What REALTORS® Need to Know About the SAFE Act

Have you heard of the SAFE Act?

 If not,

You will want to read below on how this affects you as a REALTOR®.

The SAFE Act requires all loan originators to be licensed with the Nationwide Mortgage Licensing System through state law. 

This will require that some seller financing and any private financing must have a licensed originator within the state of which the property is located. 

Sellers are only able to offer seller financing when the residence they are selling is their primary residence, which falls under an exemption.  Sellers are now able to sell up to three properties each year with seller financing and not be in violation of the SAFE Act, a summer 2011 update to the Act. 

All borrowers should work with licensed loan originators therefore if private financing is involved in the transaction that private financer must also be licensed within the state the property is located.

If there is a question about whether or not a person is acting as a loan originator, always look from the perspective of the buyer, to understand if that individual from the buyer’s view has been negotiating terms of the loan with them.

As a REALTOR® be sure that if you refer a loan originator to a client that they are licensed within the state.  In addition, do not act as a go between with the lender and your client on terms of the loan, in that instance you could be seen by the buyer as an originator yourself triggering a need to be licensed under the law. 

Penalty for violation of this law is a misdemeanor and any person who violates a cease and desist order is guilty of a class B felony.

Securing Client Information – “WISP” Requirements

All real estate professionals may not yet be aware that they must comply with G.L.c. 93H, the new Massachusetts law that takes effect on March 1, 2010. The new law establishes minimum standards for private businesses in safeguarding Massachusetts residents’ personal information in paper and electronic records. If an individual or business holds such personal information regarding a Massachusetts resident, the requirement will apply even if the individual or business has no facilities or personnel in Massachusetts.

“WISP” is the acronym for the words “written information security program.” Having a WISP to protect personal information is required under G.L.c. 93H and 201 CMR 17.00, et seq., and must be in place no later than March 1, 2010. Under the new Massachusetts law and regulations , every person that owns, licenses, stores or maintains personal information about a resident of the Commonwealth shall develop, implement, maintain and monitor a comprehensive, written information security program applicable to any records containing such personal information.

The law further states that such comprehensive information security program shall be reasonably consistent with industry standards, and shall contain administrative, technical, and physical safeguards to ensure the security and confidentiality of such records. Moreover, the safeguards contained in such program must be consistent with the safeguards for protection of personal information and information of a similar character set forth in any state or federal regulations by which the person who owns, licenses, stores or maintains such information may be regulated. (201 CMR 17.03)

“Personal information” is defined as a “Massachusetts resident’s first name and last name or first initial and last name in combination with any one or more of the following data elements that relate to such resident: (a) Social Security number; (b) driver’s license number or state-issued identification card number; or (c) financial account number, or credit or debit card number, with or without any required security code, access code, personal identification number or password, that would permit access to a resident’s financial account…’Personal information’ shall not include information that is lawfully obtained from publicly available information, or from federal, state or local government records lawfully made available to the general public…” such as records that might be obtained from the Registry of Deeds or Public Assessor’s Records. (201 CMR 17.02)

All real estate professionals should be aware of the new law and have WISP protocols in place by the March 1, 2010 deadline.

For a copy of the regulation please visit: http://www.mass.gov/Eoca/docs/idtheft/201CMR1700reg.pdf

Short Sale Sellers May Be Locked Out of FHA Loans for Three Years

Short sales have become quite popular as a means to avoid foreclosure. Even the administration is encouraging both homeowners and servicers to pursue a short sale when loan modifications aren’t a viable option by offering cash incentives for a short sale transaction under the Making Home Affordable program. But HUD doesn’t look as favorably on short sales for distressed homeowners as the administration does in promoting lenders to approve short sale transactions.

HUD has issued a mortgagee letter (http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-52ml.pdf) to lenders and underwriters explaining that effective immediately, borrowers in default on their mortgage at the time of a short sale or pre-foreclosure sale will not be eligible for a new Federal Housing Administration (FHA) insured mortgage for three years.

From the language of the letter, it seems HUD views a short sale by homeowners behind on their mortgage as a so-called “strategic default.” The agency says borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement on their primary residence “simply to take advantage of declining market conditions and purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.” Lenders may make exceptions to this rule if the default was due to circumstances beyond the borrower’s control, such as the death of the primary wage earner or long term un-insured illness, and a review of the borrower’s credit report indicates satisfactory credit prior to such circumstances.

For a homeowner to be eligible for a new FHA-insured mortgage following a short sale, they must have been current on their mortgage and other installment debts at the time of the short sale of their previously owned property, and the proceeds from the short sale must serve as payment in full, according to HUD. 

