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VA RELEASES CHANGE TO CHAPTER 4
CREDIT UNDERWRITING

On September 26, 2019,  VA released a Handbook update to Chapter 4, Credit Underwriting. The update clarifies documentation requirements for members of the military with a term of service ending in the next 12 months. The change replaces the word “and” with “or”.  A table from the MBA outlining the change can be viewed by clicking HERE. The change is effective immediately.

VA Issues Circular 29-19-23

On August 12th, the VA released Circular 26-19-23, interim guidance for the Blue Water Navy Vietnam Veterans Act of 2019.  Some key provisions of the Act, effective with loans closed on or after (and not before) January 1, 2020, are:

  • Veterans with loans amounts over $144,000 with full entitlement, will not need a down payment regardless of purchase price;
  • The guarantee for loans at $144,000 and less will not change;
  • For Veterans who have previously used entitlement that has not been restored, the maximum amount of guaranty is the lesser of 25 percent of the loan amount OR the maximum amount of guaranty entitlement available. The maximum amount of guaranty entitlement is 25 percent of the Freddie Mac Conforming Loan Limit, reduced by the amount of entitlement previously used (not restored). In other words, the loan amount without a down payment could be 4 times the remaining entitlement. 25% down payment would be required over and above that loan amount.
  • Funding Fees will be as follows for all veterans, regardless of whether Regular Military, Reservist, or National Guard:
  • Purple Heart recipients will be exempt from paying the Funding Fee.

VA’s IRRRL Circular 26-19-22 (August 8, 2019)
Spells Big Problems for Lenders

On May 24, 2018 the President signed “The Economic Growth, Regulatory Relief and Consumer Protection Act, Public Law”, as passed by Congress. The law addressed VA refinances, both IRRRLs and Cash-Out.

On May 25, 2018, VA published Circular 26-18-13. The Circular addressed IRRRL loans, and in regards to fee recoupment, stated:

“(1)  Provide recoupment statements to VA in accordance with VA
Circular 26-18-1 and Circular 26-18-1 – Change 1, Policy Guidance for VA Interest Rate Reduction Refinance Loans (IRRRL), and;

(2)  Certify that all fees and incurred costs, referenced in VA Circular Circular 26-18-1, shall be recouped on or before the date that is 36 months after the date of the loan, as determined by the date of the loan note.  The recoupment calculation is described in the aforementioned Circular, and is the result of lower monthly payments of the refinanced loan.”

Although VA Circular 26-18-13 says that all fees referenced in Circular 26-18-1 shall be recouped within 36 months, it also says to provide recoupment statements in accordance with VA Circular 26-18-1 and Circular 26-18-1-Change 1. That being said, Circular 26-18-1 states:

“f. In the case of an increased principal and interest payment due to a lower term, or from changing from an adjustable rate to a fixed rate, it is not necessary to show the recoupment in months; however, lenders should show all other fields in the Statement.”

And VA Circular Circular 26-18-1 – Change 1 Exhibit A says:

“Although the funding fee is often included in F. or G. of the LE or closing disclosure (CD), the funding fee should be included as a cost to be recouped regardless of where it is positioned on the LE or CD.”  Circular 26-19-22 says the funding fee is not included.

In regards to the May 2018 legislation, on December 17, 2018 VA published the Interim Rule for Cash-out Refinances, effective February 15, 2019. The rule stated that it was only applicable to Cash-out Refinances and that a rule for IRRRL’s would be published at a later date. In the January 2019 recorded Cash-Out Refinance Webinar, under the “Lender Resources” section on the webpage https://www.benefits.va.gov/homeloans/lenders.asp, VA Deputy Director of Government Loan Guaranty Services, John Bell, states that until rules are written for IRRRLs, lenders should follow guidance from Circular 26-18-13.

Confused yet? You are not alone. Here’s the problem….. Up until yesterday, when Circular 26-19-22 was published, lenders have been asking VA if an IRRRL can be made in the case of a reduced term or when going from an ARM to a fixed, where the fees cannot be recouped in 36 months? Some VA regional offices were saying “yes” because Circular 26-18-13 (referring to the recoupment statement requirements in Circular 26-18-1 and Circular 26-18-1 – Change 1) stands until there is further guidance, and some VA regional offices were saying “no” because the law is the law and recoupment is required.

We are now 14 months after the passage of the law, and the Rule for IRRRLs has still not been published. To make things worse, yesterday VA published Circular 26-19-22 . The Circular states that going back to loan applications initiated on May 25, 2018,  the Veteran may not have incurred any fees, closing costs or expenses (other than taxes, amounts held in escrow and the funding fee) in an IRRRL where the monthly payment is the same or higher than the loan being refinanced (i.e. reducing term or ARM to Fixed). A cure at no cost to the Veteran is required in order to receive or retain the full amount of VA Guaranty. The Circular also states that VA is considering  whether other actions are appropriate, such as withdrawal of a lender’s authority to close loans on an automatic basis.

