Agencies: Commence NMLS Registration

The federal bank, thrift and credit union regulatory agencies, along with the Farm Credit Administration, announced today that the Nationwide Mortgage Licensing System and Registry (Federal Registration) will begin accepting federal registrations, effective immediately.

Under the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) and the agencies' final rules, residential mortgage loan originators employed by banks, savings associations, credit unions, or Farm Credit System institutions must register with the registry, obtain a unique identifier from the registry, and maintain their registrations. 

Agencies

Farm Credit Administration

Federal Deposit Insurance Corporation

National Credit Union Administration

Office of the Comptroller of the Currency

Office of Thrift Supervision 

Following expiration of the 180-day initial registration period on July 29, 2011, any employee of an agency-regulated institution who is subject to the registration requirements will be prohibited from originating residential mortgage loans without first meeting these requirements.

(The registration rules exclude mortgage loan originators that originated five or fewer mortgage loans during the previous 12 months and who have never been registered.) 

Initial registration: January 31, 2011 to July 29, 2011.

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Registration of Mortgage Loan Originators
Interagency Announcement
January 31, 2011

FTC: Telemarketing and Caller ID

The Federal Trade Commission announced on December 7, 2010 that it is seeking public comments on whether and how to strengthen the Caller ID provisions of the Telemarketing Sales Rule.

The notice was published in the Federal Register on December 15, 2010.

By requiring telemarketers to provide Caller ID information, the Rule allows consumers to screen out unwanted calls. The FTC seeks comments on how to make Caller ID more useful to consumers and combat technologies that hide telemarketers' identities.

Currently, the Rule's Caller ID provisions require telemarketers to provide consumers who use Caller ID services with either a telephone number for the telemarketer or the number of the seller or charitable organization represented by the telemarketer. Some Caller ID services also display names of up to 15 characters to identify the caller.

Under the Rule, telemarketers must provide the name of the telemarketer, seller, or charitable organization to such Caller ID services, if the telemarketer's carrier makes this available.

The Caller ID regulations give telemarketers flexibility in determining what telephone numbers to transmit, and in determining whether the name of the telemarketer, or the name of the seller or charity, is displayed on Caller ID services. The Advance Notice of Proposed Rulemaking does not put forward a specific plan for strengthening the Telemarketing Sales Rule's Caller ID provisions.

Instead, it provides information on how Caller ID services work, and explains how the benefits of Caller ID services are undermined when telemarketers use technology to block transmission of Caller ID, to transmit false information, or to transmit a telephone number or name that does not clearly identify the source of the call.

Deadline for Written Comments: January 28, 2011.

Questions reviewed by the FTC

• How widespread is consumer use of Caller ID services to screen unwanted calls, and do consumers use other services that rely on the transmission of calling party numbers (CPN), such as call-blocking equipment, to avoid unwelcome telemarketing calls?

• Would changes to the Telemarketing Sales Rule improve the ability of Caller ID services to accurately disclose the source of telemarketing calls or improve the ability of service providers to block calls in which information on the source of the call is not available, or has been spoofed?

• Should the FTC amend the Caller ID provisions of the Rule to recognize or anticipate specific developments in telecommunications technologies relating to the transmission and use of Caller ID information, and if so, how?

• Should the FTC amend the Caller ID provisions of the Rule to further specify the characteristics of the phone number that a telemarketer must transmit to a Caller ID service? (For example, should the Rule require that the phone number transmitted be one that is listed in publicly available phone directories, a number with an area code and prefix that are associated with the physical location of the telemarketer's place of business, a number that is answered by a live representative, or automated service that identifies the telemarketer by name?)
• Should the FTC amend the Caller ID provisions to allow a seller or telemarketer to use trade names or product names, rather than the actual name of the seller or telemarketer, in the name information displayed by Caller ID services?

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FTC: Telemarketing Sales Rule, Advance Notice of Proposed Rulemaking -
Request for Public Comments
Federal Register: 75/240
December 15, 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.

