Housing and
Economic Recovery Act of 2008 - H.R. 3221
By David Dulock, Black, Mann
& Graham LLP
The
"Housing and Economic Recovery Act of 2008" was signed into law on
July 30, 2008, and covers many areas that impact mortgage lending. Two sections
of this legislation that, we believe, are of particular interest to our
membership are summarized below. They are: (1) the new federal mortgage loan
originator licensing and registration requirements contained in the
"Secure and Fair Enforcement for Mortgage Licensing Act of 2008"
("SAFE"); and, (2) the "FHA Modernization Act of 2008",
which is supplemented by information from FHA's August 4th national
teleconference with members of the mortgage industry.
Secure and Fair Enforcement for Mortgage Licensing Act of 2008 "S.A.F.E. "
1. The SAFE Act provides for a federally mandated licensing and registration
system for all loan originators in the
2. Under SAFE, a loan originator is an individual who takes a residential
mortgage loan application and, for compensation, offers or negotiates a
residential mortgage loan. There are two categories of loan originations under
SAFE: (1) loan originator employees of depository institutions and their
subsidiaries (called "registered loan originators"); and, (2) loan
originators who are not employees of such depository institutions or
subsidiaries but either (i) are licensed in the
individual States, or (ii) HUD licensed loan originators in those States that
do not have licensing and registration requirements (called
"State-licensed loan originators").
3. Individuals who perform only administrative or clerical tasks in connection
with a residential mortgage loan and licensed real estate brokers not
compensated by the loan originator or other lender are excluded from the
definition of "loan originator" under SAFE. However, SAFE does
provide that an independent contractor performing loan processor or underwriter
activities must be a State-licensed loan originator.
4. A residential mortgage loan is a consumer loan secured by a mortgage on
residential real estate on which is constructed or to be constructed a mobile
home, condo unit, or a 1-to-4 family structure.
5. Each loan originator will have a nationally recognized number, called a
"unique identifier," assigned in accordance with the protocols
established by the Nationwide Mortgage Licensing System and Registry, which
will identify the loan originator and allow electronic tracking of the loan
originator and public access to the loan originator's employment history and
publicly adjudicated disciplinary and enforcement actions against the loan
originator.
6. SAFE prohibits an individual from acting as a loan originator unless the
person is a State-licensed loan originator or registered loan originator AND
whose license and/or registration and unique identifier is currently active.
7. To be licensed as a State-licensed loan originator, SAFE requires pre-licensing
fingerprints, criminal and civil background checks, credit reports, and
information on the personal history and experience of the loan originator
applicant. SAFE also establishes minimum standards for licensing and
registration as a State-licensed loan originator, including but not limited to:
(1) no conviction, guilty plea, or nolo contendere relating to a felony (foreign, domestic or
military) (i) within 7 years preceding the
application date; or (ii) at any time preceding the application date if the
felony relates to fraud, dishonesty, breach of trust, or money laundering; (2)
completion of SAFE's pre-licensing 20 hr. education
requirement; (3) passing SAFE's pre-licensing written
test; and (4) meeting SAFE's pre-licensing net worth
or surety bond requirement (no amount specified) or payment into a state
recovery fund.
8. To have a State-licensed loan originator license renewed, SAFE requires that
the loan originator continue to meet SAFE's minimum
standards for license issuance summarized above and SAFE's
annual 8 hr. continuing education requirements.
9. For registered loan originators, SAFE requires the Federal banking agencies
(i.e., the Federal Reserve Board, Comptroller of Currency, Office of Thrift
Supervision, National Credit Union Administration and FDIC), through the
Federal Financial Institutions Examination Council, to jointly develop and
maintain a system for registering employees of depository institutions and
their subsidiaries with the Nationwide Mortgage Licensing System and Registry
as registered loan originators. SAFE does not require registered loan
originators to comply with the educational and testing requirements it mandates for State-licensed loan originators; but SAFE does
require a similar registration background check.
10. Because the
FHA Modernization Act of 2008
1. Maximum Principal Loan Obligation.
Beginning January 1, 2009, the FHA maximum mortgage amount for a 1-family
residence is increased to be the lesser of (i) 115%
of the local area median 1-family house price; or (ii) 150% of the Freddie Mac
loan limit. The current Freddie Mac loan limit is $417,000, so 150% of that =
$625,500. There is also a maximum mortgage amount floor, set at 65% of the
Freddie Mac loan limit (current Freddie Mac loan of $417,000 x 65% = $271,050).
