October 2010 LWs

For a total list of all the real estate laws digested by first tuesday for the 2009-2010 legislative session, click here.

Topics:

New requirements for service of three-day notices to quit on non-residential tenants
Dodd-Frank changes to the Truth-in-Lending Act (TILA)
Dodd-Frank changes to Section 32 consumer loans: TILA increases disclosures and tightens parameters
NOTS may be filed five days before lapse of NOD period
Real estate licensees must hold MLO license endorsement to perform mortgage services
An HOA may request copies of a notice of default, a notice of sale and a trustee’s deed

New requirements for service of three-day notices to quit on non-residential tenants

Reported by Alex Gomory

The rules here modify the methods of service for three-day notices to quit on non-residential tenants.

California Civil Procedure §1162
Added by A.B. 1263
Effective: August 17, 2010

A non-residential tenant may be served a three-day notice in the following ways, and must be attempted in the order as listed:

personal service of the notice on the non-residential tenant;

if at the time of service the non-residential tenant is absent from the leased premises, a copy of the notice may be left with any person present at the property who is of suitable age and discretion in addition to sending a copy of the notice through the mail addressed to the tenant at the address of the premises; or

if at the time of service the non-residential tenant is absent from the leased premises, and a person of suitable age and discretion is not present, a copy of the notice may be affixed in a conspicuous location on the property in addition to sending a copy of the notice through the mail addressed to the tenant at the address of the premises.

A non-residential tenant is any person or entity who pays an agreed-upon rental amount for the use of a property which is not a mobile home, and who does not use property as a dwelling unit.

Editor’s Note — These rules are not mandatory and the nonresidential landlord and tenant may agree to any method, place or time for service when entering into a lease agreement. [Culver Center Partners East #1, L.P. v Baja Fresh Westlake Village, Inc (2010) 185 CA2nd 744]

first tuesday Form 580: Proof of Service of Notices can be used on a tenant to establish service in an unlawful detainer action.

TILA circa 2010; consumer protection enhancement

Reported by Kelli Galippo and Jeffery Marino

The rules reported here are amendments and additions to the Truth in Lending Act (TILA) made by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Unless otherwise specified, these amendments became effective July 21, 2010. The Bureau of Consumer Financial Protection (BCFP) will finalize regulations implementing these amendments or additions to provide TILA’s Regulation Z protection which are effective when issued.

The real estate loans controlled here are Real Estate Settlement and Procedures Act (RESPA) loans (consumer-purpose loans secured by a one-to-four unit residential property, owner-or non-owner-occupied) made or arranged by mortgage loan brokers, and are also now classified by TILA as either “qualified mortgages” or “non-qualified mortgages” (Section 32 high-cost loans), since RESPA loans must meet new TILA disclosure standards.

Definition of terms
15 U.S. Code 1602 §103
Added by H.R. 4173

A mortgage loan originator (MLO) includes a Department of Real Estate (DRE) licensee (broker or agent) who receives compensation or income for:

taking a residential mortgage loan application;
assisting a customer applying to obtain a residential mortgage loan;
negotiating the terms of a residential mortgage loan; or
advertising to provide services for residential mortgage loan applications.

Residential mortgage loan origination
15 U.S. Code 1602 §129B
Added by H.R. 4173

A mortgage loan originator (MLO) is a person registered, licensed and endorsed under state (DRE) licensing laws and the federal Secure and Fair Enforcement (SAFE) Act (Nationwide Mortgage Licensing System (NMLS) registry). All loan documents prepared by the MLO must include the MLO’s NMLS endorsement number.

Source of fees and steering prohibitions

15 U.S. Code 1602 §129B
Added by H.R. 4173
Effective: April 1, 2011

A mortgage loan originator’s (MLO) fees cannot vary (read: be calculated) based on any terms of the loan, except the principal.

A MLO who receives mortgage origination fees from the borrower cannot also accept MLO fees from any other source.

However, if the MLO does not receive any fees directly from the borrower, and the borrower does not make a payment of origination points, fees or discount points on the loan, he can receive fees from other sources.