FinCEN: 7% Increase in Mortgage Fraud

On December 14, 2010, the Financial Crimes Enforcement Network (FinCEN) released two mortgage fraud reports entitled Mortgage Loan Fraud SAR Filings, which together cover the first six months of 2010.

One report covers January through March 2010, and the other covers April through June 2010.

For previous announcements on this subject, please visit the Compliance ALERTS section of our Archive.

Taken together the reports show that suspicious activity reports (SARs) indicating mortgage loan fraud (MLF) climbed 7%, rising to 35,135 in the first half of 2010 compared with 32,926 in the first half of 2009.

In part, the increase is being attributed to increased attention to older loans spurred by repurchase demands.

In the first quarter of 2010, 78% of reported activities occurred more than two years prior to filing, compared with 44% in the same period of 2009, showing a continued focus on loans originated from 2006 to 2008.

First Quarter

Second Quarter

Key Findings

References to bankruptcy in SARs have steadily increased, rising to 7% of MLF SAR filings in 2010, compared to 1% in 2006 and 2007.

SAR reports referencing "short sale" and "broker price opinion" appeared 827 times and 41 times in SARs respectively during the first quarter of 2010. (Short sales and broker price opinions mentioned in SARs are sometimes associated with a particular type of flipping scheme known as "flopping." Flopping occurs when a foreclosed property is sold at an artificially low price to a straw buyer, who quickly sells the property at a higher price and pockets the difference.)

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FinCEN: Suspicious Activity Report Filings from January 1-March 31, 2010, Mortgage Loan Fraud Update, December 2010
FinCEN: Suspicious Activity Report Filings from April 1-June 30, 2010, Mortgage Loan Fraud Update, December 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.

Loan Mod Scams: Landing on MARS

On November 11, 2010, the Federal Trade Commission issued its Final Rule to Protect Struggling Homeowners from Mortgage Relief Scams Rule, which outlaws advance fees and false claims, while requiring clear disclosures.

The new rule, known as the Mortgage Assistance Relief Services (MARS) Rule, published in the Federal Register on December 1, 2010, seeks to protect distressed homeowners from mortgage relief scams that have sprung up during the mortgage crisis. For instance, bogus operations falsely claim that, for a fee, they will negotiate with the consumer's mortgage lender or servicer to obtain a loan modification, a short sale, or other relief from foreclosure. Many of these operations pretend to be affiliated with the government and government housing assistance programs.

Essentially, the FTC seeks to ban providers of mortgage foreclosure rescue and loan modification services from collecting fees until homeowners have a written offer from their lender or servicer that they - the homeowners - decide is acceptable.

NOTE: the Final Rule applies only to entities within the FTC's jurisdiction under the Federal Trade Commission Act, which excludes, among others, banks, savings and loans, federal credit unions, common carriers, and entities engaged in the business of insurance.

Effective Dates

December 29, 2010: All provisions of the rule, except the ban on advance fees.
January 31, 2011: The ban on advance fees provision.

HIGHLIGHTS

Ban on Advance Fees
Under this provision, mortgage relief companies may not collect any fees until they have provided consumers with a written offer from their lender or servicer that the consumer decides is acceptable, and a written document from the lender or servicer describing the key changes to the mortgage that would result if the consumer accepts the offer. The companies also must remind consumers of their right to reject the offer without any charge.

Disclosures
The MARS Rule requires mortgage relief companies to disclose key information to consumers to protect them from being misled and to help them make better informed purchasing decisions.

In their advertising and in communications directed at individual consumers (such as telemarketing calls), these companies must disclose that:

• they are not associated with the government, and their services have not been approved by the government or the consumer's lender;
• the lender may not agree to change the consumer's loan; and
• if companies tell consumers to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating.

Companies also must explain in their communications to consumers that:
• they can stop doing business with the company at any time;
• can accept or reject any offer the company obtains from the lender or servicer, and,
• if they reject the offer, they don't have to pay the company's fee.

The companies also must disclose the amount of the fee.

