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AI-Based Textual Analysis

In today’s mortgage market you can’t pick up an industry publication or attend a trade show and not hear someone talk about Artificial Intelligence (AI).  Many of the claims talk about how AI will disrupt the mortgage industry or radically change how mortgages are originated or processed.


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Some of it is pure hype and some of it includes technology that can clearly streamline processes and reduce cost.  So how do you filter fact from fiction?  Let’s take a look at how AI-based textual analysis is actually at work in the mortgage industry and the different approaches some vendors are using.


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High-Level Approach

The most fundamental difference in approach between an AI textual analysis and the majority of other “advanced” document recognition technologies is that AI textual analysis treats variable layout documents as unstructured documents whereas most other prominent solutions treat them more as semi-structured documents.


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To illustrate the difference in methodology let us consider a customer wishing to process pay stub documents. An AI textual analysis implementation would typically be deployed with one set of completely generic rules designed to encompass all variations of the “Pay Stub” document type from any company.  Because alltext is evaluated by the AI engine, the rules can flex with the layout and verbiage changes just as a human does when reading the page. The solution is also capable of being configured to perform conditional processing for specific exceptions to generic rules (per-layout exceptions) but it is not typically necessary to do this.


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Most other modern advanced document recognition technologies treat document variations as semi-structured documents. These solutions typically either: 

a) Remember as many of the variations as is practical and process each variation with layout-specific templates for processing Or b) Apply a mix of layout-specific processing and some generic processing (usually the higher incidence layouts are processed with layout-specific or templated processing) 

The obvious advantage of the AI textual analysis generic approach is that, as new layouts appear or existing layouts change, the software is better equipped to deal with these new variations. This advantage was recently validated at an account with over 35,000 layout variations where rules had been in place for five years with not a single modification. An audit of this client’s processes after five years revealed an identical automation rate to that when the system was first deployed. This outcome was observed despite the fact that a significant portion of the originally dominant layouts had been transferred to EDI processingand were therefore bypassing the system now. 

As you can see the varying approaches often produce different levels of success.  But how can you determine which is best for your organization? Get a demo and hope that the solution is more than smoke and mirrors?  Up until now that is usually the case.  To overcome much of the confusion and disappointment, a better evaluation process in many cases may go a long way towards greatly minimizing the risks involved in choosing a vendor who can actually deliver AI-based textual analysis.

In order to quickly understand AI-based textual analysis and its capabilities, a blind test with several sample files should be considered the gold standard for an evaluation.  This is especially true when it comes to the challenges presented with the many and varying document types and quality levels of document images found in the mortgage industry.  Asking vendors if they are willing to perform a test on a never before seen sample set of typical loan files on site and in sight of your evaluation team, is a great first step in separating fact from fiction.

Ideally, an evaluation should be setup as a one day event to hedge against any vendor refining their results.  This kind of test is intended to demonstrate the validity of the vendors’ out-of-the-box capabilities so that prospects can be assured that they are considering a proven, robust and scalable solution ready to deliver productivity improvements in weeks rather than months or years.

For qualified opportunities, Paradatec will perform this process, which enables prospective clients to quickly understand the overall levels of automation, and speed improvements they will be able to achieve with their technology.  Download our whitepaper on AI based textual analysis https://www.paradatec.com/wp-content/uploads/2018/12/CompetitiveMethodologies_2018_Final.pdf.

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Home Seller Profit Hits 12-Year High

ATTOM Data Solutions released its Year-End 2018 U.S. Home Sales Report, which shows that home sellers in 2018 realized an average home price gain since purchase of $61,000, up from $50,000 last year and up from $39,500 two years ago in 2016 to the highest level since 2006 — a 12-year high.

That $61,000 average home seller profit represented an average 32.6 percent return on investment compared to the original purchase price, up from 27.0 percent last year and up from 21.9 percent in 2016 to the highest average home seller ROI since 2006.


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“While 2018 was the most profitable time to sell a home in more than 12 years, those along the coasts, reaped the most gains. However, those are the same areas where homeowners are staying put longer,” said Todd Teta, chief product officer at ATTOM Data Solutions. “The economy is still going strong and home loan rates remain historically low. But there are potential clouds on the horizon. The effects of last year’s tax cuts are wearing off as limits on homeowner tax deductions are in place and mortgage rates are ticking up ever so slowly, so this could dampen the potential for home price gains in 2019.”

