Has anyone been able to find out if the recent rollbacks on Dodd Frank change the number of houses that an investor can sell to a non-investor, using seller financing, before the seller is tagged as a loan originator?
Don't remember seeing anything when I read through the bill. Here's the bill for a little light reading:
Thx Phil. I scanned the bill, and didn't see anything that addressed the issue from an investor's standpoint. That's too bad, because the SAFE regs are confusing and contradictory, to the point where one real estate attorney told me that "no one obeys them anymore." But that puts investors in an awkward position if we want to do more than 1 seller finance deal in a rolling 12 month period. I wonder if anyone in BP-land has struggled with this and can share any insights?
Here is what my compliance team put together. I’m in the banking software industry -
When last I wrote, poor "Bill" was stuck in committee, sitting and waiting, while a few key Congressmen were discussing and debating on whether they should let him be a law. Last week, "Bill" made it through Committee, was approved by the President and is now Public Law No: 115-174. Regulatory relief is officially on its way, but before you get too excited, here's the bad news. The majority of the relief is not immediate. In fact, most of the provisions of the rules will not take effect until 12 to 18 months from now. Remember that once law is passed, the CFPB must write regulation to enforce the law, which in this case will involve reversing much of their own regulation. When it comes to regulations that require collecting and reporting information, such as HMDA, we don't typically see a change mid-year so it's almost a given that these changes will not be in effect until January 1, 2019 at the very earliest.
This week's newsletter will focus on just a few of the items in Public Law 115-174 and what they mean to you. I'm going to break this up into two pieces, finishing up next week. Let's take a look at some of these changes:
The one we are getting the most questions about is the HMDA exemption, which comes from Title 1, Section 104. The way the law is written, if you originated less than 500 closed-end dwelling secured loans or 500 open-end dwelling secure loans in either of the two prior years, you would no longer need to report the new data fields, such as credit score and credit score model, AUS system and AUS system results, introductory rate period, total loan costs, etc. Those that were required from the "old rules" such as action taken and action taken date, income, owner occupancy status, and government monitoring would remain required. Those institutions that have typically been "small reporters" will benefit from this exemption. But, what if you spent lots of money changing your systems over to enable them to gather the new data fields? Can you now just reverse those systems and essentially cause them to "forget" how to gather the new data fields and go back to the way they were before? What will the cost of this relief be? There is no effective date for this one because, as I mentioned, regulation will have to be written to implement these reversals.
Next up, changes to the ATR/QM rules. Under Title 1, Section 101, mortgage loans held in portfolio by institutions with less than $10 billion in assets will be deemed to be QM loans as long as they meet certain restrictions with prepayment penalties and points and fees and do not have negative amortization or an interest-only feature. Debts, income and financial resources must also be considered and verified. Certain transfers will also now fall under the safe harbor. There is no effective date for this one either as regulation will need to be written.
Title 1 Section 103 will bring welcome relief to some of you who may do a lot of lending in rural areas where finding an appraiser is difficult. This provision provides an exemption from appraisal requirements under FIRREA for certain mortgage loans under $400,000 if, after a good faith effort to do so, the originator is unable to find a state certified or licensed appraiser to perform the appraisal. Many times you may have either had to wait for several months for an appraiser to be able to service your loan and this can cause your borrower to lose the contract on the home or you've had to look to other appraisers in other areas who may then charge more than you estimated on the Loan Estimate. Where the appraiser fee is now a zero tolerance fee, as in one that cannot increase, this creates a tolerance issue that has to be cured and many times the difference can be rather large. We will wait to see how the regulation is written on this one.
Last, we have Title 1 Section 108 which is the HPML escrow exemption. This provision will provide an exemption for institutions with less than $10 billion in assets which originate 1,000 or fewer first lien loans secured by the borrower's principal dwelling in the preceding calendar year.
These are just a few of the most important provisions of the new regulatory relief that our friend, "Bill" will provide now that he has completed his journey to become a law. Next week, I'll discuss more of these changes and what they mean to you.