The Federal Reserve Board of Governors (the Fed) regulations will prohibit an MLO from:

steering a borrower into a loan with terms not reasonable for the borrower to pay back;
steering a borrower into a loan with predatory terms such as excessive fees or rates [See Section 32 loans];
steering a borrower away from qualified loans to unqualified loans [For definitions of qualified and non-qualified loans, please see below];
discriminating against borrowers based on race, ethnicity, gender or age;
misrepresenting the credit history of a borrower;
misrepresenting the availability of a residential mortgage loan to a borrower;
misrepresenting the appraised value of a property; or
discouraging borrowers from seeking less expensive loans from other MLOs for which they qualify.

Fed regulations will not interfere with incentive payments an MLO may collect based on the number of loans he originates in a specific time period.

Editor’s note —For more information regarding Real Estate Settlement and Procedures Act (RESPA) loan broker regulation, see the September 2010 first tuesday Legislative Watch.

Mortgage loan originator liabilities
15 U.S. Code 1602 §129B
Added by H.R. 4173

A mortgage loan originator (MLO) who violates the Truth in Lending Act (TILA) is liable for:

attorney’s fees; and
the greater of the borrower’s actual money losses; or
three times the amount of MLO fees.

The Federal Reserve Board of Governors’ RESPA loan regulation authority
15 U.S. Code 1602 §129B
Added by H.R. 4173

The Federal Reserve Board of Governors (Fed) now regulates residential mortgage loan practices which are abusive, unfair, deceptive, predatory or otherwise not in the best interest of the borrower. The Fed will modify existing residential mortgage loan disclosure requirements to protect the best interest of the borrower.

Minimum repayment standards for residential mortgage loans
15 U.S. Code 1631 §129C
Added by H.R. 4173

A lender may not make a Real Estate Settlement and Procedures Act (RESPA) loan until he conducts an assessment, based on documentation, that the borrower is able to repay the loan, taking into consideration:

principal and interest payments;
property taxes;
hazard insurance;
private mortgage insurance (PMI) or mortgage insurance premium (MIP);
improvement district and homeowner’s association (HOA) assessments; and
payment of other loans secured by the property.

To determine a borrower’s ability to repay a mortgage, a lender must consider the borrower’s:

credit history;
current income;
expected future income;
current obligations;
debt-to-income (DTI) ratio;
employment status; and
any other financial resources available to the borrower for his repayment of the loan.

A lender must verify (read: document) expected income or assets by reviewing the borrower’s:

W-2s;
federal tax returns;
payroll receipts;
bank statements; and
any other third-party documents verifying income.

Refinancing made, guaranteed or insured by federal agencies may be exempt from income verification if:

the borrower is not 30 days or more past due on a loan;
the refinance loan will not increase the principal balance except by fees and charges allotted to the agency in charge of refinancing;
total points and fees (other than third-party fees) do not exceed three percent of the total loan amount;
the interest rate on the refinancing is lower than the original loan’s interest rate (unless an adjustable-rate mortgage (ARM) loan is being refinanced by a fixed-rate mortgage (FRM));
refinancing creates a fully amortized repayment schedule; and
all transactions and negotiations satisfy requirements by the federal agency making, guaranteeing or insuring the refinance loan.

The payment schedule for a RESPA loan must fully amortize the loan over the term of the loan.

To determine if a borrower is able to repay an interest-only loan, a lender is to use the payment amount required monthly to amortize a loan by its maturity due.

If seasonal income is used as a source of repayment on a residential mortgage loan, a lender may consider it in the underwriting and scheduling of payments.

Lenders are to consider loan balance increases due to negative amortization payment schedules when determining a borrower’s ability to repay.

To determine if a borrower is able to repay an ARM which allows a borrower to defer repaying principal or interest, a lender is to use a fully amortizing repayment schedule.

In determining a borrower’s ability to repay a loan, the lender is to calculate the monthly payment amount for principal and interest by assuming:

the loan is fully funded at the time of the claim;
the loan will be repaid in equal monthly amortizing payments over the term of the loan; and
the interest rate is a fixed rate equal to the fully indexed rate at the time of the loan closing.

A fully indexed rate is the index rate of an ARM at the time the loan is made plus the margin that applies after the expiration of any introductory rate, also called the note rate.

Lenders may consider applications for refinancing the payoff of existing hybrid loans in which there will be a reduction in monthly payment by:

considering the borrower’s good standing;
considering if the refinancing would prevent a default; and
offering rate discounts that would be available to new customers.

These regulations do not apply to reverse mortgages or bridge loans with a term of 12 months or less.

