Reverse Mortgage Definition exampleExample of the definition of a reverse mortgage
Mortgages Reform and Anti-Predatory Lending Act of 2009
As HR 3915, HR 1728 addressed concern about the mortgage creation processes by: (i) introducing a federally "duty of care" for mortgage lenders; (ii) forbidding recipients to "steer" lenders to items that are not in the "interest" of the lender; and (iii) demanding the approval and enrolment of mortgage lenders under a qualified state act or similar federally regulated system of supervision.
In addition, this section of the law lays down safer harbours of these standard for so-called "qualified mortgages" which satisfy certain strict conditions. The " qualifying port of safety " is much smaller than its opponent. The HR 1728 also modifies the Swiss Home Ownership and Capital Protection Act ("HOEPA")2 by significantly changing the definition of a "high-cost mortgage" under this Act and enhancing the protection of consumers for such credits.
HR 1728 also contains clauses to provide new guarantees to creditors in relation to trust and compulsory insurances and modifies the Swiss Real Estate Settlement Procedures Act ("RESPA") to require quicker answers to consumers' enquiries, increase fines and require immediate credit of payment. Lastly, HR 1728 reinforces the peer reviewers' needs by setting higher independent peer reviewers' benchmarks supported by strict implementation rules, stricter license and training benchmarks for peer reviewers, and a government grants programme to help states regulate peer reviewers.
Some have voiced concerns that if HR 1728 were adopted in its present format or even a somewhat vague similar proposal, it would suppress lending activity at a point in its life when there is a pressing need for cash. At best, it is not clear whether the initiators would make it and whether the main recent participants in the securitisation community, such as Fannie Mae and Freddie Mac, will not buy "qualified safety harbour mortgages", and even if they did, whether custodians and mortgage lenders will be able to obtain the necessary rights of recovery on the sale or securitisation of the loan.
A. "Due Diligence" HR 1728 establishes a federally "due diligence" which obliges every mortgage lender: Qualify and, if necessary, be incorporated and approved as a mortgage lender in accordance with relevant state or Federal laws; With regard to any user who seeks or enquires about a mortgage credit, work conscientiously to offer the user a variety of home loans product (s) for which the user is eligible and which are appropriate to the consumer's particular circumstances, on the basis of information known to or obtained in good faith form by the author;
Full, exhaustive and prompt publication to each user of the (i) settlement cost and benefit of any private mortgage credit products proposed, debated or mentioned by the author; (ii) the type of relation of the author to the user (including the cost of the service to be provided by the author and a declaration that the author of the mortgage is or is not an intermediary for the user, as the case may be); and (iii) any conflict of interest; inclusion of the clear identification of the author provided by a qualifying national registry system for all credit documentation.
In HR 1728, the government instructs the authorities to issue provisions to further redefine this obligation. In HR 1728, TILA is amended so that no mortgage lender may obtain from a single individual an incentivised remuneration (including a mark-up premium) either conditional on or different from the conditions of a home construction credit.
Adopting this rule would drastically change the way sub-prime creditors indemnify mortgage intermediaries. Authorities are instructed to enact rules that forbid the control of credit takers in credits that are not in the interest of the consumers (e.g. credits with robber characteristics). HR 1728 states, however, that the above is not interpreted to mean that it limits or impairs the capacity of a mortgage lender to resell credit to successive buyers, or limits the capacity of a user to pay credit charges, as long as they have been disclosed, and that they do not differ because of the user's choice as to whether to pay such charges.
According to HR 1728, 130(a) and (b) of the TILA (TILA rules on legal responsibility and error correction) are applicable to a breach of these "due diligence" rules by a mortgage lender. A mortgage lender's limit of responsibility towards a borrower for a breach of the abovementioned rules shall be limited to an amount corresponding to (i) the higher of the amount of real damage or (ii) three times the amount of the aggregate amount of immediate and consequential damage or of the profit received by the mortgage lender in respect of the home mortgage credit participating in the breach, plus the cost incurred by the borrower in bringing the claim, plus appropriate legal fees.
The HR 1728 also gives the Bundesbank authorities the power to enact rules to ban or conditioning conditions, actions or practice related to home loan credit that the agency deems to be improper, dishonest, deceptive, rapacious, incompatible with appropriate actuarial standard (s) necessary or appropriate to meet the due diligence and anti-tax objectives, to avoid or circumvent these rules, to promote adherence to them, or that are not in the interest of the borrowers.
