The%20Dodd-Frank%20Act:%20Additional%20Mortgage-Related%20Changes%20in%20Title%20XIV%20%20Sept.%2030,%202010%20Joseph%20M.%20Kolar%20

1
The Dodd-Frank Act Additional Mortgage-Related
Changes in Title XIV Sept. 30, 2010Joseph M.
Kolar Jonathan W. CannonBuckleySandler
LLPWashington, DC
Experienced Specialized Accomplished Cost-Effectiv
e Collaborative
2
Overview

• Title XIV of the Dodd-Frank Act changes many
  provisions related to mortgage lending, including
  the following
• Mortgage originator compensation
• Underwriting standards
• Appraiser and AMC requirements
• Servicing requirements

3
Overview

• Todays presentation addresses the following
• Appraiser Independence
• AMC Minimum Requirements
• Use of AVMs and BPOs
• Mandatory Escrow/Impound Accounts
• Servicer Responsibilities

4
Appraisal Independence Requirements

• Appraisal independence is required.
• Acts or practices that violate appraisal
  independence include any appraisal of a property
  in which a person with an interest in the
  underlying transaction compensates, coerces,
  extorts, colludes, instructs, induces, bribes, or
  intimidates a person, appraisal management
  company, firm, or other entity conducting or
  involved in an appraisal (or attempts any of
  these actions), for the purpose of causing the
  appraised value assigned to the property to be
  based on any factor other than the independent
  judgment of the appraiser.

5
Appraisal Independence Requirements

• Acts or practices that violate appraisal
  independence include
• Mischaracterizing appraised value of the property
  securing the extension of the credit
• seeking to influence an appraiser or otherwise to
  encourage a targeted value in order to facilitate
  the making or pricing of the transaction
• withholding or threatening to withhold timely
  payment for an appraisal report or for appraisal
  services rendered when the appraisal report or
  services are provided for in accordance with the
  contract between the parties.

6
Appraisal Independence Requirements

• The appraisal independence requirements dont
  prohibit any person with an interest in a real
  estate transaction from asking an appraiser to
  undertake one or more of the following
• Consider additional, appropriate property
  information, including the consideration of
  additional comparable properties to make or
  support an appraisal.
• Provide further detail, substantiation, or
  explanation for the appraiser's value conclusion.
• Correct errors in the appraisal report.

7
Appraisal Independence Requirements

• Prohibitions on Appraiser Conflicts of Interest
• No certified or licensed appraiser conducting,
  and no appraisal management company procuring or
  facilitating, an appraisal in connection with a
  consumer credit transaction secured by the
  principal dwelling of a consumer may have a
  direct or indirect interest, financial or
  otherwise, in the property or transaction
  involving the appraisal.

8
Appraisal Independence Requirements

• Mandatory Reporting Regarding Appraisers
• Any person involved in a real estate transaction
  involving an appraisal in connection with a
  consumer credit transaction secured by the
  principal dwelling of a consumer who has a
  reasonable basis to believe an appraiser is
  failing to comply with the Uniform Standards of
  Professional Appraisal Practice, is violating
  applicable laws, or is otherwise engaging in
  unethical or unprofessional conduct, must refer
  the matter to the applicable State appraiser
  certifying and licensing agency.

9
Appraisal Independence Requirements

• No Extension of Credit in Case of
  Non-Independence of Appraiser
• In connection with a consumer credit transaction
  secured by a consumer's principal dwelling, a
  creditor who knows, at or before loan
  consummation, of a violation of the appraisal
  independence standards must not extend credit
  based on that appraisal unless the creditor
  documents that the creditor has acted with
  reasonable diligence to determine that the
  appraisal does not materially misstate or
  misrepresent the value of such dwelling.

10
Appraisal Independence Requirements

• Appraisal Report Portability
• Regulators may issue regulations that address the
  issue of appraisal report portability, including
  regulations that ensure the portability of the
  appraisal report between lenders or mortgage
  brokerage services.