Definition of qualified mortgage
Added by H.R. 4173

A Truth in Lending Act (TILA)-qualified loan is a Real Estate Settlement and Procedures Act (RESPA) loan which is not a TILA Section 32, non-qualified, high-cost RESPA loan.

A qualified mortgage is any loan that falls within the parameters of a RESPA loan (a consumer loan secured by an owner- or non-owner-occupied one-to-four unit residential property), and:

requires the borrower to make regular, periodic payments that do not:

o increase the principal balance of the loan, called negotiation amortization; or

o allow the borrower to defer payment of principal, called option-payment loans (except an allowable balloon loan as discussed below);

does not result in a payment more than twice as large as the average payment, called a balloon payment (except an allowable balloon loan as discussed below);
relies on verified and documented income for a determination of the ability to repay;
in the case of a fixed-rate mortgage(FRM), requires a borrower to qualify based on a fully-amortizing loan schedule and takes into account the property taxes, hazard insurance and improvement and homeowners association (HOA) assessments;
in the case of an adjustable-rate mortgage (ARM), requires a borrower to qualify based on the maximum rate permitted under the loan in the first five years on a fully-amortizing loan schedule and takes into account the property taxes, hazard insurance and improvement and HOA assessments;
complies with all Fed regulations establishing the parameters for determining a borrower’s ability to pay;
has points and fees that do not exceed three percent of the total loan amount;
has a term that does not exceed 30 years; and
in the case of a reverse mortgage, meets the standards set by the Federal Reserve Board of Governors (Fed).

Total points and fees may be calculated to exclude:

two bona fide discount points only if the interest rate does not exceed the average prime offer rate by more than one percentage point; or
one bona fide discount point only if the interest rate does not exceed the average prime offer rate by more than two percentage points.

A bona fide discount point is a loan discount point paid by the borrower in order to reduce the interest rate on a mortgage. The amount of the interest rate reduction purchased by bona fide discount points must be consistent with industry norms, often called a rate buy-down.

The Fed may adjust criteria for lenders of smaller loans by considering the impact of small loan criteria on rural areas or areas where home values are lower.

A balloon loan is considered a qualified mortgage if:

it meets all the above requirements of a qualified mortgage, except the noted restrictions on balloon loans;
the lender determines the borrower can reasonably repay the loan (excluding the balloon payment) with assets and income;
the borrower qualifies based on a fully-amortizing loan schedule, taking into account the applicable property taxes, hazard insurance and improvement and HOA assessments;
the lender making the loan:

o operates in predominantly rural areas;

o has a total number of annual residential mortgage loan originations not exceeding the Fed’s set limit;

o retains the balloon loan in its portfolio; and

o meets any other criteria established by the Fed.

The following federal agencies must establish rules for determining whether the loans they insure, guarantee or administer are qualified mortgages:

the Department of Housing and Urban Development (HUD);
the Department of Veterans Affairs (VA);
the Department of Agriculture; and
the Rural Housing Service.

Prepayment penalty restrictions
15 U.S. Code 1640 §129C; 15 U.S. Code 1639(c)(2)
Added by H.R. 4173

Prepayment penalties are prohibited on mortgage loans which are not qualified (read: section 32 loans). Prepayment provisions are also prohibited on the qualified mortgage loans which:

have an adjustable interest rate (ARMs); or
have an annual percentage rate (APR) exceeding the average prime offer rate in a comparable residential mortgage loan by:

o 1.5% or more on a first mortgage with a principal equal to or less than the conforming loan limits set by Freddie Mac;

o 2.5% or more on a first mortgage with a principal more than the conforming loan limits set by Freddie Mac; and

o 3.5% or more on a second or other subordinate mortgage.

The Federal Reserve Board of Governors (Fed) will publish a weekly update of average prime offer rates, and may publish multiple rates to correspond with various types of mortgages. The Fed will adjust applicable loan annual percentage rate (APR) thresholds as necessary.

Prepayment penalties on qualified mortgages cannot exceed:

3% of the outstanding balance on the loan during the 1^st year of payment beginning on the closing date of the loan;
2% of the outstanding balance on the loan during the 2^nd year of payment beginning on the closing date of the loan;
1% of the outstanding balance on the loan during the 3^rd year of payment beginning on the closing date of the loan; and
0% after the initial three years following the closing date of the loan.

A lender offering a borrower a loan with a prepayment penalty will also offer him the option of a loan without a prepayment penalty.

