20112011How How

Regulation Regulation and and

UnderwritingUnderwritingWill Affect Will Affect MortgageMortgageLendingLending

Marianne Collins, Marianne Collins, SVPSVP

Insight BankInsight Bank

ChallengesChallenges

RegulationRegulation Interest RatesInterest Rates UnderwritingUnderwriting Unemployment Unemployment Falling Homeownership RatesFalling Homeownership Rates

2010 Regulation2010 Regulation

HVCC HVCC Appraiser Appraiser

independenceindependence MDIAMDIA Extended processing Extended processing

time time REG Z HPMLREG Z HPML U/W & Escrow changesU/W & Escrow changes SAFE ActSAFE Act Loan officer licensingLoan officer licensing RESPA RESPA New GFE & HUD1New GFE & HUD1

2011 Regulation2011 Regulation

Loan Officer Loan Officer CompensationCompensation

Truth in Lending Truth in Lending Changes and Changes and ProposalsProposals

HMDAHMDA FCRAFCRA Dodd-Frank Financial Dodd-Frank Financial

ReformReform Consumer Finance Consumer Finance

Protection BureauProtection Bureau

Loan Officer CompensationLoan Officer Compensation

Federal government has taken on the Federal government has taken on the role of telling private companies how role of telling private companies how they can pay their employeesthey can pay their employees

Lenders will no longer be able to pay Lenders will no longer be able to pay loan officers less for products with thin loan officers less for products with thin marginsmargins

Lenders will have to make the choice Lenders will have to make the choice of discontinuing some loan products or of discontinuing some loan products or raising rates to keep themraising rates to keep them

How is this benefitting the consumer?How is this benefitting the consumer?

Truth-in-Lending ChangesTruth-in-Lending Changes

New Truth in Lending disclosure as of 1/30/11New Truth in Lending disclosure as of 1/30/11 New ARM disclosuresNew ARM disclosures Must show maximum possible rate in 1Must show maximum possible rate in 1stst 5 years 5 years Must give advice on refinancing to avoid payment Must give advice on refinancing to avoid payment

increases, with no guarantee of a refinanceincreases, with no guarantee of a refinance Proposal to include all closing costs in APR, with a Proposal to include all closing costs in APR, with a

22ndnd APR calculation taking some closing costs out APR calculation taking some closing costs out of the calculation for determining if the loan is an of the calculation for determining if the loan is an HPMLHPML

Proposal to add another 3 days to the process by Proposal to add another 3 days to the process by allowing the borrower the right to a refund of all allowing the borrower the right to a refund of all fees for 3 days after signing the initial Truth-in fees for 3 days after signing the initial Truth-in Lending disclosureLending disclosure

HMDAHMDA(Home Mortgage Disclosure Act)(Home Mortgage Disclosure Act)

Currently, lenders must report the following for all Currently, lenders must report the following for all applications:applications:

Application dateApplication date Loan TypeLoan Type Property typeProperty type Loan purposeLoan purpose Occupancy statusOccupancy status Loan amountLoan amount Action taken and date of actionAction taken and date of action MSA, state, County census tractMSA, state, County census tract Borrower’s ethnicity, race and sexBorrower’s ethnicity, race and sex IncomeIncome Type of institution that purchased the loanType of institution that purchased the loan Rate spread if HPML or high cost loanRate spread if HPML or high cost loan

HMDAHMDALenders will have to start reporting the Lenders will have to start reporting the

following additional data:following additional data: Borrower’s ageBorrower’s age Credit scoreCredit score Total points and feesTotal points and fees The difference between the APR and a The difference between the APR and a

benchmark rate (benchmark TBD)benchmark rate (benchmark TBD) Appraised valueAppraised value The presence of contractual terms that The presence of contractual terms that

would allow payments that are not fully would allow payments that are not fully amortizingamortizing

The number of months after which an The number of months after which an introductory rate may changeintroductory rate may change

FCRAFCRAAs of 1/1/11 borrowers must now receive a As of 1/1/11 borrowers must now receive a

credit score disclosure form that informs credit score disclosure form that informs them of the following:them of the following:

Their credit scoreTheir credit score What their score meansWhat their score means How the score is usedHow the score is used Range of scoresRange of scores Factors that adversely effect their scoreFactors that adversely effect their score The right to disputeThe right to dispute Their credit score could effect their cost of Their credit score could effect their cost of

creditcredit How they rank with scores of other How they rank with scores of other

consumersconsumers

Dodd-Frank Financial Dodd-Frank Financial Reform Reform

500500 new laws, new laws, 115 apply to mortgage 115 apply to mortgage lendinglending (will amount to tens of thousands of pages (will amount to tens of thousands of pages of rules)of rules)

Credit-risk retention rule for non-qualified mortgages, Credit-risk retention rule for non-qualified mortgages, in addition to several underwriting requirements, in addition to several underwriting requirements, including a maximum debt-to-income ratio (yet to be including a maximum debt-to-income ratio (yet to be determined by the Federal Reserve Board)determined by the Federal Reserve Board)

Creates the Consumer Financial Protection BureauCreates the Consumer Financial Protection Bureau

““Dodd-Frank will make the largest financial Dodd-Frank will make the largest financial institutions bigger than ever. It will destroy institutions bigger than ever. It will destroy small and regional banks”,small and regional banks”, Congressman Congressman Spencer Bachus-Chairman, House Financial Spencer Bachus-Chairman, House Financial Services CommitteeServices Committee