Prohibited Claims
The MARS Rule prohibits mortgage relief companies from making any false or misleading claims about their services, including claims about:

• the likelihood of consumers getting the results they seek;
• the company's affiliation with government or private entities;
• the consumer's payment and other mortgage obligations;
• the company's refund and cancellation policies;
• whether the company has performed the services it promised;
• whether the company will provide legal representation to consumers;
• the availability or cost of any alternative to for-profit mortgage assistance relief services;
• the amount of money a consumer will save by using their services; or
• the cost of the services.

Furthermore, mortgage relief companies are barred from telling consumers to stop communicating with their lenders or servicers.

Companies also must have reliable evidence to back up any claims they make about the benefits, performance, or effectiveness of the services they provide.

Attorney Exemption
Attorneys are generally exempt from the rule if they meet three conditions:

• they are engaged in the practice of law,
• they are licensed in the state where the consumer or the dwelling is located, and
• they are complying with state laws and regulations governing attorney conduct related to the rule.

To be exempt from the advance fee ban, attorneys must meet a fourth requirement - they must place any fees they collect in a client trust account and abide by state laws and regulations covering such accounts.

CONTACT US NOW!

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FTC: Mortgage Assistance Relief Services - Final Rule
Federal Register: 75/230
December 1, 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.

New Appraisal and Evaluation Guidelines

On December 2, 2010, the federal financial regulatory agencies issued new Appraisal and Evaluation Guidelines, the purpose of which is to reflect changes in appraisal and evaluation practices.

The Guidelines replace the 1994 guidelines and explain the agencies' minimum regulatory standards for appraisals, incorporating the agencies' recent supervisory issuances on appraisal practices, addressing advancements in information technology used in collateral valuation practices, and clarifying standards for the industry's appropriate use of analytical methods and technological tools in developing evaluations.

The Guidelines clarify that:

(1) an analytical method or technological tool, such as an automated valuation model, cannot be substituted for an appraisal when the transaction requires an appraisal, and (2) there are "enhanced" requirements for collateral valuation methods for transactions that permit the use of an evaluation.

Review appraisal and evaluation programs to ensure they are consistent with the Guidelines.

GUIDELINES

• Recognize that while borrowers' ability to repay real estate loans according to reasonable terms remains the primary consideration in a lending decision, sound collateral valuation practices are an integral part of the loan underwriting process.

• Update and replace existing supervisory guidance to reflect developments regarding appraisals and evaluations as well as changes in appraisal standards and advancements in regulated institutions' collateral valuation methods.

• Clarify that collateral valuation methods that use an analytical method or technological tool, such as an automated valuation model, cannot be substituted for an appraisal when the transaction requires an appraisal.

• Enhance the requirements for collateral valuation methods for transactions that permit the use of an evaluation and specify that valuation methods that do not provide a property's market value, such as a broker price opinion, are not acceptable as an evaluation.

• Instruct institutions to file a complaint with the appropriate state appraiser regulatory officials when they suspect that a state certified or licensed appraiser fails to comply with the Uniform Standards of Professional Appraisal Practices, applicable laws, or engages in other unethical or unprofessional conduct, and to file a suspicious activity report (SAR) with the Financial Crimes Enforcement Network when the suspicious activity meets the SAR filing criteria.

APPENDICES

The appendices are particularly interesting and relevant to appraisal and evaluation practices. It is important to become familiar with the guidelines and implement them accordingly.

