Friday, July 30, 2010

Portrait of Homelessness: Costs and Interventions

Three recent studies on homelessness in the United States examine the cost of first-time homelessness, life after transitional housing for homeless families, and strategies for improving access to mainstream benefits and services. The reports were issued by HUD's Office of Policy Development and Research.

Three Studies:

  • Costs Associated with First-Time Homelessness for Families and Individuals
  • Strategies for Improving People's Access to Mainstream Benefits and Services
  • Life after Transitional Housing for Homeless Families

Some History

Homelessness has migrated toward rural and suburban areas. There were 1.6 million homeless people in shelters in 2009. The number of homeless people has not changed dramatically but the number of homeless families has increased, according to a 2009 HUD report.

The United States Congress appropriated $25 million in the McKinney-Vento Homeless Assistance Grants for 2008 to show the effectiveness of Rapid Re-housing programs in reducing family homelessness.

In February 2009, President Obama signed the American Recovery and Reinvestment Act of 2009,  part of which addressed homelessness prevention, allocating $1.5 billion for a Homeless Prevention Fund. The funding for it was called the Homelessness Prevention and Rapid Re-Housing Program (HPRP). It was distributed using the formula for the Emergency Shelter Grants (ESG) program.

On May 20, 2009, President Obama signed the Homeless Emergency Assistance and Rapid Transition to Housing (HEARTH) Act into Public Law (Public Law 111-22 or "PL 111-22"), reauthorizing HUD's Homeless Assistance programs. It was part of the Helping Families Save Their Homes Act of 2009 (HEARTH). The goal of the HEARTH Act is to prevent homelessness, offer rapid re-housing, consolidate housing programs, and create new homeless categories. In the eighteen months after the bill's signing, HUD must make regulations implementing this new McKinney program.

In late 2009, some homeless advocacy organizations, such as the National Coalition for the Homeless, reported and published perceived problems with the HEARTH Act of 2009 within the framework of the McKinney-Vento Reauthorization bill, especially with regard to privacy, definitional ineligibility, community roles, and restrictions on eligible activities.

As the foreclosure epidemic continues to grow, the population of the homeless is also increasing. This puts considerable strain on municipal, state, and federal resources as well as faith-based outreach efforts. HUD's programs are one of several means to respond to this situation. And, as is the case with so much of the economic crisis and recession, there is no single solution to some of these intractable problems.

Highlights

Research Findings

Research Report
Costs Associated with First-Time Homelessness for Families and Individuals

  • For homeless individuals, emergency shelter is typically the least expensive response and transitional housing is the most expensive.
  • For homeless families, emergency shelters and transitional housing programs were equally expensive, usually due to the amount of services families receive in both program models and the higher cost of providing families with accommodations that have a greater degree of privacy than individuals require.
  • Permanent supportive housing for both individuals and families is less expensive to the homeless assistance response system, as service costs are borne by other systems, such as Food Stamp or Temporary Assistance for Needy Families programs.

Research Report
Strategies for Improving People's Access to Mainstream Benefits and Services

  • Communities with the greatest success had a strong central organization intent on improving access of homeless persons to mainstream services.
  • Communities were usually able to reduce structural barriers to benefits (such as physical access, complexity and length of application processes) and rules for documenting eligibility.
  • Communities were less successful in overcoming barriers beyond their control, such as eligibility requirements for various programs and limited capacity of mainstream service providers.
  • Communities have developed innovative ways to overcome barriers to mainstream benefits, but some barriers can only be resolved with state or federal involvement.

Research Report
Life after Transitional Housing for Homeless Families

  • Individuals benefited from educational and employment opportunities that help change life circumstances.
  • Children benefited from having fewer moves and school changes.
  • Families leaving transitional housing moved to their own place, and 60 percent remained in their homes 12 months later.
  • No relationship was established between the number of barriers to stability that a family faces, the length of stay in transitional housing, and the outcomes of the stay.

Families with relatively few challenges remained in transitional housing for long durations and may be using such assistance while waiting for subsidized housing to become available.

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HUD's Office of Policy Development and Research
-Costs Associated with First-Time Homelessness for Families and Individuals
-Strategies for Improving People's Access to Mainstream Benefits and Services
-Life after Transitional Housing for Homeless Families

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, July 29, 2010

SAFE Act: Final Rules for Mortgage Loan Originators

MORTGAGE COMPLIANCE

On July 28, 2010, the federal agencies issued final rules requiring residential mortgage loan originators (MLO) who are employees of national and state banks, savings associations, Farm Credit System institutions, credit unions, and certain of their subsidiaries (agency-regulated institutions) to meet the registration requirements of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act).

An MLO as an individual who: (i) takes a residential mortgage loan application; and, (ii) offers or negotiates terms of a residential mortgage loan for compensation or gain.

Excluded from the registration requirement are individuals engaged in modifications and assumptions, since those transactions do not result in the extinguishing of an existing loan and the replacement with a new loan.

The SAFE Act does not require employees of mortgage loan servicers to be licensed as MLOs; indeed, the Dodd-Frank Wall Street Reform and Consumer Protection Act excludes servicers, providing in its separate definition of "mortgage originator" under the Truth in Lending Act that those persons, among others, do not include servicers and their employees, agents, or contractors.

The newly created Consumer Financial Protection Bureau (CFPB) will be assuming HUD's role of determining whether states have met the SAFE Act's minimum requirements, and undoubtedly the CFPB will clarify whether the SAFE Act requires employees of mortgage loan servicers to be licensed as originators.

As part of this registration process, MLOs must furnish to the Nationwide Mortgage Licensing System and Registry (Registry) information and fingerprints for background checks. The SAFE Act generally prohibits employees of agency-regulated institutions from originating residential mortgage loans unless they register with the registry.

The agencies' final rules establish the registration requirements for MLOs employed by agency-regulated institutions and requirements for these institutions, including the adoption of policies and procedures to ensure compliance with the SAFE Act and the final rules.

Importantly, the agencies anticipate that the Registry could begin accepting federal registrations as early as January 28, 2011.

Employees of agency-regulated institutions must not register until the agencies instruct them to do so. The agencies will provide an advance announcement of the date when the registry will begin accepting federal registrations, beginning on the date the Agencies provide in a public notice that the Registry is accepting initial registrations, and agency-regulated institutions and their applicable employees will have 180 days from that date to comply with the initial registration requirements.

Final Rule Effective: October 1, 2010.

If you have any questions about this matter or would like assistance with mortgage compliance, please contact Jonathan Foxx, Managing Director.