The HR 1728 sets a set of nationwide benchmarks that apply to all home finance and are not restricted to the borrower's primary domicile. Under HR 1728, no mortgage lender may grant a mortgage unless the lender makes a sound and bona fide decision on the basis of verifiable and documentary information that the customer has, at the inception of the mortgage, a reasonably assured capacity to pay back the mortgage in accordance with its conditions, inclusive of all relevant tax, insurances and valuations.
Determining a consumer's capacity to pay back a private mortgage must be done on the basis of the following criteria: a) the background of the consumer's borrowing; b) the ongoing revenue of the user; c) the anticipated revenue reasonably guaranteed to the user; ongoing liabilities; d) the relationship between the debts and the revenue of the user; e) the user's job security; and f) other economic sources in addition to the user's own funds in the immovable that ensures reimbursement of the borrowing.
The HR 1728 also specifies redemption computation techniques for non-standardised credit instruments (e.g. instruments with pure interest rates or adverse amortisation characteristics) and provides that the fully Indexed Interest Rates must be used for the redemption analysis of all instruments. It should be noted that this reserve substantially precludes the subscription of credit below the full audit standards.
A lender may not grant credits in relation to a mortgage involving the re-financing of a previous mortgage, unless the lender reasonably and bona fide decides, at the moment of drawing on the mortgage and on the evidence known to the lender or available to the lender in good faith, that the re-financing will give the customer a net material advantage.
Loans shall not be deemed to be'material net benefits' if the cost of the financed loans exceeds the amount of a new pre-financing payment. In HR 1728, OCC, OTS and FDIC are instructed to adopt implementation rules that define the concept of "net tangible benefits". Every lender and every assignor of a private mortgage can assume that the mortgage fulfils the above-mentioned repayability and net performance conditions in the case of a "qualified mortgage".
" In contrast to HR 3915, where this assumption was only refutable against the initial lender of the credit, HR 1728 expands this refutable assumption to any assignor or securitiser. In HR 1728, a "qualifying mortgage" is defined as a mortgage on a home that represents a first mortgage or subordinated mortgage on the land that secures the mortgage and:
Affords an APR3 that does not exeed the APR4 for a similar operation by 1.5% or more for first mortgages or by more than 3.5% or more for subordinated mortgages; for which the consumer's incomes and monetary assets are audited and recorded; for which the subscription procedure is fully interest bearing and taking into consideration tax and policy; for which the maturity of the principal is set at not less than or more than 30 years.
Significantly, HR 1728 in what is probably the most controversial part of the law stipulates that, in relation to exposures other than qualifying mortgage lending, lenders would be obliged to maintain an interest in a substantial proportion (at least 5 per cent) of the exposure to each such exposures that the lender assigns, sold or transferred to a third person.
According to the provisions to be issued by the competent Bundesbank authorities, a lender would also not be in a position to directly or indirectly secure or otherwise assign the retained loan exposure. As a result of this rule, unqualified mortgage loans are unlikely, and even if they arise, it will be extremely challenging for the originator to resell them in the aftermarket.
HR 1728 essentially provides that, in addition to any other remedy that a private individual may have against a mortgagee under TILA, a plaintiff's claim against a mortgagee in relation to a home loans may be retained for breach of repayability and net material advantage requirements:
a) cancellation of the credit; and b) any extra cost arising from the breach, unless the lender offers a remedy within 90 workingdays after the receipt of the consumer's notice of the breach. In addition, HR 1728 provides that no civilian claim may be filed against any transferee or transferor who has done so in good faith, except for resignation and expenses.
Assignors and transferors shall not be held responsible if they offer a remedy6 within 90 workingdays of receiving the consumer's notice so that the credit meets the conditions for repayability or net material use. HR 1728 cancels the " due care " defence in HR 3915 which had enabled an assignor, a custodian included, to prove that the assignor had a guideline against the purchase of housing finance other than qualifying mortgage assets and performed an appropriate due care duty to comply with this guideline through appropriate, thorough and consistent sample testing methods determined in accordance with the rules to be determined collectively by the Bundesbank authorities.
