CHANGING THE WORLD OF REAL ESTATE. Presented By: THOMAS RICHARDSON

Transcription

1 CHANGING THE WORLD OF REAL ESTATE Presented By: THOMAS RICHARDSON

2 1. What is the CFPB? 2. A World of Acronyms 3. The Qualified Mortgage 4. RESPA 5. Closing Disclosures vs. HUD 6. Lender Liability 7. Best Practices

3 An 800 pound gorilla the real estate market

4 Write rules, supervise companies, and enforce federal consumer financial protection laws Restrict unfair, deceptive, or abusive acts or practices Take consumer complaints Promote financial education Research consumer behavior Monitor financial markets for new risks to consumers Enforce laws that outlaw discrimination and other unfair treatment in consumer finance CONSUMER FINANCIAL PROTECTION BUREAU

5 plus employees plus budget plus % of fines No congressional oversight An agency with a mission in their DNA Over in fines, restitution and penalties in

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7 CONSUMER FINANCIAL PROTECTION BUREAU NON PUBLIC PERSONAL INFORMATION QUALIFIED MORTGAGE REAL ESTATE SETTLEMENT PROCEDURES ACT DEPT OF HOUSING AND URBAN DEVELOPMENT ABILITY TO REPAY AVERAGE PRIME OFFER RATE A WORLD OF ACRONYMS

8 The QM: Know before you owe Ability to Repay Determinations: Current income/assets Current employment status Monthly payment Monthly payment on simultaneous loan Monthly payment on mortgage obligations (PMI) Debt, alimony and child support Debt to income ratio Credit History

9 A QUALIFIED MORTGAGE is a home loan that meets certain standards set forth by the federal government. Lenders generating such loans will have to meet the Ability to Repay rule Key Features 1. No excessive Up Front Points and Fees 2. No Toxic Loan Features 3. Limit on Debt to Income Ratios Rules took effect January 10, 2014 Read more: QUALIFIED MORTGAGE

10 No Excessive Up Front Points/Fees Puts a limit on additional charges, including mortgage broker compensation Points and fees paid by borrower cannot exceed 3% of loan 3% includes fees paid to affiliates title; appraisal; etc.

11 No Toxic Loan Features No interest-only loans No negative amortization loan No term beyond 30 years No balloon loans

12 Safe Act" Required Loan Officer Licensing Applies to Land Contracts unless fits within two exemptions Took effect January 10, 2014

13 Seller Financer Exemption 12 CFR (a)(4) (paraphrased) (a)(4) (i) Three or fewer sales in any 12 month period (ii) Did not construct, or act as contractor for the construction, in the ordinary course of business

14 Seller Financer Exemption cont. 12 CFR (a) (4) (paraphrased) (a)(4) (iii) Financing must be (A) Fully amortizing (B) Seller determines in good faith consumer has ability to repay (C) Fixed or adjustable after 5 years, with reasonable annual and lifetime interest rate increases. If adjustable, rate must be determined by margin plus index rate and be subject to reasonable rate adjustment limitations. Index must be widely available (i.e. U.S. Treasuries or LIBOR)

15 Seller Financer Exemption cont. 12 CFR (a)(5) (paraphrased) (a)(5) (i) (ii) (iii) Natural person, estate, or trust 1 sale in any 12 month period Did not construct, or act as contractor for construction, in ordinary course of business Financing must meet the following requirements (A) No negative amortization (B) Fixed or adjustable after 5 years, with reasonable annual and lifetime interest rate increases. If adjustable, rate must be determined by margin plus index rate and be subject to reasonable rate adjustment limitations. Index must be widely available (i.e. U.S. Treasuries or LIBOR)

16 Can a seller who regularly provides seller financing for residential properties satisfy the MLOLA licensing requirements by simply working through a real estate broker or salesperson who is a licensed mortgage loan originator