Highlights

Registration of Mortgage Loan Originators (MLO)

  • Registration requirement. Each employee of a national bank who acts as a mortgage loan originator must register with the Registry, obtain a unique identifier, and maintain this registration in accordance with the requirements of the final rule.
  • Implementation period for initial registration. An employee of a national bank who is a mortgage loan originator must complete an initial registration with the Registry pursuant to the final rule within 180 days from the date that the OCC provides in a public notice that the Registry is accepting Registrations.
  • Employees previously registered or licensed through the Registry. In general. If an employee of a national bank was registered or licensed through, and obtained a unique identifier from, the Registry and has maintained this registration or license before the employee becomes subject to the final rule at this bank, then the registration requirements of the SAFE Act and the final are deemed to be met, provided that certain conditions are met.

Policies and Procedures

  • A national bank that employs one or more MLOs must adopt and follow written policies and procedures designed to assure compliance with the final rule.
  • Policies and procedures must be appropriate to the nature, size, complexity, and scope of the mortgage lending activities of the bank, and apply only to those employees acting within the scope of their employment at the bank.

Use of Unique Identifier

  • A national bank shall make the unique identifier(s) of its registered mortgage loan originator(s) available to consumers in a manner and method practicable to the institution.
  • A registered mortgage loan originator shall provide his or her unique identifier to a consumer:

1. Upon request;

2. Before acting as a mortgage loan originator; and

3. Through the originator's initial written communication with a consumer, if any, whether on paper or electronically.

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Registration of Mortgage Loan Originators - Final Rule
Federal Register, Vol. 75, No. 144, 44656-44708, (7/28/10)

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.

Wednesday, July 28, 2010

Treasury Announces: Housing Finance Conference

In April 2010, Treasury and HUD issued a set of questions for public comment on the future of the housing finance system, which has received more than 300 responses from a broad cross-section of consumer groups, industry groups, market participants, members of the public, think tanks, and other stakeholders.

These responses are meant to provide input and perspective in the development of a comprehensive reform proposal. Written comments should have been sent to the Treasury for receipt by June 21, 2010 to be assured of consideration.

On August 17, 2010, the Treasury will host a Conference on the Future of Housing Finance in Washington D.C. This event brings together leading academic experts, consumer and community organizations, industry groups, market participants, and other stakeholders for an open discussion about housing finance reform.

If you have any questions about this matter or would like assistance with mortgage compliance, please contact Jonathan Foxx, Managing Director.

Highlights

Questions

1. How should federal housing finance objectives be prioritized in the context of the broader objectives of housing policy?

2. What role should the federal government play in supporting a stable, well-functioning housing finance system and what risks, if any, should the federal government bear in meeting its housing finance objectives?

3. Should the government approach differ across different segments of the market, and if so, how?

4. How should the current organization of the housing finance system be improved?

5. How should the housing finance system support sound market practices?

6. What is the best way for the housing finance system to help ensure consumers are protected from unfair, abusive or deceptive practices?

7. Do housing finance systems in other countries offer insights that can help inform U.S. reform choices?

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Public Input on Reform of the Housing Finance System
Department of the Treasury and Department of Housing and Urban Development

Federal Register, Vol. 75, No. 77, Notices (4/22/10)

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.

Sunday, July 25, 2010

FHA Issues Guidance for Lender Approvals

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.

As published in the July 2010 Edition of National Mortgage Professional Magazine.

Download Article-1A

On June 11, 2010, the Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2010-20,[1] which provided the long-awaited guidance regarding the implementation of its Final Rule.[2] The Final Rule adopted changes pertaining to the approval of mortgage lenders by the Federal Housing Administration (FHA) that are designed to strengthen FHA by improving its management of risk.

This Final Rule, among other things, has increased the net worth requirement for FHA-approved mortgagees and also provided for elimination of the FHA approval process for loan correspondents. Loan correspondents will no longer be approved participants in FHA programs, but they will continue to have the opportunity to participate in FHA programs as third-party originators (TPOs) through sponsorship by FHA-approved mortgagees, as is currently the case, or through application to be approved as an FHA-approved mortgagee.

In eliminating the FHA's approval of loan correspondents, FHA-approved mortgagees assume full responsibility to ensure that a sponsored loan correspondent adheres to the FHA's loan origination and processing requirements.

Increased Net Worth Requirements: Two Phases

HUD is phasing in the increased net worth mandates through 2013.

Phase One

The first stage of Phase One has already passed, since all new applicants for FHA approval, beginning on May 20, 2010, must now possess a net worth of at least $1,000,000. And the net worth must consist of at least 20 percent (20%) in liquid assets (i.e., cash or cash equivalent).

The second stage, which begins on May 20, 2011, is a little tricky, since a metric is introduced using a Small Business Administration statute in order to bifurcate lender approval criteria. On and after that date, a standard will be applied using the Table of Small Business Size Standards for a small business, as defined by the Small Business Administration at 13 CFR 121.201, Sector 52 (Finance and Insurance), Subsector 522 (Credit Intermediation and Related Activities).[3]

  • Effective May 20, 2011, lenders that exceed the size standards as provided in the above-cited statute must possess a net worth of at least $1,000,000, of which no less than 20 percent (20%) must be liquid assets (i.e., cash or cash equivalent).[4]
  • Effective May 20, 2011, lenders that meet the size standards as provided in the above-cited statute must possess a net worth of at least $500,000, of which no less than 20 percent (20%) must be liquid assets (i.e., cash or cash equivalent).

The most recent August 2008 Table of Small Business Size Standards, published through the Small Business Administration, indicates the following thresholds:

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A size standard is the largest that a concern can be and still qualify as a small business for Federal Government programs.[5] From the table above, it should be noted that SBA’s current requirements for classification as a small business, as set forth in this Subsector, are less than $7 million in annual receipts for non-depository institutions and less than $175 million in assets for depository institutions.[6]

Phase Two

Phase Two begins on May 20, 2013 and affects the category of participation in FHA programs. Identify the institution’s participation to determine the net worth thresholds:

  • Single Family Programs. Minimum net worth of not less than $1,000,000 plus an additional net worth of one percent (1%) of the total volume in excess of $25 million of FHA single family insured mortgages originated, underwritten, purchased, or serviced during the prior fiscal year, up to a maximum required net worth of $2.5 million. Not less than 20 percent (20%) of a mortgagee’s required net worth must be liquid assets (i.e., cash or cash equivalent).
  • Participation in Multifamily Programs with Engagement in Mortgage Servicing. Minimum net worth of not less than $1,000,000 plus an additional net worth of one percent of the total volume in excess of $25 million of FHA multifamily insured mortgages originated, underwritten, purchased, or serviced during the prior fiscal year, up to a maximum required net worth of $2.5 million. Not less than 20 percent of a mortgagee’s required net worth must be liquid assets (i.e., cash or cash equivalent).
  • Participation in Multifamily Programs without Engagement in Mortgage Servicing. Minimum net worth of not less than $1,000,000 plus an additional net worth of one half of one percent of the total volume in excess of $25 million of FHA multifamily insured mortgages originated, underwritten, or purchased during the prior fiscal year, up to a maximum required net worth of $2.5 million. Not less than 20 percent of a mortgagee’s required net worth must be liquid assets (i.e., cash or cash equivalent).
  • Participation in Single Family and Multifamily Programs. The higher net worth requirements for single family mortgagees.