Eliminating this defence will undermine the capacity of an assignor to resist an unwitting acquisition of an unqualified mortgage, which would have a deterrent effect on securitisations in the near term. The HR 1728 also allows a user to continue a plaintiff claim against an assignor or transferor if the initial defaulter who infringed these rules no longer exists or goes into bankruptcy.
Like HR 3915, HR 1728 states that only single claims against a transferee, such as a securitiser, a house purchase credit for a breach of repayability or net benefits in kind may be made. For example, an assignor is not confronted with collective claims for the purchase of debts in breach of the repayability and net benefits in kind rules.
In the case of a fixed-interest mortgage credit, HR 1728 establishes a 3-year limitation term for a receivable from an assignor or securitiser in which breaches of the repayability or the net benefits in kind are asserted. A variable interest term is defined at the outset for a variable interest loan:
i) the term ending one year after the date of the first redemption or modification of the mortgage or ii) 6 years after the original taking up of the mortgage. In HR 1728 it is clarified that liabilities are not widened to bond holders or other mortgage holders. In HR 1728, there is the section previously included in HR 3915 that allows the challenge as a defence for compartmentalisation with respect to the breach of the repayability or the net provision for benefits in kind.
After expiry of the withdrawal deadline, the customer may claim the real loss suffered in relation to the infringement, together with appropriate legal costs. Mortgage loans that are not qualifying mortgages may not contain an advance payment fine. Mortgage loans which are qualifying mortgages may not contain conditions under which a customer must make an advance payment for the payment of all or part of the capital in addition to the following:
a) an advance payment not exceeding 3 per cent of the amount due in the first year immediately following the drawdown of the credit; c) an advance payment not exceeding 1 per cent of the amount due in the third year immediately following the drawdown of the credit; the mortgage lender shall also be obliged to provide the creditor with a qualifying mortgage credit which does not include an advance payment fine.
In addition, a housing mortgage with an initial fix interest date which at the end of the horizon adapts or reverts a floating interest date shall not include conditions under which a user must make an advance payment for full or partial payment of the capital after the beginning of the three-month horizon ending on the date of the adaptation or revert.
Like many state mortgages legislation, HR 1728 forbids any lender from providing finance (except in conjunction with a reverse mortgage), any repayment term, loan inability, loan insolvency or loan premium, unless these premium rates are fully charged and payable on a full month to month base and are appropriate without "additional" costs to the customer, and neither the lender nor any of its affiliated companies receive any direct or indirect indemnification in respect of these premium rates.
No. HR 1728 forbids the incorporation of a compulsory referral provision for any private mortgage (other than reverse mortgages) in relation to the resolution or settlement of any claim resulting from the transactions. However, this limitation does not appear to be applicable to creditors, assigns or securitisers who agree to settle any disputes or disputes that may arise as a result of the operation.
In addition, HR 1728 precludes the commencement of a renunciation of the consumer's right to file an application before the Bundesgericht for compensation or an appeal for an infringement of Title II of HR 1728. Every securitiser must retain the right and capacity to seek and obtain, in any documents or contracts in which a property fund is established, including a mortgage credit for housing property, the identification of a credit in the fund and to obtain credit in the fund, and to seek and obtain redress from any debtor claiming a breach of repayability or net materiality.
The HR 1728 advises against credit derivatives with adverse amortisation by demanding further disclosure and advice when these derivatives are issued to first-time homeowners. Under HR 1728, the service provider must send the customer a letter of notification indicating the name of the debtor or the name of an assignor or securitiser to be approached regarding the credit at least once a year and whenever the owner of a home purchase credit changes.
The HR 1728 essentially complements the rental protection measures laid down in HR 3915 for renters who lease flats that go into execution. HR 1728 provides for enforcement after the date of entry into force of HR 1728: Under HR 1728, in the case of a'hybrid variable-rate mortgage', the lender or service provider is required to make a notification in writing that differs from any other communication containing certain information such as the index and the determination of the new interest rates and the amount of the loan.
Floating interest mortgage " is understood to mean a mortgage granted by a borrower on a mortgage, guaranteed by the main place of domicile of a borrower with a fix interest charge for an introduction interest charge which is adjusted or reset to a floating interest charge after that time. The HR 1728 also provides for a number of supplementary disclosure requirements, such as disclosure requirements for floating rate housing credits, which specify the amount of the starting month instalment and the fully indexed instalment, the total amount of arrangement costs related to the facility, the total amount payable to the Originator, which includes any supplementary amount obtained by the Originator from the Lender on the basis of the interest rates on the facility, and certain disclosure requirements in month-end financial reports.
