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Sounds like alphabet soup with all the acronyms, but Fannie Mae and Freddie Mac have published the new, redesigned Uniform Residential Loan Application forms. So the long-standing 1004 Loan Application that we all know (and often had signed at closing) will soon be history. The press release reads:
WASHINGTON, DC – Fannie Mae (FNMA/OTC) and Freddie Mac today announced the publication of the redesigned Uniform Residential Loan Application (URLA), the standardized form used by borrowers to apply for a mortgage loan. This is the first substantial revision made to the form in more than 20 years and the changes will allow lenders to deliver an easier, more consumer-friendly loan application experience. The redesigned URLA form includes a reorganized layout, simplified terminology, and new data fields that capture necessary information in an easy-to-read format. Additionally, the GSEs worked together to create a common corresponding dataset, called the Uniform Loan Application Dataset (ULAD) to ensure consistency of data delivery.
“The redesigned URLA is the result of extensive collaboration with industry stakeholders,” said Andrew Bon Salle, Executive Vice President, Single-Family Business, Fannie Mae. “We are proud to be a part of this effort that enables lenders to better serve their customers by providing ease and clarity to borrowers during the loan origination process.”
The documents are being published now, in an effort to provide the industry with ample time to become familiarized with the URLA and ULAD updates and plan necessary changes to their systems. Lenders may begin using the redesigned URLA on January 1, 2018. A timeline for required use of the redesigned URLA and ULAD will be established at a later date.
Revisions made to the URLA form and corresponding ULAD include:
The GSEs collaborated closely with lenders, technology solution providers, mortgage insurers, trade associations, housing advocates, borrower groups, and other government agencies (CFPB, FHA, VA, and USDA-RD), throughout the URLA project from the initial requirements gathering, reviews of the form revisions, and contributions to the data. For the first time, the GSEs conducted extensive consumer and lender usability testing across the U.S. to gather their feedback on the URLA designs. The designs were updated based on the responses gathered and were used in subsequent usability testing and industry outreach.
Today’s announcement is part of the Uniform Mortgage Data Program (UMDP), a larger joint initiative undertaken by the GSEs, under FHFA direction, to standardize single-family mortgage data in the U.S.
To learn more about the redesigned, consumer-friendly URLA and corresponding dataset – ULAD visit – https://fanniemae.com/singlefamily/uniform-residential-loan-application.
The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased 11 basis points to a seasonally adjusted rate of 4.66 percent of all loans outstanding at the end of the second quarter of 2016. This was the lowest level since the second quarter of 2006. The delinquency rate was 64 basis points lower than one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey.
The percentage of loans on which foreclosure actions were started during the second quarter was 0.32 percent, a decrease of three basis points from the previous quarter, and down eight basis points from one year ago. This foreclosure starts rate was at its lowest level since the second quarter of 2000.
The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the second quarter was 1.64 percent, down 10 basis points from the previous quarter and 45 basis points lower than one year ago. The foreclosure inventory rate was at its lowest level since the second quarter of 2007.
The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 3.11 percent, a decrease of 18 basis points from previous quarter, and a decrease of 84 basis points from last year. The serious delinquency rate was at its lowest level since the third quarter of 2007.
Marina Walsh, MBA’s Vice President of Industry Analysis, offered the following commentary on the survey:
“Mortgage performance improved again in the second quarter primarily because of the combination of lower unemployment, strong job growth, and a continued nationwide housing market recovery. The mortgage delinquency rate tracks closely with the nation’s improving unemployment rate. In the second quarter of 2016, the mortgage delinquency rate was 4.66 percent, while the unemployment rate was 4.87 percent. By comparison, at its peak in the first quarter of 2010, the delinquency rate was 10.06 percent and the unemployment rate stood at 9.83 percent.
“In addition, the delinquency rate of 4.66 percent for the second quarter of 2016 was lower than the historical average of 5.36 percent for the time period 1979 to the present. Among the various loan types, the delinquency rate improved for conventional loans as well as FHA loans. The FHA delinquency rate dropped to 8.46 percent, its lowest level since 2000.
“The percentage of new foreclosures initiated in the second quarter was 0.32, the lowest rate since 2000, and 13 basis points below the historical average of 0.45 percent. FHA loans saw a 15 basis point drop in the percentage of new foreclosures, which pushed the rate down to 0.48 percent, its lowest level since 1993.
