Why Haven’t Loan Officers Been Told These Facts?
Favorite Resources from FNMA
1. 2022 FNMA Top Trending FAQs
2. 2022 Summary of Changes to the FNMA
2022 Top Trending FAQs Include:
- Asset Assessment
- Income (General)
- Income (Retirement, Pension, & Gov’t Annuity)
- Monthly Debt Obligations
- Student Loan Payments
From the Top Trending Eligibility FAQs:
Q1. Can the sales contract include a rent back agreement in a purchase money transaction?
Answer: The sales contract may include a rent back agreement in a purchase money transaction, however, if the loan is owner-occupied, the borrower must occupy the property within 60 days of closing as noted in the security instrument. See related Top Trending FAQ: How is a rent back credit treated for qualifying purposes?
Q2. Is there a policy on the commuting distance from the principal residence to the place of employment?
Answer: Fannie Mae does not have a policy on remote employment or commuting distances from the principal residence to the borrower’s place of employment. The lender must determine if the income is supported, stable, and likely to continue in accordance with Selling Guide, B3-3.1, Employment and Other Sources of Income.
From the Top Trending Income FAQs:
Q3. What is required for bonus or overtime income?
Answer: A minimum history of two years of employment income is recommended. However, income that has been received for a shorter period of time may be considered as acceptable income, as long as the borrower’s employment profile demonstrates that there are positive factors to reasonably offset the shorter income history.
Borrowers relying on overtime or bonus income for qualifying purposes must have a history of no less than 12 months to be considered stable.
From the Top Trending Monthly Debts FAQ:
Q1. For debts paid by others, if only a portion of the debt is paid by another party, can that portion be excluded in the DTI ratio?
Answer: In order for non-mortgage and mortgage debt to be excluded from the debt-to-income (DTI) ratio, the other party cannot be an interested party to the subject transaction and has to pay the complete monthly obligation every month for a minimum of 12 months.
1) See the entire 2022 Top Trending FNMA FAQs here:
2) See a Summary of 2022 FNMA Selling Guide Changes here:
FNMA 2022 Selling Guide Changes
BEHIND THE SCENES
Broker Alert – HMDA Reporting Could Be Coming to You
Changes to the HMDA Reporting Threshold
Mortgage Brokers Should Pay Attention
The Regulation C reporting transaction threshold includes preapprovals not accepted or denied, applications withdrawn, and applications denied for incompleteness. This means brokers engaged in preapprovals are liable for reporting these loans under the HMDA if the broker meets the threshold test.
From the 2021 FFIEC HMDA Guide:
“Under Regulation C, a financial institution must collect, record, and report data regarding an application it receives if: (1) the application did not result in the financial institution originating a covered loan; and (2) the financial institution took action on the application or the applicant withdrew the application while the financial institution was reviewing it. For example, a financial institution reports information regarding an application that it denied, that it approved but the applicant did not accept, or that it closed for incompleteness.”
If the creditor reports the origination – you don’t. However, if there is no lender for these originations, they could be yours to report if you meet the new loan volume threshold test of only 25 closed-end mortgage loans and process preapprovals.
Twenty-five credit decisions is a low threshold—every adverse action or withdrawn loan could count towards the reporting threshold. For example, suppose the applicant withdraws their loan application/preapproval before you transmit the loan to a lender. Or, the applicant inquires about specific terms, and after evaluating the prospect’s financials, the broker determines they cannot advance the loan. That could be an adverse action on a preapproval.
In the case of preapproval, when a broker takes the applicant off the path of assistance, that may move the broker toward the reporting threshold. A declined loan may be a reportable origination unless a lender reports the adverse action.
To confuse matters, Regulation B and Regulation C define prequalification differently. There are nuanced distinctions between prequalifications and preapprovals under Regulation C.
From Regulation C
“A prequalification request is a request by a prospective loan applicant (other than a request for preapproval) for a preliminary determination on whether the prospective loan applicant would likely qualify for credit under an institution’s standards, or for a determination on the amount of credit for which the prospective applicant would likely qualify. Some institutions evaluate prequalification requests through a procedure that is separate from the institution’s normal loan application process; others use the same process. In either case, Regulation C does not require an institution to report prequalification requests on the loan/application register, even though these requests may constitute applications under Regulation B for purposes of adverse action notices.”
