The Office of the Comptroller of the Currency (“OCC”), Board of Governors of the Federal Reserve System (“Board”), Federal Deposit Insurance Corporation (“FDIC”), Farm Credit Administration (“FCA”), and National Credit Union Administration (“NCUA”) (collectively, the “Agencies”) recently issued revised and expanded interagency questions and answers (“Q&As”) regarding federal flood insurance laws.

The guidance, titled Loans in Areas Having Special Flood Hazards; Interagency Questions and Answers Regarding Flood Insurance, covers major amendments to federal flood insurance laws with regard to the escrow of flood insurance premiums, the detached structure exemption, force placement procedures and the acceptance of flood insurance policies issued by private insurers.

The new released Q&As consolidation and supersede the sets of Q&As released by the Agencies in July 2020 and March 2021 which addressed changes to flood insurance requirements under the Biggert-Waters Flood Insurance Reform Act and the Homeowner Flood Insurance Affordability Act. In addition to expanded guidance, the new Q&As are reorganized for easier reference.

It should be noted that the Agencies state the new Q&As are provided only as “guidance” under the regulations and applies to both the National Flood Insurance Program and private flood insurance.

Related Content:

• DocMagic makes loan documents ADA accessible (7/20/22)

• FHA ANNOUNCES 40-YEAR LOAN MODIFICATION OPTION (6/3/2022)

• GSEs Announce Updates to Selling Guide (3/8/2022)

What is ADA accessibility and why is it important?

Much of modern lending technology is designed to give consumers the convenience to access loan documents in the ways that work best for them. Accessibility for people with disabilities is even more crucial, giving them access to key services, more independence, and connection with others. By making our loan documents accessible to visually impaired users and others with disabilities, we are ensuring that these users are able to easily access, and participate in, the loan process.

How we're making documents more accessible

By embedding accessible PDF tags within our documents, visually or physically impaired users can now have them read by a compatible device known as a screen reader. A screen reader uses a Text-To-Speech (TTS) engine to translate on-screen information into speech, which can be heard through earphones or speakers.

DocMagic’s embedded PDF tags convey key information to the screen reader so that it can provide the user with the best possible experience. The tags include alternate text for every image along with specific semantic instructions designed to make all text readable and understandable. The tags also define the reading order, identifying how specific text like titles, headings, tables, and other elements in loan documents should be read to clarify and enhance the user’s understanding. DocMagic has also added preset bookmarks in loan documents that allow users to skip around the document without having to hear its full contents.

Ultimately, by providing accessible loan documents in alignment with Web Content Accessibility Guidelines (WCAG) standards, DocMagic is giving our customers the opportunity to serve a wider array of users and allowing those users to participate more fully in the mortgage process.

Please contact our sales team if you're ready to learn more about DocMagic's ADA capabilities for your organization.

Related Content:

• CFPB Clarifies scope of States’ Consumer Financial Protection authority (6/15/2022)
• FHA ANNOUNCES 40-YEAR LOAN MODIFICATION OPTION (6/3/2022)

• GSEs Announce Updates to Selling Guide (3/8/2022)

On May 26, 2022, the Consumer Financial Protection Bureau (“CFPB”) published an Interpretive Rule to provide clarity regarding the scope of State enforcement authorized under section 1042 of the Consumer Financial Protection Act of 2010 (“CFPA”) and related provisions. Specifically, the Interpretive Rule states that section 1042 allows States (State Attorney Generals and State Regulators) to enforce any provision of the CFPA, including section 1036(A)(1)(A), a provision that “makes it unlawful for covered persons or services providers to violate federal consumer financial laws.” States are also not restricted against bringing concurrent enforcement actions with the CFPB.

In addition, the authority of States to enforce the CFPA is supplemental to the authority States already have to enforce federal consumer financial laws, such as the Fair Credit Reporting Act, Real Estate Settlement Procedures Act and the Truth in Lending Act. Section 1042(a)(3) of the CFPA clarifies that it does not modify, limit, or supersede the authority of States to enforce those enumerated consumer laws.

