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Compliance Corner (8/28/13)

By: Peggy O’Keefe, President


2013 to be turning into a significant year for mortgage regulatory compliance and the process is becoming much more fluid than a strict mandates and unyielding deadlines of the past.  The CFPBs flexibility may commendably aim to make a workable set of rules for lenders while providing clarity and fairness to the consumers, but it makes tracking and implementing the changes more challenging as the newer regulations and interpretations are not only many but often nuanced and layered in their complexity.

Beginning this year, new disclosures required by Dodd-Frank that were to go into effect on January 21, 2013 were delayed to align with the implementation date of the new integrated mortgage disclosures (TILA and RESPA) which is still pending.  Dodd-Frank Rules that went into effect this June and those slated for January 10, 2014 are still not quite final.  Just this week various regulators are considering revisiting the 20% payment requirement for QRM. There were recently announced proposals to modify and/or clarify to Loss Mitigation Provisions, “Points and Fees” definitions, Rural and Underserved Areas ATR and rules and exemptions, Loan Origination Compensation and even adding a new subsection to Regulation Z to clarify the financing of credit insurance premiums.

Nonetheless, there were routine changes to the User Document Library so far in 2013 and they are as follows: updates to the Michigan, Virginia, Illinois, North Carolina, Montana, Illinois, and Washington State Housing Authorities/State Bond program documents.  Minor revisions were made to three VA forms – the Verification of VA Benefits 26-8937, the Request for Certificate of Veteran’s Status 26-2861a, and the VA Loan Analysis 26-6393. There were more significant changes made to three USDA Rural Development forms - the RD 1980-21, the RD1980-18 and AD 3030. HUD forms such as the FHA Gift Letter, The Informed Consumer Choice, and Important Notice to Homebuyer 92900; the HUD 92541 Builders Specs as well as the 92564CN Get a Home Inspection were updated.  We added a P.O. Box address prompt to several MERS Assignments, updated the IRS 1098 to the 2013 version, revised language to the Revocable Trust Rider, and updated the historic example in the HELOC Important Terms Disclosure. State disclosures that were updated include the Ohio Homebuyer Protection Act Notice, the California Per Diem Disclosure, the  California Financing Law disclosures and the Texas Broker Disclosure for changes in regulators name,  addresses or code numbers..  Updates were also made to the Wisconsin Application Notice add the Hew Hampshire Fee disclosure.

 New forms disclosures were added to inventory due to regulation changes or at our client’s request , these include a New Jersey Right to Attorney Disclosure , a Servicing Transfer Letter (addressing optional insurance), The Indiana Property Tax Benefit Disclosure, a New York Property Insurance Disclosure, the DC Financing Agreement, a Utah Closing Disclosure, a Maryland Right to Rescind, a Maryland Seller Paid Fees Disclosure, and a Massachusetts Net Benefit Worksheet a new E-Delivery Consent Form as well as the VA 26-1649-1 Escrow Agreement for Site Improvements

 We anticipate a flurry of new or revised disclosures requirements that will are slated for implementation January 10, 2014, changes to the existing ARM disclosures, requirements and possible website for geographically relevant homeownership counseling lists, revised transfer of servicing disclosures, new initial periodic statements for certain ARMS, NMLS ID tracking on notes and security instruments, appraisal rights disclosures and worksheets for ATR are all in process.

Compliance Corner (12/3/12)

Mortgage Lenders recently had welcome news on the compliance arena. In November, Basel III requiring stricter bank capital requirements was postponed. This is considered a positive development for lenders and consumers as is widely believed that increased capital requirements would inhibit mortgage lending by community banks and other lenders while also significantly curbing HELOC and second mortgage production. FHA just extended its waiver anti-flipping restrictions, thus allowing real estate investors to continue to actively participate in the tenuous housing recovery. FHFA announced last week that Fannie Mae and Freddie Mac loan limits will remain unchanged at this year’s level for next year.

The CFPB announced in some new disclosures required by Dodd-Frank that were to go into effect on January 21, 2013 were delayed in order to synchronize the timing the implementation date of the new integrated mortgage disclosures (TILA and RESPA). Examples of the disclosures that have been delayed are the negative amortization warning disclosure, escrow cancellation, appraisal management, aggregate origination fee and settlement fee disclosures, creditor partial payment policy disclosure, certain monthly payment and mandatory escrow disclosures.

As always, there were routine changes to the Mortgage Builder User Document Library and they are as follows: The IRS form 8821, Tax information Authorization, 2012 revision was just released and in process. The HUD Mortgagee Assurance of Completion form 92300 was updated for the OMB date as was the DE Analysis of Appraisal 54114. A separate VA Description of Materials was added to inventory the VA updated its form prior to HUD (261852/92005) doing the same. VA Report and Certificate of Disbursement was updated to the 9/2012 version. Thanks to a valuable client suggestion the FHA Informed Consumer Choice disclosure was improved and updated to reflect the reduction in premiums for certain streamline refinances.

A QAR form was added to inventory to assist lenders with the questionable activity reporting requirements. There have been updates to the Michigan, Montana, North Carolina and Virginia state bond agency forms. State specific disclosures have been revised and the Massachusetts Waiver of Counseling was rescinded, the Florida Anti-Coercion form was updated to more closely align with the regulatory model form.


Compliance Corner (9/21/12)

The CFPB packed a punch when it delivered its highly anticipated changes to Regulation Z (TILA) and X (RESPA).   As for now these changes are not yet final and the various comment periods are still open with deadlines coming up in the next few weeks and months.  Thus far the CFPB has been solicitous and attentive to the vast response from banking and mortgage industry regarding the implementation of these and other Dodd-Frank regulatory changes. This continued cooperation between lender and regulator is essential for a smooth implementation for some of the most significant changes to the regulatory framework our industry has faced in decades. 

Following is a very broad summary of some of the more significant topics being proposed:

 High Cost Loans:  The proposed definition of a High Cost Loan may greatly increase the number of loans covered under the HOEPA requirements of Reg. Z has been paired with more demanding consumer counseling requirements under Reg. X. There is also a new classification of loan defined as “Higher Cost” with expanded disclosure and tougher appraisal standards.

Loan Officer Compensation:  Rules regarding bans on certain fees and continued bans on upfront points, new rules on compensation bonus pools, pay structures, safe act requirements are all part of the mix in the updates to Reg. Z.  The comment period regarding compensation has just extended so get your comments in soon.

 Integrated Mortgage Disclosures under RESPA: The GFE and initial TILA are being replaced with a 3 page “Loan Estimate” and the HUD-1 and final/revised TILA are being replaced with a 5 page “Closing Disclosure”.  Among the many changes, CFPB has notably redefined the content of APR calculations there are narrower tolerances and some items previously excluded will now be considered finance charges.  Significantly, there is a proposed requirement for the final “closing disclosure” to be made available to the applicant 3 day prior to closing.

Mortgage Servicing:  There is a lot on the table as most servicing functions are addressed ranging from payoff statements, payment processing, periodic loan statements, ARM notices, forced placed insurance, early intervention for delinquent borrowers to loss mitigation.  Servicing has undergone much scrutiny, perhaps in response to much-publicized deficiencies uncovered during the foreclosure crisis.

 Aside from the excitement of TILA and RESPA we have had a few routine changes to the Mortgage Builder User Document Library and they are as follows:

Termite Forms 99A and 99B were updated for a new OMB date.  Hawaii’s legislature passed H.B. 188 requiring a new initial disclosure which has been added to the library.  The Texas Conditional Approval Letter for both brokers and bankers were revised.  Prompts for the required mortgage broker numbers were added to the Nevada security instruments and notes. The USDA added form AD3030 which is now requirement to be in all USDA loans packages. The North Carolina and Virginia Bond Authorities modified a few documents as well.
 Compliance Corner (6/26/12)

 While we wait on the fate of major compliance issues such as the TILA/RESPA merger, QRM, or the fate of Volker rule and there have been regulatory tweaks and modifications than needed to be attended to, here are some the highlights from the past few months.

The lenders were awaiting the revised Standard Flood Hazard Determination Form will be pleased to know it was finally released by FEMA and carries a 4/12 revision date.  There were only minor changes to the content and the most significant change was the form number itself which had been the 81-93 for years and is now the 086-0-32.  There has not been a long term re-authorization of the National Flood Insurance Program by Congress, the most recent extension in a series of many was on May 30th and it was for only 60 days.  These last minute reauthorizations are been disruptive to lending in flood prone areas.

FACT Act forms regarding credit scores were updated to reflect the change in regulator information (name and address) from the Federal Reserve to the CFPB.  No other changes were required. 