Lenders are prohibited from financing any credit life, credit disability, credit unemployment, credit property insurance or any other accident, loss of income, life or health insurance, direct or indirect payments for debt cancellation unless:

the insurance premiums, debt cancellation or suspension fees are paid in full on a monthly basis; and
the insurance is credit unemployment insurance and the lender receives no direct or indirect compensation and the premiums are paid pursuant to another insurance contract and not paid to an affiliate of the lender.

A borrower and lender may arbitrate to settle a dispute on the transaction; however a residential mortgage loan or extension of credit secured by a borrower’s principal residence cannot include terms:

requiring arbitration or any other non-judicial action for settling claims; or
barring a borrower from bringing an action to court.

A lender may not make loans which may be subject to negative amortization unless, before entering into the loan agreement, the lender:

provides the borrower with a statement disclosing:

o the transaction might result in negative amortization;

o the concept of negative amortization in a way that satisfies the Fed;

o negative amortization increases the outstanding principal balance; and

o negative amortization reduces the borrower’s equity in the property; and

in the case of a first-time homebuyer, the lender receives documentation stating they have received homeownership counseling from an organization certified by the Secretary of HUD to provide first-time homebuyer counseling.

Protection against loss of anti-deficiency protection
15 U.S. Code 1607 §129C
Added by H.R. 4173

When the enforceability of a loan is subject to state (California) anti-deficiency law, before the loan closes, a lender or mortgage loan originator (MLO) is to provide the borrower with:

a written notice explaining the anti-deficiency law; and
the significance of losing its protection if the loan provides refinancing for an existing loan.

If the loan is a refinance, anti-deficiency notices must be provided prior to the borrower entering into a loan agreement with the lender.

A lender must disclose to the borrower before the loan closes:

the policy regarding acceptance of partial payments;
how partial payments will be applied to mortgages; and
if partial payments will be placed in escrow.

Partial payment regulations do not apply to loans for timeshare plans.

Editor’s note — For information regarding strategic default, see the June 2010 first tuesday article, The contagious default strategy: stay and play.

TILA mandated consumer protection

15 U.S. Code 1602 §103
Added by H.B. 4173

Multifamily Mortgage Resolution Program

The Secretary of Housing and Urban Development (HUD) is to develop programs to protect tenants and owners of at-risk multi-family properties comprised of five or more units by:

creating reasonable financing options for owners of multifamily properties based on the property’s rental income, operating expenses and reserves;
maintaining the availability of federal, state and local subsidies;
providing funds for the rehabilitation of multifamily properties; and
facilitating the sale of multifamily properties by regulation when appropriate.

Home Affordable Modification Program (HAMP) guidelines

Lenders who have denied a borrower’s request for a loan modification under HAMP will be required by the Secretary of the Treasury (the Secretary) to provide the homeowner with all borrower-related input data used in any net present value (NPV) analyses.

The Treasury will maintain a web-based NPV calculator to provide homeowners with the ability to calculate the NPV of their mortgage and determine if their mortgage qualifies for modification under HAMP. Lenders may use a method for calculating NPV that differs from the method used on the Secretary’s website. The website will include provisions for homeowners to apply for a loan modification under HAMP. [To access the online mortgage modification application, visit www.makinghomeaffordable.gov]

The methodology used by the online calculator will be made publicly available by the secretary.

Protecting tenants after foreclosure

The date of a notice of foreclosure for purposes of commencing the tenant’s right to a 90-day notice to vacate, etc., is the date of the trustee’s sale.

Section 32 consumer loans: TILA increases disclosures and tightens parameters

Reported by Kelli Galippo

The rules reported here are amendments and additions to the Truth in Lending Act (TILA) made by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The real estate loans controlled here are Real Estate Settlement and Procedures Act (RESPA) loans (consumer-purpose loans secured by a one-to-four unit residential property, owner or non-owner occupied) made or arranged by mortgage loan brokers, and are also now classified by TILA as either “qualified mortgages” or “non-qualified mortgages” (Section 32 high-cost loans), since RESPA loans must meet new TILA disclosure standards.

Lender obligations and terms for principal residence Section 32 (high-cost) consumer loans
15 U.S. Code 1640 §130
Added by H.R. 4173

No lender may charge a fee for informing a borrower of the balance due on a Section 32 mortgage.