Evidencing net worth is now requiring a higher due diligence review process, since all mortgagees (i.e., supervised, investing, and non-supervised), with the exception of government mortgagees, are required to submit audited financial statements as a condition of their approval or renewal.

Download Article-1A

Loan Correspondent Approval for Single Family Programs

Approvals

Effective May 20, 2010, FHA no longer accepts any new applications for loan correspondent approval. FHA will complete the processing of loan correspondent applications received prior to that date for those entities. If an application for loan correspondent approval was received by FHA on or after May 20, 2010, the application and fee will be returned to the applicant.

Loan correspondents approved and in good standing will be permitted to retain their approval through December 31, 2010. For loan correspondents with fiscal years ending on or after December 31, 2009, and that were required to renew their FHA approval prior to May 20, 2010, FHA will rely on the submission of the prior year’s audited financial statements for the renewal of loan correspondent approval.[7]

Therefore, loan correspondents whose fiscal years ended on or before December 31, 2009 had to submit the Yearly Verification Report, the applicable recertification fee, and audited financials. Loan correspondents whose fiscal year ends after December 31, 2009 are required to submit the Yearly Verification Report and the applicable recertification fee, but not audited financials.

After December 31, 2010, loan correspondents (i.e., Third-Party Originators, so-called “TPO”s) will only be permitted to continue participation in FHA programs by establishing a sponsorship relationship with an FHA-approved mortgagee. Indeed, loan correspondents will no longer have access to non-public FHA systems, beginning January 1, 2011 (i.e., FHA Connection). Only FHA-approved mortgagees will be permitted to order FHA case numbers from the FHA Connection. HUD will provide future guidance, with respect to the processing of case numbers ordered prior to the January 1, 2011.[8]

Originations

HUD will hold FHA-approved mortgagees responsible for compliance with FHA requirements in all aspects of an FHA loan transaction, whether performed by the approved mortgagee or by its sponsored TPO (unless applicable law or regulation governing the violations in question require specific knowledge on the part of the party to be held responsible). It is, therefore, critical that sponsoring FHA-approved mortgagees set forth and clearly delineate policies, procedures, approval guidelines, quality control requirements, and many other features of FHA and regulatory compliance, with respect to their sponsored TPOs.[9]

  • Approved as of May 20, 2010: may continue to originate mortgage loans insured by FHA through the end of the calendar year.
  • Non-approved originators (and expired approvals) - sponsored: permitted to participate through sponsorship by an FHA-approved Direct Endorsement mortgagee. An FHA-approved mortgagee may permit its sponsored TPO to perform all origination and processing tasks related to an FHA loan transaction (except for FHA Connection access). Sponsoring FHA-approved mortgagees will determine the “exact origination and processing duties their sponsored third party originators may perform.”[10]
  • An approved mortgagee may permit a sponsored TPO to originate Home Equity Conversion Mortgages (HECMs), provided that the sponsored third party originator adheres to all other HECM origination requirements.
  • Because of updates that HUD must make to its data systems, sponsoring mortgagees will enter their 5 digit FHA ID in FHA Connection as the loan originator for sponsored TPO loans; that is, for the time being all loan originations from sponsored TPOs will appear in FHA’s systems as a retail origination of the sponsoring mortgagee. (HUD hopes to have their data systems updated by September 30, 2010.)
  • FHA-approved mortgagees will not be permitted to use a Direct Lending branch office identification number to order case numbers for loans originated by sponsored TPO, because this identification number can only be used to originate direct-to-consumer loans obtained by the FHA-approved mortgage through the Internet and Call Centers.
  • Underwriting and approvals will be performed by an FHA-approved mortgagee for all loans originated by sponsored TPOs. Once approved by the sponsoring FHA-approved mortgagee, a loan must close in the name of the sponsoring underwriting mortgagee.[11] Finally, HUD officials fielded several questions regarding the current prohibition on closing an FHA-insured loan in the name of a TPO. The Department’s representatives acknowledged that HUD cannot change the prohibition on TPOs closing in their own names unless and until Congress amends the National Housing Act. As you may know, H.R. 5072, the FHA Reform Act of 2010, would accomplish this goal. This piece of legislation was recently passed in the House of Representatives and currently awaits deliberation in the Senate.
  • HUD will hold FHA-approved mortgagees responsible for compliance with FHA requirements in all aspects of an FHA loan transaction, whether performed by the approved mortgagee or by its sponsored third party originator, unless applicable law or regulation governing the violations in question require specific knowledge on the part of the party to be held responsible. HUD expects that FHA-approved mortgagees will pursue sponsoring relationships with responsible originators, and that approved mortgagees will diligently monitor and evaluate the activities and performance of those they sponsor. The Department will continue to carefully review and evaluate FHA-approved mortgagees’ activities and performance, and will take appropriate action to enforce its requirements when violations occur.

Loan Performance

  • Neighborhood Watch will post data for all loans originated via a sponsored TPO, and will be made available only to FHA-approved mortgagees for the purpose of evaluating sponsored TPO origination trends and performance

Third Party Fees

  • HUD will review all fees charged to a consumer by both FHA-approved lenders and TPOs and will hold the lender accountable for all of the fees charged, including those charged imposed by a TPO. Acceptable fees will be those that appear to be reasonable, common, and customary for the geographic area.[12]
  • Broker consulting fees, which are charged by a broker, must be paid outside of closing from the consumer’s own funds, and must be compliant with RESPA guidelines.[13]

Employment Requirements

FHA’s employment requirements for approved mortgagees and lenders are outlined in Chapter 2 of Handbook 4060.1, Rev. 2. FHA-approved mortgagees shall ensure that sponsored third party originators involved in FHA loan transactions adhere to all applicable federal, state, and local requirements governing their FHA loan origination and processing activities.