Security Instrument changes were announced by Fannie and Freddie for Mississippi (3025) and Illinois (3014).  Illinois law requires that the interest rate appear on the security instrument and we  were instructed to add to the following language to the definition (D) “Note” loan:  . . . at the rate of ____%.  The State of Mississippi now requires address of all parties on the security instrument for recording so Fannie and Freddie authorized the change the MERS definition as follows: (E) “MERS” …. and MERS has a mailing address of P.O. Box 2026, Flint, MI 48501-2026 and a street address of 1901 E Voorhees Street, Suite C, Danville, IL 61834.  The MERS telephone number is (888) 679-MERS.

Additional recent changes within Mortgage Builder User Document Library are as follows: The IRS form 1098 update to reflect the 2012 revision.  Revisions to the Washington, Wyoming and North Carolina Bond Program documents were announced and the forms were subsequently updated. Revisions were also made to The Idaho Flock/Lock Disclosure, the Maine Tangible Net Benefit Disclosure and the Wisconsin Prepayment Statement to reflect minor language updates

Compliance Corner (2/23/12)

While the year is still young perhaps it’s an opportune time to look at where we stand on the more “macro” issues impacting compliance.  A very significant Dodd-Frank requirement effective this summer is the Volcker rule, which reinstates the ban on depository banks trading on its own behalf.  There has been the expected push back from Wall Street and although this rule does not directly affect the daily routine of mortgage banking it has a fundamental impact on the country’s finance structure. 

Congress’s recent $33 billion 2-month payroll tax cut extension is funded by a 10-year increase in guaranty fees that Fannie Mae and Freddie Mac charge lenders to guaranty their home loans effective April 1st. Fortunately, the second extension for the tax cut for remainder of the year left the guaranty  alone.  G-Fees on FHA and VA loans will also increase in cost due to this law, but the government hasn’t said when those fees will go into effect. This is addition to  FHA’s increase in its upfront  insurance premium from 1.75% to 2.25%, the second increase in the past two years in order to shore up the value of the FHA's reserves to cover losses.

The Department of Treasury, FinCEN bureau issued a final rule in the Federal Register on February 14th that effective on April 16th non-bank mortgage lenders and originators will be required to report suspicious activity (SARs) and establish anti-money laundering programs under the Bank Secrecy Act. 

 And as an update to the UMDP, Fannie Mae and Freddie Mac delayed the date for full implementation of Phase 1 of the ULDD until July 23rd.

The CFPB is in the fifth round of revision to the proposed GFE/TILA combination disclosure form, after receiving continued suggestions from the mortgage banking community in the past several months.  The goal is to make this touchstone disclosure work well for the consumers, regulators and lenders. Industry input is still being requested so continue let your voice be heard. 

Additional recent changes within Mortgage Builder User Document Library are as follows: The IRS form 4506T and the 8821 were revised to reflect the respective 1/2012 and 10/2011 revision dates. More revisions to the Washington Bond Program documents were announced the effected forms were subsequently updated. Revisions were also made to Ohio Homebuyers Protection Act disclosure.


Compliance Corner (11/21/11)

For the time being changes within TILA, RESPA and ECOA are quiet and QRM and other Dodd-Frank requirements while imminent are still at bay.  So now, Lenders must face the challenges of the Federal Housing Finance Agency’s Uniform Mortgage Data Program (UMDP). Briefly, UMDP is an effort to improve appraisals and data standards.  Fannie Mae and Freddie Mac announced a timeline for the use of UAD appraisal form for application taken on or after September 1st. Lenders will be required to submit the appraisal data to the Uniform Collateral Data Portal for loans delivered on or after March 19, 2012 for loan with application dates on or after December 1st. 

In other business, Bank of America announced its exit from correspondent lending at year-end and efforts to sell this business unit were unsuccessful.   Nevertheless, there have been updates to a few of their operational forms such as the stacking sheets, checklists and the purchase voucher.  We will continue to update these forms to licensed users until the B of A loans have cleared the pipeline.

Additional recent changes within Mortgage Builder User Document Library are as follows: The USDA RD 1980-211 was revised twice as result of the shift by the Rural Housing program to reduce the upfront premium and the implementation of an annual premium fee.  The VA Certificate of Eligibility was updated and now carried a 9/11 revision date. FHA updated the OMB date on its form 56001.  The Washington, North Carolina and Wyoming bond programs announced revisions and forms were subsequently updated. Revisions were also made to state disclosures in Connecticut, Maine, Montana, Oregon, Indiana and Rhode Island.

Compliance Corner (8/24/11)  The GSE/FHA loan limits revert to “normal” as established by HERA. For FHA mortgage originated after September 30, 2011, the conforming loan limit is $417,000 for a one-unit property, and the maximum limit for a one-unit property in certain “high cost” areas of the continuous United States will be adjusted downward to $625,500 from $729,750.  See HUD mortgagee letter 11-29 for details. The Federal Reserve Board (Regulation B-ECOA) and the Federal Trade Commission (Regulation V - FCRA) issued final rules implementing credit score disclosure requirements of the Dodd-Frank Act.  In a nutshell, if a creditor uses credit scores for decision making the rules require disclosure of credit scores and related information to consumers in the risk-based pricing and adverse action notices.Regulation V was revised to amend for risk-based pricing notices and to add model forms that reflect the new requirements. The final rules also amend the model notices in Regulation B (Equal Credit Opportunity) that combine the adverse action notice requirements for ECOA and the FCRA to reflect the new disclosure requirements. These regulatory revisions although made by the FRB and the FTC will be enforced by the new Consumer Finance Protection Bureau (CFPB).These changes have been implemented within the Mortgage Builder disclosures documents by adding new language to the statement of credit denial and the risk based pricing notices. Additionally, the obsolete FCRA 311 disclosure was retired. There are a few ways lenders may comply either by providing credit scores automatically, by using the safe harbor notice or using situational risk based pricing notices.  Additional recent changes within Mortgage Builder User Document Library are as follows: Three new Rural Housing Forms have been added to inventory, the AN-4575A, 4575B, and 4575C, which are lender worksheets and checklists. OMB dates were updated on the HUD 92005, HUD 9746A, and the HUD 92700.  State disclosures have been updated in Texas, Nevada, Montana, Idaho and Minnesota.  Recapture Tax forms were revised for various state housing agencies to reflect new median income statistics.


Just in case you have not noticed there is a new addition to the regulatory alphabet; the CFPB which is the brand new Consumer Financial Protection Bureau.  The CFPB was created Dodd-Frank and is an independent bureau within the Federal Reserve and is the consumer finance watchdog also charged with being the responsibilities of rule-making, supervision, and enforcement for Federal consumer financial protection laws. The bureau is slated to become operational on July 21st when consumer protection officials from some federal banking agencies will be transferred to the new entity.  The ultimate structure of this bureau is anything but finalized, no director has been nominated as of yet and it is possible that Elizabeth Warren will be selected in a recess appointment.  Many in Congress are seeking to weaken the power of this bureau through proposed restructuring.  Even the transition date of July 21, 2011 is in question as Congress seeks to delay the transfer of power.  Nonetheless, July 21st is an important date as of now as pending changes to existing regulations are scheduled to either be implemented by that date or will transfer to the new bureau. Amendments to Adverse Action Notices and Risk Based Pricing both part of Fair Credit Reporting Act (FCRA) are examples of changes required before July 21st. The implementation date for changes to the Section 32 (TILA) test is not so clear.  Some lenders believe Dodd-Frank changes should be in place by July 21st others do not; if you have any insight please let us know.  As for changes to be implemented after July 21st is the widely publicized initial mortgage disclosure proposed by the CFPB. The CFPB has reached out lenders and consumers alike for the comments on these prototype disclosures which may ultimately replace the initial TIL and GFE as early as September.   This new disclosure is a significant development in itself will also have a ripple effect as many other disclosures such as state specified disclosures such as MLODS (mortgage loan originator disclosures) and statutes are based on the RESPA and TILA.    In the meantime, there have been recent changes within Mortgage Builder User Document Library they are as follows: Two new Rural Housing Forms were added to inventory, the RD-1980-18, the Conditional Commitment and AN-4550, the Documentation Checklist.  The 9546G, the Lead Paint abatement agreement was also added  for use with certain  203K loans.  OMB dates were updated on the VA261856/HUD 92544, the HUD 92561, and the 92900B. The VA form 16-1880 Request for Certificate of Eligibility was also revised. New state disclosures added for South Carolina, Texas, DC, and there were updates to existing disclosures for Washington, Ohio, Texas, Idaho and Colorado.