If payoff information is provided by fax or courier, a lender may charge a reasonable transmission fee for the fax or courier service. Before charging a transmission fee, the borrower is to be informed that payoff balance information is available at no charge.

If a lender has provided a borrower with information about their payoff balance four or more times in one year, they may charge a reasonable fee for any subsequent request by the borrower.

Payoff balances must be provided within five business days after the request is received.

Editor’s note — A Section 32 loan is a consumer Real Estate Settlement and Procedures Act (RESPA) loan secured by the borrower’s principal residence and is arranged at an interest rate that exceeds the threshold amount set by state and federal law, whichever is lower.

The charge for preparing and delivering a payoff demand is limited to $30 in California, unless the loan is insured by the Federal Housing Administration (FHA) or Veterans Affairs (VA). [CC §2943(e)(6)]

Pre-loan counseling certification
15 U.S. Code 1639 §129
Added by H.R. 4173

Before funding a Section 32 loan, the lender is to receive certification from a Department of Housing and Urban Development (HUD)-approved counselor that the borrower has received mortgage counseling about Section 32 loans. The counselor cannot be employed by the lender or an affiliate of the lender.

Before a counselor can certify that a borrower has received all necessary counseling, they must verify the borrower has received all required Real Estate Settlement Procedures Act (RESPA) statements.

If a lender or assignee of a Section 32 mortgage accidently fails to comply with any requirement, they will not be deemed to have violated the requirement if:

within 30 days of the loan closing and before the borrower institutes any action, the borrower is notified or discovers the violation and a correction of the borrower’s choice is made to either:

o make the loan Section 32 compliant; or

o change the terms of the loan so it becomes a qualified RESPA loan; or

within 60 days of the lender’s discovery of the violation and before the borrower institutes any action, the borrower is notified of the violation and corrections are made to either:

o make the loan Section 32 compliant; or

o change the terms of the loan so it becomes a qualified RESPA loan.

No lender or assignee is liable for changes to make a mortgage qualified or Section 32 compliant if the borrower obtained the mortgage through fraud.

Hybrid ARM disclosure
15 U.S. Code 1631 §128
Added by H.R. 4173

A hybrid adjustable rate mortgage (ARM) is a loan with a fixed interest rate that adjusts to a variable interest rate after an introductory period. During the seventh month before the date on which the interest rate adjusts to a variable interest rate, the lender must provide the borrower with a written notice which includes:

the index or formula used to make adjustments or reset the interest rate, along with a source of information about the index or formula;
an explanation of how the new rate or payment is determined, including how the index is adjusted;
a good faith estimate of the monthly payment that will be in effect after the date of the adjustment or reset, along with the basis for the estimate;
a list of alternatives the borrower may choose to pursue before the date of adjustment or reset, including the actions borrowers must take to pursue the alternative, including:

o refinancing;

o renegotiating loan terms;

o paying forbearance charges; and

o pre-foreclosure sale;

the contact information for loan counseling agencies approved by the Secretary of Housing and Urban Development (HUD); and
the contact information for the state housing finance authority (California Housing Finance Agency (CalHFA)).

Other required Section 32 loan disclosures
15 U.S. Code 1638 §128
Added by H.R. 4173

For any consumer credit transaction other than an open credit plan:

When an impound account is established for the payment of taxes, insurance and assessments for an adjustable rate mortgage (ARM) loan, the lender must disclose:

the maximum rate permitted by the note, and the amount for payment of taxes, insurance and assessments; and
the amount of the fully indexed monthly payment of principal and interest and the amount including payment of taxes, insurance and assessments.

For all types of Section 32 mortgage loans, the lender must disclose the:

total amount of settlement charges;
amount of charges included in the loan;
amount of charges the borrower must pay at closing;
approximate wholesale rate of funds;
total amount of other fees or required payments.
total amount of fees paid to mortgage loan broker (MLB) in connection with the loan;
amount of fees paid directly by the borrower;
any additional amount paid to the MLB by the lender; and
the total amount of interest the borrower will pay over the life of the loan as a percentage of the principal of the loan.

For each payment period, a statement must be given to the borrower that lists:

the amount of principal obligation under the mortgage;
the current interest rate for the loan;
the date on which the current interest rate may reset or adjust;
any fee to be charged for prepayment of principal;
any late payment fees;
contact information the borrower may use to get more information about their mortgage;
contact information of counseling agencies available to the borrower that have been approved by HUD or a state authority; and
any other information the Federal Reserve (Fed) prescribes.