Among 217 metropolitan statistical areas with a population greater than 200,000 and sufficient historical data, the highest returns on investment were almost exclusively in western states, with concentrations along areas of the west coast. Those with the highest average home seller ROI were San Jose, California (108.8 percent); San Francisco, California (78.6 percent); Seattle, Washington (70.7 percent); Merced, California (66.4 percent); and Santa Rosa, California (66.1 percent).


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“Home price growth in the Seattle area has started to soften, something that home buyers have been waiting for, and a trend that we can expect to continue in the coming year,” said Matthew Gardner, chief economist at Windermere Real Estate, covering the Seattle market. “Seattle is still benefitting from buyers moving here from more expensive markets, such as California, but the market cannot solely depend on this demographic. My forecast for 2019 is that it will be a year of movement back to balance, which is a very positive thing.”

Historical U.S. Home Seller Gains

San Jose and Las Vegas lead major metros in home price appreciation

The U.S. median home price in 2018 was $248,000, up 5.5 percent from 2017 to a new all-time high. Annual home price appreciation in 2018 slowed slightly compared to the 7.1 percent in 2017.


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Among 127 metropolitan statistical areas with a population of 200,000 or more and sufficient home price data, those with the biggest year-over-year increase in home prices were Mobile, Alabama (up 21 percent); Flint, Michigan (up 19 percent); San Jose, California (up 18.9 percent); Atlantic City, New Jersey (up 16.4 percent) and Las Vegas, Nevada (up 13.5 percent).

Along with San Jose and Las Vegas, other major metro areas with a population of at least 1 million with a double-digit percentage increase in home prices in 2018 were Grand Rapids, Michigan (up 10.6 percent); San Francisco, California (up 10.3 percent); Columbus, Ohio (up 10.1 percent); and Atlanta, Georgia (up 10.1 percent).

88 of the 127 metros (69 percent) reached new record home price peaks in 2018, including Los Angeles, Dallas-Fort Worth, Houston, Atlanta, and Boston.

Homeownership tenure at new record high nationwide, down in Vallejo, Reno, Tucson

Homeowners who sold in the fourth quarter of 2018 had owned their homes an average of 8.30 years, up from 8.13 years in the previous quarter and up from 7.95 years in Q4 2017 to the longest average home seller tenure as far back as data is available, Q1 2000.


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Average U.S. Homeownership Tenure

Counter to the national trend, 16 of the 108 metro areas analyzed in the report posted a year-over-year decrease in average home seller tenure including: Vallejo-Fairfield, California (down 5 percent); Reno, Nevada (down 3 percent); Redding, California (down 2 percent); Panama City, Florida (down 2 percent); Chattanooga, Tennessee (down 2 percent); Eugene, Oregon (down 2 percent); Crestview-Fort Walton Beach, Florida (down 1 percent); Tucson, Arizona (down 1 percent), Punta Gorda, Florida (down less than 1 percent); Manchester-Nashua, New Hampshire (down less than 1 percent); and Truckee, California (down less than 1 percent).

Nearly three in 10 home buyers made all-cash purchases in 2018

Nationwide all-cash purchases accounted for 27.8 percent of single-family home and condo sales in 2018, unchanged from 2017 but down from its peak in 2011 at 38.4 percent. However, this is still well above the pre-recession average of 18.7 percent between 2000 and 2007.

Among 200 metropolitan statistical areas with a population of at least 200,000 and sufficient cash sales data, those with the highest share of all-cash purchases in 2018 were Montgomery, Alabama (53.6 percent); Naples, Florida (52.5 percent); Macon, Georgia (50.8 percent); Cape Coral-Fort Myers, Florida (45.4 percent); and North Port-Sarasota, Florida (45.4 percent).

U.S. distressed sales share drops to 11-year low, up in 8 states

Distressed home sales — including bank-owned (REO) sales, third-party foreclosure auction sales, and short sales — accounted for 12.4 percent of all U.S. single family home and condo sales in 2018, down from 14.0 percent in 2017 and down from a peak of 38.6 percent in 2011.