States are not subject to the limits applicable to the CFPB under sections 1027 and 1029 of the CFPA. Section 1027 limits the CFPB’s authority regarding merchants, retailers, and sellers of nonfinancial good while section 1029 limits the CFPB’s authority with respect to motor vehicle dealers. Because the sections only limit action by the CFPB, States are free to exercise their authority under section 1042.

The Interpretive Rule is exempt from a notice-and-comment period and went into effect upon publication in the Federal Register.

Related Content:

• FHA ANNOUNCES 40-YEAR LOAN MODIFICATION OPTION (6/3/2022)

• GSEs Announce Updates to Selling Guide (3/8/2022)

• GSE IMPLEMENTATION OF DESKTOP APPRAISALS (2/8/2022)

The Federal Housing Administration (“FHA”) recently issued Mortgagee Letter 2022-07 to announce updates to the COVID-19 Recovery Loss Mitigation Options (“COVID-19 Recovery Options”) that include a 40-year loan modification.

Mortgagee Letter 2022-07 outlines changes that will be included in a future update to the HUD Single Family Housing Policy Handbook 4000.1 under Section III.A.2.o.iii(C). The new policy is designed to help homeowners reach a targeted 25% reduction in monthly principal and interest payment.  Mortgagees must determine if a 25% reduction can be achieved by a modified 30-year rate and term mortgage, or a 30-year modification with principal deferment. If the target payment is still not reached under these options, a mortgagee can modify a mortgage to a 40-year loan if the borrower has a partial claim available. 

The FHA notes that by adding a 40-year modification option, FHA borrowers will be given loss mitigation options similar to those available to borrowers with conventional loans. The extended loan term is also meant to reduce future defaults and foreclosures by providing the option for additional payment relief.

The guidance includes an exception for FHA-insured mortgages backed by mortgage revenue bonds so that those mortgagees will not be out of compliance with their bond agreements or the Internal Revenue Service tax code.  The guidance for eligibility states that “mortgagees that service mortgages funded in connection with mortgage revenue bonds that are restricted by the Internal Revenue Code are exempt from the COVID-19 Recovery Modification if they cannot extend the term of a mortgage beyond the original 30 years or the interest rate cannot be modified.”

The COVID-19 Recovery Options apply to all FHA Title II Single Family forward mortgage programs. The updates may be implemented immediately but must be implemented by servicers by July 17, 2022. 

DocMagic also recently published more information regarding a proposed rule published by HUD in the Federal Register that would extend the maximum modification loan term limit from 30 years to 40 years.  For more information, click here.

Related Content:

• GSEs Announce Updates to Selling Guide (3/8/2022)

• GSE IMPLEMENTATION OF DESKTOP APPRAISALS (2/8/2022)

• GSEs announce plans to limit purchases to loans meeting revised General QM rule (5/11/2021)

On April 1, 2022, the Department of Housing and Urban Development (“HUD”) published a proposed rule in the Federal Register seeking comments on a proposal to extend the maximum modification loan term limit from 360 to 480 months.

Currently, under 24 CFR 203.616, a Federal Housing Administration (“FHA”) loan can be modified “for the purpose of changing the amortization provisions by recasting the total unpaid amount due for a term not exceeding 360 months from the date of the modification.” The proposed rule seeks to amend this loss mitigation option by extending the maximum modification loan term to 480 months.

The proposed rule states that the change would help mortgagees facing default by lowering monthly principal and interest payments by a meaningful amount, leading to a higher rate of home retention. HUD acknowledges that the longer term would mean slower equity accumulation and additional interest payments but concludes that the benefits of avoiding foreclosure outweigh these concerns. HUD also points out that most mortgagees do not carry an FHA loan for the full term. The average life of a 30 -year FHA-insurance mortgage is approximately seven years.

