Changes in Law Add to Need for Counseling

Financial rescuing and foreclosure prevention are overwhelming conversations within the industry and at the kitchen table. Most lenders have to deal with those clients. Most of us know someone desperately trying to save their home and hopeful the new Housing Bill and various government sponsor measures will save them.

It also means credit counseling is becoming more work intensive to ensure the helping and the saving is done in compliance with new requirements. At least from the educational perspective, suddenly both lenders and borrowers are in the same boat.

For example, the FHA Foreclosure Rescue Program, which represents a new FHA program to refinance 400,000 struggling or delinquent homeowners into government-insured fixed-rate mortgages requires that mortgage holders "agree to reduce the LTV ratio to at least 90% and pay a 3% upfront FHA mortgage insurance premium."

As the foreclosure rescue program starts on October 1, 2008, "Borrowers must share future appreciation with FHA and pay a 1.5% annual FHA insurance premium," which is three times higher than the current annual premium. It also requires all second or subordinated liens to be extinguished voluntarily before a troubled loan can be refinanced.

First-time homebuyers receive a $7,500 tax credit that works like an interest-free loan, but they need to know however, they need pay it back within the following 15 years. Lenders and servicers on the other hand, need to know the program provides $11 billion in mortgage revenue bond money for refinancing subprime borrowers, loans for first-time homebuyers and financing of affordable rental housing.

The credit crisis has brought about a long-term benefit to customers and the mortgage industry, some industry insiders say. Finally the mortgage industry is being regulated. The new housing bill requires background checks, testing, registration in a national database and annual continuing education requirements for all individual mortgage bankers and brokers.

It's a requirement that all individual loan originators, bankers and brokers embrace licensing and registration standards. This was signed into law shortly after the Federal Reserve instituted new regulations to combat predatory lending.

CMPS Institute of Ann Arbor, Mich., a training, examination, certification and membership program for financial professionals who provide mortgage and real estate equity advice that has trained over 5,500 financial professionals since its inception in 2005, recently reviewed the new Fed mortgage rules and what consumers should know.

"The final version of the rules incorporated many of the changes we suggested to the Fed when we commented on these rules a few months ago," said CMPS Institute chairman, Gibran Nicholas. "Some of the rules apply only to higher cost nonconventional mortgages such as many jumbo loans and those in the subprime category, while other rules apply across the board and affect all mortgage originations."

Mr. Nicholas commented on two examples of how the new rules will affect consumers. Documenting income and assets is one requirement applied to higher-cost loans. Borrowers must document income and assets in order to qualify for the mortgage, while "stated income" loans are no longer allowed. He applauded the Fed for changing the final rule from an earlier proposal where "lenders could have faced huge legal liability if they made loans to borrowers in unique circumstances, such as self-employed individuals, borrowers new on their jobs and borrowers who lived in areas where the employment outlook was deteriorating." That proposal would have "greatly restricted lending."

The language of the final rule is less ambiguous "and lenders are presumed innocent so long as they follow certain requirements that have been outlined by the Fed." (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/