HUD will no longer monitor TPOs and will not impose restrictions on employment. Therefore, sponsored TPO employees can be paid on a W-2 or 1099 basis, and can have dual employment (i.e., mortgage originator as well as real estate agent). Also, there will be no “brick and mortar” requirements for sponsored TPOs.[14]

As a reminder to currently approved mortgagees and lenders, HUD prohibits HECM mortgage originators from also engaging in the sale or solicitation of other financial or insurance products. FHA-approved mortgagees must carefully evaluate the specific guidelines governing the programs and activities in which they wish to participate, as well as relevant state and local laws and regulations governing such activities.

Download Article-1A

Principal-Authorized Agent Relationships

Principal-Authorized Agent relationships can now only be entered into by two FHA-approved mortgagees, both of which must possess unconditional Direct Endorsement approval. This relationship, and the respective roles of the parties involved, must be documented accurately and accordingly in FHA Connection. Additional time is needed to support such documentation in FHA Connection. Due to impending system changes necessary to support and validate Principal-Authorized Agent transactions, FHA is issuing a regulatory waiver that will delay implementation of this provision until January 1, 2011.[15]

  • For Forward mortgages, the principal can have either unconditional DE or unconditional HECM approval. The authorized agent must have unconditional DE approval.
  • For HECM mortgages, the principal can have either unconditional DE or unconditional HECM approval. The authorized agent must have unconditional HECM approval.
  • The Principal in these relationships must originate the loan and the Authorized Agent must underwrite the loan.
  • The loan may close in either the name of the Principal or the Authorized Agent, and either party may submit the loan for insurance endorsement.

Areas Approved for Business (AAFB)

FHA-approved mortgagees may underwrite sponsored TPO loans in any state in which they are permitted by the state to do so, and in which sponsored TPOs are permitted to conduct mortgage origination activities. Hence, an FHA-approved mortgagee’s wholesale AAFB consists of all states in which it sponsors a mortgage originator that meets the applicable requirements for loan origination of that state and in which the mortgagee is permitted by the state to underwrite mortgage loans and sponsor mortgage originators.[16]

HUD will provide more detailed requirements for the submission of sponsored third party originator loans in a subsequent Mortgagee Letter. That Mortgagee Letter will include instructions for data submission and the process for ordering and transferring FHA case numbers for loans originated by sponsored third party originators.

New Form 92900-A: Addendum to the URLA

HUD intends to amend Form 92900-A (Addendum to the Uniform Residential Loan Application) in order to obtain information related to sponsored TPOs.[17] The new form will add additional boxes for a TPO’s legal name, tax identification number, and Nationwide Mortgage Licensing System Registry (“NMLSR”) number for the company (if applicable). A date of mid-September 2010 is anticipated for implementation of the new form.

Download Article-1A

If you have any questions about this matter or would like assistance with mortgage compliance, please contact Jonathan Foxx, Managing Director, or call 516-442-3456.


[1] Mortgagee Letter 2010-20, June 11, 2010, Implementation of Final Rule FR 5356-F-02, “Federal Housing Administration: Continuation of FHA Reform-Strengthening Risk Management through Responsible FHA-Approved Lenders”

[2] April 20, 2010 at 75 FR 20718, with technical correction published on May 4, 2010 at 75 FR 23582.

[3] Under the final regulations, small businesses are those that meet the size standard for their industry classification established by the Small Business Administration at 13 C.F.R. § 121.201 Sector 52 (Finance and Insurance), Subsector 522 (Credit Intermediation and Related Activities). Non-small businesses are those lenders and mortgagees that exceed this size standard. Id. at 20,734 [citing new Section 202.5(n)(iii)].

[4] Under the final regulations, small businesses are those that meet the size standard for their industry classification established by the Small Business Administration at 13 C.F.R. § 121.201 Sector 52 (Finance and Insurance), Subsector 522 (Credit Intermediation and Related Activities). Non-small businesses are those lenders and mortgagees that exceed this size standard. Id. at 20,734 [citing new Section 202.5(n)(iii)].

[5] U. S. Small Business Administration Table of Small Business Size Standards Matched to North American Industry Classification System Codes, August 22, 2008, p29 (Data – 2007)

[6] Op.cit. 1, Footnote (2)

[7] See Mortgagee Letter 2009-01: Loan correspondents must submit the online annual certification and the annual renewal fee or be subject to administrative action leading to the possible withdrawal of their FHA approval.

[8] Industry Conference Call, June 29, 2010: hosted by HUD to summarize the new regulatory changes and the corresponding guidance provided in Mortgagee Letter 2010-20.

[9] Additionally, FHA’s employment requirements for approved mortgagees and lenders, as outlined in Chapter 2 of Handbook 4060.1, Rev. 2, requires FHA-approved mortgagees to ensure that sponsored TPOs involved in FHA loan transactions adhere to all applicable federal, state, and local requirements governing their FHA loan origination and processing activities.

[10] Op.cit. 1, p 4

[11] The current prohibition on closing in a TPO’s name cannot be changed until Congress amends the National Housing Act. The FHA Reform Act of 2010 (HR 5072), which was recently passed in the House and currently awaits deliberation in the Senate, would accomplish this goal.

[12] Op.cit. 8

[13] Op.cit. 8

[14] Op.cit. 8

[15] Op.cit. 8

[16] Mortgagees will order case numbers for any state in which they are approved to underwrite an FHA loan. Until system modifications are made, mortgagees will need to enter their 5 digit ID in the Sponsor field in FHA Connection’s case number assignment screen.

[17] Op.cit. 8

Friday, July 23, 2010

HAMP: “Continues to Struggle”

Yesterday, we provided an outline of the continuing downward trend of the Home Affordable Modification Program (HAMP) program, as reported in the most recent June Report, issued on July 20, 2010.

On July 21, 2010, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), stated in its Quarterly Report to Congress (Report), that HAMP "continues to struggle to achieve its original stated objective to help millions of homeowners avoid foreclosure 'by reducing monthly payments to sustainable levels.'"

It would be helpful to refer to our compliance update, "HAMP: Continues Downward Trend," issued on July 22, 2010, for comparative analysis.

The Report states that the number of homeowners being helped through permanent modifications "remains anemic," with fewer than 400,000 ongoing permanent modifications and HAMP has not put an "appreciable dent" in foreclosure filings. Furthermore, according to the Report and as we also indicated in yesterday's compliance update, the number of trial and permanent modifications that have been canceled substantially "exceeds the number of homeowners helped through permanent modifications."

In a telling statement of fact, the Report unequivocally finds that the Treasury "clings to its prior statements that it plans to offer trial modifications to three to four million homeowners, a measure that the SIGTARP has previously shown to be essentially meaningless," and that its refusal to provide meaningful goals is a "fundamental failure of transparency and accountability."