“Continuing a downward trend that began in the second quarter of 2012, the foreclosure inventory rate fell again to 1.64 percent in the second quarter of 2016. The FHA foreclosure inventory rate dropped 26 basis points from the previous quarter to 2.15 percent, its lowest level since 2001.
“Of the 50 states and Washington, DC, 47 states either had no change or saw declines in the foreclosure inventory rate in the second quarter of 2016. New Jersey and New York had the highest percentage of loans in foreclosure, at 5.97 and 4.48, respectively. Florida’s percentage of loans in foreclosure dropped to 2.72, a significant improvement over 2011, when it was the state with the nation’s highest percentage of loans in foreclosure at 14.49 percent. California’s percentage of loans in foreclosure was 0.66, the eighth lowest among all states in the nation.”
Real estate professionals experiencing trouble receiving copies of the closing disclosure under federal closing rules that took effect last year for residential real estate transactions should see relief under proposed changes and clarifications to the rules the federal government released today.
The Consumer Financial Protection Bureau, which revised longstanding closing procedures last year under an initiative it calls Know Before You Owe, said today it understands that it’s customary for real estate sales associates, brokers, and other third-party service providers to receive copies of the closing disclosure that goes to the customers during the transaction. The closing disclosure replaced the HUD-1 Settlement Form last year on Oct. 3 when the new procedures took effect. After the new procedures took effect, some lenders and settlement agents cited privacy concerns and refused to share the closing disclosure with real estate professionals, making it hard for them to advise their clients.
“The Bureau understands that it is usual, accepted, and appropriate for creditors and settlement agents to provide a closing disclosure to consumers, sellers, and their real estate brokers or other agents,” the CFPB said in its announcement of its proposed changes.
“REALTORS® have reported challenges gaining access to the Closing Disclosure ever since the new closing procedures went into effect, despite a long history of access to the substantively similar HUD-1,” NAR President Tom Salomone said in a statement released today. “The CFPB acknowledged that concern by making it clear that it is appropriate and accepted for creditors and settlement agents to share the closing disclosure with consumers, sellers, and their agents. That’s a significant victory that will help REALTORS® continue to provide the expert service their clients have come to expect.”
The proposed changes address three other areas of the closing procedures. They would allow housing finance agencies to charge recording fees and transfer taxes without losing their existing exemptions from disclosure requirements, extend the Know Before You Owe requirements to transactions involving cooperative units, and restore treatment of finance charges to the way they were treated prior to the Know Before You Owe changes.
The agency will be taking comments on the changes until October 18. Access the proposal.
The problem real estate professionals faced obtaining the closing disclosure from lenders is examined in the June 21 Voice for Real Estate news video from NAR.
Author Comment: Hallelujah! What a pain it has been losing the ability to double check items for our customers. Having to contact the buyers and sellers to get their permission, then contacting the attorneys and title companies has been a great deal of effort, but worth it. many times I have helped correct errors on closing statements for Buyers and Sellers (and closers, attorneys and title companies) because, we all know, closings are very complex, and there is much room for error, so I greatly appreciate the CFPB for seeing the value in allowing those of us who are closely involved in getting closing statements for review.
Press Release 7/31/2016
First American Financial Corporation, a leading global provider of title insurance, settlement services and risk solutions for real estate transactions, today released theFirst American Loan Application Defect Index for June 2016, which estimates the frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications. The Defect Index reflects estimated mortgage loan defect rates over time, by geography and by loan type. It’s available as an interactive tool that can be tailored to showcase trends by category, including amortization type, lien position, loan purpose, property and transaction types, as well as state and market comparisons of mortgage loan defect levels.
“The Defect Index has fallen 5.3 percent over the last three months, and this trend shows no sign of abating. The index has been reaching new lows this year, continuing its long-term trend. Since its inception, the Defect Index has been consistently trending lower, apart from the increases in risk in 2013 and early 2015,” said Mark Fleming, chief economist at First American.
“There are two factors driving the long-term decline in the Defect Index, the impact of improvements to the systems and production standards mitigating risk throughout the lending industry, and the continued strength of refinance application activity due to low mortgage rates. According to the MBA, refinance activity is up slightly on a year-over-year basis. The average rate for a 30-year, fixed rate mortgage was 3.57 percent, compared to 3.6 percent in May,” said Fleming. “Our research finds that refinance applications are inherently less risky than purchase applications, so defect and fraud risk declines as refinance applications become a larger share of the overall mix of loan applications.”