11
Appraisal Independence Requirements

• Customary and Reasonable Appraiser Fee
• Lenders and their agents must compensate fee
  appraisers (as opposed to staff appraisers) at
  a rate that is customary and reasonable for
  appraisal services performed in the market area
  of the property being appraised.
• Evidence for such fees may be established by
  objective third-party information, such as
  government agency fee schedules, academic
  studies, and independent private sector surveys.
• Fee studies must exclude assignments ordered by
  known appraisal management companies.

12
Appraisal Independence Requirements

• HVCC Sunset
• Effective on the date the interim final
  regulations are promulgated, the Home Valuation
  Code of Conduct will have no force or effect.

13
Appraisal Requirements

• Appraisal Requirement for Higher-Risk Mortgages
• A creditor may not make a higher-risk mortgage
  without first obtaining a written appraisal
  conducted by a certified or licensed appraiser
  that has conducted a physical property visit of
  the interior.

14
Appraisal Requirements

• Appraisal Requirement for Higher-Risk Mortgages
  When Property Resold within 180 Days
• If the higher-risk mortgage is being used to
  finance the purchase of a property that was
  previously mortgaged and was previously purchased
  within the last 180 days at a price lower than
  the current sales price, the creditor must obtain
  a second appraisal from a different certified or
  licensed appraiser.

15
Appraisal Requirements

• Appraisal Requirement for Higher-Risk Mortgages
  When Property Resold within 180 Days
• The second appraisal must include an analysis of
  the difference in sale prices, changes in market
  conditions, and any improvements made between the
  date of this sale and the date of the previous
  sale. The cost of the second appraisal cannot be
  charged to the applicant.

16
Appraisal Requirements

• Appraisal Requirement for Higher-Risk Mortgages
• Higher-risk mortgages are mortgages that are not
  qualified mortgages and have an APR that exceeds
  the APOR by
• 1.5 percent for first-lien conforming loans
• 2.5 percent for first-lien jumbo loans
• 3.5 percent for second liens

17
AMC Minimum Requirements

• Federal regulators must jointly, by rule,
  establish minimum requirements to be applied by a
  State in the registration of appraisal management
  companies.
• Such requirements must include a requirement that
  such companies
• register with and be subject to supervision by a
  State appraiser certifying and licensing agency
  in each State in which such company operates
• verify that only licensed or certified appraisers
  are used for federally related transactions
• require that appraisals coordinated by an
  appraisal management company comply with the
  Uniform Standards of Professional Appraisal
  Practice and
• require that appraisals are conducted
  independently and free from inappropriate
  influence and coercion pursuant to the appraisal
  independence standards established under TILA.

18
AMC Minimum Requirements

• States may establish their own additional AMC
  requirements.
• An appraisal management company must not be
  registered by a State or included on the national
  registry if such company, in whole or in part,
  directly or indirectly, is owned by any person
  who has had an appraiser license or certificate
  refused, denied, cancelled, surrendered in lieu
  of revocation, or revoked in any State.

19
AMC Minimum Requirements

• Additionally, each person that owns more than 10
  percent of an appraisal management company must
  be of good moral character, as determined by the
  State appraiser certifying and licensing agency,
  and shall submit to a background investigation
  carried out by the State appraiser certifying and
  licensing agency.

20
Use of Broker Price Opinions

• In conjunction with the purchase of a consumer's
  principal dwelling, BPOs may not be used as the
  primary basis to determine the value of a piece
  of property for the purpose of a loan origination
  of a residential mortgage loan secured by such
  piece of property.

21
Use of Broker Price Opinions

• The term broker price opinion means an estimate
  prepared by a real estate broker, agent, or sales
  person that details the probable selling price of
  a particular piece of real estate property and
  provides a varying level of detail about the
  property's condition, market, and neighborhood,
  and information on comparable sales, but does not
  include an automated valuation model.

22
Use of Automated Valuation Models

• AVMs must adhere to quality control standards
  designed to
• ensure a high level of confidence in the
  estimates produced by automated valuation models
• protect against the manipulation of data
• seek to avoid conflicts of interest
• require random sample testing and reviews and
• account for any other such factor that the
  agencies determine to be appropriate.