Finally, the SIGTARP takes the position that the "American people are essentially being asked to shoulder an additional $50 billion of national debt without being told, more than 16 months after the program's announcement, how many people Treasury hopes to actually help stay in their homes as a result of these expenditures, how many people are intended to be helped through other subprograms, and how the program is performing against those expectations and goals."

Without clearly defined standards, opines the SIGTARP, positive comments about HAMP's success are "simply not credible," and leads to a growing "public suspicion" that HAMP is an "outright failure."

It should be noted that of the anticipated $75 billion dollar cost of the Making Home Affordable (MHA) program that commenced on February 18, 2009, $50 billion will be funded through TARP. HAMP is one of the MHA programs.

If you have any questions about this matter or would like assistance with mortgage compliance, please contact Jonathan Foxx, Managing Director or call 516-442-3456 x 100.

Highlights

HAMP Snapshot-Chart-1

As of June 30, 2010, a total of 753,275 mortgages are currently being modified, either permanently or on a trial basis. Of those, 389,198 were active permanent modifications and 364,077 were active trial modifications.

SIGTARP uses statements from the June reviews provided by HUD and Treasury to explain why the number of cancellations of mortgage modifications has increased, as decisions on aged trials are being reached, such as:

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Office of the Special Inspector General
of the Troubled Asset Relief Program

Quarterly Report to Congress
July 21, 2010

Thursday, July 22, 2010

HAMP: Continues Downward Trend

The government program established to assist homeowners in distress continues to under perform, with 91,118 trial modifications under the Home Affordable Modification Program (HAMP) being canceled in June and of those more than 70% had been in a trial period for six months or longer.

Based on the June 2010 Servicer Performance Report (Report) issued on July 20, 2010, it appears that, more often than not, most borrowers aren't surviving the trial modification stage.

Servicers also converted 51,205 trials to permanent modifications, approximately 3,481 more conversions than occurred in May. During the same period, the number of trial modifications also increased from May, growing from 30,099 to 38,728.

The recidivism rates for HAMP modifications six months after converting to a permanent modification are 5.9% of HAMP loans are 60+ days delinquent and 1.7% are 90+ days delinquent. At nine months after conversion, the rates rise to 7.7% for 60-day delinquencies and 2.4% for 90+ day delinquencies.

The velocity of the program is slowing down considerably!

On a cumulative basis, trial modifications started in September-October 2009 were 156,019, but the number of trial modifications in May-June 2010 were 15,753 - about a 90% reduction!

If you have any questions about this matter or would like assistance with mortgage compliance, please contact Jonathan Foxx, Managing Director or call 516-442-3456 x 100.

Highlights

HAMP-Chart-1 (2010.06)

●Number of permanent loan modifications: 346,816 to 389,198 (Increase: 42,382)
●Number of trial modifications canceled: 429,696 to 520,814 (Increase: 91,118)
●Number of "active trials": 467,672 to 364,077 (Decrease: 103,595)

These statistics clearly show that the number of failed trial modifications to date are significantly greater than the number of successful, permanent ones, while the number of trials started has dropped precipitously.

HAMP-Chart-2 (2010.06)

As indicated above, the velocity of the program is slowing down considerably. On a cumulative basis, trial modifications started in September-October 2009 were 156,019, but the number of trial modifications in May-June 2010 were 15,753 - about a 90% reduction!

This is the slowest month-over-month pace since the program began.

HAMP-Chart-3 (2010.06)

HAMP-Chart-4 (2010.06)

Taken together, the above two charts indicate why trials modifications are probably slowing down: servicers are now pre-qualifying borrowers and are also running out of eligible borrowers.

The median front-end DTI before modification is 44.8% (which is about where it has remained for several months); and, the back-end DTI before modification is an astronomically high 79.9% (which, in any event, has been in this high range of 77.5% to 80.2% for several months).

That back-end DTI discloses an inescapable fact: nearly 80% of the borrower's income is going to servicing debt - and nearly 63.7% of income even after loan modification - a troublesomely high back-end ratio, which indicates likely defaults in the future.

It's no wonder that many borrowers never make it out of trial modification into permanent modification. Indeed, these are "median" characteristics - so many borrowers have even higher risk profiles.

Clearly, the program is not meeting with the kind of success predicted at its inception and is gradually coming to an end.

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Making Home Affordable Program
Servicer Report - June 2010 (07/21/10)

Wednesday, July 21, 2010

HMDA: New Revisions Proposed

On June 21, 2010, the Federal Reserve Board issued a notice of public hearings regarding potential revisions to Regulation C, Home Mortgage Disclosure Act (HMDA).

And on July 20, 2010, The Office of Thrift Supervision, Office of the Treasury, issued a transmittal of the Federal Register notice.

Hearings on the proposed revisions to HMDA will be held on July 15, 2010 in Atlanta, GA; August 5, 2010 in San Francisco, CA; September 16, 2010 in Chicago, IL; and September 24, 2010 in DC. Comments may also be e-mailed, faxed, or mailed.

Deadline for Comments: August 20, 2010

If you have any questions about this matter or would like assistance with mortgage compliance, please contact Jonathan Foxx, Managing Director or call 516-442-3456 x 100.

Highlights

Data Elements

  • What, if any, additional data should be collected? What are the benefits, costs, and privacy issues associated with requiring lenders to report, for example: (i) Underwriting data such as borrower's credit score, loan-to-value ratio, combined loan-to-value ratio (i.e., including both the reported loan and other debts), and borrower's debt-to-income ratio; (ii) borrower's age; (iii) loan originator channel; and (iv) rate spreads for all loans, instead of only for higher-priced loans?
  • Should any existing data elements be modified? If so, how? For example, what are the benefits, costs, and privacy issues associated with requiring lenders to report total income, rather than income relied on by the lender?
  • Should any existing data elements be eliminated? Why?

Coverage and Scope

Coverage

  • Should mortgage brokers and non-lender loan purchasers be required to report HMDA data?
  • Should other types of institutions be required to report? If so, which types?
  • Should any types of institutions be exempt from reporting?
  • Should the rules governing who must collect and report HMDA data be revised in other ways? If so, how?

Scope

  • Should any other types of mortgage loans be reported?
  • Should any types of mortgage loans be excluded from reporting?
  • Should the rules governing which mortgage loans are subject to reporting be revised in other ways? If so, how?

Preapproval Programs

  • Do lenders use preapproval programs as defined by Regulation C?
  • Is there a benefit to requiring lenders to report on these programs?
  • How could the definition of preapproval program be modified to be easier to apply and to make reporting more useful?