Compliance Update  (2/23/11)

 This January we saw the implementation of a significant change to the TILA disclosure, which replaced the payment schedule with a payment table. In April, the next Regulation Z shoe drops when the originator compensation rules take effect. The purpose of the new requirement is to protect borrowers from unfair, abusive or deceptive practices that may arise resulting from originator compensation. “Brokers” need to tread carefully regarding these new requirements particularly the new prohibition against “steering”.   An originator may not “steer” a consumer to a particular transaction based on the fact the originator will receive greater compensation from the creditor in that transaction compared to other loans the originator offered or could have offered (unless the consummated transaction is in the consumer’s interest).  Please note this concerns not only brokers but also impacts retail originators selling to another wholesale lender. There is a “safe harbor” provision to the steering prohibition if the consumer is presented with options under each “type of transaction” in which the consumer expresses an interest. We are working with Mortgage Builder to create such a disclosure.  No model forms are provided within the regulation but it appears that the large wholesales are making such a disclosure mandatory.    Any thoughts, insights or ideas regarding this development of this disclosure are more than welcome. More TILA changes are coming and some already announced, but the newly created Consumer Finance Protection Agency will provide future guidance.  This agency is also in the process of creating a single new disclosure covering both GFE and TILA. We will keep watch for these important developments expected later this year. There have been recent changes within Mortgage Builder User Document Library they are follows: The increasing popular Rural Housing Program’s form USDA form 1980-21, Request of Single Family Housing Loan Guarantee, has been revised. The Kentucky security instruments were updated to include a prompt for the lender’s principal place of business. Massachusetts security instruments were updated for “loan originator” prompts as an alternative to the existing “mortgage broker” data prompts. The IRS released a revision to the W-9 form and the 268261a, Request for Veteran’s Status, was added to inventory. 

Changes to state specific disclosure inventory were also made.  The Wisconsin VRMD, a Washington state disclosure, and the California MLOD disclosures were updated.  The state of New York forms 953and 954 were added along with 2 new fee disclosures. The Virginia Choice of Settlement Agent was added along with the North Carolina Broker disclosure, as well as a Missouri application form. 

Compliance Update (11/20/10) The anticipated tidal wave of financial reform is turning out to be just a steady stream of revisions to existing regulation.  Most recently the Federal Reserve issued its consolidated 2009 and 2010 changes to Regulation Z, Truth in Lending.  For mortgage lenders the most significant change is to the TILA disclosure wherein the payment schedule is replaced with a payment table.  This tabular format reflects product type and is structured based on the several new model tables published as part of the proposed regulation changes.  This new format is mandatory in late January but more changes are still possible, as the official comment period has just closed.  The Fair Credit Reporting Act has also been updated and has subsequently created two new FACTA disclosures regarding credit scores. There have been much activity impacting the Mortgage Builder User Document Library. Freddie Mac has retired its Interest Only products so all the Freddie Mac Interest Only Notes and Riders have been removed from inventory; however Freddie announced and new Bi-Weekly product and the applicable documents are being been made available. A new line of Alabama state specific notes have been added to inventory which contain the Alabama Caution notice. For those who prefer not to use this additional language they may continue to use the corresponding multistate version of the note.  With very little lead-time the joint FHA/VA addendum to the URLA was revised adding the new sponsored originator data, please see Mortgagee Letter 2010-33 for details.   While on the topic of the URLA, the Spanish version of the revised 1003 is now available. The Informed Consumer Choice Disclosure was updated to reflect the change in the upfront MIP and the FHA form 92918 Negative Equity Certification was added to inventory in accordance to Mortgagee Letter 2010-35. The Transmittal for Guarantee Fee for Native American Loan Guarantee Program, form 53038,  is also a now available because of user request. Finally, we had changes to the state specific disclosures in Ohio, and added new disclosures for New York and Louisiana.

Compliance Update (8/20/10)  The much anticipated Financial Services Reform was signed into law July 21st.” FinReg” or as it   officially known as - the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010,   creates stricter rules for the way business conducted by Wall Street bankers and includes the establishment of a new Bureau of Consumer Financial Protection, whose mission will be to oversee consumer financial products offered by banks, mortgage companies, credit cards, debt-settlement firms, loan providers and payday lenders. It will have the authority to write regulations, perform investigations and act on consumer complaints. It is significant to note that the fate and future of Fannie Mae and Freddie Mac was not addressed.  Agency reform is expected to be debated beginning this Fall.  In the meantime we time will tell how FinReg and the future handling of Fannie and Freddie will affect us all.   July was a busy month as Federal Regulators issued the final rules effective October 1st which requires loan originators employed by financial institutions to register with the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE). Each loan originator is required to obtain a unique identifier number through the registry that will remain with them for life.  Federal agencies said the registries might start accepting federal registrations as early as January. Banks and loan officers will have 180 days to comply from the time federal agencies announce the date their registry will begin accepting registrations. The non-bank originator deadline was July 31st. VA recently  issued Circular  26-10-9, which requires lenders to itemize line 1200 on the HUD-I Settlement Statement, (Title Charges and Lender’s Title Insurance) in the same way it requires the itemization of line 801 (Origination Charges.) In addition to the break down of the charges, the payer of each charge must be listed to make certain the veteran does not pay any unallowable charges. This change is effective October 1, 2010. We have also completed a revision of our line of FHA security instruments to better synchronize the non-uniform covenants found in the Fannie/Freddie security instruments.

Compliance Update (6/2/10)

 In recent months, the direction of regulatory compliance has been somewhat adrift, meandering though the maze of existing mortgage regulations. Until we see any real financial services reform, we do not expect any significant regulatory changes in the near future.  Meanwhile, lenders have had busy digesting last round of regulatory changes.   Although the new RESPA rules went into effect January 1st, lenders have been dealing with the compliance aftermath by addressing some practical disclosure considerations.  Most notably the new rules omitted the “cash to close” details previously provided in the Good Faith Estimate.  Working with MortgageBuilder, we have finalized as Cash to Close Worksheet to provide the transaction details missing in the current GFE and have tweaked the Providers List to add room to disclose a range of charges for services provided.  In addition, a revised Spanish language GFE read along form has been added to inventory.  Because of the new GFE format, a few state disclosure forms that were based on the old GFE format needed updating. In particular, the Colorado Mortgage Loan Originator Disclosure was revised since the new GFE contains is not signed by the applicant.  Other state disclosures added recently are the Indiana Loan Broker Agreement, the Rhode Island Non-Refundability of Loan Fees, the Tennessee Notice to Borrower, and for California, the California Finance Lender Law Stare of Loan, the CA Machines Copies Notice, the CA Borrower Statement of Participation and CA Appraisal Disclosure. .The agencies and insurers have been quiet these past few months; FHA had a housekeeping update the 203K Draw Request HUD form 9746A, to address the Paperwork Reduction Act language.  Freddie Mac updated form 90 the verbal VOE  and Form 91, the Income Analysis  form both carry a 4/10 revision date. We also added to inventory the MERS version of  Fannie Mae’s  New York Consolidation, Modification and Extension Agreement - form 3172. And finally, due to ever increasing REO sales an alternative Truth in Lending Disclosure containing a Total Sales Prices box has been added to inventory

Compliance Update 2/19/10

RESPA reform has been front and center in the compliance universe these past few months.  Lenders and HUD alike are making final adjustments and addressing issues that have surfaced now that the use of new HUD-I Settlement Statement and Good Faith Estimate is now mandatory. One such tweak was the much-anticipated revision of the HUD Settlement Cost Booklet, it is now called “Shopping for your Home Loan” and the PDF is available on HUDCLIPS at Please note that the GFE Acknowledgment Form does contain an acknowledgment for the receipt of this booklet. Also of note, we are working with MortgageBuilder to create a new worksheet to replace some information found on the earlier versions of the GFE, specifically regarding estimated monthly payments and cash needed to close.  This is not a mandatory form nor is it any official part of the RESPA revisions but it is a tool lenders may find useful when addressing commonly asked questions.  VA issued a circular 26-10-01 in response to the new RESPA rules. This circular provides guidance regarding the fees and charges veterans may pay when obtaining a VA loan.  The 1 percent fee origination fee maximum is still in effect; but itemized fees making up the lenders origination charge must be detailed in the 800 section of the HUD-1 and/or by use of a separate origination statement.  As a result, the Origination Statement Itemization (VARESPA) has been added to inventory. Use of this form is not mandatory until May 1st. VA circular 26-10-01 also eliminated the requirement for the use of the Interest Rate and Discount Disclosure Statement (GCC-546) as this information is now addressed in RESPA. In order to make VA Lender disclosures a little easier we created a new form the VA Lender Certification (VACERTSLND) that is a consolidation of various Lender certifications required by the VA. We hope lenders find use of the consolidated form less cumbersome.  The IRS recently revised two of their forms commonly used in mortgage lending. Forms 4506 Request for Copy of Tax Form and the 4506T Request for Transcript of Tax Return now carry a January 2010 revision date. Per Mortgagee Letter 2009-19, FHA Condominium Approval Process, a new certification is now required.  We have added the required FHA Condominium Certification. (FHACONDOCERT) to inventory.  

