With a number of FAQs, HUD advises that particular situation either “could constitute” or “could be considered” a changed circumstance. HUD does not address if when it uses the “could constitute” language the situation is more likely, less likely or as likely to constitute a changed circumstance as when it uses the “could be considered” language. HUD also offers no guidance on the factors that would be relevant to the determination, or what factors would more likely lead to a determination, that there is a changed circumstance.

HUD advises that the following situations “could constitute” a changed circumstance:

• A government sponsored enterprise, FHA or mortgage insurance program changes, and the loan originator did not have knowledge of the program change before issuing the GFE.
• Credit policy is required to change after the GFE is issued due to regulatory changes and the loan originator did not have notice of the change before issuing the GFE.
• The property address provided by the applicant is not the correct legal address.
• During or as part of the transaction, it is determined that the property use may change, such as from owner-occupied to rental property.
• Automated valuation models (“AVMs”) are commonly used for the property type and loan amount requested, but the AVM request comes back with a “no hit,” necessitating the use of a more expensive valuation method.
• After the GFE is issued, it is determined that an additional service such as an additional pest, structural or other inspection, upgraded appraisal, certification, survey or other requirement is required by the loan originator in connection with the transaction.
• The borrower’s credit score changes.

HUD advises that the following situations “could be considered” a changed circumstance:

• After the GFE is issued, parties are added to or removed from title or the property is moved into or out of trust.
• After the GFE is issued, it is determined that a party will be using a POA to sign, which may require additional work and additional fees.

On September 15, 2009, the Federal Reserve (“Fed”) announced that it has established a policy for conducting a risk-focused consumer compliance supervision program of nonbank subsidiaries of bank holding companies and foreign banking organizations. The program will involve the examination of the nonbank entities for compliance with the consumer protection laws and regulations the Fed has the authority to enforce, as well as the investigation of consumer complaints against any such nonbank entities.

The Fed’s Consumer Affairs letter announcing the policy indicates that risk assessments of nonbank subsidiaries of large complex banking organizations (“LCBOs”) should be completed by the end of the fourth quarter of 2009, and the necessary supervisory work should be identified and scheduled by the end of the first quarter of 2010. For nonbank subsidiaries of regional banking organizations, community banking organizations and non-LCBO foreign banking organizations, the risk assessments should be completed and supervisory work should be identified and scheduled a quarter later (i.e., by the end of the first quarter 2010 and second quarter 2010, respectively).

Red Flags Compliance Deadline Nears…Maybe

When Congress amended the Fair Credit Reporting Act with the Fair and Accurate Credit Transactions Act of 2003 (“FACT Act”), it mandated that the Federal banking agencies, the National Credit Union Administration and the Federal Trade Commission (“FTC”) issue guidelines for use by the entities they regulate to implement an identity theft protection program. The so-called “red flags rule” containing this information was published in the Federal Register on November 9, 2007 and gave those subject to its provisions until November 1, 2008 to comply.

Since that initial rule was published, the FTC has delayed enforcement of the requirements three times with respect to the entities it regulates. At this time, creditors (including mortgage lenders and mortgage brokers) will be required to have their identity theft programs in compliance with the red flags rule up and running by November 1, 2009. The red flags rule provides detailed requirements for identifying, detecting and responding to red flags that could indicate identity theft. Drafting and implementing an identity theft program is a significant undertaking, so creditors that have not yet started this process would be prudent not to assume that the FTC will further delay the effective date as November 1st approaches.

Did You Know?

Oklahoma no longer requires that Mortgage Broker licensees to maintain an office in the state.