The proposed rule emphasizes that the amendment would provide FHA borrowers with a home retention option comparable to the 480-month options already allowed by Fannie Mae, Freddie Mac, the National Credit Union Association, and the U.S. Department of Agriculture.

Comments will be accepted until May 31, 2022, and can be submitted either by mail or electronically through the Federal eRulemaking Portal. Comments must reference Docket No. FR-6263-P-01 and the title of the notice, Increased Forty-Year Term for Loan Modifications.

Related Content:

• HUD, FHFA announce collaboration regarding fair housing, fair lending enforcement (9/07/2021)
• Fannie Mae and Freddie Mac announce changes to uniform instruments (8/11/2021)
• FHFA to eliminate the adverse market refinance fee (8/4/2021)

On February 23, 2022, the Consumer Financial Protection Bureau (“CFPB”) released a factsheet regarding the interest rate used to calculate prepaid interest for adjustable-rate mortgages (“ARMs”) and step-rate loans under the price-based General Qualified Mortgage (“QM”) rule. 

The General Qualified Mortgage Final Rule, which took effect on March 1, 2021, includes a “price-based General QM definition.” The definitions states that a loan’s APR cannot exceed the average prime offer rate (“APOR”) for a comparable transaction by the amounts set forth in the Rule as of the date the interest rate is set [12 CFR 1026.43(e)(2)(vi)]. Generally, the threshold amount is 2.25 percentage points, but the rule provides higher thresholds for smaller loan amounts, for certain manufactured housing loans, and for subordinate-lien transactions. Additionally, if a loan’s rate can change within the first five years after the date on which the first regular periodic payment will be due, the maximum interest rate that may apply during the five-year period must be used in the APR calculation for purposes of price-based General QM rule.

The fact sheet provides examples of how prepaid interest, also referred to as “per diem” interest, is generally paid in arrears and included in APR calculations under Regulation Z.   For ARMs and step-rate loans, the fact sheet states that the maximum interest rate that can be applied during the five-year period after the date on which the first periodic payment will be due must also be used to calculate prepaid interest and negative prepaid interest as part of the APR calculation under the price-based General QM definition. 

To view the CFPB Factsheet for additional information, click here.

DocMagic is reviewing the updated information and will advise on any changes that are necessary to our calculation of the APR based on the highest rate achieved in the introductory period, which is used in the QM Price-Based Limit test.

Related Content:

• CFPB Announces 2022 HPML Appraisal Threshold Adjustments (1/25/2022)
• CFPB annual threshold adjustments for Regulation Z (11/3/2021)
• U.S. Treasury and FHFA suspend provisions of the PSPAs (10/20/2021)

Fannie Mae released Selling Guide Announcement (SEL-2022-01) on February 2, 2022, to announce recent changes to their Selling Guide, including the following:

Desktop Appraisal – The new release for Desktop Underwriter will allow the use of Form 1004 Uniform Residential Appraisal Report (Desktop) for specific types of purchase transactions of one-unit principal residences with LTV ratios less than or equal to 90%. Effective March 19, 2022.

Homestyle Renovation – Updates require that Homestyle Renovation work be completed within 15 months of the closing date with extensions only being permitted due to extenuating circumstances beyond the borrower’s control. Additional information is provided in Servicing Guide Announcement (SVC-2022-01). Effective May 1, 2022.

Loan-level price adjustment credit for sale of HomePath properties – Fannie Mae will issue a $500 loan-level price adjustment credit to lenders to reimburse borrowers for the cost of an appraisal when specific eligibility requirements are met. Effective February 2, 2022.

Asset documentation for certain refinances underwritten in DU – Assets will not have to be documented when funds required to be verified are $500 or less. The policy does not apply to manually underwritten loans. Effective in DU Version 11.0 as of March 19, 2022.

