As more broadly described in our article entitled “FHA Changes Guidelines to Meet Industry Demands”, we will be modifying our FHA notes and riders, VA ARM notes and riders, and TILA ARM disclosures to comply with new FHA and VA regulations, as well as the provisions of TILA which are substantively changing due to the “sun setting” of certain provisions. The following provides a general overview of the changes being made, but specific changes to each document may differ.
FHA Notes and Riders
The language concerning the “lookback” periods in the subsection entitled “The Index” in the ARM documents will be changed from 30 days to 45 days, per 24 CFR § 203.49 (2015). Also, the language of the “Notice of Changes” subsection will be modified to more closely resemble the same subsection in the new FHA Model ARM Note (1/21/15 version), though modified into a third person narrative for the time being to match the narrative of the current version of the FHA Model ARM Note (the new one cannot be used until June, 2015). The language will be as follows:
“Lender will deliver or mail to Borrower a notice of any changes in the interest rate and the amount of the Borrower’s monthly payment before the effective date of any change. The notice will include information required by law to be given to Borrower and also the title and telephone number of a person who will answer any question Borrower may have regarding the notice.”
The second sentence in the subsection entitled “Effective Date of Changes” will also be modified to more closely reflect the new Model Note, as follows:
“Borrower shall make a payment in the new monthly amount beginning on the first monthly payment date after the Change Date until the amount of the monthly payment changes again.”
The subsection entitled “Borrower’s Right to Prepay” will also be modified to more closely resemble the new Model Note, due to changes in the way FHA will charge interest on prepayments, pursuant to Ibid. § 203.558. The subsection will state the following:
“Borrower has the right to make payments of principal at any time before they are due. A payment of principal only is known as a ‘Prepayment.’ When Borrower makes a Prepayment, Borrower will tell Lender in writing that Borrower is doing so. Borrower may not designate a payment as a Prepayment if Borrower has not made all the monthly payments due under the Note.
Borrower may make a full Prepayment or partial Prepayments without paying a Prepayment charge. Lender will use the Borrower’s Prepayments to reduce the amount of Principal that Borrower owes under this Note. However, Lender may apply the Borrower’s Prepayment to the accrued and unpaid interest on the Prepayment amount, before applying the Borrower’s Prepayment to reduce the principal amount of the Note. If Borrower makes a partial Prepayment, there will be no changes in the due dates of the monthly payment unless Lender agrees in writing to those changes. Borrower’s partial Prepayment may reduce the amount of the Borrower’s monthly payments after the first Change Date following the Borrower’s partial Prepayment. However, any reduction due to the Borrower’s partial Prepayment may be offset by an interest rate increase.”
VA ARM Notes and Riders
The only necessary change to the VA ARM notes and riders is to change the language concerning the “lookback” period from 30 days to 45 days. However, these documents are still subject to further changes, pending additional regulatory changes by the VA (see VA Circ. 26-14-25).
New Provisions Print Conditions
Since the new rules regarding the “lookback” period apply to loans closed on or after January 10, 2015 and the rules regarding prepayments only apply to loans closed on or after January 21, 2015, it is necessary to trigger the new provisions in our notes and riders to print only when applicable.
Therefore, the provisions dealing with the “lookback” period will be triggered to print when the “Closing Date” (Field 678) is 1/10/15 or later; the current text will print otherwise. Similarly, the provisions dealing with prepayments will be triggered to print when the “Closing Date” is 1/21/15 or later, with the current text printing otherwise.
In addition, the version date in the footer of the FHA ARM notes and riders will trigger to print “1/10/15” if the “Closing Date” is any date from 1/10/2015 to 1/20/2015. If the date is on or after 1/21/15, then “1/15” will print.
TILA ARM Disclosures
In regards to the TILA ARM Disclosures, for the language concerning the “lookback” period in the section entitled “How Your Interest Rate and Payment Are Determined”:
- If “Loan Type” (Field 1066) is either “FHA” or “VA” and “Closing Date On or After 01/10/2015” (Field 91796) is “No”; then “30 days” will print.
- “45” days will print for the FHA and VA ARM lookback period in all other cases.