The HR 1728 modifies Section 130(e) of TILA by stipulating that a right of withdrawal may be exercised by a private individual in an action for collection of the claim or for defence against legal or extrajudicial execution even after the expiry of the positive action deadlines referred to in Sections 130(e) and 125.
No HR 1728 modifies Section 130(a) of TILA to redouble the amount of the available amount of fines under private law. HR 1728 also modifies Section 130(e) to allow a Section 129 infringement to be asserted in a United States County Tribunal or other appropriate tribunal before the end of the three-year term beginning on the date the infringement occurs.
None of the creditors or assignees (including a securitiser) shall be held responsible for any breach of the consumer's repayment capacity or of the material net advantage standards for funding if the debtor has intentionally, wilfully and knowledgeably provided fraudulent information to the debtor or mortgage lender in order to obtain the mortgage credit.
Remember that this is a very tight defence and that if the brokers or originators were to persuade the borrowers to forge information about an offer, they would not be able to do so. The HR 1728 also significantly changes the definition of a "high coast mortgage" under HOEPA and modells the changes under the North Carolina High Coast Act, which came into force in 2000.
The HR 1728 changes the HOEPA current high threshold costs by redefining a "high expense mortgage" as a mortgage operation for consumers backed by the consumer's main home, with the exception of a reverse mortgage operation that reaches one of the following thresholds: c. With regard to a mortgage where the mortgage documentation allows the lender to levy or recover advance payment charges or fines more than 36 month after the conclusion of the mortgage, or the total of the charges or fines is more than 2% of the amount paid in advance, the HR 1728 changes the current high threshold costs by specifying a "high expense mortgage" as a mortgage operation for consumers backed by the consumer's main home, with the exception of a reverse mortgage operation that reaches one of the following thresholds: c. With regard to a mortgage where the mortgage documentation allows the lender to levy or recover advance payment charges or fines more than 36 month after the conclusion of the mortgage, or the total of the charges or fines is more than 2% of the amount paid in advance.
In order to calculate whether a mortgage is above the above threshold, the annual percentage rate of charge shall be calculated on the basis of the following interest rates: a. in the case of a fixed-rate mortgage where the annual percentage point of charge does not fluctuate during the life of the mortgage, the interest current at the date of consumption; c. in the case of another mortgage where the interest may fluctuate at any moment during the life of the mortgage for any cause, the interest current at the date of consumption shall be the interest which may be calculated during the life of the mortgage.
The HR 1728 changes the present definition of points and charges in order to incorporate return mark-ups into the points and charge calculations. The HR 1728 also contains the following items: any premium or other charge to be paid on or before the conclusion of a term assurance or similar policy; any advance payment fee or penalty imposed on the customer if the advance finances a prior advance granted or currently maintained by the same lender or an affiliated company of the lender.
The HR 1728 also allows the exemption of up to two good faith rebate points or certain advance payment penalty points from the definition of "points and fees". "After all, it should be noted that donors are not allowed to fund points and charges, which makes it virtually unfeasible to grant a costly credit. The HR 1728 changes and complements the forbidden practice of high costs mortgage.
HR 1728, for example, extends the ban on paying balloons and revises credit allocation regardless of the repayability of high-priced mortgage loans. In addition, HR 1728 added bans on advising arrears to charge interest on arrears at too high a rate, to accelerate debts, to finance excessively high points and dues, to bypass HR 1728, to charge change or deferment dues, and to calculate disbursement instructions.
The HR 1728 also added an advisory request for all high value mortgage loans. The lender may not grant loans to a borrower under a high-cost mortgage without prior approval from a HUD-approved consultant or, at HUD's option, from a public body responsible for financing residential property, stating that the borrower has obtained advice on the appropriateness of the lending.
In HR 1728, with regard to first mortgages guaranteed by a consumer's main residence (with the exception of an open line of credit or a reverse mortgage), a lender must open a trust or deposit bank accounts for the tax and social security contributions and any other necessary disbursements at the time the claim is made on the mortgage.