Clarification of anti-money laundering provisions of the Bank Secrecy Act – Seller/servicers are required to report to Fannie Mae instances where the seller/servicer has been subject to penalties or enforcement activities for compliance failures or violations related to anti-money laundering regulatory requirements.

Loan secured by properties located in Guam – Delivery of mortgages for properties located in Guam are no longer required to be specifically negotiated, so lenders will no longer see the restriction in Desktop Underwriter. Effective February 2, 2022, with message to be removed from Desktop Underwriter as of March 19, 2022.

Freddie Mac released Bulletin 2022-2 on February 2, 2022 to announce recent changes to their Selling Guide, including the following:

Desktop Appraisals – For Loan Product Advisor submissions on or after March 6, 2022, a desktop appraisal will be accepted for certain purchase transactions and must be completed the Uniform Residential Appraisal Report (Form 70D) Eligibility requirements can be found Selling Guide Section 5601.7. Clarification is also provided for determining automated collateral evaluation (ACE) appraisal waiver eligibility. Effective March 6, 2022.

Quality Control – The selling guide has been updated to state that documentation of income, employment or sources of funds used in the original underwriting process received from a third-party service provider designated by Freddie Mac is not required to be reverified if the report was accessed directly from the service provider’s electronic database and there is no evidence of misrepresentation in any part of the underwriting. Effective February 2, 2022.

Income and Assets – Tax Returns. Updates have been made for age of tax return requirements for the 2020 tax year, to reflect dates specific to the 2021 tax year. The updates include requirements applicable in the event of a future IRS filing due date extension, replacing previous requirements based on the IRS filing due date extension issued in May 2021. Effective February 2, 2022.

Income and Assets – Home Equity Line of Credit (HELOC). Updates have been made to specify that a HELOC is considered an eligible source of funds towards a down payment, closing costs and reserves, provided that the mortgage file includes evidence that the HELOC is secured by the borrower’s real property and proceeds have been disbursed. Effective February 2, 2022.

User Forms and Certificates – Announcement of retirement of specific Loan Selling Advisor authorized user and certification forms and updates to certificate of incumbency forms. Additionally, the Affordable Merit Rate Mortgage Note and Rider have been retired and removed from published Uniform Instruments.

Related Content:

• GSE IMPLEMENTATION OF DESKTOP APPRAISALS (2/8/2022)

• GSEs announce plans to limit purchases to loans meeting revised General QM rule (5/11/2021)

• CFPB rescinds 7 pandemic-related policy statements (4/7/2021)

Unlike a full appraisal, a desktop appraisal is completed by a licensed appraiser without a physical inspection of a property.  Working remotely, an appraiser uses public records such as property listings and tax records to provide an appraised value.  Using technology and available information, an appraiser can complete a desktop appraisal in less time than it takes to complete a full appraisal, and generally at a lower cost to the borrower.

The GSEs began allowing the use of desktop appraisals in 2020 as temporary flexibility in response to the COVID-19 pandemic when appraisers needed to be able to perform valuations during lockdown periods. 

Fannie Mae and Freddie Mac (the “GSEs”) recently released additional information regarding the implementation of desktop appraisals for specific types of loan transactions.

Fannie Mae issued release notes for an upcoming Desktop Underwriter update that states that loans submitted on or after March 19, 2022, will have the option of using a desktop appraisal under certain conditions.  Loans must be for a purchase transaction, secured by a one-unit principal residence, have a loan-to-value ratio of 90% or less, and receive an Approve/Eligible recommendation in Desktop Underwriter.

Fannie Mae also issued a Fact Sheet that broadly details appraiser and lender responsibilities and steps for loans utilizing desktop appraisals. Appraisers must use Form 1004 and may use data from various parties and from secondary data sources such as public records and the internet.  The desktop appraisal must include a floor plan with interior walls and include sufficient data to provide a credible report. Additionally, any data provided by an interested party to a sale must be verified by a disinterested source.