But in no event may the FHA maximum mortgage amount for a 1-family residence
exceed 100% of the property's appraised value. According to the FHA
representative conducting the August 4th teleconference, FHA will publish a
Mortgage Letter in Nov. '08 setting out the new FHA loan limits.
2. Moratorium on Implementation of Risk-Based Premiums.
Beginning October 1, 2008, the risk-based premiums that were implemented by FHA
on July 14, 2008 in Mortgage Letter 2008-16 are placed on hold for 12 months.
Nor, during this 12-month moratorium, will FHA be allowed to implement any
other risk-based premium program. According to the FHA representative
conducting the August 4th teleconference, this moratorium will apply to case
numbers assigned on and after October 1, 2008. So, for loans closed and for
case numbers assigned before October 1, 2008, the risk based premium
requirements of ML 2008-16 will continue to apply.
3. Cash Investment Requirement and Prohibition of Seller-Funded Down Payment
Assistance.
The FHA cash down payment requirement will increase from 3% to 3.5%, and be
based on 100% of the appraised value of the property (currently it is based on
the cost of acquisition less MIP). It will include veterans (who are presently
excluded from this cash down payment requirement). Also, for credit approvals
on and after October 1, 2008, down payment assistance from third parties (other
than family members) is prohibited. On July 31st a bill, H.R. 6694, was
introduced into the House of Representatives to reinstate seller-financed down
payment assistance. Congress is in recess until September, but we will be
monitoring the progress of that bill.
According to the FHA representative conducting the August 4th teleconference
these new requirements be implemented as follows:
*For the new 3.5% Cash Down Payment Requirement, FHA will issue guidance within
60 days that will also set a 30 or 60-day effective date after issuance of the
guidance. In determining the amount of the cash down payment, the FHA will
still use the lesser of sales price or appraised value. For example, assume a
100,000 sales price/appraised value; 3.5% x $100,000 = $3,500 cash down
payment; leaving a sales price/appraised value balance of $96,500, to which can
be added the up-front MIP as long as the $96,500 plus the amount of the
up-front MIP added to the loan does not exceed 100,000.
*The prohibition on third-party Down Payment Assistance applies to loans for
which "Credit Approval" is issued on or after October 1, 2008. For
manual underwriting, Credit Approval is issued on the date the MCAW
("Mortgage Credit Approval Worksheet") or letter transmittal is
signed. For automated underwriting, Credit Approval is issued on the last date
of credit scoring.
4. Mortgage Insurance Premiums.
The statutorily allowed maximum upfront MIP is increased from 2.25% to 3%. For
first time homebuyers, the statutorily allowed maximum upfront MIP is increased
from 2.0% to 2.75%. Currently, the FHA upfront MIP is 1.5%; but, according to
the FHA representative conducting the August 4th teleconference, starting
October 1, 2008, FHA will increase the upfront MIP (but not the renewal) to an
amount yet to be determined.
5. Pilot Program for Automated Process for Borrowers without Sufficient Credit
History.
For the next 5 years FHA will conduct a limited pilot program to establish, and
make available to lenders, an automated process for providing alternative
credit rating information for borrowers on 1 to 4-family residences who have
insufficient credit histories for determining their creditworthiness. This
alternative credit rating information may include rent, utilities, and
insurance payment histories, and such other information as FHA considers
appropriate. For any fiscal year, the number of mortgages insured by FHA under
this program cannot exceed 5% of the number of mortgages on 1 to 4-family
residences insured by the FHA during the preceding fiscal year.
6. Fraud Prevention.
Fraud in connection with FHA loans is now subject to the penal sanctions of 18
U.S.C. 1014, which provides for a fine up to ONE MILLION DOLLARS and 30 YEARS
in prison.
7. Revised Standards for FHA Appraisers.
Effective July 30, 2008, in addition to the existing standards for FHA
appraisers, any appraiser chosen or approved to conduct appraisals for FHA
mortgages also must: (A) be certified (i) by the
State in which the property to be appraised is located or (ii) by a nationally
recognized professional appraisal organization; and, (B) have demonstrated
verifiable education in the appraisal requirements established by the Federal
Housing Administration. According to the FHA representative conducting the
August 4th teleconference, FHA will issue directives at a later date about
these additional appraisal standards.