Monday, November 29, 2010

HUD: Will Not Change Interpretive Rule

On June 25, 2010, we notified you about the National Association of Realtors asking the Department of Housing and Urban Development (HUD) for clarification on an unofficial staff interpretation HUD had issued on February 21, 2008 regarding Home Warranty Companies.

In that interpretation, HUD's Office of General Counsel opined that services performed by real estate brokers and agents on behalf of a home warranty company (HWC) are compensable as additional settlement services if the services are actual, necessary and distinct from the primary services provided by the real estate broker or agent, and allowed that the real estate broker or agent may accept a portion of the charge for the homeowner warranty only if the broker or agent provides services that are not nominal and for which there is not a duplicative charge.

HUD's Office of General Counsel published an Interpretive Rule which interprets Section 8 of the Real Estate Settlement Procedures Act (RESPA) and HUD's regulations as they apply to the compensation provided by home warranty companies to real estate brokers and agents. Generally, an interpretive rule is exempt from public comment, but HUD offered a comment period.

After reviewing the comments received, on November 23, 2010 HUD determined that changes are not needed to the interpretative rule.

An interpretive rule does not change existing law. It represents HUD's interpretation of its existing regulations.

Therefore, this interpretive rule does not constitute a change in HUD's interpretation of RESPA or the RESPA regulations, but is an "articulation" of HUD's interpretation of RESPA and the implementing regulations that specifically apply to home warranty company payments to real estate brokers and agents.

Highlights

Interpretive Rule

1) A payment by an HWC for marketing services performed by real estate brokers or agents on behalf of the HWC that are directed to particular homebuyers or sellers is an illegal kickback for referral under Section 8 of RESPA.

2) Depending upon the facts of a particular case, an HWC may compensate a real estate broker or agent for services when those services are actual, necessary and distinct from the primary services provided by the real estate broker or agent, and when those additional services are not nominal and are not services for which there is a duplicative charge.

3) The amount of compensation from the HWC that is permitted under Section 8 of RESPA for such additional services must be reasonably related to the value of those services and not include compensation for referrals of business.

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HUD: RESPA - Home Warranty Companies' Payments to Real Estate Brokers and Agents, Interpretive Rule: Response to Public Comments, Questions and Answers
November 23, 2010

LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.

Thursday, November 18, 2010

HUD: Solicits Comments on Warehouse Lending

The Department of Housing and Urban Development (HUD) is seeking information on how funding mechanisms have evolved in recent years, and especially on how warehouse lending currently operates within residential real estate mortgage transactions.

HUD is requesting comments from:

· warehouse lenders,

· retail lenders,

· mortgage bankers,

· wholesale lenders,

· correspondent lenders,

· mortgage brokers,

· and others in the mortgage lending industry,

· federal, state, and local consumer protection and enforcement agencies;

· consumer groups;

· and other members of the public.

On November 16, 2010, HUD announced the solicitation of comments from the public regarding the Real Estate Settlement Procedures Act (RESPA) with respect to Warehouse Lending and Other Loan Funding Mechanisms. HUD last issued regulations in this area in 1992 and 1994.

Based on information received in response to this solicitation, HUD intends to decide what, if any, additional guidance is needed on the scope of RESPA as applied to current mortgage funding practices.

Comments can be submitted electronically through the Federal eRulemaking Portal or to the office of General Counsel.

The announcement has not yet been published in the Federal Register.

The comment period will expire 30 days after publication of HUD's announcement in the Federal Register.

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HIGHLIGHTS

10 Broad Questions

1. What are the general characteristics of warehouse lending in the context of mortgage loan financing?

2. What particular characteristics distinguish warehouse lending from retail lending? What is the role of warehouse lending within the primary mortgage market versus the secondary market?

3. What distinguishes the funding of a mortgage loan from a sale of the mortgage loan in the secondary market? For example, what characteristics indicate a bona fide transfer of the loan obligation, such that the transaction would be a secondary market transaction that is not covered by HUD's RESPA regulations?

4. What role does a warehouse lender play in a table funded transaction?

5. What, if any, characteristics distinguish a table funded transaction completed by a mortgage broker from a loan made by a mortgage banker who has an advance commitment to sell the loan after settlement?

6. Does a warehouse lender fund mortgage loans within the meaning of "settlement service" as that term is defined in section 2 of RESPA and 24 CFR 3500.2?