FHA REDUCES MAXIMUM LTV FOR
CASH-OUT REFINANCES

On August 1, 2019 FHA released ML 2019-11, reducing the maximum LTV/CLTV for cash-out refinances to 80%, effective with case numbers assigned on or after September 1, 2019. For a copy the the mortgagee letter, click HERE.

FHA ISSUES MORTGAGEE LETTER
19-06 REGARDING DOWN PAYMENT
ASSISTANCE

(Note: Implementation has been delayed, due to a legal action)

On April 18, 2019 FHA issued Mortgagee Letter 19-06, addressing down payment assistance from Goverment Agencies/Entities. A copy of the letter can be obtained by clicking HERE.

FHA MAKES CHANGES TO “TOTAL SCORECARD” TO MANAGE RISK

FHA has announced that effective with case numbers assigned on or after March 18, 2019, its TOTAL Scorecard technology will incorporate changes that will better manage loans with low credit scores, high ratios and excessive risk layering.

FHA states that over the last several years they have seen a continuing increase   in certain high-risk credit characteristics, including:

  • a growth in cash-out refinances (in 2018, an increase of more than 60% as a percentage of all refinances);
  • an increase in high debt-to-income ratios (in 2018, 25% of all FHA forward mortgages purchase transactions had a DTI of over 50%); and
  • a decease in average credit scores (the lowest since 2008)

To read FHA Info #19-07, click HERE.

“VA CASH-OUT REFINANCES

On February 14, 2019 VA released Circular 26-19-5, a clarification of the new requirements for cash-out refinances, effective with loan applications taken on or after February 15, 2019. The industry had hoped that VA would delay the implementation of the requirements, since many LOS vendors are not ready. However, it appears that has not happened. Please click on the links below to view the circular and the sample disclosure.

CIRCULAR 26-19-5
SAMPLE DISCLOSURE

SERVICER REGISTRATION 
REQUIREMENT PASSES OHIO
LEGISLATURE

In the December 2018 Lame Duck session of the Ohio Legislature, Substitute House Bill 489 passed, requiring all mortgage loan servicers, including those that hold Mortgage Servicing Rights, to register with the Department of Commerce Division of Financial Institutions. The bill was singed by the Governor on December 19, 2018. To view the bill click  HERE.

OHIO LEGISLATURE PASSES ELECTRONIC NOTARIZATION BILL

The Ohio Legislature has passed SB263, the Notary Public Modernization Act, a bill supported by OMBA. The legislation has been signed into law by Governor Kasich.

The bill will give the ability to consumers to choose to conduct their real estate finance transactions using remote online notarial acts, and will modernize the notary function. Notarial acts are a necessary component of the residential loan closing process.  As the industry continues to serve consumers’ needs by using online , mobile and other electronic means, it had become clear that Ohio needed a law in place to support this technology shift.

The legislation makes remote online notarizations equivalent to traditional notarizations without risks and unnecessary barriers. The legislation provides appropriate safeguards that ensure that fraud and capacity issues are appropriately addressed by the remote notarization process. The legislation also provides needed reform in the notarization process as a whole, and raises the professional standards for those performing the notary act.

The full text of the bill is available by clicking HERE.

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House Bill 199 Signed by Governor Kasich

 

On December 22, 2017 Governor Kasich signed House Bill 199, the “Ohio Residential Mortgage Lending Act”. The bill, a working project of OMBA’s for several years, modernizes the licensing and company registration process. The effective date of the legislation is March 23, 2018. Some key provisions of the bill are:

  • All loans secured by 1-4 unit residential property, both first and subordinate liens, will fall under Section 1322 of the Ohio Revised Code, requiring only one company registration and one state license per loan officer;
  • All non-depository companies will become registrants, including mortgage banking companies that are currently exempt from registration when lending solely within their federal agency approvals,  alleviating the possibility of unknowingly engaging in unlicensed activity;
  • Special accounts will no longer be required; and
  • Only unsecured loans and loans secured by collateral other than real estate will require a license under Section 1321 of the Ohio Revised Code.

IMPORTANT INFORMATION:  The new law will become effective 90 days from the date of the Governor’s signing. There will be no immediate change in the current requirements. Once the law becomes effective, the Department of Commerce Division of Financial Institutions will allow lenders/brokers to operate under the new law without having to make any registration or licensing status changes until the next renewal date after. That provision reads as follows:

Section 3.  (A) The Superintendent of Financial Institutions may take actions necessary to ensure full compliance with this act, including actions to facilitate the transition of existing registrants and licensees and those persons holding valid letters of exemption as of the effective date of this act.

B) Persons holding a valid mortgage lender certificate of registration or mortgage loan originator license issued under sections 1321.51 to 1321.60 of the Revised Code as of the effective date of this act and persons holding a valid mortgage broker certificate of registration or loan originator license issued under Chapter 1322. of the Revised Code as of the effective date of this act, shall not be required to be registered or licensed under section 1322.07 or 1322.20 of the Revised Code, as amended by this act, until the first renewal of that certificate of registration or license after that date. The Superintendent may treat the applications submitted by those persons as renewal applications, and may use prior application materials as the basis for issuing registrations, licenses, and
letters of exemption after the effective date of this act.

To view the final bill click HERE.