As structural regulatory reform debate regarding banking and lending drones on in Washington, it leaves mortgage lenders grappling with the matrix of state regulations that continue to evolve in the void.  As a result, we continually make available to new and updated state specific disclosure forms to the Mortgage Builder forms library. Lenders should review these forms to determine if they are necessary for their particular circumstances.

Compliance Update 11/18/09

As you are undoubtedly aware, some of the most common of forms have gone through recent revisions. Here is a recap. The Underwriting Transmittal (Fannie Mae form 1008/Freddie Mac form 1077) dated 06/09; is mandatory for mortgage loan applications taken on or after January 1, 2010. The Transmittal was updated for new project classification codes.  The Uniform Loan Application (Fannie Mae 1003/ Freddie Mae 65) dated 6/09 was updated for FHEA data elements, specifically the Loan Originator ID and the Loan Origination Company ID, this had a mandatory use date of January 1, 2010 and now has a new deadline of 7/1/2010. The HUD-I Settlement Statement was revised last fall and will be mandatory January 1, 2010.  This is a significant revision and in order to accommodate the new data requirements and format changes it is much lengthier than previous versions.  The new Good Faith estimate is to be used in tandem with the new Settlement Statement that has also subsequently has grown in length due to increased content.  We have added two additional relate forms; one is he GFE New Construction Disclosure.  This is a disclosure form contains cautionary notice regarding a 60 day timeframe for estimates.  The GFE List of Providers essentially replaces the GFE Addendum. These disclosures will only be necessary when circumstances trigger them.   As a reminder, the changes to Truth in Lending Disclosures were effective in October.  The primary changes were the requirement for a mandatory use of an initial TIL for refinances, new “section 35 “ triggers and the modification to the TIL add the following language: “You are not required to complete this agreement merely because has have received this disclosure or signed a loan application.   There was a minor update on the Verification of VA Benefit form 26-8937, this was a “housekeeping revision” as it’s is a 2006 revision recently posted and carries no mandatory usage date.   We added the following additional state disclosures; most only have limited application and are not typically required in many circumstances.  Please use only as necessary.  Verification of Pre-purchase Counseling and Acknowledgment of Risk Disclosure - This is to be used Ohio for certain High Cost Loans.Notice to Borrower  - This is for Indiana High Cost Loans mandatory January 1st. Mortgage Loan Originator Disclosure – This discloses originator/broker compensation in Montana. Disclosure of Fees Earned by Mortgage Broker - This is self-explanatory and to be used in Nevada.Virginia Notification to Mortgage Applicant -  This covers terms, locks and processing time.Kansas Mortgage Business Act – Information for where borrower complaints can be heard.Missouri Collateral Protection Coverage Notice - This explains forced place coverage.

Compliance Update 8/25/09

The anticipated revision to the Universal Residential Loan Application (URLA Fannie Mae 1003/Freddie Mac 65) was released to accommodate the Federal Housing Finance Agency’s (FHFA) loan level origination data requirements.  In other words, this information will allow for easier tracking of loan originators by loan.  The revision, mandatory January 1, 2010, made to Section X on page 3 of the form changed the term “Interviewer” to “Loan Originator” and space added for the Loan Originator ID and Loan Origination Company ID.   Fannie Mae updated its version of the Underwriting Transmittal form 1008 (Freddie Mac form 1077) dated 06/09; this revision is required for manually underwritten mortgage loan applications taken on or after January 1, 2010. There are new project classification codes for Refi Plus™ loans secured by properties that are located in condo, PUD, or cooperative projects and for projects approved through the Project Eligibility Review Service (PERS). Freddie Mac released two new forms, form 90 and form 91.  Form 90 is a new Verbal Verification of Employment that lenders may use to document verbal verifications.   Form 91 is an income analysis form to assist underwriters with self-employed loan applicants.  Both forms are optional and created for lender convenience; they carry a date of 10/09. HUD released mortgagee letter 2009-19 outlined a new condominium project approval process.  This letter also contained a link to a minor format revision to the FHA Condo Rider model.  We subsequently made the change to our FHA Condo Rider. As always, there is regulatory activity on the state level affecting forms and disclosures. The Colorado Department of Real Estate revised forms to reflect changes to the SAFE Act, thus changed the term “broker” to Mortgage Loan Originator.  This change in terminology has been made our  Colorado state specific disclosures.    The recent changes in margin requirements for the State of Ohio were effective July 1, 2009.  What appeared to be a straightforward change created havoc for lenders in a handful of Ohio’s 88 counties.  These few counties interpreted this change to mean new font requirements and rejected any documents that contains or mark, notary seal, initial that may stray into the margins based on their “margin template”.  Any rejected documents are assessed a $20.00 non-conforming document charge if resubmitted.  As a result, we deleted all initial prompts and increased the font to 10 point for all prompts and taglines on Ohio mortgages.  Several forms vendors including us contacted the Ohio Attorney’s General Officer intercede with these counties but the AG was unable to do so under Ohio law.  The A.G. office did recommended that any complaints regarding any unreasonable rejection of documents by an Ohio County Recorder’s Office be addressed to county’s chief legal officer (typically the County Prosecutor’s office) for clarification of the ORC 317.112.
Compliance Corner (6/01/09)By: Peggy O’Keefe, PresidentFinancial Forms and Services, Inc.  

RESPA reform had a new development this May when HUD rescinded an updated definition of “required use” and returned to its pre-reform definition.  “Required use” refers to deceptive practices resulting from certain controlled business relationships.  Although this was considered a small victory for lenders, the much hoped for regulatory combination Truth-in- Lending and the RESPA failed to materialize.  Since there is little time to effect any change by the deadline of next January, it looks as if the reforms of last fall may be final.  Truth in Lending and RESPA are two separate regulations and are governed by two different agencies so coordination is that much more difficult.


At this point, we are going forward with the existing revisions to Good Faith Estimate and HUD- 1, and HUD-1A Settlements Statements. HUD has opened a new RESPA page on its website; it is convenient source for all their latest information and relevant reference materials.

 HUD has released a mortgagee letter dated May 29, 2009, and it covers and clarifies the first time homeowner’s tax credit and how its use toward  down payments, closing costs and interest rate buy downs.    This letter also has links to the IRS webpage and IRS form 5405.  This month FHA also posted on HUDCLIPS the 10/08 version in PDF of the HUD booklet - Fair Housing and Equal Opportunity for All.  We have updated the initial Truth in Lending Disclosure, which includes the addition of new required language such as "You are not required to complete this agreement merely because you have received these disclosures or signed a loan application."  New TIL regulations are effective this July. We had added to inventory a few state disclosures forms most to be used only in certain circumstances and primarily required by brokers.  The MLDS was added for California, as were a generic and several state versions of an Advance Fee Disclosure.  We added a payment letter for Ohio to deal with special timing disclosure requirements as well as a broker disclosure for DC (which needs to be printed in on red paper!)   

We expect a revision to the 1003, URLA, in relation to fraud reporting. No major reformat is anticipated.  Fannie and Freddie both stated it would be released in the near future.