Counter to the national trend, the share of distressed sales increased in 2018 in Kansas (up 13 percent); Louisiana (up 13 percent); Wisconsin (up 2 percent); Kentucky (up 2 percent); Maine (up 1 percent); Colorado (up 1 percent); Indiana (up 1 percent); and West Virginia (up 1 percent).

Among 209 metropolitan statistical areas with a population of at least 200,000 those with the highest share of distressed sales in 2018 were Atlantic City, New Jersey (37.2 percent); Montgomery, Alabama (25.2 percent); Trenton, New Jersey (23.8 percent); Youngstown, Ohio (23.6 percent); and Rockford, Illinois (22.1 percent).

Among 53 metropolitan statistical areas with a population of at least 1 million, those with the highest share of distressed sales in 2018 were Philadelphia, Pennsylvania (20.7 percent); Baltimore, Maryland (19.9 percent); Cleveland, Ohio (19.4 percent); Memphis, Tennessee (19.1 percent); and Providence, Rhode Island (18.3 percent).

U.S. Total Distressed Sales

Institutional investors dropped for the fifth straight year

Institutional investors nationwide accounted for 2.7 percent of all single-family home and condo sales in 2018, down from 3.0 percent in 2017.

Among 200 metropolitan statistical areas with a population of at least 200,000 and sufficient institutional investor sales data, those with the highest share of institutional investor sales in 2018 were Montgomery, Alabama (9.6 percent); Memphis, Tennessee (8.1 percent); Columbia, South Carolina (7.6 percent); Birmingham, Alabama (7.1 percent); Atlanta, Georgia (7.0 percent); and Charlotte, North Carolina (6.5 percent).

Historical U.S. Home Sales By Type

Texas metro areas dominated list with the most FHA sales in 2018

Nationwide buyers using Federal Housing Administration (FHA) loans accounted for 10.6 percent of all single-family home and condo purchases in 2018, down from 13.6 percent in 2017 to the lowest level since 2007.

Among 200 metropolitan statistical areas with a population of at least 200,000 and sufficient FHA buyer data, 6 out of the top 10 metro areas with the highest share of FHA sales were in Texas. Those with the highest share of FHA buyers in 2018 were McAllen, Texas (26.3 percent); El Paso, Texas (25.3 percent); Amarillo, Texas (23.0 percent); Beaumont-Port Arthur, Texas (22.7 percent); and Elkhart, Indiana (21.5 percent).

National Lender Continues To Grow Through Strategic Planning

Planet Home Lending, LLC, a national lender and servicer, opened 26 active distributed retail branches and brought on 165 mortgage loan originators in 2018. Planet Home Lending also enjoyed additional growth in 2018 in its other channels.


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“We have taken a very deliberate approach to how we conduct business and how we want to grow our business,” said Michael Dubeck, CEO and president of Planet Home Lending. “The industry continues to fluctuate based on rates; however, we are proving that it is possible to be stable and provide consistency to your clients through offering a variety of loan products.”


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Planet Home Lending enjoyed several other successes last year:

  • Planet Management Group grew its private client Sub-Servicing Portfolio by 300 percent

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  • The correspondent division expanded its client base by 40 percent
  • Planet Renovation Capital expanded to serve nine states and added a new loan origination system
  • Planet Home Lending’s Retention Retail operation opened a new office in Mt. Laurel, N.J.
  • The company rolled out 66 loan programs and products

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  • To support the new branches, Planet added the Surefire CRM and launched Skymore™, a personal digital mortgage assistant
  • Partnering with the National Forest Foundation to donate three trees for every loan closed in 2019

The company also was able to trim the origination costs in its retention division and saw significant growth in its distributed retail loan volume.

“Approaching the industry from the standpoint of what can we do better, and what can we improve, has been the foundation for our continued success,” Dubeck added. “We are focused on making sure we provide the best service using the right tools to meet the needs of consumers.”