Compliance and Technical Issues

  • What are the most common compliance issues institutions face under HMDA and Regulation C?
  • What parts of Regulation C would benefit from clarification or additional guidance?
  • Are there technical issues regarding Regulation C that should be resolved?

Other Issues

  • Are there emerging issues in the mortgage market that may warrant additional research, respond to technological and other developments, reduce undue regulatory burden on industry, and delete obsolete provisions?

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Office of Thrift Supervision, Department of the Treasury
Transmittal - TR-456, 7/20/10
Federal Register, Vol. 75, No. 118, pp. 35030-35033, 6/21/10

Tuesday, July 20, 2010

FHA: Only Quality Loans Need Apply

On July 19, 2010, FHA Commissioner David H. Stevens issued a Special Edition statement about lenders "exuberance in the marketplace to find ways to increase loan origination revenues."

While not singling out "opportunistic lenders" or acknowledging a more widespread trend, Commissioner Stevens wants to be "very clear on FHA's position as it relates to underwriting, lender accountability and affordable programs."

In this carefully worded notice, Commissioner Stevens states unequivocally that:

  • Quality underwriting is not only essential - it is expected, and
  • Affordable products are core to FHA serving its mission.

If you have any questions about this matter or would like assistance with mortgage compliance, please contact Jonathan Foxx, Managing Director or call 516-442-3456 x 100.

Highlights

I. Quality underwriting is not only essential - it is expected.

  • Every lender engaging in business with FHA is expected to perform and maintain quality underwriting standards.
  • Mortgagees are expect to have the right people and processes in place to make quality underwriting decisions, perform thoughtful analysis of a borrower's ability to repay the loan, and adhere to realistic underwriting ratios.
  • Processes and staff must be well-equipped to assess the overall quality of the loan, determine a realistic income level and analyze the borrower's true ability to repay the loan. It is imperative we look at income levels, credit history, and qualifying ratios realistically and make decisions responsibly.

FHA Implementing Loan Level Review Tools

  • FHA has refined and re-tooled its loan level review processes to more effectively spot unsatisfactory underwriting performance.
  • Utilizing updated risk targeting criteria and a collaborative approach, FHA is executing an enhanced strategy to identify underwriting deficiencies and take action to protect FHA from unwarranted risks and losses.
  • Comprehensive and calculated risk management will permit FHA to single out those lenders that are needlessly endangering FHA and the continued availability of its programs.

Tools

  • Loan Level Reviews: FHA's loan level review processes have been enhanced to more effectively manage risks and minimize losses arising from poorly underwritten or fraudulent loans.
  • Loan Evaluation: processes have been modified and aligned across all Single Family offices to achieve a collaborative and comprehensive approach to evaluating loans throughout the loan life cycle.
  • Post-Endorsement Technical Reviews: case selection criteria have been revised and review procedures enhanced and standardized.
  • Lenders and Servicer Reviews: the targeting tools and methodology have been strengthened to better target lenders and loans that pose the greatest risks to FHA.
  • Quality Control: methodologies to areas where some originators may try to take unique advantage of the flexibility of FHA without the appropriate focus on quality (i.e., loans originated for non-FHA to FHA refinanced loans).
  • Streamline Refinances: risk can now be identified simply by looking at the original loan quality before it was refinanced into an FHA loan.

II. Affordable products are core to FHA serving its mission.

  • Avoiding Overcharges and Adverse Selection: FHA expects lenders to maintain the spirit and intention of these programs by providing close control over how these programs are implemented and how compensation on these loans is paid to an originator's staff.
  • Compensation: Lenders must keep very close control over compensation programs to ensure borrowers are not paying more than they should to have access to FHA's affordable programs.

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Special Edition
FHA Commissioner David H. Stevens
7/19/10

Friday, July 16, 2010

FHA Proposes to Revise Underwriting Guidelines

Overview

On July 15, 2010, the Federal Housing Administration (FHA) published a notice in the Federal Register to revise its underwriting guidelines for Single Family loan originations and elicited comments from the public. The notice (hereafter "Proposal") would tighten only those portions of its underwriting guidelines that have been found to present an excessive level of risk to both homeowners and FHA.

FHA proposes to:

  • Reduce the amount of closing costs a seller may pay on behalf of a home buyer purchasing a home with FHA-insured mortgage financing for the purposes of calculating the maximum mortgage amount. This proposed cap on ''seller concessions'' (i.e., also known as "seller contributions") will minimize FHA exposure to the risk of adverse selection.
  • Introduce a credit score threshold as well as reduce the maximum loan-to-value (LTV) for borrowers with lower credit scores, who represent a higher risk of default and mortgage insurance claim.
  • Tighten underwriting standards for mortgage loan transactions that are manually underwritten. These transactions have resulted in high mortgage insurance claim rates and present an unacceptable risk of loss.

Comment Due Date: August 16, 2010

If you have any questions about this matter or would like assistance with mortgage compliance, please contact Jonathan Foxx, Managing Director or call 516-442-3456 x 100.

Highlights

Reduction of Seller Concession

HUD's existing policy regarding concessions is found in Handbook 4155.1, section 2.A.3 and Handbook 4155.2, section 4.8, which define seller concessions and provide that any concessions exceeding 6 percent must be treated as inducements to purchase, resulting in a reduction in the FHA mortgage amount. This notice proposes to reduce the 6 percent limitation defined in the Handbooks to 3 percent.

New LTV Ratio and Credit Score Requirements

FHA is proposing to introduce a minimum decision credit score of no less than 500 to determine eligibility for FHA financing and reduce the maximum LTV for all borrowers with decision credit scores of less than or equal to 579.

Maximum FHA-insured financing (96.5 percent LTV for purchase transactions and 97.75 percent LTV for rate and term refinance transactions) would be available only to borrowers with credit scores at or above 580. All borrowers with decision credit scores between 500 and 579 would be limited to 90 percent LTV.

Manual Underwriting

Manual U-W

On all manually underwritten mortgage loans, borrowers will be required to have minimum cash reserves equal to one monthly mortgage payment, which includes principal, interest, taxes, and insurance(s). Maximum housing and debt-to-income ratios will be set at 31 percent and 43 percent, respectively. Borrowers with credit scores of 620 or higher may exceed the qualifying ratios of 31/43 percent, not to exceed 35/45 percent provided that they are able to meet at least one of the compensating factors stated in the Proposal.