17 If the real estate broker or salesperson receives no additional compensation beyond the customary commission of the real estate safe, a license under the MLOLA or MBLSLA is not required for that transaction YES originator under the MLOLA and is also licensed as mortgage broker under the MBLSLA NO If the real estate broker or sales person receives additional compensation beyond the customer commission on the real estate sale, the answer is YES if the real estate broker or salesperson is licensed as a mortgage loan The answer is NO if the real estate broker or salesperson is not licensed as both a mortgage loan originator under the MLOLA and a mortgage broker under the MBLSLA. HUD s response to public comments on the SAFE Act Final Rule states that a seller who finances the sale of his or her own property avoids the issue of licensing by retaining the services of a licensed loan originator and having that individual carry out the functions that constitute engaging in the business of a loan originator. However, statutory language in the MBLSLA prohibits this activity unless the real estate broker or sales person is not only licensed as a mortgage loan originator, but is also licensed as am mortgage broker under the MBLSLA.

18 Does a seller providing the seller financing need to be licensed as a mortgage lender under the MBLSLA

19 The seller providing the seller financing is a mortgage lender as defined under Section 1a(q) of the MBLSLA. The seller must be licensed as a lender unless a licensing exemption in Section 25 of the MBLSLA applies An exemption for lenders with limited activity is provided in Section 25(g), which states This act does not apply to the following: (g) A mortgage lender that in the aggregate with any affiliates makes 10 or fewer mortgage loans in a 12 month period from January 1 to December 31. Seller Financing Examples Note: All examples below involve residential mortgage loans and meet the MLOLA definition of originate. A. Property owner A owns forty acres of farm land and sells three one-acre lots along the road frontage to unrelated individuals. The sales all occur within the same calendar year. Property owner A sells the lots to the individual buyers utilizing land contract agreements. Property owner A does not engage in any other activity under the MLOLA.

20 Property owner A is not required to be licensed as a mortgage loan originator because he is not originating more than three mortgage loans in the calendar year and is not considered to be engaged in the business of mortgage loan origination. B. Investor X purchases twenty foreclosed properties and sells each property to other individuals. The sales all occur within the same calendar year. Investor X sells the properties directly to the individual buyers utilizing land contract agreements. Investor X is required to be licensed as a mortgage loan originator because she is engaged in the business of mortgage loan origination C. Property owner Y sells the family vacation home to his child utilizing a land contract agreement Property owner Y is not required to be licensed as mortgage loan originator because the transaction meets one of the statutory exclusions. He is not engaged in the business of a mortgage loan originator based on his transaction. D. Landlord Q sells seven individual properties that she has accumulated over several years to unrelated individuals. The sales all occur within the same calendar y ear. Landlord Q sells the properties directly to the individual buyers utilizing land contract agreements. A. cont.

21 A. cont. E. Builder Y sells five new homes that he built to unrelated individuals. The sales all occur within the same calendar year. Builder Y sells the properties directly to the individuals buyers utilizing land contract agreements. Builder Y is required to be licensed as a mortgage loan originator because he is engaged in the business of mortgage loan origination. F. Real estate salesperson Z assists the seller with the sale of the seller s personal residence. The seller is financing the sale on a land contract. Real estate salesperson Z is compensated for her real estate brokerage activities. Real estate salesperson Z is also compensated beyond customary real estate brokerage fees for her work assisting the seller in originating the land contract. Pursuant to Section 3(l)(ii) of the MLOLA, real estate salesperson Z is required to be licensed as a mortgage loan originator because she is engaged in the business of mortgage loan origination.

22 Reg Z Truth in Lending You become subject to Reg Z if you do more than 5 transactions secured by a Dwelling Unless- You do one high cost loan

23 High Cost Loan 6.5% over APOR or Points and fees over 5% on loans over $20,000; 8% under $20,000 APOR for comparable transactions see table for rates.

