I just got off a California Association of Mortgage Brokers Government Affairs conference call and have important somewhat game-changing information to report from the Federal Reserve and HUD that affects not just everyone in the mortgage and real estate industries but our customers and the population as a whole. There is also other pending legislation we need help on from our customers and all industry participants. It is important that everyone reads this because there will be ACTION PLANS that we will all need to do to in regards to either blocking things from happening or making things happen. There are also lots of questions about loan modifications and I want to give some direction to my customers that even many realtors or loan officers may not be aware of. Attached are the following:
New Federal Reserve Rule dated August 26th
Today’s HUD Memo regarding changes to the FHA Policies
Short List of State Bills
CAMB’s Letters against AB 260 and supporting SB 36 Safe Act Implementation
I will go over these issues one by one and will have this e-mail and all of the info posted up on macplan.blogspot.com for your future reference in case you can’t read this right now.
NEW FHA GUIDELINES
Per today’s press release by HUD small loan originators will no longer have to get HUD approved or have net worth requirements. So this is a big victory for CAMB and the small loan originators since we have been pushing HUD to open up FHA to the small brokers. This is also good for Realtors as it could open up the Realtors to deal with loan originators that they want to deal with instead of going to an institution forced upon them.
In theory this is also good for borrowers because the FHA products could be opened up to more competition.
However, don’t be jumping too high. Even though now originating brokers will not have to go through the HUD Approval process, the lenders probably will setup their own FHA originator guidelines. Warehouse lenders who mortgage bankers get their funds from to lend are becoming stricter than ever with mortgage bankers. The new FHA guidelines put the risk squarely on the lender funding the loan and I have a tough time believing that a lender would not try to pass that risk on to a broker submitting the file.
If that is not possible, then you are looking at lenders not taking on any 3rd party origination business….in other words the small brokers even though it will be legal for them to originate FHA loans may not be actually able to do so because the lender funding the loan is assuming all of the risk and because of that they may only want to fund loans done in-house on their retail side to eliminate quality control issues with brokers.
As the mortgage bankers are currently getting squeezed by their own warehouse lenders per today’s HUD announcement they will also now have to have a net worth requirement of 1 Million Dollars compared to $250,000.
This probably will close down a lot of smaller to medium sized mortgage bankers or at least promote mergers amongst them so that they could pool their net worth.
On the one hand HUD does something that is supposed to open up competition by giving the small brokers the ability to do FHA loans….and the other hand they are taking away competition by increasing net worth requirements on mortgage bankers and putting 100% of the risk for the loan on the originating lender instead spreading the risk to the broker, lender and investor.
The HUD changes overall further promote consolidation of the lending industry into the hands of the few and this ties into the Federal Reserve rule which I will get into next.
FEDERAL RESERVE RULE AUGUST 26th
On August 26th the Federal Reserve published a proposed rule that would significantly change the way that bank loan originators and mortgage brokers are to be paid. There is a 120 day public comment period on this rule. Our National government affairs team is meeting with the Federal Reserve early next week to go over the concerns that we have to and clarify some issues. I would advise that everyone read the attached Federal Reserve Rule and forward your comments to me by Monday of next week so that I can put something together to give to the team meeting with the Federal Reserve. Here is the video on this Rule by CAMB’s state Government Affairs Chair Ken Jones, there are 2 parts. After the meeting with the Federal Reserve next week will be putting out another more detailed video and suggest a more detailed action plan:
www.thinkbigworksmall.com/mypage/archive/4484/21665
This Rule if implemented will bring with it the ultimate consolidation of lending into the hands of a very few which I have been predicting for years now. This means extremely higher rates and less loan options for borrowers, both of which we really don’t need right now in this economy. The Federal Reserve Rule is far and away a bigger issue than the health care debate, although the government takeover of healthcare is important.
This Federal Reserve Rule would further empower the money-changers as FDR called them that caused the financial crisis in the first place.
I will be detailing and publishing my concerns about this Rule after the Fed meeting next week. But I want my customers and everyone to know that within 120 days if the Fed is not stopped or unless it modifies the Rule you will see rates go way up, more unemployment, less credit, even more foreclosures and very few options on where you go to get a loan done. This Rule Changes the lending landscape 180 degrees and basically does away with the securitization model that worked OK up until Wall Street crooks developed loan programs and products that didn’t make sense.
FEDERAL LEGISLATION
HR 3126 is the Consumer Finance Protection Act which is sitting in Barney Frank’s House Financial Services Committee. HR 3126 ties into the Federal Reserve Rule. It would create a Superpower Regulator that would have total control over originator and lender compensation. In other words, the government would be telling community banks, mortgage bankers and loan originators how much they can make on a transaction instead of letting market conditions and the free market decide. This bill is currently being negotiated behind closed doors. At this point we believe that the bill won’t come out of committee in its current form. There is a turf ware going on. The bill would take too much power away from the Federal Reserve and Treasury. I will let you know more as we get more info on this.