23
Use of Automated Valuation Models

• Regulations must be promulgated regarding the use
  of AVMs.
• The term automated valuation model means any
  computerized model used by mortgage originators
  and secondary market issuers to determine the
  collateral worth of a mortgage secured by a
  consumer's principal dwelling.

24
Additional Appraisal Amendments

• RESPA Appraisal Disclosure Amendments
• The HUD-1 may disclose both (i) the fee paid
  directly to the appraiser by the appraisal
  management company and (ii) the administration
  fee charged by the appraisal management company.

25
Escrow Account Amendments

• Mandatory Escrow Accounts
• For certain first-lien loans on the borrowers
  principal dwelling, a creditor must establish an
  escrow or impound account for the payment of
  taxes and hazard insurance, and, if applicable,
  flood insurance, mortgage insurance, ground
  rents, and any other required periodic payments
  or premiums.

26
Escrow Account Amendments

• Escrow accounts are required when
• (1) the escrow or impound account is required by
  Federal or State law
• (2) a loan is made, guaranteed, or insured by a
  State or Federal governmental lending or insuring
  agency
• (3) required by regulation or

27
Escrow Account Amendments

• Escrow accounts are required when
• (4) the transaction is secured by a first
  mortgage or lien on the consumer's principal
  dwelling having an original principal obligation
  amount that
• (A) does not exceed the amount of the maximum
  limitation on the original principal obligation
  of mortgage in effect for a residence of the
  applicable size, as of the date such interest
  rate set, pursuant to the Federal Home Loan
  Mortgage Corporation Act, and the annual
  percentage rate will exceed the average prime
  offer rate 1.5 or more percentage points or
• (B) exceeds the amount of the maximum limitation
  on the original principal obligation of mortgage
  in effect for a residence of the applicable size,
  as of the date such interest rate set, pursuant
  to the Federal Home Loan Mortgage Corporation
  Act, and the annual percentage rate will exceed
  the average prime offer rate by 2.5 or more
  percentage points.

28
Escrow Account Amendments

• Exempt Creditors from Escrow Requirements
• The Board may, by regulation, exempt from the
  mandatory escrow account requirements a creditor
  that
• operates predominantly in rural or underserved
  areas
• together with all affiliates, has total annual
  mortgage loan originations that do not exceed a
  limit set by the Board
• retains its mortgage loan originations in
  portfolio and
• meets any asset size threshold and any other
  criteria the Board may establish.

29
Escrow Account Amendments

• Consumers must receive a written notice at least
  three days prior to consummation of the credit
  transaction stating the following
• fact that an escrow will be established
• amount required at closing to initially fund the
  escrow
• estimated amount required in the initial year of
  taxes and hazard insurance (including Flood
  Insurance if required) and any other required
  periodic payments or premiums (that reflect
  either the taxable assessed value plus the value
  of any improvements or future improvements or the
  replacement costs of the property)

30
Escrow Account Amendments

• Consumers must receive a written notice at least
  three days prior to consummation of the credit
  transaction stating the following
• estimated monthly amount for taxes, hazard
  insurance and any other required periodic
  payments or premiums and
• fact that, if the consumer chooses to terminate
  the account in the future, they will be
  responsible for paying all taxes, hazard
  insurance, (flood insurance if required) and
  periodic payments or premiums unless a new escrow
  is established.

31
Escrow Account Amendments

• Duration of Mandatory Escrow Account
• An mandatory escrow or impound account must
  remain in existence for a minimum period of five
  years, beginning with the date of the
  consummation of the loan.

32
Escrow Account Amendments

• Administration of Mandatory Escrow Account
• The account must be established in FDIC-insured
  institution or credit union.
• The account must be compliant with RESPA, the
  Flood Act of 1973, and the state law where the
  securing property is located.
• Interest must be paid if required by
  Federal/State law.