24 Average Prime Offer Rates Tables

25 RESPA ENFORCEMENT SAME LAW NEW SHERIFF RESPA

26 The Real Estate Settlement Procedures Act (RESPA) ensures that consumers throughout the nation are provided with more helpful information about the cost of the mortgage settlement and protected from unnecessarily high settlement charges caused by certain abusive practices RESPA is about closing costs and settlement procedures. RESPA requires that consumers receive disclosures at various times in the transaction and outlaws kickbacks that increase the cost of settlement services. RESPA is a HUD consumer protection statute designed to help homebuyers be better shoppers in the home buying process, and is enforced by HUD. RESPA

27 Stepped Up Enforcement Reopens cases Online Complaint System Aggressive stance on AFBA s Individual Liability Borders Case; In re Fidelity Manager No relation between size of kickback and fine!

28 CFPB vs. Borders and Borders FACTS: Kentucky law firm started 9 title agency joint ventures with Realtors and Mortgage Brokers. The firms shared one employee. They were dissolved in 2011 after HUD sent a notice of pending investigation. CLAIMS: CFPB alleges that all 9 agencies were sham ventures used to disguise illegal referral fees and that the monies paid to the defendants did not constitute bona fide returns on ownership interests. REQUESTED RELIEF: Injunction barring defendants from starting any new ventures or restarting old entities AND disgorgement of all income received. Lawsuit names 3 principal attorneys as defendants.

29 IN RE FIDELITY MORTGAGE CFPB ENFORCEMENT ACTION 2014-OOO1; JANUARY 16, 2014 FACTS: Mortgage Broker rented desk inside Bank s loan processing area. Bank referred mortgage applicants to Broker. Rent paid to Bank varied from $400-$1,300 per month. FINDINGS: Rent was in excess of fair market value and was a disguised kickback to Bank in exchange for the referral of business, and thus a RESPA violation. Rent exceeded FMV by $4,000-$ 6,500. RESULTS: Brokerage AND President of Brokerage ordered to disgorge all tainted origination fees of approximately $27,000 and to pay civil fine of $54,000-$81,000-in total! KEY POINTS: Ratio of damages to kickback of at least 13 to 1; personal liability for individual involved

30 Closing Disclosure

31 Closing Disclosure vs. HUD The Settlement Statement will be referred to as CLOSING DISCLOSURE STATEMENT. The term consummation will replace the term closing Disclosure of final closing disclosure statement to consumers 3 business days prior to consummation If the statement is changed before closing, the clock starts ticking again. (see exemptions)

32 Good news... The Final Rule 1. Will not implement until August 1, Redisclosure rule modified to exempt Buyer/Seller negotiated changes; now tied to change in APR of.125%; prepayment penalty; changed LOAN product. 3. Affiliates placed in zero tolerance column. 4. Title Companies kept in the loop -they can provide closing disclosure. Bad news Implementation deferred until August 1, Confusing form-letters vs. numbers; too long. 3. Rule is 1,888 pages long what lurks within?

33 LENDER LIABILITIES FOR SUBCONTRACTORS

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35 In Re: Capital One Bank, USA (2012-CFPB-0001) FACTS: Capital One prepared telemarketer scripts that were given to 3rd party call centers that handled activation of newly issued or reissued credit cards. The scripts solicited the sale of credit monitoring products and for credit protection products, e.g. credit life insurance The call center reps frequently engaged in improper sale practices and deviated from the scripts. The bank s compliance monitoring resulted in ineffective oversight which failed to prevent, identify or correct the improper sales practice. CONCLUSION OF LAW: The representation of the Bank, through its call center representatives [made statements that were] misleading and constitutes a deceptive act or practice. CORRECTIONS: Compliance plan with monitoring Approximately $140,000,000 in consumer refunds $25,000,000 fine

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37 NON-PUBLIC PERSONAL INFORMATION is any data or information considered to be personal in nature and not subject to public availability. Personal information includes, but is not limited to: Individual names Social Security numbers Credit or debit card numbers NON PUBLIC State identification card numbers Driver's license numbers Dates of birth Health records when the disclosure of the information in question would reasonably be considered to be harmful or an invasion of privacy 1003; HUD-1definitely filled with NPPI NON PUBLIC PERSONAL INFORMATION

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39 THOMAS RICHARDSON CAROLE BULLION