Freddie Mae issued a guide to Loan Product Advisor Feedback Messages, as their system will begin providing feedback on whether a loan is eligible for a desktop appraisal, effective March 6, 2022.  The guide provides new message codes and text related to eligibility for use of a desktop appraisal.

The GSEs previously announced in October 2021 that they would be updating their Selling Guides to allow for permanent use of desktop appraisals for certain purchase loans after temporarily allowing their use from March 2020 until May 2021 due to COVID-19 lockdowns.

Related Content:

• GSEs announce plans to limit purchases to loans meeting revised General QM rule (5/11/2021)
• CFPB rescinds 7 pandemic-related policy statements (4/7/2021)
• CFPB issues statement on financial institutions serving LEP customers (2/3/2021)

On November 30, 2021, the Consumer Financial Protection Bureau, together with the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System, posted a notice to the Federal Register and its website regarding the annual adjustment to appraisal requirements for higher-priced mortgage loans (“HPMLs”). The new threshold exemption applies to loans in an amount not exceeding $28,500. 

HPMLs are subject to additional appraisal requirements under Section 35 of Regulation Z, including the requirement to obtain two independent appraisals in some circumstances. 12 C.F.R. 1026.35(c). However, these rules do not apply to loans in the amount of $25,000 or less, with the $25,000 amount to be adjusted annually based on changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers (“CPI-W”) as of June 1, each year. If there is no annual percentage increase in the CPI-W, the threshold amount from the prior year will carry over, as was the case in 2021 when the threshold remained at the 2020 adjusted amount of $27,200.

The Bureau of Labor Statistics reported the CPI-W on June 1, 2021, with a 4.7% increase from the CPI-W for the prior year.   Based on this increase, a new threshold amount of $28,500 will be in effect from January 1, 2022 through December 31, 2022.  

If you have any questions regarding this article, please contact DocMagic’s Compliance Department.

Related Content:

• CFPB annual threshold adjustments for Regulation Z (11/3/2021)
• U.S. Treasury and FHFA suspend provisions of the PSPAs (10/20/2021)
• CFPB publishes analysis of consumer complaints (10/13/2021)

On Oct. 5, 2021, the Department of Housing and Urban Development (“HUD”) published an advance notice of proposed rulemaking (“ANPR”) in the Federal Register titled “Adjustable Rate Mortgages: Transitioning from LIBOR to Alternate Indices.”   In the ANPR, HUD is requesting public comment regarding the transition away from the London Interbank Offered Rate (“LIBOR”) index. Most Federal Housing Administration (“FHA”) adjustable-rate mortgages (ARMs) currently use the LIBOR index, which is set to be phased out. The Intercontinental Exchange Benchmark Association has announced that the one-week and two-month U.S. dollar LIBOR settings will cease to be published after Dec. 31, 2021 and the overnight, one-, three-, six-, and 12-month U.S. dollar LIBOR settings will only be available through June 30, 2023, and only for transition purposes. 

All ARM loans insured by the FHA must have a specified interest rate index that is approved in regulations by the Secretary of HUD. In 2007, HUD approved the LIBOR index along with the Constant Maturity Treasury (“CMT”). As the LIBOR index is set to be phased out, the FHA is considering the Secured Overnight Financing Rate (“SOFR”) index as its replacement for existing loans and new loans. HUD notes that SOFR has a compatible spread adjustment which should minimize the impact of a replacement index for legacy loans. The proposed rule will also include a transition date consistent with the cessation of the LIBOR index.

Comments may be submitted by mail or through the Federal Rulemaking Portal at www.regulations.gov and are due by Dec. 6, 2021.

If you have any questions regarding this article, please contact DocMagic’s Compliance Department.

Related Content:

• CFPB annual threshold adjustments for Regulation Z (11/3/2021)
• U.S. Treasury and FHFA suspend provisions of the PSPAs (10/20/2021)
• CFPB publishes analysis of consumer complaints (10/13/2021)