Founded in 2007, Planet Home Lending is a privately held, national residential mortgage lender with multiple business channels uniquely positioned to provide competitive products and services. The company is an approved originator and servicer for FHA, VA, and USDA as well as a Freddie Mac and Fannie Mae Seller/Servicer, a full Ginnie Mae Issuer and approved sub-servicer, and a Standard & Poor’s-and Fitch-rated special and prime residential servicer. Planet Home Lending, LLC is an Equal Opportunity Lender.

Lender Helps Those Impacted By The Shutdown

Not everyone is throwing a tantrum. Some are coming up with solutions. For example, Freedom Mortgage is offering help to its borrowers who are struggling to make their mortgage payments because of the federal government shutdown.


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The shutdown, which began December 18, affects government workers as well as government contractors and vendors. As one of the nation’s largest providers of Government insured loans, there is a significant number of Freedom Mortgage borrowers who have been affected.  


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“We’re committed to helping all of our customers who may be impacted by the shutdown,” said Stanley C. Middleman, Freedom’s founder and CEO. “If a borrower has stopped receiving a paycheck, we are prepared to do everything we can to help them through this and avoid defaulting on their mortgage. Our hope is to bring some relief to our customers and reduce the immediate burden and impact of the government shutdown on their lives.” 


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 Freedom Mortgage has created a team dedicated to fully evaluating every borrower’s situation and offering a range of assistance. These options may include repayment plans, special payment forbearance and temporary partial payments, in addition to late fee waivers and temporarily suspending the reporting of derogatory credit information.


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Why Dodd-Frank Reforms Are Good For Business

On May 24, the first major financial institution bill with substantial bipartisan support in more than ten years was signed into effect by President Donald Trump. Known as The Federal Economic Growth, Regulatory Relief, and Consumer Protection Act (“Act”), it recognized that the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) must be amended. 

The passage of Dodd-Frank in 2010 – spearheaded by Congressman Barney Frank and Senator Christopher Dodd – was designed to address the 2008 financial crisis with far-reaching reforms, including the creation of the Bureau of Consumer Financial Protection (CFPB) and tighter supervision of financial markets and institutions. Prior to the CFPB, consumer regulations were the responsibility of federal agencies such as the Federal Reserve Board and the Department of Housing and Urban Development. 


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Under Dodd-Frank, community banks with limited resources and large institutions with significant legal and compliance staffs became subject to a number of new regulations issued by the CFPB. The mandatory time frames for the CFPB to issue regulations resulted in rules that were confusing and misinterpreted. Consequently, mortgage lenders provided fewer loan options to limit their liability associated with noncompliance. 

Compliance departments at large banks rapidly expanded to keep up with the increasing number of new requirements. Banks and mortgage providers located in smaller cities and towns had limited to no compliance talent pool to draw from even if they could afford the staff. To offset the rising cost of managing compliance, local community banks sought acquisitions, closed, or merged with other banks. 

What Reforms Mean For Local Mortgage Providers

The amendments include relief for community banks struggling to maintain profitability and the staffs required to implement CFPB regulations or offer new products due to uncertainty and liabilities. 


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Smaller banks are now exempt from many requirements that previously hindered growth. 

For example, finding certified or licensed appraisers in rural areas can be difficult and often those resources do not exist. Now, banks located in more rural communities are exempt from conducting appraisals of real estate property with a transaction value of less than $400,000. The lenders must also provide proof that certified or licensed appraisers are not readily available. 

For areas with high concentrations of community banks, this could mean the difference between the banks’ survival and closing. Laws and reforms move along a sliding scale. Because of the 2008 financial crisis, the scale shifted towards protecting consumers; a decade later, the lending industry hopes the reforms can find a balance between consumer protection and a thriving housing and financial economy. 

Summary of Mortgage Lending Revisions in the 2018 Dodd-Frank Reform

Although the Act addresses banks, student borrowers and capital formation, we are specifically addressing only mortgage lending revisions and improving consumer access to mortgage credit as well as protections for veterans, consumers and homeowners. 

THE FEDERAL ECONOMIC GROWTH, REGULATORY RELIEF AND CONSUMER PROTECTION ACT (“ACT”)

Truth-in-Lending Act (“TILA”)

Definitions were added to the qualified mortgage (ability to repay) provisions related to “Safe Harbor.” 