Consumer Financial Protection Consumer Financial Protection BureauBureau

A far reaching independent bureau within the A far reaching independent bureau within the Federal Reserve, created under Dodd-FrankFederal Reserve, created under Dodd-Frank

Funded by a certain percentage of the Federal Funded by a certain percentage of the Federal Reserve’s budget. Additional funding may be Reserve’s budget. Additional funding may be available through Congressional appropriations available through Congressional appropriations (taxpayer money)(taxpayer money)

Responsible for Fair Lending Enforcement and Responsible for Fair Lending Enforcement and rule making for all consumer related regulations rule making for all consumer related regulations (except merchants and auto dealers)(except merchants and auto dealers)

Supervisory authority over depositories with more Supervisory authority over depositories with more than 10 billion in assetsthan 10 billion in assets

Can require reports and examinations of smaller Can require reports and examinations of smaller depositoriesdepositories

Exclusive enforcement authority over non-banks Exclusive enforcement authority over non-banks that provide mortgage-related servicesthat provide mortgage-related services

Tasked with changing the GFE (again) to combine Tasked with changing the GFE (again) to combine it with the Truth-in-Lending disclosureit with the Truth-in-Lending disclosure

UnderwritingUnderwriting

Higher Credit Score RequirementsHigher Credit Score Requirements Tighter Appraisal RequirementsTighter Appraisal Requirements Condominium requirementsCondominium requirements Increased documentationIncreased documentation Increased waiting periods after short-Increased waiting periods after short-

sales, bankruptcies and foreclosuressales, bankruptcies and foreclosures

Interest RatesInterest Rates

Cost of Regulation and complianceCost of Regulation and compliance Agency repurchases Agency repurchases Government borrowingGovernment borrowing Lack of purchasers of Mortgage Lack of purchasers of Mortgage

Revenue BondsRevenue Bonds Agency add-ons (Fannie/Freddie Agency add-ons (Fannie/Freddie

based on credit score, LTV, CLTV and based on credit score, LTV, CLTV and condos)condos)

UnemploymentUnemployment Last week’s unemployment numbers:Last week’s unemployment numbers: Initial claims 454,000 (up 51,000 from Initial claims 454,000 (up 51,000 from

the the prior week)prior week) Continuing claims 3.99 million Continuing claims 3.99 million Bankruptcies up 9% in 2010 Bankruptcies up 9% in 2010

($1,530,078 consumers), and are ($1,530,078 consumers), and are expected to keep climbing in 2011.expected to keep climbing in 2011.

““2010, The Year of the Short Sale” 2010, The Year of the Short Sale” Short Sales have tripled since 2008Short Sales have tripled since 2008 Foreclosures - Many more to comeForeclosures - Many more to come

Falling Homeownership Falling Homeownership RatesRates

2010 42010 4thth quarter = 66.5% quarter = 66.5% Down from 67.2% 1 year agoDown from 67.2% 1 year ago Lowest level since the end of 1998Lowest level since the end of 1998 Black households from 46% to 44.8%Black households from 46% to 44.8% Hispanic households from 48.4% to Hispanic households from 48.4% to

46.8%46.8% White households from 74.5 to 74.2%White households from 74.5 to 74.2%

LendersLendersTough Times for Mortgage BrokersTough Times for Mortgage Brokers Many lenders getting out of wholesaleMany lenders getting out of wholesale Lenders will be reducing and limiting Lenders will be reducing and limiting

compensation to brokers, due to the compensation to brokers, due to the lenders cost of lending regulation, lenders cost of lending regulation, compliance, and compensation rulescompliance, and compensation rules

Tough Times for Mortgage BankersTough Times for Mortgage Bankers The cost of regulation and complianceThe cost of regulation and compliance Burden of repurchasesBurden of repurchases FHA’s increased net worth requirementsFHA’s increased net worth requirementsTough Times for Small Depository InstitutionsTough Times for Small Depository Institutions The cost of regulation and complianceThe cost of regulation and compliance Decision to exit the marketDecision to exit the market

Changing the Buyer’s MindsetChanging the Buyer’s Mindset(Convincing buyers that owning a home is still a (Convincing buyers that owning a home is still a

great investment)great investment)

In 2011 HUD expects it’s foreclosure In 2011 HUD expects it’s foreclosure inventory to increase by 50%inventory to increase by 50%

Shadow inventory (90-day+ delinquencies,Shadow inventory (90-day+ delinquencies,

foreclosures and REO not listed for sale) foreclosures and REO not listed for sale) estimated at 2-4 million unitsestimated at 2-4 million units

Housing inventory expected to remain Housing inventory expected to remain elevated for some timeelevated for some time

““These are not problems, they are These are not problems, they are opportunities”opportunities”

The Good NewsThe Good News Mortgage interest & real estate taxes Mortgage interest & real estate taxes

are still tax deductibleare still tax deductible MI companies are back in the MI companies are back in the

business of approving loansbusiness of approving loans MI premiums have gone down for MI premiums have gone down for

strong borrowers strong borrowers Tax deductibility of mortgage Tax deductibility of mortgage

insurance has been extended for insurance has been extended for another yearanother year

Rates are still lowRates are still low

Just remember that old Just remember that old saying…saying…

“Now is the time to buy!”“Now is the time to buy!”