Appendix A
Appraisal Exemptions

1. Appraisal Threshold

2. Abundance of Caution

3. Loans Not Secured by Real Estate

4. Liens for Purposes Other Than the Real Estate's Value

5. Real Estate-Secured Business Loans

6. Leases

7. Renewals, Refinancings, and Other Subsequent Transactions Loan Workouts or Restructurings.

8. Transactions Involving Real Estate Notes

9. Transactions Insured or Guaranteed by a U.S. Government Agency or U.S. Government-sponsored Agency

10. Transactions that Qualify for Sale to, or Meet the Appraisal Standards of, a U.S. Government Agency or U.S. Government-sponsored Agency

11. Transactions by Regulated Institutions as Fiduciaries

12. Appraisals Not Necessary to Protect Federal Financial and Public Policy Interests or the Safety and Soundness of Financial Institutions

Appendix B
Evaluations Based on Analytical Methods or Technological Tools

Automated Valuation Models (AVMs)
Selecting an AVM(s)
Determining AVM Use
Validating AVM Results
Tax Assessment Valuations (TAVs)

Appendix C
Deductions and Discounts

Proposed Construction or Renovation
Partially Leased Buildings
Non-market Lease Terms
Tract Developments with Unsold Units: Raw Land, Developed Lots, Attached or Detached Single-family Homes, Condominiums

Appendix D
Glossary of Terms

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Appraisal and Evaluation Guidelines
Interagency
December 2, 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.

Red Flags Rule: Deadline - This time they really mean it!

At the request of Congress, the Federal Trade Commission delayed enforcement of the "Red Flags" Rule through December 31, 2010.

We notified you of this deadline on June 3, 2010.

The FTC's Enforcement Policy Statement did not affect other federal agencies' enforcement of the original November 1, 2008 deadline for institutions subject to their oversight to be in compliance.

For those who have not been following the long timeframe to the deadline at the end of this month, the Red Flags Rule became effective on January 1, 2008, with full compliance for all covered entities originally required by November 1, 2008. The Commission issued several Enforcement Policies delaying enforcement of the Rule. Most recently, the Commission announced in October 2009 that at the request of certain members of Congress, it was delaying enforcement of the Rule until June 1, 2010, to allow Congress time to finalize legislation that would limit the scope of business covered by the Rule.

The Commission then received another request from Congress for another delay in enforcement of the Rule beyond June 1, 2010. In response, the Commission extended the stay through December 31, 2010.

The Commission continually urged Congress to pass legislation that will resolve any questions as to which entities are covered by the Rule, thereby obviating the need for further enforcement delays.

Barring Congress passing legislation limiting the scope of the Red Flags Rule with an effective date earlier than December 31, 2010, the Commission will begin enforcement as of that effective date.

Effective Date: December 31, 2010

Call to Action -

Time is Running Out!

Mortgage Loan Originators (Brokers, Lenders, "Creditors")

Implement immediately an Identity Theft Prevention Program, Red Flags Rule, and Customer Identification Program.

(1) The FTC provides information about designing and implementing some of these programs. FTC Red Flags website.

(2) There are many vendors that provide them for relatively low cost.

(3) Lenders Compliance Group provides the Identity Theft Prevention Program - Policies and Procedures - Red Flags Rule and Address Discrepancies, a low cost, comprehensive, easy to implement program that incorporates all three of the aforementioned areas.

Investors, Wholesale and Correspondent Lenders, Servicers, "Creditors"

You are not exempt from the proper due diligence to ensure that you are doing business with entities that are compliant with the Red Flags Rule! It should be part of your year-end updates and clients approval procedures to require some form of certification that your clients have actually implemented the statutory requirements.

(1) Develop a certification or attestation to be signed by the covered entities with which you conduct business.

(2) Lenders Compliance Group has developed a one-page Identity Theft Prevention Certification expressly for this purpose. We will offer this important Certification to you free as a courtesy. Please email your request to Jonathan Foxx, our Managing Director.

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Identity Theft Prevention and Red Flags Rule

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.

FinCEN: Proposes Non-Bank Lenders File SARs

On December 6, 2010, the Financial Crimes Enforcement Network (FinCEN) proposed a requirement that non-bank residential mortgage lenders and originators, just like other types of financial institutions, establish anti-money laundering (AML) programs and comply with suspicious activity report (SAR) regulations. The requirements are provided in a Notice of Proposed Rulemaking.