Compliance Corner (2/20/09)By: Peggy O’Keefe, PresidentFinancial Forms and Services, Inc.  On February 18, 2009, President Obama unveiled the Homeowner Affordability and Stability Act.  This Act aims directly at the housing and mortgage markets.  The major points of this Act are assistance for underwater mortgagors allowing for LTV’s up to 105% for current, agency related conforming loans. The Treasury will continue its support of Fannie Mae and Freddie Mac though the purchase of agency issued securities to keep conforming mortgage rates low, and an announcement of a controversial 75 billion-dollar Homeowner Stability Initiative.  This initiative creates new requirements and incentives for loan modifications; allows for certain cramdowns; and provides for community housing support.   The changes to existing FHA programs and tweaking of the Hope for Homeowners program are expected, we will review the details for documentation changes when released in early March.  There has been a flurry of recent updates to existing forms. Among these updates were changes to Fannie and Freddie modification forms.  This update is significant because of the anticipated increase in modifications due to Homeowners Stability Initiative.  The primary reason for the revision was the removal of the Borrower Waiver Provision. Fannie and Freddie will not require any document redraw which contains this language but the provisions cannot be enforced. Revisions to the 3172, 3179, 3161 and 3192 are in process now.  VA updated its Report of Certification of Loan Disbursement, 26-1820; it carries a December 2007 revision date but only posted recently.  The VA Loan Summary 26-0286 was updated to add a new section to the form and carries a new revision date of November 2008.   FEMA updated its FEMA 81-93 form primarily for Paperwork Reduction Act purposes.  The FHA Informed Consumer Choice Disclosure was updated for the new 96.5 down payment requirement.   Additionally, we added the following to the  forms library: the CIP or Customer Identification Program Checklist, and the VA Escrow Agreement for Postponed Exterior Onsite Improvement, form 26-1949.  A  Generic Tangible Net Benefit (TNB) Worksheet was added for those states that mandate a worksheet but do not require a specific format.  We added a state specific version for Rhode Island to other states specific worksheets that are already in inventory. A new Servicing Disclosure statement was added as a response to REPSA regulation changes. Three states have a new requirements resulting in additions or changes to the standard form inventory.  Mississippi released new statewide recording standards, new margins and information positioning requirements resulting in re-format of most all Mississippi security instruments.  These new documents will be available on before the mandatory use date of July 1, 2009.  New York now requires a new co-signer disclosure.  Pennsylvania is now requiring a notice regarding certain loan features both will be available soon.



Compliance Corner (11/20/08)

By: Peggy O’Keefe, President

Financial Forms and Services, Inc.

At long last, Real Estate Settlement Procedures Act (RESPA) reform was finalized by HUD. This is the first significant RESPA rule change in 30 years. All lenders and brokers will now be required to use a standard Good Faith Estimate (GFE). This new GFE is more than a brief summary of anticipated closing costs it is a multi-page prescribed form detailing important loan terms and providing more insight into costs. The HUD-1 Settlement Statement is also revised. The first two pages are similar in design as the previous versions but there are new line item cross-references to the GFE; additionally, there is a third page covering loan terms as well as detailing any difference in line items between the estimated and actual closing costs. The difference between estimated and actual costs have been capped and it is anticipated by HUD to shave off about $700 per loan in consumer loan fees. Details of this rule change can be found in the Federal Register dated Monday, November 17, 2008. The effective date is 60 days for the new rule, but lenders have until January 1, 2010 to implement the new versions of the HUD-1 and GFE.

HUD released loan limits in its Mortgagee Letter 2008-36. This letter provides notice of the 2009 comprehensive update to the Federal Housing Administration’s (FHA) single-family mortgage limits as a result of the Housing and Economic Recovery Act (HERA). The national loan limit for one-unit homes is pegged to a house price index chosen by the FHFA. The national loan limit for 2009 will remain at $417,000. Please refer to the mortgagee letter for limits in high and low cost areas, as well as 2 to 4 unit properties.

HUD released a two new products, Help for Homeowners (H4H) and FHA secure. H4H is a special refinance program designed at keeping borrowers in there houses who are struggling with their payments. It requires participation with the existing lien holders and requires significant concessions by both the creditors and borrowers. While anticipated to be a popular product it has netted only about one hundred loans so nationwide since its release last month. Because of the lack of interest in this product, changes to it were announced with details forthcoming; therefore, we are unable to finalize any documentation. Unlike H4H, the FHA Secure product has been successful but it is due to expire at year-end, this product is expected to be extended.

Washington continued its focus on mortgage regulation and amended Regulation C (HMDA), revising the reporting of price information on higher-priced mortgage loans. The changes are intended to improve the HMDA data accuracy. Regulation Z, or Truth in Lending, was revised to define a new category of sub-prime mortgages. There are new restrictions on high cost mortgages and HOEPA loans plus additional disclosure triggering requirements. Both are effective, as October 1, 2008 and would have garnered more attention in less extraordinary times.

The state governments are still active requiring new consumer disclosures. Hopes are that the need for many of these state disclosures will diminish with the recent revisions to the GFE and HUD-1 making many of these disclosure requirements redundant. The most recent new state disclosures required are in New York, Maryland and Washington. New York is requiring a disclosure notice for co-signers on all types of consumer loan including mortgages. Washington is requiring two new disclosures one for fixed rate mortgages, the other for ARMS. These disclosures spell out the important terms and features of the loan. Maryland is now requiring a "Tangible Net Benefit" disclosure. All these new disclosures will be added to inventory.

Compliance Corner (8/19/08)By: Peggy O’Keefe, PresidentFinancial Forms and Services, Inc. What is old is new again, certainly rings true with the resurgence of the FHA product as it accounted for nearly 30% of all production in July. The flight to vanilla continues as the specialty products are no longer in favor and lenders return to the basics and get re-acquainted with FHA lending. With this renewed popularity in mind, we will take this opportunity to focus on FHA documentation. Recently two important FHA processing forms were updated, the MCAW and the Addendum to the URLA.  The Mortgage Credit Analysis Worksheet (MCAW) was re-issued as the FHA Loan Underwriting and Transmittal Summary, Form HUD- 92900-LT. This replaces the 92900-PUR and the 92900-WS for 203(b) purchases and refinances. Lenders must still calculate the mortgage amount and document that calculation in the credit file.  Please note that for the 203(k) product the 92900-LT is to be used in conjunction with the 203(k) Maximum Mortgage Worksheet to determine its maximum mortgage amount.   The Addendum to the Uniform Residential Loan Application (URLA) form HUD-92099-A was revised requiring additional borrower signatures and some routine language changes. The mandatory use date for both these documents is October 1, 2008. Although the FHA security instruments and notes have not changed, HUD has just released a Request for Comments regarding these Instruments. Once these comments are reviewed, we expect some significant changes in the not too distant future.   The current documents were designed on a model format developed nearly 20 year ago and have very different look and feel than the more familiar conventional mortgages and deeds of trust. Please note that although these forms appear “old” the MortgageBuilder inventory of FHA security instruments and notes have been continually maintained and are indeed current.  As of July 31, 2008, the Housing and Economic Recovery Act passed and included FHA Reform.  In a nutshell it made permanent FHA loan limits at the greater of $271,050 or 115% of local area median home price, capped at $625,500; streamlined processing for FHA condos; reforms to the HECM’s and to the FHA manufactured housing program. The downpayment requirement on FHA loans goes up to a half point to 3.5%. The effective date for reforms is immediate, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008). Any documentation changes required by the Housing and Economic Recovery Act of 2008 are being researched and will be added to inventory as required. 

It should also be mentioned, that both Fannie and Freddie have recently issued letters regarding this use of their taglines on their Notes and Security Instruments.  Please be assured that   MortgageBuilder documents are and have always been designed with the proper taglines. In addition, Fannie and Freddie updated its Underwriting Transmittal Form 1003 to reflect new property classification; this update should already be in inventory or will be soon.


Compliance Corner (5/9/08)By: Peggy O’Keefe, PresidentFinancial Forms and Services, Inc.  Washington remains busy with various bills and proposals affecting the mortgage industry. As expected, President Bush did sign the Economic Stimulus Act of 2008 increasing some loan limits for GSE’s to $729,750.  The comment period for RESPA Reform was just been extended to June 13, 2008.  This reform has been in the works for years and among many things, it simplifies and or modifies disclosures, particularly the Good Faith Estimate and the HUD-1 Settlement Statement.  The Homeowner Rescue Bill passed the House but a veto is probable. We are watching this closely due the potential impact on FHA lending practices and loan documentation. The recent flurry of new state disclosures and changes to documents subsided this quarter but more and more states are requiring some broker licensing.   As many of you know, Michigan has joined the many states requiring mortgage origination licensing by passing new regulation this spring.  The MMLA has followed this closely and its website ( has all relevant information available.   A breakdown of recent significant changes follows, and lenders should note that we have already made the appropriate changes or additions to the Mortgage Builder document inventory as required: NEW MEXICO:  State law now allows a Deed of Trust as an alternative to a Mortgage as the security instrument.  Fannie and Freddie are mandating that change for its security instrument with a 3/08 revision date and its use mandatory by late summer. PENNSYLVANIA: Fannie Mae/ Freddie Mac reversed its position requiring seal language on all notes; therefore, the multistate note is again valid for in Pennsylvania.  Miscellaneous:  The HUD 92561, Hotel and Transient Use form has been update with a new OMB date.  The IRS 4506T, Request for Tax form, was revised with minor modifications.  Changes to the FHA Mortgage Credit Analysis Worksheet still have not been published