The Fed will create a standard form that includes the above information. The above information is not required to be disclosed if the lender, assignee or servicer provides the borrower with a coupon payment book that provides the same information.

Definitions regarding Section 32 mortgages
15 U.S. Code 1602 §103
Added by H.R. 4173

A Section 32 mortgage is a Real Estate Settlement and Procedures Act (RESPA) loan, other than a reverse mortgage or a purchase-assist loan, secured by the equity in the borrower’s principal residence which:

has an annual percentage rate (APR) at closing exceeding the prime offer rate for a comparable transaction by more than 6.5% (8.5% if the residence is personal property (mobilehome or boat) and the transaction is for less than $50,000);
is an equity loan with an APR at closing exceeding the prime offer rate for a comparable transaction by more than 8.5% ;
has total points and fees, other than bona fide third party charges, that exceed:

o 5% of the total transaction amount, if the loan is for an amount of $20,000 or more; or

o the lesser of 8% of the total transaction amount or $1,000 if the loan is for an amount of less than $20,000; or

the lender is allowed to collect prepayment penalties:

o more than 36 months after the loan transaction closes; or

o exceeding, in aggregate, more than 2% of the prepaid amount.

The APR will be:

for a fixed-rate loan, the rate in effect on the date of loan closing;
for a loan with a varying interest rate based on an index, the index rate from the date of loan closing added to the maximum rate permitted at any time during the loan; or
for any other transaction in which the interest rate may vary, the maximum rate allowed to be charged during the term of the loan.

When considering total points and fees included in the finance charge and compensation paid to mortgage loan brokers (MLBs), total points and fees will exclude:

premium provided by an agency of the federal or state government;
any amount not in excess of the amount payable under policies at the time of origination; and
any insurance premium paid by the borrower after closing.

Editor’s note — The Section 32 threshold has changed from an APR that exceeds by more than 8% the prime offer rate for a comparable transaction to an APR that exceeds by more than 6.5% the prime offer rate for a comparable transaction.

For an increase or decrease in the annual percentage rate:

when a mortgage is secured by a first trust deed on the borrower’s principal residence, and the APR will exceed the average prime offer rate by 6.5% for a comparable transaction, the change cannot result in a rate less than 6% or greater than 10%; and
when a junior mortgage is secured by the borrower’s principal residence, and the APR will exceed the average prime offer rate by 8.5% for a comparable transaction, the change cannot result in a rate less than 8% or greater than 12%.

Points and fees include:

all fees paid directly or indirectly by a borrower or lender to an MLB from any source, including an MLB who is also the lender in a table-funded transaction (a loan closed in the MLB’s name with funds advanced by someone other than the MLB and assigned at the same time to whoever provided the funds);
premiums or other charges at or before closing for any credit life, credit disability, credit unemployment, credit property insurance or any accident, loss of income, life or health insurance, or any payment for debt cancellation (insurance premiums, debt cancellation or suspension fees will not be considered financed by the lender);
the maximum prepayment fees and penalties the terms of the credit transaction provides can be charged; and
any prepayment fees or penalties incurred by the borrower if the loan refinances an existing loan made or held by the same lender.

When calculating total points and fees, one of the following will be excluded:

up to two bona fide discount points if the interest rate from which the mortgage’s interest rate will be discounted does not exceed by more than one percentage point:

o the average prime offer rate; or

o the average rate on a loan through which insurance is provided under title I of the National Housing Act (if secured by a personal property loan); or

up to one bona fide discount point payable to the borrower if the interest rate from which the mortgage’s interest rate will be discounted does not exceed by more than two percentage points:

o the average primer offer rate; or

o the average rate on a loan through which insurance is provided under title I of the National Housing Act (if secured by a personal property loan).

A bona fide discount point is a discount point paid by the borrower in order to reduce the interest rate or time-price differential applicable to the mortgage. The interest rate reduction must always be reasonable and consistent with industry norms.

Prepayment penalty parameters
15 U.S. Code 1639 §129
Amended by H.R. 4173

No Section 32 mortgage may contain a payment more than twice as large as the average scheduled payment made previously, unless the payment schedule is adjusted to the irregular income of the borrower.