The Defect Index for refinance transactions declined 3.2 percent month-over-month, and is 15.5 percent lower than a year ago. The Defect Index for purchase transactions declined 1.2 percent month-over-month, and is down 11.1 percent compared to a year ago. Since defect risk for both purchase and refinance transactions peaked in late 2013, defect risk on refinance transactions continues to decline much more than defect risk for purchase transactions, declining 40.0 percent as compared to 23.7 percent for purchase transactions.
“We expect the declining loan application defect risk trend to continue into July, as the impacts of ‘Brexit’ and global uncertainty keep rates low, triggering an increase in the volume of lower risk refinance loan applications,” said Fleming.
June 2016 State Highlights
June 2016 Local Market Highlights
Where in the Application is the Defect Risk?
“In the post-crisis housing finance landscape, the attention paid to the borrower’s ability-to-pay and emphasis on issuing loans that have a reasonable and sustainable mortgage payment has increased. In other words – income matters,” said Fleming. “Within the Loan Application Defect Risk Index, we also measure specific risk categories, including defect, misrepresentation and fraud risk associated with the reporting and documentation of income in a mortgage loan application.”
“If the income is being inaccurately measured or misrepresented intentionally in the loan application, the borrower’s true ability-to-pay and the sustainability of the mortgage are incorrectly measured. Interestingly, the trend in income-related defect risk offers some good news. The risk related to income is down 3 percent over the last three months and more than 10 percent in the last year,” said Fleming. “This beneficial decline in income-related defect and misrepresentation risk is a benefit of the technological and process investments made by the lending industry to meet compliance and regulatory requirements. The result is better measurement at the loan application level of the borrower’s ability-to-pay and more accurate identification of sustainable mortgages.
“Income-related misrepresentation and fraud risk is declining, as loan underwriting standards have become more disciplined and as the lending industry have made compliance and regulatory driven investments,” said Fleming. “We continue to improve our ability to accurately project a borrower’s ability-to-pay and the sustainability of a mortgage — a benefit to consumers and lenders alike.”
The next release of the First American Loan Application Defect Index will be posted the week of August 22, 2016.
The methodology statement for the First American Loan Application Defect Index is available athttp://www.firstam.com/economics/defect-index.
Opinions, estimates, forecasts and other views contained in this page are those of First American’s Chief Economist, do not necessarily represent the views of First American or its management, should not be construed as indicating First American’s business prospects or expected results, and are subject to change without notice. Although the First American Economics team attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. © 2016 by First American. Information from this page may be used with proper attribution.
About First American
First American Financial Corporation (NYSE: FAF) is a leading provider of title insurance, settlement services and risk solutions for real estate transactions that traces its heritage back to 1889. First American also provides title plant management services; title and other real property records and images; valuation products and services; home warranty products; property and casualty insurance; and banking, trust and investment advisory services. With revenues of $5.2 billion in 2015, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2016, First American was recognized by Fortune®magazine as one of the 100 best companies to work for in America. More information about the company can be found atwww.firstam.com.
The American Land Title Association (ALTA), the national trade association of the land title insurance industry, released the following statement in response to the United States Department of Treasury Financial Crime Enforcement Network’s (FinCEN) new Geographic Targeting Orders (GTO) announced today:
“As an independent party at the closing table for millions of real estate transactions each year, ALTA members take their responsibility seriously,” said Michelle Korsmo, ALTA’s chief executive officer. “Once again, we are ensuring our members have the tools and information they need to properly comply with FinCEN’s reporting requirements. We appreciate FinCEN’s efforts to prevent money laundering schemes and the illegal purchase of real estate.”
Top 5 Things to Know about the GTOs:
The American Land Title Association, founded in 1907, is the national trade association representing 6,000 title insurance companies, title and settlement agents, independent abstracters, title searchers, and real estate attorneys. With offices throughout the United States, ALTA members conduct title searches, examinations, closings, and issue title insurance that protects real property owners and mortgage lenders against losses from defects in titles.
The Financial Crimes Enforcement Network (FinCEN) has issued Geographic Targeting Orders (GTO) that will temporarily require certain U.S. title insurance companies to identify the natural persons behind companies used to pay all cash for high-end residential real estate in the Borough of Manhattan in New York City, New York, and Miami-Dade County, Florida. FinCEN is concerned that all-cash purchases (i.e. those without bank financing) may be conducted by individuals attempting to hide their assets and identity by purchasing residential properties through limited liability companies or other opaque structures. To enhance availability of information pertinent to mitigating this potential money laundering vulnerability, FinCEN will require certain title insurance companies to identify and report the true “beneficial owner” behind a legal entity involved in certain high-end residential real estate transactions in Manhattan and Miami-Dade County.