With both the proposed Federal Reserve Rule and HR 3126 it is obvious that the government does not trust the people of the United States to make financial choices and decisions on their own. That is why the government wants total control and limited competition.
HVCC – Home Valuation Code of Conduct HR 3044
The HVCC is the appraisal regulation that was made as part of a deal with NY Atty General Cuomo and the GSE’s. It puts the control of the appraisal process in the hands of 3rd Party Appraisal Management Companies. Customers are being charged more for often bad appraisals done by rookie or out of town appraisers, experienced appraisers are working for less, and the lenders who often own part of the appraisal management companies are using this process to as another avenue for profit margin and as a way to manage their lending capacity…in other words not lend.
HR 3044 would put an 18 month moratorium on the HVCC. It has 91 sponsors. It is currently being held up by Barney Frank. The only way we can get this out of committee is to put the pressure on Frank by getting more co-sponsors for the bill. So far, as far as I have been told, none of the San Diego delegation, democrats or Republicans have sponsored the bill. We need all of them to do that!
ACTION PLAN: Call your Congressman and tell them to co-sponsor HR 3044!
STATE BILLS AND LOAN MODIFICATION NEWS:
Attached is a short list of state bills that affect the lending industry and our customers. The enrolled bills have been sent to the Governor to sign and he has until October 11th to sign or veto the bills. AB 260 is an especially bad bill for everyone on many different levels. We hope and expect that the governor will veto it.
SB 94 has also been sent to the governor and we expect him to sign it. This will make it illegal for anybody, including attorneys, to accept upfront fees for loan modifications.
This is an urgency bill so it should be signed sooner than later and take effect immediately.
SB 36 is the implementation of the SAFE ACT and that will be signed. AB 33 the Creation of the Department of Financial Services is a 2 year bill which is still being worked on. That would merge the DOC and DRE Brokers.
Overall, CAMB has done an extremely good job this year of dealing with the state legislature and our industry partners with the over 81 bills that effected our industry and our customers.
LOAN MODIFICATION, SHORT SALE AND OTHER ISSUES
I have been getting more and more calls from my past customers who mostly are upside down about getting loans modified or refinanced. Here are some basic rules:
1) If your current loan that you want to be modified or short saled is a purchase money loan…a 1st and/or 2nd that was taken out when you bought the property…think very,very long about trying to do a loan modification or short sale the property. If you do those you could lose a lot of important protections. I would see an attorney before you did anything.
Purchase money loans are non-recourse loans…which means in most cases the lenders can’t sue you for the deficiency balances if you decide to walk away or if you get foreclosed on. Also, if you have a purchase money loan and you get foreclosed on in the past the written off debt would have been considered as income for you and you would have received a 1099 from your lender. However, now there is a good chance that you may fall within the Mortgage Tax Relief Act guidelines which could do away with your potential tax liablilities. If you think about walking away or going thru foreclosure talk to a CPA or a Tax attorney for tax advice.
If you decide to do a short sale because you don’t want to have a foreclosure on your record and you have a purchase money note it could be said by some attorney’s that by short selling the note the note then becomes modified….once the loan is modified then it becomes in most cases a recourse note….then that could open you open to both lawsuits from your current lender to go after the deficiency balance and also open you up to tax liabilities.
2) If you have already done a refinance and you are trying to get your note modified:
a) See if the loan is owned by Fannie Mae or Freddie Mac by going to MakingHome Affordable.gov. If it is follow the steps with your servicer to see if you qualify for the loan modification or refinance
b)If you do not have a FNMA or Freddie Mac loan….AND you did a full income documentation loan when you took the loan out originally then go to Community Housing Works, a HUD approved agency that could try to help you out for free. They have the systems down but don’t wait until the last minute…see them early.
c) If you do not have a FNMA or Freddie MAC loan…and the loan you are trying to modify was done on a STATE INCOME/STATED ASSETT program…then I would probably go through an attorney because you would have attorney client privledge. When you apply for a modification you need to provide documentation to the lender. Anything you give the lender can be used to approve your modification but may also be used against you later on by the lender if something you give them doesn’t match up to the original loan package. You or your original lender or broker may not have done anything wrong…but the lenders being asked to modify the notes could claim something was done wrong either to justify pushing the property into foreclosure or to recoup their losses in other ways. Lenders are not playing nice these days….and if they are taking losses they want everyone to be as damaged as possible.
Bottom line, I am not saying to walk away from your home or to go through foreclosure. If you are upside down and can afford the payments my suggestion is to keep what you have as long as you can until loan programs come along that make sense to you. Short term modifications don’t make sense for most people.
If you are having problems making payments then certainly look at all options including modifications. However, seek advice from a qualified real estate attorney and/or CPA first before talking to your lender. You should have a plan that is acceptable to you before you talk to your lender. If your lender can’t comply with your requests for what would be good for you, then examine all of your options at that point.
That’s it for now.
Dave McDonald
American Dream Mortgage
619-977-1193
DRE Lic#01400040
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