7. What factors determine who is identified as the payee on the mortgage loan note?

8. Have concerns about protection under bankruptcy laws influenced changes in how warehouse lenders operate in relation to loan originators?

9. What do warehouse lenders regard as being their obligations for providing the disclosures required under RESPA?

10. Do consumers or others have concerns with regard to mortgage industry participants' current interpretation of HUD's secondary market exemption, including the impact that such interpretations may have on consumers regarding coverage of RESPA disclosures and Section 8 protections against kickbacks and referral fees?

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"Solicitation of Information on Changes in Warehouse Lending
and Other Loan Funding Mechanisms"
RESPA: Notice pending publication in the Federal Register
November 16, 2010

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LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.

Monday, November 8, 2010

Are Foreclosures Good For The Economy?

COMMENTARY: by JONATHAN FOXX

Jonathan Foxx, former Chief Compliance Officer of two publicly traded financial institutions, is the President and Managing Director of Lenders Compliance Group, the first full-service, mortgage risk management firm in the country.

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The foreclosure crisis has taken on new dimensions with the Obama Administration's apparent view that accepting the huge wave of foreclosures may be necessary and inevitable.

But have the borrowers who face foreclosure really been given every opportunity to save their homes?

Failed government programs, overwhelmed servicers and lenders, lack of systemic alternatives, and the absence of a coherent national plan or specially empowered agencies to stabilize the pandemic of foreclosures are depriving borrowers of ways and means to recover from this crisis.

"I've proposed a new Home Owners' Loan Corporation (HOLC), to launch a national effort to help homeowners refinance their mortgages. The original HOLC, launched in 1933, bought mortgages from failed banks and modified the terms so families could make affordable payments while keeping their homes. The original HOLC returned a profit to the Treasury and saved one million homes.

We can save roughly three times that many today. We should also put in place a temporary moratorium on foreclosures and freeze rate hikes in adjustable-rate mortgages. We've got to stem the tide of failing mortgages and give the markets time to recover." Hillary Clinton - September 25, 2008

The most recent report of foreclosures from RealtyTrac provides the following schematic.
RealtyTrac (2010.10)
Just this past Friday, the New York Times put the Obama administration's non-response to the foreclosure crisis in bold relief:

"In the most recent mortgage mess, the Obama administration has - oddly and disturbingly - been arguing that foreclosures are, in effect, good for the economy and should proceed apace as banks get their snarled paperwork in order."

However the foreclosure debacle does play itself out - and, let's be clear, there is no truly satisfactory outcome for lenders, borrowers, or the overall economy - it is important to identify who these defaulted borrowers really are: our neighbors, our co-workers, our professional class, our close friends and family, our most educated and least educated, our peers who have been downsized out of jobs, laid off, and whose jobs have been outsourced, our small business owners and self-employed.

For the most part, the foreclosed upon properties have not been demised by deadbeats - or "losers" (Rick Santelli) - or scammers or ignoramuses who would sign anything to own a house. That canard is the main stream media narrative, and it is not true at all. Statistic after statistic support the fact that most loans were underwritten pursuant to agency and investor guidelines, along with proper borrower verification.

Yet now, those same agencies and investors seem to be changing the rules. For instance, HUD is reevaluating the approval authority granted to FHA DE-mortgagees whose defaults are considered excessive, even though those mortgagees' FHA loans were underwritten to FHA guidelines.

And, since the foreclosure tsunami hit, millions of borrowers have endeavored in vain to save their homes through loss mitigation methods and loan modifications, only to find themselves, usually without the benefit of legal counsel, navigating the blizzard of new paperwork requirements in an often futile engagement with unresponsive servicers and intransigent lenders.

In some cases, borrowers in default are taking out second mortgages in order to save their homes - with payment of the proceeds going to their lawyer if the foreclosure is dismissed and the debt is reduced.

Is the appropriate response to foreclosure in this current economic environment to blame the victim?

Government assistance programs, such as HAMP, have been failures. Our servicer and investor clients are particularly frustrated by the enormous task they face to offer alternative loan terms, respond to thousands of inquiries, implement new mortgage instruments, properly execute all legal documents, and consistently and effectively track the progress of mitigated claims.

In the quote above, Mrs. Clinton stated that "We've got to stem the tide of failing mortgages and give the markets time to recover."

Maybe we should give our neighbors and neighborhoods the time to recover as well!

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So, What Do You Think?

I would welcome your comments and views.
Please feel free to email me at any time.

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LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.