The Bank Secrecy Act (BSA) authorizes the Treasury to issue regulations requiring financial institutions to keep records and file reports that the Secretary determines "have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings, or in the conduct of intelligence or counterintelligence activities, including analysis, to protect against international terrorism." The subject proposed rulemaking regarding residential mortgage lenders is derived from that authority.

At this time, the only mortgage originators that are required to file SARs are banks and insured depository institutions.

According to FinCEN, analyses of SARs in FinCEN's mortgage fraud reports show that non-bank mortgage lenders and originators initiated many of the mortgages that were associated with SAR filings.

The Notice of Proposed Rulemaking intends to provide prevention of mortgage fraud, including such activities as false statement, use of straw buyers, fraudulent flipping, and even identity theft associated with mortgage borrowing. These illegal activities, and others, have been identified in information provided by SARs.

This Notice of Proposed Rulemaking was informed by comments received following an Advanced Notice of Proposed Rulemaking (ANPRM) issued last year on July 21, 2009.
Comments: Due 30 days after publication in the Federal Register.

Lenders Compliance Group provides a robust and comprehensive risk assessment for auditing SARs. If you would like to prepare for the SARs filing requirements and/or provide independent testing and monitoring for compliance, please contact us.

Minimum Requirements

(1) Policies and Procedures: incorporate policies, procedures, and internal controls based upon the loan or finance company's assessment of the money laundering and terrorist financing risks associated with its products and services.
Policies, procedures, and internal controls must:

(i) Include provisions for complying with the applicable requirements of Subchapter II of Chapter 53 of Title 31, United States Code ("Records and Reports on Monetary Instruments Transactions"),

(ii) Integrate the company's agents and brokers into its anti-money laundering program, and

(iii) Obtain all relevant customer-related information necessary for an effective anti-money laundering program.

(2) Compliance Officer: designate a compliance officer who will be responsible for ensuring that:

(i) The anti-money laundering program is implemented effectively, including monitoring compliance by the company's agents and brokers with their obligations under the program;

(ii) The anti-money laundering program is updated as necessary; and

(iii) Appropriate persons are educated and trained.

(3) Training: provide for on-going training of appropriate persons concerning their responsibilities under the program.
A loan or finance company may satisfy this requirement with respect to its employees, agents, and brokers by:

(i) Directly training such persons or

(ii) Verifying that such persons have received training by a competent third party with respect to the products and services offered by the loan or finance company.

(4) Independent Testing: provide for independent testing to monitor and maintain an adequate program, including:

(i) Testing to determine compliance of the company's agents and brokers with their obligations under the program.

(ii) Determining that the scope and frequency of the testing is commensurate with the risks posed by the company's products and services.

NOTE: Such testing may be conducted by a third party or by any officer or employee of the loan or finance company.

(5) Compliance: compliance is subject to examination by FinCEN or its delegates, under the terms of the Bank Secrecy Act. Failure to comply with the requirements may constitute a violation of the Bank Secrecy Act.

(6) Effective date: an anti-money laundering program that complies with the all requirements must be implemented on or before the later of six (6) months from the effective date of the regulation, or six (6) months after the date a loan or finance company is established and becomes subject to the requirements.

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FinCEN: Anti-Money Laundering Program and Suspicious Activity Report
Filing Requirements for Residential Mortgage Lenders and Originators
Notice of Proposed Rulemaking (12/6/10)

FinCEN: Advance Notice of Proposed Rulemaking
Federal Register, Vol. 74, No. 138 (7/21/09)

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.

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.

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

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.

FRB: Appraisal Independence - Interim Final Rule

On October 28, 2010, the Federal Reserve Board published an interim final rule in response to revision requirements to the Truth in Lending Act (TILA), pursuant to the mandates of the Dodd-Frank Wall Street Reform and Consumer Protection Act. TILA Section 129E establishes new requirements for appraisal independence for consumer credit transactions secured by the consumer's principal dwelling.