“Covered institution” is an insured depository institution or an insured credit union that, together with its affiliates, has less than $10,000,000,000 in total consolidated assets. 


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“Qualified mortgage” includes any residential mortgage loan:

>>That is originated and retained in portfolio by a covered institution; 

>>That is in compliance with the limitations with respect to prepayment penalties; 

>>That complies with any guidelines or regulations established by the CFPB relating to ratios of total monthly debt to monthly income or alternative measures of ability to pay regular expenses after payment of total monthly debt, taking into account the income levels of the borrower and such other factors as the CFPB may determine relevant and consistent with the purposes of the statute;

>>That does not have negative amortization or interest-only features; and

>>For which the covered institution considers and documents the debt, income, and financial resources of the consumer as required.

A residential mortgage loan described above will be deemed to meet the ability to repay requirements. 

A residential mortgage loan described above does not qualify for the safe harbor if the legal title to the residential mortgage loan is sold, assigned, or otherwise transferred to another person unless the residential mortgage loan is sold, assigned, or otherwise transferred:

>>To another person by reason of the bankruptcy or failure of a covered institution; 

>>To a covered institution so long as the loan is retained in portfolio by the covered institution to which the loan is sold, assigned, or otherwise transferred; 

>>Pursuant to a merger of a covered institution with another person or the acquisition of a covered institution by another person or of another person by a covered institution, so long as the loan is retained in portfolio by the person to whom the loan is sold, assigned, or otherwise transferred; or 

>>To a wholly owned subsidiary of a covered institution, provided that, after the sale, assignment, or transfer, the residential mortgage loan is considered to be an asset of the covered institution for regulatory accounting purposes.

Any loan made by an insured depository institution or an insured credit union secured by a first lien on the principal dwelling of a consumer is exempt from TILA higher priced mortgage escrow requirements if:

>>The insured depository institution or insured credit union has assets of $10,000,000,000 or less;

>>During the preceding calendar year, the insured depository institution or insured credit union and its affiliates originated 1,000 or fewer loans secured by a first lien on a principal dwelling; and

>>The creditor meets certain other criteria.

Exemption from Appraisals of Real Property Located in Rural Areas

An appraisal in connection with a federally related transaction involving real property or an interest in real property is not required if:

>>The real property or interest in real property is located in a rural area, as defined by Regulation Z; 

>>Not later than 3 days after the date on which the Closing Disclosure is given to the consumer, the mortgage originator, directly or indirectly:

A. Has contacted not fewer than three State certified appraisers or State licensed appraisers, as applicable, on the mortgage originator’s approved appraiser list in the market area; and 

B. Has documented that no State certified appraiser or State licensed appraiser, as applicable, was available within five business days beyond customary and reasonable fee and timeliness standards for comparable appraisal assignments, as documented by the mortgage originator; 

>>The transaction value is less than $400,000; and 

>>The mortgage originator is subject to oversight by a Federal financial institution’s regulatory agency.

A mortgage originator that makes a loan without an appraisal as described above may not sell, assign, or otherwise transfer legal title to the loan unless:

>>The loan is sold, assigned, or otherwise transferred to another person by reason of the bankruptcy or failure of the mortgage originator; 

>>The loan is sold, assigned, or otherwise transferred to another person regulated by a Federal financial institution’s regulatory agency, so long as the loan is retained in portfolio by the person; 

>>The sale, assignment, or transfer is pursuant to a merger of the mortgage originator with another person or the acquisition of the mortgage originator by another person or of another person by the mortgage originator; or 

>>The sale, loan, or transfer is to a wholly owned subsidiary of the mortgage originator, provided that, after the sale, assignment, or transfer, the loan is considered to be an asset of the mortgage originator for regulatory accounting purposes. 

A rural loan may not be made without an appraisal if:

>>A Federal financial institution’s regulatory agency requires an appraisal; or 

>>The loan is a high-cost mortgage, as defined by TILA. 