Subject to the requirements of federally or state laws; the principal is granted, warranted or assured by a state or provincial bank or insurance company; the indebtedness rate of the debtor is in excess of 50%; the operation is backed by a first mortgage and the annual percentage rate of charge is more than 3% higher than the rate of return on similar sovereign bonds from the fifteenth of the calendar year immediately prior to the date on which the lender receives the request for principal;
Consumers receive a HOEPA-liable credit; the initial face value of the credit is (a) 90% or more of the selling value; or (b) 90% or more of the estimated value of the real estate; the aggregate face value of all credits backed by the real estate will exceed 90% of the estimated value; As otherwise stipulated by the Ordinance.
Every bank ledger opened in accordance with the above must be maintained for at least 5 years until the debtor has adequate capital in his home so that he is no longer obliged to continue to hold mortgage credit or as provided for in the Ordinance. For one of the above accounts, the lender must provide the customer with certain information in writing at least 3 workingdays before the consumption.
A clear and unambiguous statement that the customer is liable for the personal and direct settlement of the non-filled goods in excess of the mortgage credit amount in the event that no such bank accounts exist, and the fact that the cost of tax, insurances and related charges may be hefty; A clear and unambiguous statement that the customer is liable for the personal and direct settlement of the non-filled goods in excess of the mortgage credit amount in the event that no such bank accounts exist;
Clear clarification of the implications of non-payment of unrecovered amounts, which may include the compulsory placing of a policy by the lender or service provider and potentially higher costs (including any payment of fees to the service provider) or a reduction in cover for the customer in the case of such a policy.
HR 1728 also calls for the incorporation of escrow payment into any redemption assessment provided to the consumer to make sure that creditors notify the borrower of any cost associated with home ownership. HR 1728 also modifies the Swiss Act on Real Estate Settlement Procedures in order to introduce further bans on mortgage service providers of mortgages close to the state.
In particular, HR 1728 forbids service technicians from doing the following: Obtain compulsory risk assurances unless there is a fair ground for believing that the Mortgagor has not complied with the terms of the Collateral Agreement to continue to maintain physical security; charge a fee for replying to applicable qualifying applications in writing; fail to react in a timely manner to a Mortgagor's claims for correction of any error relating to the assignment of payment, closing balance for the purpose of disbursing the Collateral or to avoid enforcement or other default service obligations; fail to meet other obligations to meet consumers' expectations; fail to meet other obligations to meet the obligations of consumers' defense; fail to collect a fee for replying to applicable qualifying applications in writing; fail to meet in a timely manner any Mortgagor's claims for correction of any error relating to the assignment of payment, closing balance for the purpose of disbursing the Collateral or to avoid enforcement or other default service obligations; fail to meet other obligations that are necessary to meet consumers' needs
The HR 1728 also specifies a number of conditions that service providers must meet in order to be deemed to have a proper foundation for compulsory coverage. HR 1728 also demands the immediate credit of service provider payment and the immediate shipment of refund funds and refund of trust account balances upon refund.
Lastly, HR 1728 raises fines under RESPA. A number of rules are also included in HR 1728 to enhance the auditors' autonomy. The HR 1728 standard demands that a creditor granting a HOEPA-liable mortgage obtains a documentary report that satisfies certain criteria, such as a visit to real estate, a second report under certain circumstances at no expense to the customer and a free copy of the report to the customer at least 3 workingdays before the consumption.
According to HR 1728, when supplying service to a mortgage guaranteed by the main residence or a mortgage guaranteed to a user, it is illegal to perform dishonest or misleading actions or practice described by regulation. In addition, HR 1728 provides for a number of actions and practice specifically related to the independent status of the assessor which are deemed unjust or misleading under the above mentioned ban.
The HR 1728 provides for significant fines, beginning at $10,000 per annum, for infringements. The HR 1728 amendments the Financial Institutions Reform, Recovery and Enforcement Act to give a Consumers Acceptance Order to the Appeal Sub-Committee of the Financial Institutions Examination Council ("FFIEC") to safeguard consumers from incorrect valuation practice and allegations by non-licensed valuers.
The HR 1728 also reinforces the FFIEC's supervisory and supervisory capacity over government assessment certification and approval authorities. Lastly, HR 1728 reinforces expert licence and training accreditation and sets up a government grants programme to support government bodies in their expert regulation work. The HR 1728 amendments the Equal Opportunities Act to oblige the creditor to provide the applicant with a copy of all expert opinions and assessments made in relation to a home construction credit and to inform the consumer of their right to the same.