must get the consumer’s signed, dated individual tax returns, with all applicable tax schedules, for the most recent two years. For a corporation, “S” corporation, or partnership, the lender must get signed copies of the federal business income tax returns, with all applicable tax schedules, for the last two years. Finally, the lender must get a year-to-date profit-and-loss statement and a balance sheet. Appendix Q does not expressly provide for any flexibility in those documentation requirements.
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On May 8, 2018, the United States Department of Justice and KleinBank reached a settlement agreement resolving allegations that the bank engaged in mortgage lending discrimination by failing to adequately serve predominantly minority neighborhoods (so-called “redlining”) in and around the Twin Cities of Minneapolis and St. Paul, Minnesota. The settlement resolves one of the only

A creditor’s inability to reset fee tolerances with a revised Closing Disclosure more than four business days before closing has been one of the more adverse unintended consequences of the TILA-RESPA Integrated Disclosure (“TRID”) regulations that became effective in October 2015. However, a fix is on the horizon. On Thursday, April 26, 2018, the Consumer Financial Protection Bureau (“CFPB”) announced final amendments to TRID to eliminate the timing restrictions that have plagued creditors and, in certain cases, increased creditors’ costs to originate residential mortgage loans. With an effective date 30 days after the final amendments are published in the Federal Register, this change is a welcome relief to mortgage lenders. 
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Characterized as “protecting veterans from predatory lending,” S.2155, the Economic Growth, Regulatory Relief and Consumer Protection Act, passed by the United States Senate on March 14, 2018. If enacted, the bill would impose material conditions on the eligibility of non-cash-out refinancings for government guaranty under the Veterans Affairs Loan Guaranty Program. While the legislation

The U.S. Court of Appeals for the D.C. Circuit (the “court”) has issued its long-awaited en banc decision in PHH v. CFPB. In a January 31, 2018 opinion, the court rejected the three-judge panel’s conclusion that the structure of the Consumer Financial Protection Bureau (“CFPB”) is unconstitutional.  But the en banc court reinstated the

On December 22, 2017, Ohio Governor Kasich signed into law Ohio House Bill 199, which will make significant changes in how the state will license and regulate mortgage lenders and brokers. The bill takes effect 91 days after filing with the Ohio Secretary of State (which filing had not been made as of January 4, 2018).

The bill amends the Ohio Mortgage Brokers Act (the “OMBA”) to bring the registration of mortgage lenders and brokers, and the licensing of mortgage loan originators, together under a single statute. The amended statute will be called the Ohio Residential Mortgage Lending Act (“ORMLA”).
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For most of 2017, the Trump Administration was quiet with regard to the Federal Housing Administration (“FHA”) loan program. However, the Department of Housing and Urban Development (“HUD”) recently offered some relief to lenders and servicers of FHA-insured loans. Through Mortgagee Letter 2017-18, HUD ended its policy of allowing FHA insurance for mortgage loans secured by properties encumbered with Property Assessed Clean Energy (“PACE”) obligations. FHA’s new policy prohibiting PACE obligations in connection with FHA-insured loans, which becomes effective for loans with FHA case numbers issued on or after January 7, 2018, reverses Mortgagee Letter 2016-11, a short-lived Obama era policy that permitted lenders to originate FHA-insured loans involving PACE obligations.

PACE loans provide homeowners an alternative to traditional financing for energy efficient home improvements such as solar panels, insulation, water conservation projects, and HVAC systems. Instead of funding the home improvements through loans, the borrower pays through special property tax assessments. PACE financing does not follow the standard review of a borrower’s income, debt, and FICO score, but rather is based on the borrower’s equity in the home and the mortgage or property tax payment history. Many states and municipalities passed legislation implementing a PACE program and establishing their own terms and conditions for PACE loans. Homeowners voluntarily sign up for PACE financing through private companies, which often offer PACE through a network of approved dealers and installers. The PACE loan is secured by a property tax lien, often with terms of up to twenty years, which takes priority over both existing and future mortgages on the property. 
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Fannie Mae and Freddie Mac (the “agencies”) have developed new uniform instruments for use with Texas home equity loans beginning January 1, 2018. Those forms will reportedly be available on the agencies’ web sites as that date approaches. In addition, the agencies are imposing a temporary moratorium on purchasing Texas home equity loans while lenders

On November 7, Texas voters will have the opportunity to make some significant changes to the state’s homestead equity loan restrictions. As summarized below, Texas Proposition 2 will, if approved: (1) revise the strict fee limits for such loans; (2) add to the list of lenders that are authorized to make the loans; (3) eliminate the “once-a-home-equity-loan, always-a-home-equity-loan” rule; (4) allow borrowers to sign an affidavit of compliance regarding certain new refinancings of such loans; and (5) allow advances on lines of credit up to 80% loan-to-value (LTV) ratio.

The Texas Constitution imposes strict limits on the types of loans that validly may be secured by Texas homestead property. For home equity loans (other than purchase-money loans or rate/term refinances), the Texas Constitution imposes a long list of limitations and requirements, the violation of which invalidates the lien and can result in the forfeiture of principal and interest. A lender or holder has an opportunity to cure at least some of those violations. Since the limitations are part of the state constitution, relief can come only through legislative resolutions on which the public must then have the opportunity to vote.
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