We are seeking to understand the risk that corrupt foreign officials, or transnational criminals, may be using premium U.S. real estate to secretly invest millions in dirty money, said FinCEN Director Jennifer Shasky Calvery. Over the years, our rules have evolved to make the standard mortgage market more transparent and less hospitable to fraud and money laundering. But cash purchases present a more complex gap that we seek to address. These GTOs will produce valuable data that will assist law enforcement and inform our broader efforts to combat money laundering in the real estate sector.
The order is temporary in effect, through August 27th. Read full article HERE.
from press release
George Barnard, 45, of Newtown Square, Pennsylvania, owner of a mortgage lending business and several title companies, has been indicted and charged with 24 counts of wire fraud, four counts of bank fraud, and three counts of filing a false tax return.
The indictment alleges that Barnard, who from 2005 to March 2013 was one of the two owners of Capital Financial Mortgage Corporation (“CFMC”), based in Delaware County, Pennsylvania, and also was the owner of several title companies, defrauded banks out of almost $13 million dollars and instead of using the money to fund mortgage loans for borrowers and pay off the borrowers’ existing mortgages, he took the money for his personal benefit, including buying yachts, luxury cars, multi-million dollar beach homes in Avalon, New Jersey, paying the salary of a yacht captain, gambling, luxury suites in a sports arena, and other personal expenses. The indictment further alleges that in order to continue to have access to a large pool of money to fund his extravagant lifestyle, Barnard orchestrated a massive fraud scheme, which included selling other banks the mortgages that CFMC had written and representing to the lenders who purchasing those mortgages that they were first mortgages, when in reality they were worthless second mortgages.
The indictment alleges that while the tax returns Barnard filed with the IRS showed hundreds of thousands of dollars in losses, in reality Barnard had more than $2,300,000 in unreported income, and in order to convince other banks to issue mortgage loans to him so he could purchase yachts and multi-million dollar beach homes, Barnard gave false tax returns to the banks with inflated income figures, and on at least one occasion, told the bank that he was buying the beach home for more than $3,000,000 when in reality the sales price was $2,000,000. The indictment alleges that Barnard was able to conceal this deception by using his own title company to handle the closing of that loan and falsifying closing documents.
The indictment alleged that as a result of Barnard’s actions, lenders suffered losses of more than $12,700,000, and more than 25 borrowers who obtained refinance loans from CFMC were stuck with two mortgages on their homes after Barnard’s companies failed to pay off the borrowers’ existing first mortgages.
Barnard faces a maximum sentence of 669 years’ imprisonment, a five-year period of supervised release, a $12,300,000 fine, a $3,300 special assessment, and a likely advisory sentencing guideline range of 135 – 168 months’ imprisonment.
The case was investigated by the Federal Bureau of Investigation, the Department of Housing and Urban Development, Office of Inspector General, and the Internal Revenue Service, Criminal Investigative Division, and is being prosecuted by Assistant United States Attorney Michael S. Lowe.
You have never seen it all in real estate, as it is a constantly morphing industry. I just ran across an article in the New York Times on the sale of Air Rights where a developer paid $40 million to a church for its air rights in order to build a 51 story building in New York.
One real estate broker commented
“They’re building what I call a Viagra building, a tall slender tower with great views at a great location. … What difference does it make if you pay $100 more per square foot if you’re selling condos for over $4,000 per square foot? But there aren’t many sites where you can do this.”
Read the full New York Times article
They were a hallmark of the U.S. housing crash: Mortgages that required little or even no documentation.
During the boom, they were called “stated income” loans, but advertised as “low-doc” or “no-doc” loans. When the damage was done, they were deemed “liar loans.” Both lenders and borrowers alike would write basically anything on the mortgage application to get the deal done. Now, nearly a decade after the financial crisis began, a new version of the stated income loan is making a comeback.
“Lite Doc.” That is what Quontic Bank, an FDIC-insured community lender in New York City is calling its product. It requires only verification of employment and two months worth of bank statements. For self-employed borrowers, it requires documentation of one year of profit and losses. The Lite Doc loans are five-year adjustable-rate mortgages with interest rates in the low- to mid-5 percent range, according to the bank. Thirty-year fixed-rate loans, which when fully documented can offer rates in the high-3 percent range, are not part of the offering.