To exceed the qualifying ratios of 35/45 percent, not to exceed 37/47 percent, borrowers must meet at least two compensating factors, as stated in the Proposal. Any other compensating factors are not acceptable. Mortgage lenders cannot use compensating factors to address unacceptable credit. While this notice does not address the interplay of the housing and debt-to-income ratios, FHA is seeking comment on how to serve borrowers with housing ratios above the threshold and debt-to-income ratios below the threshold (i.e., 36/36 percent).

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Risk Management Initiatives: Reduction of Seller Concessions,
New Loan-to-Value, and Credit Score Requirements

FR: Vol. 75, No. 135, 7/15/10

Thursday, July 15, 2010

Court Rules: RESPA “Unconstitutionally Vague”

A U.S. District Court judge concluded that Policy Statement 1996-2, in which HUD set forth factors to aid in determining whether an affiliated business arrangement is a bona fide provider of settlement services under the Real Estate Settlement Procedures Act (RESPA), is "unconstitutionally vague."

We have been tracking this litigation for some time, due to its importance. In our February 4, 2009 Advisory Letter, "Section 8 and AfBAs-Private Right of Action w/o Concrete Injury," we provided a brief outline of the Federal Appeals Court ruling of January 23, 2009, which held that a plaintiff has standing to bring a RESPA claim, even if there is no concrete injury.

  • The Plaintiffs-Appellants, Edward and Whitney Carter (Carter), brought a RESPA claim alleging that Chicago Title Insurance Company (Chicago Title) was improperly splitting fees with other service providers in exchange for referrals. Settlement service provider Welles-Bowen Realty (WB Realty), a realty agent, was owned by Chicago Title and Welles-Bowen Investors, LLC (WB Investors). Chicago Title owned 51.1% and WB Realty owned 49.9% of Welles-Bowen Title Agency, LLC (WB Title).

The heart of the case pertained to this issue: whether a plaintiff must allege a concrete injury, such as an overcharge, in order to have standing for a RESPA violation.

  • In the January 23, 2009 decision, the Sixth Circuit ruled that a plaintiff has a statutorily-authorized private right of action under the Real Estate Settlement Procedures Act (RESPA) and constitutional standing to sue, despite failing to allege that there was an overcharge for any settlement service.
  • The Carter's allegation that they were injured by the deprivation of a right conferred by RESPA was upheld, because the Court determined that the statute creates an individual right to receive referral services untainted by kickbacks or fee-splitting.

By alleging that the sole purpose for the creation of WB Title was to enable Chicago Title to provide kickbacks to WB Realty in exchange for referrals (i.e., violating sections 8 (a) and 8 (b) of RESPA [12 USC §2607 (a)-(b)] - and that the Carters themselves received a referral from WB Realty - the Court ruled that the Carters had adequately demonstrated that their own RESPA rights were violated.

On June 30, 2010, in a ruling on a consolidated case, the U.S. District Court held that U.S. Department of Housing and Urban Development's (HUD) Policy Statement 1996-2, "Policy Statement on Sham Controlled Business Arrangements," in which HUD set forth ten factors to aid in determining whether an affiliated business arrangement is a bona fide provider of settlement services under RESPA, is "unconstitutionally vague."

  • Plaintiffs again contended that the real estate firms' partial ownership of the affiliated business arrangements from which plaintiffs purchased their title insurance violated RESPA's anti-kickback provision. Defendants asserted in a summary judgment motion that the statutory exception for affiliated business arrangements barred plaintiffs' claims.
  • In response, plaintiffs argued that an affiliated business arrangement must be a bona fide provider of settlement services in order to take advantage of this exception, an inquiry typically determined by apply a ten-factor test set forth in the Policy Statement.

The court, however, has declined to apply that test, concluding that it raised serious constitutional concerns. By employing broad terms such as "sufficient," "substantial," and "reasonable" without providing guidance as to how to determine the meaning of such terms in the context of the title insurance business, the court noted that the Policy Statement 1996-2 invited a highly subjective evaluation.

Furthermore, according to the court, HUD's Policy Statement 1996-2 providing that the ten factors be considered together required further subjective judgments, because the directive provided no guidance as to how many factors would be determinative, or how much weight was to be given to the individual factors. As a result, the court concluded that the regulation did not contain sufficient detail to prevent arbitrary enforcement and to give notice of what an individual must do to comply with the Policy Statement, and instead applied the terms of the statute itself.

After concluding that no violation of the anti-kickback provision had occurred, the court entered summary judgment for the defendants.

The Affiliated Business Arrangement (AfBA), when properly structured, is a RESPA-compatible means to developing strategic alliances between certain settlement service providers.

Comprehensive planning and implementation are necessary to satisfy current RESPA requirements and HUD's specified guidelines in order to satisfy a "safe harbor" test.

If you have any questions about this matter or would like assistance with mortgage compliance, please contact Jonathan Foxx, Managing Director or call 516-442-3456 x 100.

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Carter v. Wells-Bowen Realty, Inc.
No. 3:05 CV 7427 (N.D. Ohio June 30, 2010)

Wednesday, July 14, 2010

Fannie Mae: Loan Quality Initiative Summary

Overview

Since the introduction of Fannie Mae's Loan Quality Initiative on February 26, 2010 (LQI), several important updates and announcements have been issued.

On June 28, 2010, Fannie updated its matrix, entitled Loan Quality Initiative (LQI) Summary and Additional Information (Summary), which summarizes enhancements, and provides key calendar date, tools, and resources.

The Loan Quality Initiative has focused on several areas, including:

  • policies that confirm the identity and occupancy of the borrower, validation of qualified parties to the transaction, and policies that address the borrower's credit profile;
  • updated quality control requirements for lenders and an improved feedback loop;
  • the delivery of additional information about the property and the appraisal;
  • loan delivery enhancements, including,
  1. validation of loan eligibility at delivery,
  2. a new capability that enables lender validation of data before, during and immediately after loan delivery, and,
  3. collection of additional loan data at delivery and transition to an XML format;
  • reporting and validation of mortgage insurance coverage data.

Inasmuch as revisions and implementation dates related to the above-mentioned areas are also incorporated by reference into Fannie's Selling Guide, the Summary is an important information resource and guide.

At this time, the Summary contains columns for:

  • Change or Enhancement: policy or procedure subject to revision
  • Communications: references and citations
  • Key Dates: effective dates for compliance implementation
  • Tools and Resources: information and outreach facilities

The Summary also contains a conversion matrix for the Calendar of Key Dates, chronologically outlined, with correlating Loan Delivery descriptions, and areas affected (i.e., Communications, DU, and Other).
Monitoring Fannie's LQI is central to mortgage compliance implementation and should be regularly reviewed by all compliance personnel.

