BuyandClose.com Blog

 In the FHA section, we also discuss the impact of the possible Congressional action on a 12 month moratorium on risk-based premiums.

I. FHA

A. Overview: Status of the FHA bill

The FHA bill was not passed by the Senate last week despite several encouraging signs. The Senate is effectively out of session until December 3rd thereby delaying the possibility of any action until then.

We remain very optimistic that the FHA legislation will be passed this year.

In fact, the events of last week indicate strong bi-partisan support for the legislation. However, the Senate's deliberative process, coupled with a "touch" of politics, worked against expedited passage.

To remove Senator Dole's "hold" on the bill, the Senate Banking Committee accepted a 12 month moratorium on FHA's risk-based premium proposal.

Assessment:

Barring some unforeseen problem, P2 expects passage of a final bill by both Houses of Congress to occur in mid-December (11th-22nd).

Here is what Senator Dodd, Chairman of the Senate Banking Committee, said at the end of last week:

"I'm disappointed that the Senate did not pass the FHA Modernization Act, but I will continue to work for passage of this important measure. This is far too important, and has too much bipartisan support, to be held up by a small handful."

The keys words in Senator Dodd's statement are "bipartisan support". While there are no guarantees in Washington, the widespread bipartisan support (now including unanimous Republican support on the Committee) as a result of the compromise on risk-based pricing has increased even more the likelihood of an FHA bill this year.

B. Why was the legislation not passed last week?

The Senate leadership had hoped to pass the bill through the "hotline"

process which is a streamlined process with no substantive debate or consideration of amendments. Unfortunately, at least two Republican senators ( Senators Coburn and DeMint) and possibly a couple of other Republican Senators were unwilling to lift their "holds" on the legislation.

(No Democrats had raised an objection to the "hotline" process.) Since the "hotline" process requires unanimous consent from all Senators, the Senate could not vote on the bill.

The "good news" is that the Senators' concerns were primarily procedural (i.e. they did not have adequate time to review the bill through the streamlined process). We participated in two meetings on Friday including one with Senator DeMint. Their substantive concerns were more about wanting to understand the provisions of the bill particularly the justification for the higher mortgage limits and the lower cash investment than they were about opposing the legislation.

C. What are the next steps for the legislation?

There are two options. First, the Senators could lift their "holds" at any time and the bill could move quickly through the "hotline" process. This is still a possibility after the Thanksgiving recess.

If any of the Senators is unwilling to lift their holds, it will require the bill to go through the standard debate and voting process on the Senate "floor". The problem is scheduling time for the bill in December.

However, since the bill now has unanimous support from the Banking Committee with the moratorium on risk-based pricing, we believe that any opponents of the bill, if there are any, will not be able to use procedural tactics to delay Senate consideration of the bill.

D. What does this mean for FHA's risk-based pricing (RBP) proposal?

The immediate question is what will FHA do this week with regard to its implementation plans for risk-based pricing. When FHA staff announced a February 15th implementation date for risk-based pricing last week, that announcement was made prior to the Senate compromise on the risk-based pricing moratorium.

At the same time, from conversations with Hill staffers and lobbyists last week, it seems virtually certain that the moratorium on FHA's risk-based pricing proposal will be part of any FHA bill that is passed this year.

Therefore, regardless what FHA does to implement risk-based pricing, the moratorium would stop any RBP implementation for at least 12 months.

We should find out soon whether FHA heeds Congress' intent and announces that it is tabling its risk-based pricing proposal until Congress finishes its deliberations. .

If FHA decides to move ahead with risk-based pricing and ignore Congress'

intent, we continue to believe, with even more confidence, that clients should minimize any expenditures on system design and programming costs, training, etc. until Congress finishes its deliberations this year. Stated another way, we believe that your time and money would be better spent on preparing to implement the legislative changes in the FHA bill instead of preparing for FHA's risk-based pricing change.

E. Has there been any change in the major provisions of the FHA bill?

We still expect no significant changes to the bill. However, there could be some modifications. Below are the key elements of the bill and the likelihood of implementation in parenthesis (Virtually guaranteed is highest rating).

* Downpayment/cash investment: 1.5% cash investment w/ maximum loan amount of 100% of sales price/value that includes the upfront MIP.

(Very likely - 10% chance that cash investment could go to higher e.g. 2%)

* Mortgage limit ("floor") will be raised from 48% to 65% of GSE limit ($271,050). (Virtually guaranteed)

* Mortgage limit for "high cost" areas: $417,000. (Virtually guaranteed as a minimum - could possibly go higher (e.g. $500,000)

* Condominium processing: It will facilitate FHA acceptance of GSE approved projects and possibly other projects depending on how FHA implements the provision. (Virtually guaranteed)

* Reverse mortgages: Remove cap on volume, raise the maximum loan limit to $417,000 and allow reverse mortgages to be used for home purchases (Virtually guaranteed)

As a reminder, the House and Senate contain contradictory provisions on seller funded downpayment assistance programs. The Senate would terminate seller participation in these programs. The House would make changes but keep the basic program. We are not sure how this conflict will be resolved.

II. Predatory Lending Bill

A. Overview

On last Thursday, the House passed, by a vote of 291-127, the Mortgage Reform and Anti-Predatory Lending Act of 2007 ( H.R. 3915). (Use link at end of this section to read final version of the bill.)

However, this bill is very unlikely to move forward in the Senate this year.

In fact, after the House passed its bill, Chris Dodd, Chairman, Senate Banking Committee, questioned the need for an anti-predatory lending bill if Fed does its job on the HOEPA rule. Here is what Senator Dodd said:

"Nothing would please me more than for the Fed to come out with a very strong set of regulations that deal exactly with the problems we're talking about, that put a stop to these predatory lending practices that [are] going on there," he said. "If they do that, there's no necessity for a bill here.

So I'm anxious to hear what they have to say."

Senator Dodd did indicate that he would introduce a bill in December to outline his concerns. We would expect his bill to include a provision about the fiduciary responsibility of the mortgage broker.

As a reminder, the HOEPA rule will likely include restrictions on prepayment penalties and the use of stated income loans. It will also implement an "ability to repay standard" as well as having taxes and insurance included in underwriting.

B. Amendments to the Bill

While the amendments were relatively minor, below are a list of the most significant changes.

1. Exemption of FHA loans from the bill entirely

2. Permit financing of YSP as long as it is disclosed "fully and clearly" to the borrower early in the application process

3. Permits borrower to seek redress from assignee if lender/creditor ceases to exist

4. Clarification of limited federal preemption for securitizers

5. Elimination, in the event of borrower fraud (knowingly lies) of any lender civil liability and borrower right of rescission

6. Adds a monthly billing disclosure statement and disclosure six months prior to reset

7. Cap on prepayment penalties and a requirement that lenders permit a no prepayment option for qualified mortgages

8. New requirements for servicers, use of escrow accounts and appraisals (appraiser independence)

Below is the link for the final version of the bill.

http://thomas.loc.gov <http://thomas.loc.gov/> then type in "H.R.3915" for the bill number.