Compliance Corner (2/12/08)By: Peggy O’Keefe, PresidentFinancial Forms and Services, Inc.  As this article is written, the big news in the mortgage industry is the Economic Stimulus Act of 2008 and sitting on desk of President Bush waiting signature.  If the Act is signed as expected, it will temporarily increase maximum loan limits in certain “high cost” areas to as much as $729,750. Without passage of this Act, the loan limits for 2008 remain at 2007 levels.  The new limits will allow “jumbo” loans to be purchased or insured by Fannie, Freddie and FHA; this increase in loan limits combined with lower interest rates should increase refinance and purchase activity and lower delinquencies thus boosting the beleaguered housing and mortgage market.  Permanent increases in loan limits are expected for FHA.  If anticipated changes occurs for FHA lending we expect the release of a revision to the Mortgage Credit Analysis Worksheet, form 92900WS.  In the meantime, FHA issued updates to this form and well as the 92900PUR, 92900B, 92651 and 92800 for new OBM dates. The recent flurry of new state disclosures and changes to documents continued.   A breakdown of the recent state changes follows, and lenders should note that we have already made the appropriate changes or additions to the Mortgage Builder document inventory as required: CALIFORNIA:  A revision to the notary format was effective January 1, 2008. We subsequently revised the CA security instruments and Fannie and Freddie issued permission to make this change. Moreover, real estate agents acting as a mortgage brokers should check with the Department of Real Estate for revised DRE forms. MASSACHUSETTS:  The recently state prescribed disclosures, specifically the "Important Notice of Loan Terms" (one for bankers and one for brokers), have been rescinded.  Unfortunately, this is whipsaw regulation and subsequent rescission is becoming more commonplace in Massachusetts. MAINE:  A Tangible Net Benefit Disclosure form was issued in December and subsequently revised in January, changing the form slightly and exempting most lenders from its mandatory use. NEW YORK: When the lender names MERS as nominee at closing, the street address of MERS must appear on the Mortgage. Please note this is also a requirement in Indiana. NORTH CAROLINA:  Effective April 1, 2008 for loans originated by a mortgage brokers but closed in a wholesale lender’s name, the broker’s name must appear on the face of the security instrument.  The purpose of this is to improve the paper trail back to broker - originators.  Fannie and Freddie issued approval to make this change on their instruments. TEXAS: Fannie/Freddie issued a revision to the Texas Home Equity Affidavit (form 3185) to reflect recent changes in Texas Law. 



Compliance Update August, 2007

This July, the long awaited Short Form/Master Forms were issued by Fannie Mae and Freddie Mac. These new  versions of  security instruments were released for 26 states, and unfortunately Michigan was not one of those states.  We are in the process of designing these documents for MortgageBuilder inventory and will have the initial 26 states completed early this Fall.  Additional states will be added as they issued. In order to use the short form version of the security instruments the Master Form (title page) must be submitted for recording along with the standard long version of the  form.  Once that is successfully accomplished,  the lender may use the new short form for recording purposes.  The short form is essentially the standard mortgage or deed of trust minus the covenant paragraphs.  This will reduce the cost of recording as the short form is just 3 or 4 pages rather than 17 plus pages of the standard security instrument. 

HUD posted in the Federal Register that the LIBOR index has been approved for FHA insured  ARM's effective in late August.  We are awaiting more details from FHA regarding the language needed for the notes, riders and disclosure.  Once the necessary information is received we can create the new instruments.  And on the subject of LIBOR, this summer Fannie Mae discontinued its ARMs plans which use the Fannie Mae LIBOR index; however, the WSJ LIBOR index products are still available.

  COMPLIANCE UPDATE MAY, 2007 As an update to Non Traditional Mortgage Guidance, the joint regulators released disclosure models to assist lenders with compliance of Interest-Only and Payment Option Mortgages.  Although these specific forms are not required, our clients found them helpful sod we have added them to the standard form inventory.   Otherwise the summer has been fairly quiet with typical modifications to existing forms, but there was one new disclosure of note.  All lenders making loans in Texas must provide the new disclosure titled NOTICE OF PENALTIES FOR MAKING FALSE OR MISLEADING WRITTEN STATEMENTS.  Use of this disclosure is mandatory September 1, 2007.For those frustrated by the length and  the recording costs of  the conventional security instruments relief is in sight.  Fannie Mae and Freddie Mac will make their jointly developed master short form uniform security instruments available soon.  The short form instruments are significantly shorter than the existing version therefore reducing recording costs in states where recording fees are based on the number of pages recorded.  More details will be available once the forms are released.  Financial Forms and Services, Inc. will add these forms to the standard document package.  At this point there are over 30 states where the "master form" format is acceptable, more state are expected to follow. The current versions of the security instruments will still be valid. Considering the recent headlines regarding failures in the sub prime market and the spike in foreclosures and delinquencies, the mortgage industry is under a lot of scrutiny and I would like to briefly revisit the topic Non Traditional Mortgage Guidance.  

Mortgage loans falling under the broad definition of Non Traditional Lending will be of particular interest to investors, regulators and auditors.   Non Traditional Loans can be many things but Option Arms, loans with prepayment penalties and negative amortization, balloon features are obvious  regulatory red flags.  The regulators are looking for clear and informative promotional material and product descriptions to insure consumers have the information and understanding for the risks associated with certain product choices.  Although there is no prescribed disclosure that a lender can use to assure regulatory compliance such as we have with Truth in Lending or RESPA, but that does not mean that disclosures are not required. Many investors offer consumer product disclosures, we strongly suggest they be used.   Use of materials such as the revised CHARM booklet, ARM comparisons, Monthly Option ARM statements are also strongly encouraged and often required.  In short, Lenders should expect those loans to be carefully reviewed and should be  prepared to defend and as you know, good documentation helps.


Opportunities and challenges in the mortgage market during the past few years brought about the emerging popularity of many non-traditional mortgage products such as option ARMs and loan with features such as with prepayment penalties and no amortization or negative amortization.  Recent record default levels have many regulators and legislatures looking closely at the industry in general and at these non-traditional products in particular.  At this point most of the regulatory action has been in its early stages, but it is well underway. This past fall, the federal financial Institutions regulatory agencies published guidance on nontraditional lending (FFIEC Guidance) covering supervised mortgage lenders. In turn, state-banking supervisors along with the AARMR (American Association of Mortgage Regulators) issued guidance covering licensed mortgage lenders (independent mortgage bankers and brokers) that mirrored the federal guidance. Thus far, more than half the states have adopted this guidance and still many more are expected soon. The principal thrust of this guidance is to require clear disclosure to the borrowers regarding nontraditional product risk.  There is also a regulatory concern of the impact of non traditional and subprime products have on the entire mortgage market.  We have seen the following activity as a result. The Mortgage Banker's Association of America is putting together task force, Project Clarity, to draft a "Tangible Benefit" Disclosure.  This will be a voluntary form meant to combat payment shock and clearly list the pro's and con's' of a particular loan to the borrower in order for them to make an informed decision.   This action by the MBA also has the intended potential of warding off a regulatory trend that could require lenders to assume more fiduciary responsibility by imposing "suitable standards". Suitability standards require lenders to provide borrowers with the product that best suits borrowers needs. In January, the Federal Reserve Board posted a revision to the 1987 version of the Consumer's Handbook Adjustable Rate Mortgages (CHARM booklet) and is required to be used by October 1, 2007.  The revisions are many and most notably dedicate a lot of space to Option and Hybrid Arm scenario and explanations.  The states have been active in the disclosure arena as evidenced by the controversial Ohio SB 185, this regulation impacts all lenders doing business in Ohio.   The Ohio Mortgage Bankers association is running seminars to help lender navigate through this complex regulation and many resources for lenders are available on the Web.  SB 185 went into effect on January 1, 2007. Rhode Island passed its Home Loan Protection Act at the beginning of this year that requires new disclosures.  In order for lenders to have time to sort through the new regulation, it has extended implementation date until April 1, 2007.  Details can be found on the Rhode Island Website. Additional disclosures for Rhode Island and Ohio are being added to the MortgageBuilder inventory.




This fall was a period of various updates and changes from investors and regulatory agencies. The more significant of these updates are as follows:  IRS:  On October 2, 2006, the IRS began accepting 4506T requests in an electronic format for a fee of 4.50 per tax year.  The paper request was free but took longer to receive.  More information is available on the IRS Website at   

FHA:   HUD updated its Home Inspection Notice form 92564CN. The new form can be used immediately and must be used for Applications taken on or after December 1, 2006. 