The amendments ensure that real estate appraisals used to support creditors' underwriting decisions are based on the appraiser's independent professional judgment, free of any influence or pressure that may be exerted by parties that have an interest in the transaction. The amendments also seek to ensure that creditors and their agents pay customary and reasonable fees to appraisers.

The interim final rule applies to a person who extends credit or provides services in connection with a consumer credit transaction secured by a consumer's principal dwelling. Although TILA and Regulation Z generally apply only to persons to whom the obligation is initially made payable and that regularly engage in extending consumer credit, TILA Section 129E and the interim final rule apply to persons that provide services without regard to whether they also extend consumer credit by originating mortgage loans. Thus, the interim final rule applies to creditors, appraisal management companies, appraisers, mortgage brokers, realtors, title insurers and other firms that provide settlement services.

Specifically, the interim final rule applies to appraisals for any consumer credit transaction secured by the consumer's principal dwelling. Covering consumer credit transactions is consistent with the scope of TILA generally, which only applies to credit extended for personal, family or household purposes. The revisions provide a broader scope, as required by Section 1472 of the Dodd-Frank Act, which does not limit coverage to closed-end loans and also covers HELOCs.

Finally, with a few exceptions, the interim final rule applies to any person who performs valuation services, performs valuation management functions, and to any valuation of the consumer's principal dwelling, not just to a licensed or certified ''appraiser,'' an ''appraisal management company,'' or to a formal ''appraisal.''

The Board seeks comment on this interim final rule.

Dates:
Effective: December 27, 2010
Compliance Date: April 1, 2011
Comments Deadline: December 27, 2010

HIGHLIGHTS

Coercion and prohibited extensions of credit.

-Prohibits covered persons from engaging in coercion, bribery, and other similar actions designed to cause anyone who prepares a valuation to base the value of the property on factors other than the person's independent judgment.

-Prohibits a creditor from extending credit based on a valuation if the creditor knows, at or before consummation, that (a) coercion or other similar conduct has occurred, or (b) that the person who prepares a valuation or who performs valuation management services has a prohibited interest in the property or the transaction as discussed below, unless the creditor uses reasonable diligence to determine that the valuation does not materially misstate the value of the property.

Conflicts of interest.

-Provides that a person who prepares a valuation or who performs valuation management services may not have an interest, financial or otherwise, in the property or the transaction. The Dodd-Frank Act does not expressly ban the use of in-house appraisers or affiliates. However, because the Act prohibits appraisers from having an ''indirect financial interest'' in the transaction, it is possible to interpret the Act to prohibit creditors from using in house staff appraisers and affiliated appraisal management companies (AMCs).

-Clarifies that an employment relationship or affiliation does not, by itself, violate the prohibition.

-Establishes a safe harbor and specific criteria for establishing firewalls between the appraisal function and the loan production function, to prevent conflicts of interest. Special guidance on firewalls is provided for small institutions, because they likely cannot completely separate appraisal and loan production staff. Small institutions are those with assets of $250 million or less.

Mandatory reporting of appraiser misconduct.

-Provides that a creditor or settlement service provider involved in the transaction who has a reasonable basis to believe that an appraiser has not complied with ethical or professional requirements for appraisers under applicable federal or state law, or the Uniform Standards of Appraisal Practice (USPAP) must report the failure to comply to the appropriate state licensing agency.

-Limits the duty to report compliance failures to those that are likely to affect the value assigned to the property.

-Provides that a person has a ''reasonable basis'' to believe an appraiser has not complied with the law or applicable standards, only if the person has knowledge or evidence that would lead a reasonable person under the circumstances to believe that a material failure to comply has occurred.

Customary and reasonable rate of compensation for fee appraisers.

-A creditor and its agent must pay a fee appraiser at a rate that is reasonable and customary in the geographic market where the property is located. The rule provides two presumptions of compliance. Under the first, a creditor and its agent is presumed to have paid a customary and reasonable fee if the fee is reasonably related to recent rates paid for appraisal services in the relevant geographic market, and, in setting the fee, the creditor or its agent has:

· Taken into account specific factors, which include, for example, the type of property and the scope of work; and

· Not engaged in any anti-competitive actions, in violation of state or federal law, that affect the appraisal fee, such as price fixing or restricting others from entering the market.