FHA will also insure the first mortgage where the existing note holder writes off the amount of indebtedness that cannot be refinanced into the new mortgage – a short payoff – due to a decline in property value or a reduction in income, but once again, only if the borrower is current on their loan payments.

HUD is hoping to deter homeowners from intentionally defaulting to get out from under their existing mortgage obligation with this new rule, but it also means that struggling borrowers who go along with the administration’s Home Affordable Foreclosure Alternatives Program (HAFA) to keep from adding to the foreclosure numbers will not be eligible for a new government-backed loan for the three years after their short sale.

HUD Announces Standards For State Compliance With SAFE ACT

Establishing standards for registration and licensing of mortgage loan originators.

The U.S. Department of Housing and Urban Development announced on December 15th, 2009 the publication of a proposed rule setting the minimum standards that states must meet to comply with the Secure and Fair Enforcement Mortgage Licensing Act of 2008 (SAFE Act) in licensing loan originators. The proposed rule is posted in the Federal Register and at HUD’s website (www.HUD.gov).   

“By introducing nationwide standards of uniform licensing for loan originators, the SAFE Act is taking an important step in returning integrity and accountability to the residential mortgage loan market,” said FHA Commissioner David Stevens.  “Implementation of this Act is a critical addition to our system of regulatory protections that will benefit both consumers and financial institutions.”

The SAFE Act was enacted into law on July 30, 2008, as part of the Housing and Economic Recovery Act of 2008.  It is designed to enhance consumer protection and reduce fraud by encouraging states to establish minimum standards for the licensing and registration of state-licensed mortgage loan originators.  SAFE also mandates the creation of a Nationwide Mortgage Licensing System and Registry (NMLSR), and encourages all states to provide for a licensing and regulatory regime for all residential mortgage loan originators. 

While states are charged with enacting licensing standards that meet the requirements of the SAFE Act, overall responsibility for interpretation, implementation, and compliance rests with HUD.  If HUD determines that a state’s licensing standards do not meet the minimum requirements of the Act, it is required to implement and administer a licensing system for that state. 

To comply with the Act, states must put in place a Loan Originator Licensing program that requires originators to take an education course, pass a test, and undergo civil, criminal and financial background checks.  States have until July 31, 2010, to have their loan originators licensed under the SAFE Act criteria, unless they already have them licensed under a different system.  If already using a different licensing system, they have until December 31, 2010, to bring them in line with the Act’s requirements.
The proposed rule:

• Addresses the criteria that HUD will use to determine whether a state has put in place a system for licensing and registering loan originators as required by the SAFE Act. The rule sets forth the statutorily imposed minimum requirements that a state would have to meet to be in compliance with the SAFE Act.
• Provides the requirements that HUD would put in place if HUD must establish a licensing and registration system for a state that is determined to not be in compliance with the SAFE Act.
• Addresses the enforcement authority provided to HUD in the SAFE Act including: (1) summons authority for information on any loan originator operating in any state that is subject to a licensing system established by HUD; (2) the authority to appoint examiners to assist HUD in its responsibilities in a state in which HUD established a licensing system; and (3) the authority to conduct cease- and-desist proceedings with respect to any person who is violating, has violated, or is about to violate any provision of the SAFE Act under a licensing system established by HUD, including the authority to issue temporary orders.

As part of the rule-making process, HUD is soliciting comments for 60 days on its proposal and the comments received will be considered in the development of a final rule.  Comments should be submitted by mail or electronically as noted in the Federal Register posting.

Now is the Time To Buy a New Home

The industry has enjoyed low interest rates for some time now but that is going to change.  The rates have steadily gone down for weeks now but amid signs that the economy overall, and the housing market are beginning to emerge from there crisis-mode the opportunity to take advantage of historically low interests rates may be nearing to an end.  Freddie Mac reported Thursday (http://www.freddiemac.com/pmms/release.html) that the 30-year fixed-rate mortgage averaged 4.81 percent (0.7 point) for the week ending December 10, 2009. That figure is up from last week’s average of 4.71 percent, but still significantly lower than last year at this time, when the 30-year fixed rate mortgage was 5.47 percent. The 15-year fixed rate mortgage this week came in at 4.32 percent (0.6 point). Last week, rates for 15-year fixed mortgages were averaging 4.27 percent. A year ago at this time, the average was 5.20 percent.