If you have any questions about this matter or would like assistance with mortgage compliance, please contact Jonathan Foxx, Managing Director or call 516-442-3456 x 100.

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Loan Quality Initiative (LQI) Summary and Additional Information
Revised 6/28/10
Fannie Mae

Tuesday, July 13, 2010

Foreclosed Property Maintenance: Model Ordinance?

Overview

In an ongoing effort to assure that foreclosed properties do not fall into disrepair, adversely impacting property values and safety issues in the community, on July 8, 2010 the City of Los Angeles Department of Consumer Affairs began its City of Los Angeles Foreclosure Registry Program (Registry).

The Council of the City of Los Angeles passed Ordinance No. 181185 on May 21, 2010 (Ordinance), which, among other things, requires lenders to register their foreclosed properties, makes them responsible for their maintenance, penalizes them if maintenance is not implemented, and also provides certain protections to tenant occupants lawfully demising the premises.

While such initiatives are not new - and many lenders maintain their foreclosed houses in order to assure their value - this new law is drawing the attention of other municipalities around the county as a possible model for such protective measures.

Although many lenders work with local maintenance companies to maintain their Real Estate Owned properties (REO), and the Department of Housing and Urban Development (HUD) has its own Monitor and Maintenance (M&M) system for such purposes, many small lenders have not retained such service providers.

Consequently, an ordinance such as the one passed by the City of Los Angeles has been gaining traction with certain legislators, due to the growing blight of properties in disrepair in their communities.

The Registry further facilitates the work of building inspectors to identify who owns foreclosed and abandoned homes, specifically, the beneficiary (i.e., a lender under a note secured by a deed of trust on any unimproved or improved residential real property) or a trustee (i.e., the person, firm or corporation holding a deed of trust on such property).

Many other municipalities in California have adopted ordinances requiring registration and maintenance of vacant properties. For instance, cities in California that have enacted somewhat similar ordinances requiring registration of foreclosed properties include Fresno (Fresno Municipal Code Section 10-620PDF 12x12), Oakland (Oakland Municipal Code Chapter 8.54PDF 12x12), and San Bruno (San Bruno Municipal Code Chapter 5.26PDF 12x12).

The extent to which certain provisions of the Ordinance, as written, are enforceable under state and federal law may be questionable, and it is therefore possible that such provisions will be susceptible to legal challenge. Beneficiaries, trustees and any others affected by the Ordinance may wish to consult with legal counsel to understand their obligations under the Ordinance and the best practices to comply with such laws.

If you have any questions about this matter or would like assistance with mortgage compliance, please contact Jonathan Foxx, Managing Director or call 516-442-3456 x 100.

Highlights

Certain Features

  • Effective Thursday, July 8, 2010.
  • Lenders are responsible for cleaning up their foreclosed properties to prevent further blight and nuisance.
  • Lenders are responsible for maintaining the property as soon as they issue a Notice of Default.
  • Allows the City to fine mortgage lenders $1,000 per day per violation, up to $100,000.
  • Lenders must register their inventory of homes in default in the City of LA Foreclosure Registry Program.
  • Applies to foreclosed homes only in the City of Los Angeles.
  • Consumers can report problem properties to LA City's 311 hot line.

Maintenance

In addition to the foregoing, any beneficiary or trustee subject to the Ordinance must:

  • Ensure that utility services to the property are not terminated if the property is lawfully occupied
  • Perform an inspection of the property prior to issuing a notice of default.
  • Perform monthly inspections of the property, if occupied, until the default is remedied.
  • Report any change to the information contained in the registration within 10 days of such change.

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City of Los Angeles Foreclosure Registry Program
Ordinance No. 181185, 5/21/2010
City of Los Angeles Foreclosure Registry Program
Registration Guidelines - Revised 7/7/2010

Monday, July 12, 2010

HUD Homes at 10% Discount

Overview

On July 12, 2010, the U.S. Department of Housing and Urban Development (HUD) announced a new initiative, the First Look Sales Method, that gives state and local governments, and nonprofit organizations participating in HUD's Neighborhood Stabilization Program (NSP) preference to acquire homes from the Department's inventory of foreclosed properties, commonly known as "HUD homes."

A Notice outlining this temporary initiative will be published in the Federal Register. As signed by FHA Commissioner David H. Stevens on July 9, 2010, the Notice details how the sale of HUD Homes under the Federal Housing Administration's (FHA) First Look Sales Method will align NSP and FHA requirements to provide NSP grantees an exclusive option to purchase HUD homes before they are marketed to other purchasers.

Through the First Look Sales Method, HUD will offer NSP grantees a preference ("First Look") to acquire available HUD homes within the defined boundaries of NSP-designated areas.

First Look will also provide NSP purchasers with the opportunity to purchase FHA properties at a discount of 10 percent (10%) below their appraised value, less the cost of any applicable listing and sales commissions.

  • The First Look period will last approximately 14 days from the conveyance of a property to FHA.
  • Properties that remain unpurchased at the expiration of the First Look period will be listed and sold according to standard FHA procedures.
  • Eligible NSP grantees may acquire these properties with the assistance of NSP funds for any eligible use under NSP, including rental or homeownership.
  • First Look is effective from July 12, 2010 through May 31, 2013.

If you have any questions about this matter or would like assistance with mortgage compliance, please contact Jonathan Foxx, Managing Director or call 516-442-3456 x 100.

Highlights

Discounted Sales Price

  • FHA will the First Look property to the eligible NSP purchaser at a discounted purchase price of 10% below the appraised property value, less any applicable costs, including commissions.
  • Minimum discounted purchase price of each FHA REO First Look property purchased by an eligible NSP purchaser (in whole or in part with NSP funds) shall be one percent off of the appraised property value.
  • In no case shall the discounted purchase price exceed 99% of the appraised property value.
  • The sales price of each FHA REO property is based upon the appraised value of the property.

Settlement Dates

  • Each eligible NSP purchaser must close on the purchase of each FHA REO property within the same time frames that apply to non-NSP purchasers under FHA requirements.
  • When scheduling the settlement date, the HUD's Management and Marketing contractor provides the maximum time allowable under applicable FHA requirements to ensure that the eligible NSP purchaser is provided with the time necessary to document compliance with all applicable NSP requirements.

Settlement date deadlines may also be extended, per the procedures and guidelines provided under Property Disposition Handbook One to Four Family Properties (Handbook 4310.5 REV-2).

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First Look Sales Method for Grantees, Nonprofit Organizations, and Subrecipients under the Neighborhood Stabilization Programs
Federal Housing Administration (FHA)
July 9, 2010