Please note the form no longer needs to be signed or included in the case binder.  The form remains essentially the same but was redesigned to increase impact on the applicant.  The OMB number had also expired.   Fannie and Freddie: Freddie Mac has joined forces with Fannie Mae to make available 83 non-executable Spanish translations of the Fannie Mae/Freddie Mac Uniform Instruments to help lenders and others in the residential mortgage industry better serve Spanish-language dominant consumers in becoming homeowners. The collaborative effort was aimed at helping close the Hispanic and overall minority homeownership gap.  These "read -along" forms are available for download at either Fannie or Freddie's websites.  These documents should not be used as recordable instruments since they are in Spanish. Freddie Mac: Freddie has added to its suite of ARM loan instruments loan instruments with a First Business Day Lookback with either an assumable option during life of loan or assumable after the initial interest period. Loan originators may use these loan instruments for any applicable ARM or interest only ARM loans they originate whether or not the loans are to be sold Freddie Mac. Seller/Servicers should refer to their Freddie Mac purchase contracts to determine if loans originated using these loan instruments are eligible for sale to Freddie Mac.  Fannie Mae: Fannie updated its fixed rate Loan Modification Agreement, form 3179 and added two more forms for step mortgages and adjustable rate mortgages, forms 3161 and 3162.  The mandatory use date for the 3179 is June 1, 2007, the two new forms and the revisions can be used immediately.  Joint Regulatory Agencies: Regulators have caught the attention of lenders with a recently issued interagency guidance that addresses the risks posed by residential mortgage products that allow borrowers to defer repayment of principal and sometimes interest. Two additional related documents, Proposed Illustrations of Consumer Information for Nontraditional Mortgage Products and an addendum to the May 2005 Interagency Credit Risk Management Guidance for Home Equity Lending, were also issued for lenders to consider.  Comments are due in December and new disclosures regarding HELOCs are anticipated. 






As the summer winds down, compliance developments trickle through at a leisurely pace. No major developments occurred but as usual there have been the ongoing changes and updates to existing regulations.   The more significant of these updates are as follows: Federal Issues:  VA:  The Veterans Housing Opportunity and Benefits Act of 2006 was signed into law June 15, 2006.  This impacted the Loan Guaranty Program and temporarily increased the funding fee from 3.3 to 3.35 for loans with less than 5 percent down for the next fiscal year beginning October 1, 2006. The Hybrid Arm loans were also addressed allowing for 2 percent annual adjustment when the initial rate is fixed for 5 or more years.  Details are available on the VA website at: FHA: A congressional measure to raise FHA loan ceilings and lower down payment requirements to 0 percent from 3 percent passed the House this summer.  No changes in regulation yet as this measure moves through congress but we will keep you posted on this important development should it occur. The Federal Reserve System, as part of Truth-In- Lending (Regulation Z), published the new HOEPA cost trigger for 2007, it is 547.00 and goes in to effect January 1.  State Issues:  In Michigan, MSDHA approved lenders should take notice a complete revamp of the Single Family Housing (SFR) lending documents in an effort to make them more "user friendly". Approved lenders can access complete details from the lender portal within the MSHDA website. Changes to these documents were processed in August.  

The State of Massachusetts lengthy and complicated lending regulations were streamlined with the passage of Massachusetts SB 2278.  Effective July 1st, several consumer disclosures requirements were eliminated.  To view these changes in their entirety go to


 The past few months have been quiet ones with little new regulation or compliance changes and of those that we have seen were simply technical amendments. Even the document changes were generally of a housekeeping nature, for example FHA tweaked the 203K Worksheet a few times, and VA did the same with its Request for Certificate of Eligibility.  The Feds made a minor change to the FEMA form.   The states were quiet too primarily issuing typical changes such as changes recording requirements and broker licensing rules.  The investors were more a bit more active the past few months, especially Countrywide, who have made many revisions to its equity document line and we expect several more changes to come. Although things were quiet there always seems to be something interesting happening somewhere.  Recently in Kansas, House Bill 2755 was passed that amended its lending statutes.  The new rule states and I paraphrase "neither lender nor person acting on the behalf of a lender can disclosure to the appraiser the amount of the proposed loan or the preferred value of any real estate intended to secure the loan."   It will be interesting to see the impact of this change on appraised values since statistically most all appraised values come in at sales price. 

Also of interest, Fannie Mae issue Announcement 06-04 to address predatory lending. As of June 1, 2006, Fannie Mae will not purchase or securitize a mortgage where total pricing and fees charged to the borrower can not exceed the greatest of five percent of the mortgage amount or a maximum dollar amount of $1000.00.  Of course discount points are excluded if bona fide but lenders should take care with what are considered "junk fees".  The curtailing of those fees is the point of this change.



 As we have come to expect each new year, the loan limits have increased for 2006.  The FHA maximum loan amount for a single family unit is $200,160, the Ginnie Mae pooling limit for VA loans as well as the Conventional loan limit was increased to $417,000. These limits are higher in certain locations and/or for 2 to 4 unit properties.  Fannie Mae also revised its Selling Guide at the beginning of the year; this revision incorporates the 2006 lending limits and many past letters and announcements in addition to other enhancements. Also new this year are the new appraisal formats from Fannie and Freddie which were introduced last year and embraced for the first time by FHA. Significantly, FHA will no longer require certain cosmetic property repairs to be made or escrowed for prior to closing.  FHA continued to make another move toward closer alignment with conventional lending practices by rescinding its list of allowable closing costs.  FHA now allows lenders to charge and collect from mortgagors reasonable and customary costs to close the mortgage, with a few exceptions detailed in Mortgagee Letter 2006-4.  On the state level, changes are continually occurring but there were recently a few of note, North Dakota repealed its Short Term Redemption Act and the North Dakota security instruments were changed accordingly.  California passed it Domestic Partner Act and a changes were made by Fannie Mae (and are allowable to Freddie Mac) to the martial status section of the California version of 1003. On a federal level there has been some significant activity (other than the new Fed Chairman).  First, the FCC issued a Final Rule in December for the Telephone Consumer Protection Act.   The final rule specifically addressed the unsolicited facsimile transmission issue, the new rule will exempt established business relationships (EBR) from being prohibited as "Junk Fax" but the final rule is not yet in place.  Lenders should carefully review the final notice when it is finally published in the Federal Register.  Secondly, the Office of the Comptroller of the Currency (“OCC”), the Board, the Federal Deposit Insurance Corporation (“FDIC”), the Office of Thrift Supervision (“OTS”), and the National Credit Union Administration (“the Agencies”) proposed Interagency Guidance on Nontraditional Mortgage Products. These Agencies have noticed the increased consumer demand and mortgage market activity in Interest Only and Payment Option ARM products, they expressed concern over the impact these products will have on consumers and for overall credit risk to lenders. The agencies' emphasis in this "guidance" was greater disclosure to the consumer of the risks and a detailed description of the features found in these loans and tightening of underwriting standards - especially regarding loans negative amortization.  We expect final guidance from the agencies later this year.  The comment period ends March 29, 2006.


  COMPLIANCE UPDATE QUARTER ENDING NOVEMBER 15, 2005 We have seen a lot of activity from regulators and agencies, much of which was in response to the tragic hurricanes in the gulf coast.  The Federal Reserve Board, Fannie, Freddie, FHA and other agencies and regulators have kept both lenders and servicers busy sorting through many directives regarding the aftermath Hurricanes Katrina and Rita. Many new websites concerning disaster relief have been established by these agencies that outline policy changes in detail.  Some of the charges are as follow:  In lender letter 05-05, Fannie Mae provided additional guidance for underwriting and servicing such as providing list of mortgages most likely to have incurred damage with information provided by FEMA.  Property inspections were called for as well as approvals for disposition property insurance proceeds.  Underwriting flexibility was noted as evidenced by allowing certain debt such as hurricane related debt to be excluded from debt to income ratios.  Freddie Mac issued a bulletin on October 7th outlining servicing relief measures in order to enable more distressed borrowers to keep their homes.  To address the challenges of property valuation the regulatory agencies, The Federal Reserve Board, regulatory agencies and HUD all issued directives allowing for temporary exemptions to existing standard appraisal requirements. On the subject of appraisals, back in the spring, Fannie and Freddie introduced new appraisal formats, as a reminder these new formats must be used after November 1st for Fannie Mae and January 1st for Freddie Mac.   FHA also stayed busy issuing mortgagee letters.  In letter 2005-40, FHA made revisions to single family loan origination areas; generally all lending areas have been expanded, the number of branches needed to originate on a national basis were reduced and single office lenders originating via the internet or national call centers were allowed to apply for approval for nationwide direct lending. In letter 2005-42, FHA announced the last of a series of system changes to the Mortgage Record Changes were ready to implement.  In letter 2005-43, HUD announced Revised Refinance Transactions, and will now insure 95% LTV (based on appraisal estimates) cash out transactions under certain conditions. Odds and Ends of Note: IRS form 4506T was recently updated twice this fall. HOEPA triggers effective January 1, 2006, are 8% or $528 annually adjusted amount, whichever is greater.  North Dakota repealed its the Short Term Redemption Act.  California passed new notary laws which changed acknowledgement language. 