Home Mortgage Disclosure Act (“HMDA”)

An insured depository institution or insured credit union that originated fewer than 500 closed end mortgages or open-end lines of credit is exempt from the requirement to itemize certain loan data under HMDA unless they have received a rating of “needs to improve record of meeting community credit needs” during each of its two most recent examinations of a rating of “substantial noncompliance in meeting community credit needs” on its most recent examination under the Community Reinvestment Act.

Credit Union Residential Loans

A loan secured by a lien on a 1-4 family dwelling that is not the primary residence of a member of a credit union will not be considered a member business loan under the Federal Credit Union Act.

Protecting Access to Manufactured Homes

Retailers of manufactured homes or employees of such retailers are not required to be licensed as mortgage originators unless:

>>They receive compensation or gain for acting as a mortgage originator that is in excess of any compensation or gain received in a comparable cash transaction;

>>They fail to provide certain disclosures to consumers; or

>>They directly negotiate with the consumer or lender on loan terms.

No Wait for Lower Mortgage Rates

If a creditor extends to a consumer a second offer of credit with a lower annual percentage rate, the transaction may be consummated without regard to the 3 day waiting period requirements in the TRID disclosures.

Congress instructed the CFPB to provide clearer, authoritative guidance on:

>>Applicability of TRID to mortgage assumption transactions;

>>Applicability of TRID to construction to permanent home loans and the conditions under which those loans can be properly originated; and

>>The extent to which lenders can rely on model disclosures if the recent TRID changes are not reflected in the TRID forms published by the CFPB.

Identification for Opening an Account

When an individual initiates a request through an online service to open an account with a financial institution or obtain a financial product or service from a financial institution, the financial institution may record personal information from a scan of the driver’s license or personal identification card of the individual, or make a copy or receive an image of the driver’s license or personal identification card of the individual, and store or retain such information in any electronic format for the following purposes:

>>To verify the authenticity of the driver’s license or personal identification card;

>>To verify the identity of the individual; and

>>To comply with a legal requirement to record, retain or transmit the personal information in connection with opening an account or obtaining a financial product or service.

A financial institution that makes a copy or receives an image of a driver’s license or personal identification card of an individual must, after using the image for the purposes described, permanently delete:

>>Any image of the driver’s license or personal identification card, as applicable; and

>>Any copy of any such image.

This provision preempts and supersedes any state law that conflicts with this provision.

Reducing Identity Theft

“Fraud protection data” means a combination of the following information with respect to an individual:

>>The name of the individual (including the first name and any family forename or surname of the individual);

>>The social security number of the individual; and

>>The date of birth (including the month, date, and year) of the individual.

“Permitted entity” means a financial institution or a service provider, subsidiary, affiliate, agent, subcontractor, or assignee of a financial institution.

Before providing confirmation of fraud protection data to a permitted entity, the Commissioner of the Social Security Administration (“Commissioner”) must ensure that the Commissioner has a certification from the permitted entity that is dated not more than two years before the date on which that confirmation is provided that includes the following declarations: 

>>The entity is a permitted entity; 

>>The entity is in compliance with these provisions; 

>>The entity is, and will remain, in compliance with its privacy and data security requirements, as described in the Gramm-Leach-Bliley Act, with respect to information the entity receives from the Commissioner;

>>The entity will retain sufficient records to demonstrate its compliance with its certification and these provisions for a period of not less than two years. 

A permitted entity may submit a request to a database or similar resource only:

>>Pursuant to the written, including electronic, consent received by a permitted entity from the individual who is the subject of the request; and 

>>In connection with a credit transaction or any circumstance described in the Fair Credit Reporting Act. 

For a permitted entity to use the consent of an individual received electronically, the permitted entity must obtain the individual’s electronic signature, as defined by the Electronic Signatures in Global and National Commerce Act. 

No provision of law or requirement will prevent the use of electronic consent for purposes of these provisions or for use in any other consent based verification under the discretion of the Commissioner. 

Protecting Tenants at Foreclosure

Certain notification and eviction requirements for renters living in foreclosed properties have been reinstated with the repeal of sunset provisions of the Protecting Tenants at Foreclosure Act.

Remediating Lead and Asbestos Hazards

The Secretary of the Treasury may now use loan guarantees and credit enhancements to facilitate loan modifications to remediate lead and asbestos hazards in residential properties.

