Debt Counseling Newsletter
August 1998

August 1998 Newsletter, page 2

COURT CASES:

70 of the 140 pending yield-spread premium cases, were filed this year after the 11th Circuit ruling in Culpepper that RESPA prohibits payment of a YSP in table funded transactions. Many of the cases have been filed in Alabama Georgia, Massachusetts and Minnesota. Recently, however, the same court denied a petition for a rehearing on the issue but, in so doing, stated that its earlier ruling was not meant to make all YSP payments a per-se violation of RESPA.

A federal court in Texas has upheld the validity of the Mortgage Partnership Finance program. Under the program, the Federal Home Loan Bank of Chicago buys residential mortgages originated by its members that are underwritten to its own guidelines. $ 90 million dollars in loans have already been originated under the program and over 100 other lenders have expressed interest in participating. FHL Banks in Atlanta, Des Moines, Indianapolis, New York and Pittsburgh joined the Chicago bank in support of the program indicating that it may soon spread to other parts of the country.

FHA UPDATE:

HUD did not release any Mortgagee Letters in the past 30 days with information for housing counselors. But, in light of the increased use of automated underwriting, HUD has issued an interim rule allowing lenders to bypass personal review by a direct endorsement underwriter of the borrower's credit and ability to repay the mortgage. The interim rule is designed to reduce the government's role in the origination process, give lenders greater flexibility and reduce underwriting time and expense.

VA UPDATE:

The VA did not release any Bulletins in the past 30 days with information for housing counselors.

FANNIE MAE UPDATE:

Fannie Mae did not release any bulletins in the past 30 days with information for housing counselors. But it did release a study of 668 senior citizens which shows that reverse mortgages could increase dramatically by 2003, possibly by 1 million loans. Of those surveyed, 90% said that they would obtain a reverse mortgage again and 75% said that they would recommend a RM to a friend. Currently, FNMA holds a portfolio of 22,000 RMs. Internally, Fannie Mae has restructured some top management and senior staff positions. The agency will add at least two large credit agencies to the five that currently provide information to its automated underwriting system to insure accurate reporting of borrowers credit histories.

FREDDIE MAC UPDATE:

Freddie Mac has not released any bulletins in the last 30 days with information for housing counselors. But it did release its Conventional Mortgage Home-Price Index which showed that home values increased at a annualized rate of 5.7% during the 1st quarter of 1998. Representatives attribute the increase to long-term economic growth, low unemployment, stable interest rates and increased disposable income. In June, Freddie Mac issued an industry letter warning about the growing problem of mortgage fraud in South Florida.

GINNIE MAE UPDATE:

In all-participants Memo 98-l8, GNMA encouraged various mortgage insurers to provide forbearance relief to borrowers in South Dakota that were victims of tornadoes.

• AZ:    We came across an article that describes how the real estate market here is as hot as the weather. Mesa, Phoenix, Scottsdale, Chandler, Glendale and Gilbert have all experienced massive growth based, in part on corporate relocations.
• CA:    A bill is making its way through the state legislature that would allow mortgage brokers to offer the same incentives to prospective customers as are offered by mortgage bankers and other lenders. The value of California homes is increasing quicker than any time this decade. Plus, sales of existing homes increased in April, 15.4%. Mortgage brokers are now authorized to originate Cal-Vet mortgages for eligible veterans. The 18 month decline in foreclosure filings continued in April. April, 1998 was down 14.7% from March, 1998 and 4.1% from April, 1997. A new law here will require homesellers or their agents to provide buyers with a Natural Hazard Disclosure in almost all residential real estate transactions. The disclosure reveals whether the property is in any of the following zones. 1) Flood zone, 2) Dam inundation zone, 3) Earthquake fault zone, 4) Seismic zone, 5) Wildlife fire area or 6) High fire hazard area.
• FL:    Sales of existing single family homes set a record in April, up 16% over April, 1997. The increase is said to be due to low mortgage interest rates, high numbers of people relocating to the region and a strong market for second homes. The Miami area is experiencing defaults on loans originated in 1997 at a rate 5 times that of the national average. The high rate is attributed mostly to the dramatic increase in mortgage fraud. Because of its relatively high foreclosure rate, Miami is currently only the 42nd strongest mortgage market in the country.
• GA:    The Georgia Association of Mortgage Brokers has proposed that individual loan officers be licensed and it will do the licensing. Currently there are 400 fraud complaints against loan officers pending with the Georgia state Department of Banking and Finance. "It would help us significantly track the fraud and abuse that does happen so that we could run the people that are committing the fraud out of business." Atlanta and Freddie Mac announced the start of Housing Help to Ownership Program (H20 Program) to provide $75 million in new loans aimed at increasing homeownership
• IL:    Under a proposed amendment to the Illinois Residential Mortgage License Act, lenders who do business here will not need to maintain a full-service office here. If passed, it will encourage additional lenders to enter the Illinois mortgage market. Fannie Mae announced that it has committed to provide $12 billion dollars in mortgage loans to assist over 150,000 families here find affordable housing through by the year 2003. This is a continuation of FNMA's support of the city's "House Chicago" program.
• IN:    The Indiana Association of Mortgage Brokers has proposed legislation to tighten the licensing and regulation of brokers for purposes of "preventative maintenance." Its president, William R. Fritz, states that a lot of new mortgage brokers are doing business in Indiana and many of them "don't know what they're doing." The proposed law would require individuals to be licensed in addition to companies, require continuing education and raise the bond limit.
• MA:    A bill that would permit variable rate reverse mortgages here, has passed the state Senate and is awaiting approval by the House. Currently, the state only allows reverse mortgages with a fixed rate and a term not to exceed ten years.
• NC:    The North Carolina Housing Finance Agency is offering 30-year, fixed rate, FHA-insured mortgage at 6.25% to first time homebuyers. Up to $3,500 in downpayment assistance is also available.
• PA:    Revisions to the law regulating the Pennsylvania mortgage industry is making its way through the state legislature here. The bill proposes the introduction of two new categories of mortgage professionals ("loan correspondents" and "limited mortgage brokers"), requires new mortgage bankers to show a tangible net worth of $250,000, increases the bond requirement on mortgage brokers to $100,000, requires 6 hours of continuing education per location and strengthens disclosure requirements related to lock-ins. The bill is said to reflect changes in the industry occurring in the 8 years since the legislation was first passed as well as closing loopholes that were discovered.
• TX:    Not a single reverse mortgage has been originated since the passage of a constitutional amendment allowing them here. HUD and Fannie Mae are trying to resolve a number of issues created by the new law. Until these issues are resolved, HUD will not insure these loans and Fannie Mae will not invest in them. And without backing from HUD or Fannie Mae no lender is willing to originate these loans. A vote on any changes to the law cannot occur before November, 1999, so it will probably be some time before the first reverse mortgages are originated here.
• WA:    Mark Thomson, President of the American Association of Residential Mortgage Regulators and Division Director of Washington State Department of Financial Institutions, testified before a congressional panel addressing abuses by mortgage brokers. "We have experienced tremendous growth in consumer complaints against consumer loan companies. " (46% of all complaints received in 1997) Most of the complaints were lodged in urban and suburban areas "where the anonymity of a large population allows this activity to flourish." The most common complaints include: 1) servicing issues such as the misapplication of payments, 2) bait and switch loan terms, 3) failure to provide payoff information and 4) problems with escrow accounts. Mr. Thompson believes that licensing and regulation at the local level is the most effective way to reduce abuses by mortgage brokers.