A lender may not recommend or encourage default on an existing loan before or in connection with closing of a Section 32 mortgage that refinances the existing loan.

Lenders may only impose late fees on Section 32 mortgages:

in an amount less than 4% of the amount of the past due payment;
if the loan documents specifically authorize a late fee;
at the end of the 15-day period beginning on the date the payment is due (the period is 30 days in the case of a loan on which interest on each installment is paid in advance); or
once for a single late payment.

Late fees may not be charged on a previous late fee.

For loan agreements that use any payment to first pay off past-due principal, a lender may impose a late fee for any principal due until the default is cured.

No Section 32 mortgage can contain a provision permitting a lender to accelerate payment on the loan unless repayment of a loan is accelerated by default in payment, violation of a due-on-sale provision or another provision unrelated to the payment schedule.

No lender may directly or indirectly finance:

any prepayment or penalty fee in a refinancing transaction if the lender is the note-holder of the note being refinanced; or
any points or fees.

In the case of a Section 32 mortgage, a lender is prohibited from taking any action to:

structure a loan transaction as an open-end credit plan in order to evade government provisions; or
divide any loan into separate parts in order to evade government provisions.

A lender, successor in interest, assignee or any agent may not charge a borrower any fee to modify, renew, extend or amend a Section 32 mortgage or to defer payment.

Notice of trustee’s sale (NOTS) may be filed five days before lapse of Notice of Default (NOD) period

Reported by Jeffery Marino

The rules reported here shorten the amount of time mortgage loan trustees must wait to file a notice of trustee’s sale (NOTS) after filing a notice of default (NOD).

Civil Code §§ 2924 and 2924c
Amended by S.B. 1221
Effective: January 1, 2011

Prior to amending California Civil Code §§ 2924 and 2924c, mortgage loan trustees were required to file an NOTS no sooner than three months after the lapse of an NOD. This amendment allows mortgage loan trustees to file an NOTS up to five days before the lapse of the three-month NOD period, as long as the trustee’s sale is scheduled no sooner than three months and twenty days after the NOD has been filed.

Mortgage loan originator license endorsement guidelines for real estate licensees

Reported by Heather McCartney

The rules reported here establish the guidelines for MLO license endorsement.

A real estate licensee must hold an MLO license endorsement to perform mortgage services

Business and Professional Code §10137
Amended by: S.B. 1137
Effective: January 1, 2011

Any real estate licensee performing services which require a mortgage loan originator (MLO) license endorsement cannot be employed or compensated by a real estate broker without that licensee holding an MLO license endorsement issued by the Department of Real Estate (DRE).

Fines and/or imprisonment for individuals performing or advertising to perform MLO activities without DRE MLO endorsement

Business and Professional Code §10139
Amended by: S.B. 1137
Effective: January 1, 2011

A person acting or advertising himself as an MLO without the DRE MLO endorsement is guilty of a public offense punishable by:

a fine not exceeding $20,000;
imprisonment in the county jail for a maximum of six months; or
both the fine and imprisonment.

A corporation acting as an MLO without the DRE MLO endorsement is punishable by a fine not exceeding $60,000.

Licensees performing MLO activities without an MLO endorsement must notify DRE within 30 days or face fines

Business and Professional Code §10166.02
Amended by: S.B. 1137
Effective: January 1, 2011

A real estate broker or salesperson who makes, arranges or service mortgages must, within 30 days of performing these activities, notify the DRE in writing. Failure to do so subjects the licensee to a penalty of $50 per day for up to 30 days. On the 31^st day, the penalty will increase to $100 a day. This will continue until written notification is received or the accruing penalty reaches $10,000.

If a real estate broker or salesperson fails to pay this penalty, the commissioner may suspend or revoke his real estate license.

An HOA may request copies of a notice of default, a notice of sale and a trustee’s deed

Reported by Kelli Galippo

This rule clarifies a request by a common interest development (CID) homeowners’ association (HOA) for a mailed copy of any recorded notice of default, notice of sale or trustee’s deed upon the sale of a unit within the CID.

Civil Code §2924b
Amended by: A.B. 2016
Effective: August 13, 2010

A homeowners’ association (HOA) may record a request for a copy of the notice of default, notice of sale and trustee’s deed on an owner’s unit within the common interest development (CID) governed by the HOA.

An HOA’s request for notices recorded must include a legal description or the assessor’s parcel number of all parcels governed by the HOA.