Property Assessed Clean Energy (“PACE”) Financing

“PACE financing” means financing to cover the costs of home improvements that result in a tax assessment on the real property of the consumer.

The CFPB must prescribe regulations that require a creditor to evaluate a consumer’s ability to repay with respect to PACE financing.

Protecting Veterans from Predatory Lending

A loan to a veteran for the refinance of a loan to purchase or construct a house may not be guaranteed or insured unless:

>>The issuer of the refinanced loan provides the Department of Veterans Affairs (“VA”) with a certification of the recoupment period for fees, closing costs, and any expenses (other than taxes, amounts held in escrow, and certain fees) that would be incurred by the borrower in the refinancing of the loan; 

>>All of the fees and incurred costs are scheduled to be recouped on or before the date that is 36 months after the date of loan issuance; and 

>>The recoupment is calculated through lower regular monthly payments (other than taxes, amounts held in escrow, and certain fees) as a result of the refinanced loan. 

A loan to a veteran for the refinance of a loan to purchase or construct a house may not be guaranteed or insured unless:

>>The issuer of the refinanced loan provides the borrower with a net tangible benefit test; 

>>In a case in which the original loan had a fixed rate mortgage interest rate and the refinanced loan will have a fixed rate mortgage interest rate, the refinanced loan has a mortgage interest rate that is not less than 50 basis points less than the previous loan; 

>>In a case in which the original loan had a fixed rate mortgage interest rate and the refinanced loan will have an adjustable rate mortgage interest rate, the refinanced loan has a mortgage interest rate that is not less than 200 basis points less than the previous loan; and 

>>The lower interest rate is not produced solely from discount points, unless:

A. Such points are paid at closing; and 

B. Such points are not added to the principal loan amount, unless:

1.) For discount point amounts that are less than or equal to one discount point, the resulting loan balance after any fees and expenses allows the property with respect to which the loan was issued to maintain a loan to value ratio of 100 percent or less; and 

2.) For discount point amounts that are greater than one discount point, the resulting loan balance after any fees and expenses allows the property with respect to which the loan was issued to maintain a loan to value ratio of 90 percent or less. 

A loan to a veteran to refinance a loan to purchase or construct a house may not be guaranteed or insured until the date that is the later of:

>>The date that is 210 days after the date on which the first monthly payment is made on the loan; and 

>>The date on which the sixth monthly payment is made on the loan. 

The above provisions do not apply in a case of a refinance loan in which the amount of the principal for the new loan to be guaranteed or insured is larger than the payoff amount of the refinanced loan. 

On May 25, 2018, VA issued a Policy Guidance Update: VA Refinance Loan and the Economic Growth, Regulatory Relief and Consumer Protection Act discussing the Act and its design to protect veterans from predatory lending practices known as “loan churning” or “serial refinancing.”

The Government National Mortgage Association may not guarantee the timely payment of principal and interest on a security that is backed by a refinance mortgage insured or guaranteed by VA and that was refinanced until the later of the date that is 210 days after the date on which the first monthly payment is made on the mortgage being refinanced and the date on which 6 full monthly payments have been made on the mortgage being refinanced. 

Credit Score Competition

Fannie Mae and Freddie Mac are required to evaluate other credit models besides FICO for credit scoring to determine whether they may be used for underwriting decisions.

Foreclosure Relief and Extension for Servicemembers

A legal action to enforce a real estate debt against a servicemember on active duty or active service may be stopped by a court if it occurs within one year from the servicemember’s end of active service. 

Further Reforms?

There is speculation that the Act is not the last reform to Dodd-Frank that we will see. Such speculation became reality with the passage of the “JOBS and Investor Confidence Act of 2018” (S.488) which had strong bi-partisan support. The TRID Improvement Act (S.2490) is pending legislation addressing changes for title insurance premiums which may be discounted as allowed by state regulation. 

With these bills, there will be more reforms to Dodd-Frank; however, future legislative activity may depend upon mid-term elections.

This article provides an overview of part of the Act by Asurity Technologies based on our understanding of the Act and is not intended to and should not be considered legal advice. 

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