@Jeffrey Coffey not an attorney but I believe you can originate up to 3 loans if you meet certain criteria
Chris...yes, that's my understanding too. The criteria for the 3 notes in a rolling 12 month period include that your note cannot balloon...ever...which is problematic for those of us that don't want to carry the note for the full term of amortization. If you want to balloon the note after 5 years, then you can only originate 1 agreement every 12 months. And they ask me why I drink...
I believe hiring an MLO to do the origination would allow you to still have the balloon payment, but there must be a reason you are not doing that. I'm assuming the MLO is cost-prohibitive?
Great point Derek! As a matter of fact, one of my renters is a mortgage broker, and he is checking into the regs as we speak. That may be the way to go, unless the costs become deal killers, as you suggest.
Well thats a pretty cool relationship you have with your tenants!
Not sure if these guys are any good but it looks like thats exactly their business.
Before I pick up where I left off, I do want to clarify something that I said in last week's newsletter. I made the statement, "There is no effective date..." in discussing the changes to the QM rules, HMDA and the HPML escrow rules. While it is true that the law became effective on May 24, 2018, when President Trump put the pen to paper and signed "Bill," there is no guidance or regulation for institutions to follow so we cannot advise that the rules are in effect if there is no regulation to tell you how to comply with the law. Make sense? I understand the confusion and frustration that many of you are feeling, when the point of the law IS regulatory relief, but be patient... it IS coming. The Agencies began working on the Volcker Rule last week and, on Monday, jointly issued a proposal that would amend the Rule to provide banking entities with clarity about what activities are prohibited, improve supervision and implementation of the Rule, and simplify compliance. We can hope that some of the compliance provisions, such as HMDA or HPML escrow, will be addressed soon, but it is anybody's guess at this point.
Now, let's look at some more provisions in the new law:
- Title 1, Section 106 amends the S.A.F.E. Mortgage Licensing Act of 2008 to revise the Act's civil liability immunity provisions and to temporarily allow loan originators that meet specified requirements to continue to originate loans after moving:
- From one state to another, or
- From a depository institution to a non-depository institution.
- Title 1, Section 109 will amend the TRID rules to remove the 3-day waiting period requirement if the consumer received a second offer of credit from the same lender with a lower rate. It also expresses the "Sense of Congress" that the Bureau should issue clearer guidance on the application of TRID in relation to mortgage assumptions, construction-perm loans, and the reliability of the Bureau's model disclosures.
- Title 2, Section 210 amends the FDIC Act to raise eligibility for the 18-month exam cycle for those institutions with $3 billion in assets (increasing from the previous $1 billion in assets). Guidance will need to be provided to explain how those institutions currently scheduled for an exam will be handled (Will they still be examined this fall as originally planned on the 12 month schedule or do the regulators plan on re-doing their schedules and, thus, changing the dates of any currently scheduled exams?).
- Title 3 Section 301 amends the FCRA to increase the length of time a consumer reporting agency (CRA) must include a fraud alert in a consumer's file. It also: Requires a CRA to provide a consumer with free credit freezes and to notify a consumer of their availability;
- Establishes provisions related to the placement and removal of these freezes; and
- Creates requirements related to the protection of the credit records of minors.
- Title 3 Section 313 amends the Honoring America's Veterans and Caring for Camp Lejeune Families Act of 2012 to make permanent the one-year grace period during which a servicemember is protected from foreclosure after leaving military service. This protection is covered in the SCRA (HUD) past due notice that you give to your past due mortgage customers.
That wraps up this two-part series on our good friend "Bill" who made his journey all the way across Capitol Hill and actually became a law. I know everyone is excited to see what "Bill's future holds as regulatory relief cannot come soon enough, but think of it this way... You already have the processes in place and, as far as the older requirements go, it should be easy to continue to do so until you are told to do differently. With HMDA, many of you have just spent a good deal of money to get your systems ready to be able to collect and report under the new requirements. Can you even go back to doing so under the old rules without having to spend more money? Take some time to breathe and relax. As I keep saying, it is coming. They have no choice now. So, be patient and just keep doing what you have been doing until we are told to do differently.