“To be a preapproval program, the written commitment issued under the program must result from a comprehensive review of the creditworthiness of the applicant, including such verification of income, resources, and other matters as is typically done by the institution as part of its normal credit evaluation program. In addition to conditions involving the identification of a suitable property and verification that no material change has occurred in the applicant’s financial condition or creditworthiness, the written commitment may be subject only to other conditions (unrelated to the financial condition or creditworthiness of the applicant) that the lender ordinarily attaches to a traditional home mortgage application approval. These conditions are limited to conditions such as requiring an acceptable title insurance binder or a certificate indicating clear termite inspection, and, in the case where the applicant plans to use the proceeds from the sale of the applicant’s present home to purchase a new home, a settlement statement showing adequate proceeds from the sale of the present home. Regardless of its name, a program that satisfies the definition of a preapproval program in § 1003.2(b)(2) (Reg C definition of preapproval) is a preapproval program for purposes of Regulation C. Conversely, a program that a financial institution describes as a “preapproval program” that does not satisfy the requirements of § 1003.2(b)(2) is not a preapproval program for purposes of Regulation C. If a financial institution does not regularly use the procedures specified in § 1003.2(b)(2), but instead considers requests for preapprovals on an ad hoc basis, the financial institution need not treat ad hoc requests as part of a preapproval program for purposes of Regulation C. A financial institution should, however, be generally consistent in following uniform procedures for considering such ad hoc requests.”
Brokers have some time to get their compliance house in order. A legal consultation may help establish compliance with Regulation C. With the recent court ruling, brokers must average 25 or more closed-end reportable transactions over two years to trigger the reporting requirement. Consequently, in light of the CFPBs enforcement comment, brokers might anticipate enhanced broker enforcement action for examinations occurring in 2023 and following years after the mandatory annual March 1 HMDA reporting deadline.
Remember that state agencies can pursue some federal consumer protection law violations by making claims in state courts.
Should mortgage brokers be concerned about the HMDA reporting thresholds? For many brokers, reaching 25 reportable originations is a high probability.
Get your house in order if you rely on the pre-qual, pre-approval distinction. Keep this in mind. It’s not what you think is correct but how what you’re doing or not doing might appear to an examiner. Think in terms of unassailable records and consistent processes. That’s a good start.
From the CFPB
On September 23, 2022, the United States District Court for the District of Columbia issued an order vacating the 2020 Home Mortgage Disclosure Act (HMDA) Final Rule as to the loan volume reporting threshold for closed-end mortgage loans. The decision means that the threshold for reporting data on closed-end mortgage loans is now 25 loans in each of the two preceding calendar years, which is the threshold established by the 2015 HMDA Final Rule, rather than the 100 loan threshold set by the 2020 HMDA Final Rule.
The CFPB recognizes that financial institutions affected by this change may need time to implement or adjust policies, procedures, systems, and operations to come into compliance with their reporting obligations. In these limited circumstances, in allocating the CFPB’s enforcement and supervisory resources, the CFPB does not view action regarding these institutions’ HMDA data as a priority. Thus, the CFPB does not intend to initiate enforcement actions or cite HMDA violations for failures to report closed-end mortgage loan data collected in 2022, 2021, or 2020 for institutions subject to the CFPB’s enforcement or supervisory jurisdiction that meet Regulation C’s other coverage requirements and originated at least 25 closed-end mortgage loans in each of the two preceding calendar years but fewer than 100 closed-end mortgage loans in either or both of the two preceding calendar years.
Tip of the Week – What We Have Here Is Failure to Communicate!
Communication may be the singularly most important function of the MLO. So important, that having a written communications management plan is appropriate for every MLO.
The plan could be a simple form or checklist. Alternatively, a CRM may provide useful templates.
The first element of creating and maintaining an effective communication management plan entails identifying the following:
- With whom we communicate
- When to communicate
- How to communicate (email, phone call, Loan Origination System)
The second part of the plan describes what you will communicate. Again, it is primarily through effective communications that you will or will not effectively engage and satisfy your stakeholders.
Furthermore, the MLO must monitor the communication management plan to ensure its effectiveness (the stakeholders are satisfied and communication is efficient).
Expect frequent tweaks based on feedback collected from the key stakeholders. Over the short and long haul, communication is the oil that keeps the engine running smoothly.