Even though rates are rising slightly it does not mean rates are high.  Let’s not forget history and how it can teach us that we should take advantage of a good thing when we can.  So rates may have crept up a bit, but we are still experiencing one of the best times in our history to buy a home or to refinance and existing mortgage.  With the first time home owner credit extended into next year and home values down this it the best time to buy your first home. 

But don’t wait too long according to an analysis of the two most recent Real Estate Market Reports by Seattle based Zillow (http://www.zillow.com/), home value losses in the United States seem to be stabilizing.  During the first eleven months of 2009, homes across the nation lost $489 billion in value, which is significantly less than the $3.6 trillion lost during 2008. 

Of the 154 markets tracked by Zillow, 48 showed gains in home values during 2009. The Boston, Massachusetts metropolitan statistical area (MSA) showed the largest gain with $23.3 billion in increased home values. Second on the list was the Providence, Rhode Island MSA where home values increased $12.4 billion. 

The stabilization in home values led to easing rates of negative equity in the third quarter of 2009, according to Zillow. During the second quarter of this year, 23 percent of homeowners were underwater on their mortgages, but this number fell to 21 percent during the third quarter.   

“Home values stabilized significantly during the second half of 2009, with the total dollar value of U.S. homes increasing since June,” said Dr. Stan Humphries, Zillow’s chief economist. “Most housing markets across the country had a good summer, spurred largely by the government’s tax credits for homebuyers combined with very low mortgage rates.” Unfortunately, the stabilization of home prices may not continue. Humphries said two factors will challenge the recent stabilization of home prices. He believes demand will come under downward pressure as mortgage rates creep back up after the first quarter, and he said housing supply will experience upward pressure as the volume of foreclosures continues to remain high.

So with still historically low rates and prices holding at their lowest values in years it is everyone’s opportunity to get out and buy in this market.

Home Affordable Foreclosure Alternatives (HAFA) Program Update

Any Real Estate professional who engages in short sale negotiations, is fully aware of just how frustrating the process can be if even possible.
There are financial incentives for mortgage servicers to drag the process out as long as possible. It takes weeks, sometimes months, to get a response from the banks, who often misplace packages and request that they be faxed over and over again. This week, however, the U.S. Treasury has issued guidance in its new Home Affordable Foreclosure Alternatives Program (HAFA) which takes effect April 5, 2010. In short, HAFA provides incentives in accepting a short sale or a deed-in-lieu of foreclosure (DIL) on a loan eligible for modification under the Home Affordable Modification Program (HAMP). HAFA applies to loans not owned or guaranteed by Fannie Mae or Freddie Mac, who will be implementing their own versions of HAFA.

Highlights of the benefits of the HAFA program are as follows:

Servicers will have 10 days to approve or disapprove a request for a short sale. The banks will have to use borrower financials and other documents already submitted for a loan modification for short sale review.
Allows borrowers to receive pre-approved short sales terms before listing the property, including the minimum acceptable net proceeds for that servicer, which will allow real estate agents to better market the properties for approved sales.
Prohibits servicers from requiring a reduction in the real estate commission which was agreed upon in the listing agreement, up to 6 percent of sales price.
Requires borrowers to be fully released from future liability for the first mortgage debt, no cash contribution, no promissory note, or deficiency judgment is allowed.
The program will use standard processes, documents, and timeframes/deadlines in order to streamline the review and decisions.
Caps proceeds to second lien holders at $3,000.00.
Provides financial incentives:
$1,500 for borrower relocation assistance; $1,000 for servicers to cover administrative and processing costs; and  up to $1,000 for investor, note holders.

Program Requirements:

Loan must be HAMP eligible – Servicers must evaluate a buyer for a HAMP modification first before giving any consideration for a HAFA short sale or Deed in Lieu (DIL);
Property is borrower’s principal residence;
The mortgage is a first lien and was originated before January 1, 2009;
The loan must be delinquent or default must be reasonably foreseeable;
Loan amount is limited to 729,750, on single family units;
Borrower’s total monthly payment exceeds 31 percent of the home owner’s income and attested to by affidavit;
Sale must be an arm’s length agreement and the buyer must agree not to sell the property for 90 days;
Requires property to be listed with a real estate broker.
While trying to alleviate the back log of short sale transactions there are some new concerns. The cost to the public to impliment. The arm’s length rule eliminates family members attempting to save the home. The 90 day prohibition against resale will keep real estate investors from participation which plays a major role in moving properties. Lastly, there is the question as to how many second lien holders are going to participate with their payments limited to $3,000.00. Without their participation, it will be an exercise in futility as many of these homeowners have more than one loan.