33
Escrow Account Amendments

• Mandatory escrow accounts may be terminated
  when
• the borrower has sufficient equity in the
  dwelling so as to no longer be required to
  maintain private mortgage insurance
• the borrower is delinquent
• the borrower otherwise has not complied with the
  legal obligation, as established by rule or
• the underlying mortgage is terminated.

34
Servicing Amendments

• Responding to Qualified Written Requests
• The Dodd-Frank Act reduces the timeframes in
  connection with QWRs.
• Servicers must acknowledge the QWR within five
  days (instead of 20).
• Servicers must address the underlying issue
  raised in the QWR within 30 days (instead of 60).
  
• The 30-day period may be extended for not more
  than 15 days if, before the end of the 30-day
  period, the servicer notifies the borrower of the
  extension and the reasons for the delay in
  responding.

35
Servicing Amendments

• Additional Servicer Responsibilities
• A servicer must not charge fees for responding to
  valid qualified written requests.
• A servicer must not fail to respond within ten
  business days to a request from a borrower to
  provide the identity, address, and other relevant
  contact information about the owner or assignee
  of the loan.

36
Servicing Amendments

• Additional Servicer Responsibilities
• A servicer must not fail to take timely action to
  respond to a borrower's requests to correct
  errors relating to allocation of payments, final
  balances for purposes of paying off the loan, or
  avoiding foreclosure, or other standard servicer
  duties.

37
Servicing Amendments

• Additional Servicer Responsibilities
• A servicer must credit a payment to the
  consumer's loan account as of the date of
  receipt, except when a delay in crediting does
  not result in any charge to the consumer or in
  the reporting of negative information to a
  consumer reporting agency.

38
Servicing Amendments

• Additional Servicer Responsibilities
• If a servicer specifies in writing requirements
  for the consumer to follow in making payments,
  but accepts a payment that does not conform to
  the requirements, the servicer must credit the
  payment as of five days after receipt.

39
Additional Amendments

• Requirements for Force-Placed Insurance
• A servicer must not obtain force-placed hazard
  insurance unless there is a reasonable basis to
  believe the borrower has failed to comply with
  the loan contract's requirements to maintain
  property insurance.

40
Additional Amendments

• Requirements for Force-Placed Insurance
• A servicer may not impose any charge on any
  borrower for force-placed insurance with respect
  to any property securing a federally related
  mortgage unless
• (A) the servicer has sent, by first-class mail, a
  written notice to the borrower containing
• (i) a reminder of the borrower's obligation to
  maintain hazard insurance on the property
  securing the federally related mortgage
• (ii) a statement that the servicer does not have
  evidence of insurance coverage of such property
• (iii) a clear and conspicuous statement of the
  procedures by which the borrower may demonstrate
  that the borrower already has insurance coverage
  and
• (iv) a statement that the servicer may obtain
  such coverage at the borrower's expense if the
  borrower does not provide such demonstration of
  the borrower's existing coverage in a timely
  manner

41
Additional Amendments

• Requirements for Force-Placed Insurance
• A servicer may not impose any charge on any
  borrower for force-placed insurance with respect
  to any property securing a federally related
  mortgage unless
• (B) the servicer has sent, by first-class mail, a
  second written notice, at least 30 days after the
  mailing of the first notice that contains all the
  information described in each clause of such
  subparagraph and
• (C) the servicer has not received from the
  borrower any demonstration of hazard insurance
  coverage for the property securing the mortgage
  by the end of the 15-day period beginning on the
  date the second notice was sent by the servicer.

42
Additional Amendments

• Requirements for Force-Placed Insurance
• Any reasonable form of written confirmation of
  existing coverage must be accepted.
• Confirmation is reasonable if it includes the
  existing insurance policy number and the contact
  information for the insurance company or agent.

43
For further information

• Joseph M. Kolar
• jkolar_at_buckleysandler.com
• 202-349-8020
• Jonathan W. Cannon
• jcannon_at_buckleysandler.com
• 202-349-8063
• BuckleySandler LLP
• 1250 24th Street NW
• Suite 700
• Washington, DC 20037