Also, the disclosure concerning when the borrower will be receiving the interest rate adjustment notices required under 12 CFR § 1026.20 in the section entitled “How Your Monthly Payment Can Change” currently states, for loans which have a “lookback” period of less than 45 days, that the borrower will receive the notices between 25 to 120 days before the first payment at the adjusted level is due after any interest rate adjustment. Since FHA and VA ARM loans will have “lookback” periods of 45 days in January, we will be modifying the configurations to the dynamic “25” days reference as follows:
- If “Loan Type” is either “FHA” or VA” and “Closing Date On or After 01/10/2015” is “No”; then “25” days will print.
- “60” days will print for FHA and VA loans in all other cases.
The checkbox and the following sentence on the Truth-in-Lending Statement will be modified to only print if “Closing Date On or After 01/21/2015” (Field 91790) is set to “No”:
“If you pay off an FHA insured loan, on a date other than the regular installment date, you may be assessed interest charges until the end of the month.”
New FHA Important Notice to Homebuyers Supplemental Notice
HUD-92900-B has not been modified to reflect the change in FHA prepayment policy. Therefore a new document “Important Notice to Homebuyers Supplemental Notice” (Cx19127) will print for FHA loans with “Closing Date On or After 01/21/2015” (Field 91790) set to “Yes” and will contain the following text:
“You, the Borrower(s), are receiving this Supplemental Notice because you have applied for a loan which may be insured by the Federal Housing Agency (FHA). As a result, you have received an ‘Important Notice to Homebuyers’ (form HUD-92900-B) which contains a section informing you about prepaying your loan and of possibly paying accrued interest for the remainder of the month, if you make a prepayment on any date other than the installment due date.
Please be aware that effective for loans which are closed on or after January 21, 2015 that prepayments may be made on any date of a month and that monthly interest will be calculated on the actual unpaid principal balance of the loan as of the date the prepayment is received, and not as of the next installment due date. Thus, you will not be charged for accrued interest for the days between the date your prepayment is received and the next installment due date.”
This document will replace current “Section 184 Important Notice to Homebuyers Supplemental Notice” (Cx19126) when “Closing Date On or After 01/21/2015” (Field 91790) is “Yes”, and the following text will trigger directly on Cx19127 for Section 184 loans instead:
“Also, you have applied for a loan under the Department of Housing and Urban Development’s Indian Home Loan Guarantee Program (aka a ‘Section 184’ loan). Form HUD-92900-B also contains a section informing you about Monthly Insurance Premiums and the term in which they will be charged.
Please be aware that if a Section 184 loan is extended to you, you will pay an annual premium of 0.15% of the remaining loan balance until the unpaid principal balance (excluding financed UFMIP) reaches 78 percent of the lower of the initial sales price or appraised value of the subject property, based on the initial amortization schedule of the loan. This premium may be paid through monthly, annual, or lump sum payments (ask your lender for details).”
List of Generic Documents
These changes will be made, as applicable, to the following documents:
- FHA Note Fixed (Cx36)
- NY CEMA GAP – FHA Note Fixed (Cx16243)
- FHA ARM Note – Treasury (Cx861)
- FHA ARM Rider – Treasury (Cx901)
- 3501 – 1 YR Treasury – Modified for VA ARM (Cx3148)
- 3108 – 1 YR Treasury Rider – Modified for VA ARM (Cx3149)
- FHA ARM Note – LIBOR (Cx13045)
- FHA ARM Rider – LIBOR (Cx13046)
- ARM Disclosure – Investor (Cx13457)
- ARM Disclosure – Lender (Cx14089)
- Variable Rate/ARM Disclosure Addendum (Cx18260)
- Initial Truth-In-Lending Disclosure (Cx1591)
- Initial Truth-In-Lending Disclosure (Cx14380)
- Truth-In-Lending Disclosure (Cx18)
- Truth-In-Lending Disclosure (Cx14363)
- Important Notice to Homebuyers Supplemental Notice (Cx19127)
- Section 184 Important Notice to Homebuyers Supplemental Notice (Cx19126)
These changes will be available in ConformX production December 11, 2014, but will only take effect for loans with a Closing Date On or After 01/10/2015 and/or a Closing Date On or After 01/21/2015, as applicable. If the Closing Date is not entered, Today’s Date will be used to determine which version of each document prints. If you have any questions or concerns about these changes, please contact Client Support at 1.800.497.3584.
December 9, 2014
DR 160307, 160576, 160668