-A creditor or its agent would also be presumed to comply if it establishes a fee by relying on rates established by third party information, such as the appraisal fee schedule issued by the Veteran's Administration, and/or fee surveys and reports that are performed by an independent third party (the Act provides that these surveys and reports must not include fees paid by AMCs).

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Federal Reserve Board
Interim Final Rule - Appraiser Independence
Federal Register, Vol. 75, No. 208
October 28, 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.

A PROCLAMATION: COMPENSABLE SERVICES FEE

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.

Lenders Compliance Group is the first full-service, mortgage risk management firm in the country and pioneers in outsourcing solutions in regulatory compliance.

Published in the September 2010 Edition of National Mortgage Professional Magazine.

____________________________________

I have published an article that I think you'll want to read. The article provides the rationale for introducing a new term, which I have named the Compensable Services Fee, to replace the term Yield Spread Premium. The article is written in the form of a Proclamation.

As you may know, I have lectured on and written rather extensively about the Yield Spread Premium, for example:

• A New Era of Mortgage Reform - Part II: Legislation - Reactive or Proactive (September 2010 Edition)

• Landmark Financial Legislation: New Rules for Mortgage Originators -Part I: Reformation and Regulations (August 2010 Edition)

• New RESPA Reform Rule - Overview (January 2010 Edition)

• Service Release Premium vs. Yield Spread Premium: Match or Mismatch? (August 2009 Edition)

• Saving the Yield Spread Premium (July 2009 Edition)

• Yield Spread Premiums: Compensation or Kickback? (June 2009 Edition)

ALL THESE ARTICLES CAN BE FOUND HERE and were published in National Mortgage Professional Magazine, the mortgage industry's leading national magazine.

Now that the Yield Spread Premium (YSP) has gone the way of nature, and a credit has taken its place, perhaps it's time to make sure that the public understands that the credit, in whole or in part, provides payment for goods and services that the mortgage broker has actually rendered.

Or, to be blunt about it: notwithstanding politics and negative publicity, there is no RESPA Section 8 "kickback" when a mortgage broker actually furnishes and provides those goods and services and the compensation is reasonably related to the value of the goods and services actually furnished and provided!

The new Good Faith Estimate, which became effective January 1, 2010, reflects the change from YSP to credit.

But does the mortgage loan applicant actually know what the credit actually pays?

I am pleased to share this article with you. Special thanks to National Mortgage Professional Magazine for the opportunity to publish this Proclamation.

Lenders Compliance Group provides expert guidance in all areas of mortgage compliance.

If you are not yet a client, shouldn't you become one?

We are the first full-service, mortgage risk management firm in the country, and pioneers in outsourcing solutions. It would be a pleasure to support all your regulatory compliance needs.

If you have questions about this matter or would like assistance with mortgage compliance, please contact me at any time.

____________________________________

Excerpt

Because the Yield Spread Premium is effectively gone from disclosure and the credit is to be used to partially or fully pay for the mortgage broker's services, a new term should be used to assure the public of the unique purpose of that credit, with respect to the goods and services actually provided by the mortgage broker.

Consequently, I would like to offer a new term to the industry to help assure the public's positive perception of the critical role played by mortgage brokers.

Behold my PROCLAMATION of a new term:

Compensable Services Fee!

A PROCLAMATION
CONCERNING
THE NEW TERM
"COMPENSABLE SERVICES FEE"
TO DESCRIBE COMPENSATION
EARNED BY MORTGAGE BROKERS
IN
RESIDENTIAL MORTGAGE LOAN TRANSACTIONS

Please read the PROCLAMATION and pass it around, so that mortgage brokers may explain to loan applicants, for educational and promotional purposes, that the compensation for their services are legitimately earned, legal, critical, and necessary to residential mortgage loan originations.

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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.