NAFCU Compliance Blog

HUD Proposes Rule on ARM Notification Requirements and Look-Back Period for FHA-Insured Single Family Mortgages; NAFCU Webcast – Quarterly Economic Update & Credit Union Outlook

Written by Bernadette Clair, Senior Regulatory Compliance Counsel

The Department of Housing and Urban Development (HUD) recently issued a proposed rule that would align adjustable rate mortgage (ARM) notification requirements and the look-back period for FHA-insured single family mortgages with the Truth in Lending Act (TILA), as implemented by the CFPB’s Regulation Z mortgage servicing rule (“mortgage servicing rule”) published in the Federal Register February 14, 2013, and which became effective January 10, 2014.

Currently, FHA regulations have a 30 day look-back period for determining the current index to use for interest rate changes on FHA-insured ARMs and require notification at least 25 days in advance of a corresponding change in the mortgagor’s monthly payment. These timeframes were consistent with the rate adjustment notification requirements of prior Regulation Z, which required notice of rate adjustments between 25 and 120 days before the due date of the new payment. However, going forward, these timeframes will not be sufficient to comply with the revised timing requirements in Regulation Z, section 1026.20(c), which generally requires advance notice of a rate change with a corresponding payment change between 60 and 120 days before the new monthly payment is due.

Noting the timing issue for existing ARMs with short look-back periods, the CFPB’s mortgage servicing rule included special timing requirements for providing the section 1026.20(c) notice for ARMs with look-back periods less than 45 days and originated prior to January 10, 2015.  For these loans, the section 1026.20(c) disclosure must be provided at least 25 days, but no more than 120 days, before the new payment is due. This “grandfathering” of loans with look-back periods of less than 45 days was intended to provide HUD with enough time to bring its regulations in line with TILA and the mortgage servicing rule.

Accordingly, HUD is now proposing two revisions to FHA regulations that would (1) establish a 45 day look-back period for FHA-insured ARMs, instead of the current 30 day look-back period; and (2) require the mortgagee of an FHA-insured ARM to comply with the disclosure and notification requirements in the mortgage servicing rule.

For additional details, the proposed rule is available here.  HUD is accepting comments until June 9, 2014.

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NAFCU Webcast – Quarterly Economic Update & Credit Union Outlook. Economic and regulatory factors can affect you just as much as your members and employees. Gain a greater understanding of the most impactful current and forecasted economic conditions. You’ll also explore key performance metrics to help you measure the health of your credit union, such as member growth, ROA, delinquencies, and mortgage lending. The webcast will take place on Thursday, June 12, 2014 at 2:00pm Eastern time. Register by June 5 to save $100. For details on this webcast, click here.

FHA Makes Positive E-Signatures Change; Free Kick; ERM Webcast

Written by Ricardo Piñeres, Regulatory Compliance Counsel

With all of the new compliance requirements that have accompanied the start of 2014, it is easy to get trapped in a vortex of negativity.  Credit unions are struggling to keep up with the growing regulatory burdens, and many in our industry have suggested that instead of just adding new regulations, regulators should be looking to modernize some of their more outdated requirements.  Well, for those that have been clamoring for a step in the direction of modernity, I bring good news.  At the end of last month, the FHA announced that it would finally expand the list of documents for which it will accept electronic signatures!

Prior to this announcement, FHA only accepted e-signatures on third-party documents (i.e. sales contracts and other documents not under the lender’s control).  In addition to third-party documents, the new policy states that e-signatures are valid on the following documents:

• Origination;
• Servicing;
• Loss mitigation;
• FHA insurance claims;
• REO sales contracts; and
• Related addenda.

Lenders that choose to accept e-signatures may begin taking advantage of the FHA’s new policy immediately on both single family forward mortgages and reverse mortgages.  For the time being, the FHA will not be accepting e-signatures on the mortgage note, itself.  It is expected that they will begin accepting e-signatures on forward mortgage notes by the end of the year.

In order to take advantage of the FHA’s new policy, all lenders that submit electronically-signed documents must have specific technology and operational capabilities and controls, documented quality control processes, and the ability to adapt the electronic signature to FHA’s existing record retention processes.  Furthermore, any lender that chooses to take advantage of the FHA’s new policy must still comply with all of the requirements of the E-SIGN Act.  For more information on the requirements, credit unions should view FHA’s Mortgagee Letter 2014-03.

While this may not do much to ease the ever-growing regulatory burden on credit unions, it is heartening to see a government entity seeking to improve its processes.  I applaud the FHA for making it easier for lenders to work with them, and hope that they continue to streamline their processes.  Not only will this help lenders, but ultimately, it will help consumers seeking to take advantage of the FHA’s products.

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Free Kick. I am in the middle of a tense two weeks.  As a die-hard supporter of Arsenal, the schedule has put together a string of fixtures that will either make or break the Gunners’ season.  If Arsene Wegner and Company can survive these two weeks, then maybe I can dream of an end to the trophy drought.

Sadly, things did not get off to a good start over the weekend.  The drubbing at Anfield saw Arsenal play its worst game of the season (excluding the league opener to West Ham).  While Liverpool has been firing on all cylinders, I’m hoping that the embarrassment of this past weekend will fuel Arsenal to seek some revenge and move into the FA Cup Quarterfinals when they host Liverpool on Sunday.

Turning to the Premier League, thankfully, Chelsea dropped two points to West Bromwich in the waning minutes of yesterday’s match.  Therefore, Arsenal can go back to the top of the Premier League with a win later today against Manchester United.  ManU, frankly, has been mediocre to start 2014, so Arsenal need all three points if they are to truly contend down the stretch.

Lastly, the knockout stages of the UEFA Champions League get underway next week.  Arsenal was unable to win their group in the fall, so they have drawn Bayern Munich.  This is a repeat of last year’s Round of 16 matchup.  While Arsenal is a much improved squad this season, I see a similar result in our future with Bayern Munich coming away with a close win over the two-legged contest.

Hopefully, the loss to Liverpool at Anfield was just an aberration, and I can continue to dream of a trophy or two!  Go Gunners!

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