The reason for Fannie Mae and Freddie Mac's recent revision to the Uniform Residential Loan Application (URLA) is a great illustration of challenges lenders face complying with multiple consumer regulations mandated from several sources.  When the ECOA rules regarding joint credit changed in 2004, Fannie Mae and Freddie Mac addressed these issues by revising the URLA last year.  However, some Lenders were not satisfied that the language change was extensive enough for proper compliance to Federal and State (California) regulations.  They found themselves in a bind between using the mandated form and believing that the language may not meet their needs.  As a result of lender concerns Fannie and Freddie changed the URLA to address the revised ECOA rules and we now have a less ambiguous form. In addition to the joint credit language the URLA was also modified the Government Monitoring section as a result of HMDA technical changes which had been another sticking point.  Please note that the last revision is not required until year end. Lenders doing business in California should look at the revised forms carefully to make sure it meets with its interpretation of CA joint credit rules.  We have created an optional California version of the URLA which uses the specific state statute language. Fannie and Freddie did authorize use this optional language.  The Statement of Assets and Liabilities form 1003A did change as well as the Spanish versions of both forms. Of course FHA and VA were not to be left out, they made revisions to the URLA Addendum, (form 92900A) which had included changes made to address streamlined condominiums but rescinded that particular change as HUD had yet to receive the required program approval.  Other changes to commonly used forms and handbooks also occurred recently.  There is a new revision of the Uniform Underwriting and Transmittal summary (form 1008) addressing new condo codes mandatory November 1st.  In June, Fannie Mae announces changes to its INTERESTFIRST documents and in August Freddie Mac announced changes to its INITIAL INTEREST documents. HUD updated its popular 4165.1 Handbook - Endorsement of Home Mortgage Insurance Programs (Single Family) and VA updated its 26-1805, Request for Determination of Reasonable Value.  All these revisions have already been made or are in process. On the compliance horizon, RESPA is back, HUD has released its proposed Good Faith Estimate it is available on HUDCLIPS now.  HUD is actively seeking Lender input this time around prior to issuing any edicts. Settlement costs continue to be a contentious issue now made more confusing due to recent court rulings. Some rulings have favored the consumer and/or HUD's position that settlement cost markup are not allowable some ruling have favored the lenders.  These ruling have now made it appear that what may be a fair practice in one state may not be in another.  One thing is for certain is this ambiguity is not going away anytime soon. 

Compliance updates for the week of ending July 29, 2005.

Fannie Mae announced revisions to the Uniform Residential Loan Application (Form 1003) and the Uniform Underwriting and Transmittal Summary (Form 1008).

Revisions to the Uniforn Loan Application 1003 were the addition of borrower’s acknowledgment of joint credit, technical changes to race/ethnicity categories under HMDA, changes to language to accommodate for community property ownership by non-spouses, revisions to the attestation to make it clearer to borrowers that they are allowing access to certain information, and clarifications to the borrower’s authorization for lender to include borrower’s sex, race, and ethnicity based on appearance and surname if the borrower declines to provide it. The form URLA has also  redesigned on a 11inch page( letter size) with a total of 5 pages, however it may be reformatted to legal size. The changes also affect the Statement of Assets and Liabilities (1003A), the Bilinqual URLA (1003s) and the Bilinqual Statement of Assets and Liabilities (1003As). The new forms can be used immediately, but MUST be used for loans with an application date on or after January 1, 2006.

Revisions to the Uniform Underwriting and Transmittal summary include changes to the new condominium project codes, which were discussed in Announcement 05-03. Section I - Borrower and Property Information – Project Classification has been updated to reflect the new codes. The new form can be used immediately, but is required for loans with a delivery date on or after November 1, 2005.

Compliance Corner (5/20/05)

The compliance emphasis for the past few months has been on appraisals.  In March, Fannie and Freddie announced revised appraisal forms mandatory in November for Fannie Mae and

January 1, 2006 for Freddie Mac.  This came on the heels of a jointly issued FAQs (frequently asked questions) release in March from all the major federal regulators.  The FAQs clarified existing standards in appraisal and real estate lending regulations.  The major concern of this release was the independence of the collateral valuation process. 

 HUD was busy this past few months restating and reshaping its policies to somewhat loosen its standards to make FHA lending more accessible potential homebuyers.  In April FHA revised its payment to income and debt to income ratios form 29% and 41%, to 31% and 43%, respectively.  HUD also made changes to the procedure for scoring and documenting FHA insured loans using TOTAL Scorecard allowing greater tolerance before requiring a rescore and generally reducing documentation requirements.   They also announced new Five Year Hybrid Arm with a 2/6 caps, to become more competitive with conventional products, previously the Hybrid ARM was limited to a 1/5 cap.  

In contrast to HUD, state regulators kept lenders busy with tweaks and changes to their lending regulations generally tightening lending standards. Some examples were these recent changes.  New Jersey issued new limits for High Cost Loans in March.  Utah modified prepayment requirements for subordinate loans not subject to HOEPA.  Massachusetts lowered its LTV limits for state chartered banks.  Virginia also capped LTV limits for principal only amortizing loans. 

 Compliance update for March 25th. 
New Jersey: New limits for High Cost Loans to 365.674.13
Utah: Utah Senate Bill 157 modified its Consumer Credit Code and impacts prepayment fees for a subordinate loan not subject to HOEPA.
The major regulators jointly issued frequently asked questions (FAQs) concerning the independence of the collateral valuation process. The FAQs clarify existing standards in appraisal and real estate lending regulations. Major points are as follows 

  • The guidance applies to both commercial and residential transactions.
  • A regulated institution may not accept a borrower-ordered appraisal.
  • A regulated institution should not unduly influence the appraiser or in any way suggest the property's value.
  • Loan production staff may use a revolving, board approved list to select a residential appraiser, provided the development of the list is not under their control. Staff responsible for the development of the list should be independent of the loan production process.
  • The appraiser must sign the certification page of the appraisal report.
  • A regulated institution should ask relevant questions of an appraiser to ensure the appraiser is independent of the transaction.
  • If a staff appraiser prepares an appraisal, that appraiser must be independent of the lending, investment, and collections functions.
  • Subject to certain qualifications, a regulated institution may accept an appraisal transferred from another regulated institution or from a financial services institution. A regulated institution is expected to perform a more thorough review when accepting appraisals from another financial services institution.
  • A regulated institution should review broker-ordered appraisals thoroughly.
  • A regulated institution should be the party to remit payment to the appraiser. A regulated institution may seek reimbursement from the borrower.
  • Documentation (that is, an engagement letter) should be available to indicate that the financial services institution (not the borrower) ordered the appraisal and that the appraiser has no direct or indirect interest, financial or otherwise, in the property or the transaction.
  • A regulated institution should perform a compliance review on all appraisals.
  • A regulated institution may grant conditional approvals to prospective borrowers before obtaining an appraisal.
  • The agencies' appraisal regulations allow regulated institutions to use an appropriate evaluation of the real estate in lieu of an appraisal for transactions with a value of $250,000 or less, business loans of $1 million or less, or subsequent transactions (transactions involving an existing extension of credit at the lending institution).
  • A regulated institution should ensure independence in the ordering process for an appraisal even if the appraisal was not required under the agencies' appraisal regulations.
  • A value from the taxing authority alone is insufficient to be considered an evaluation.
  • A regulated institution may use an existing appraisal or evaluation to support a subsequent transaction, as long as the credit file documents the facts and analysis that support the institution's conclusion that the appraisal or evaluation remains valid. 

  • More information at:
Four new Texas Home Equity forms posted to our Fannie Maes Webstite today.  New Fannie Mae Texas Home Equity Fixed/Adjustable Rate Note (with conversion option) (Form 3529.44), as well as the accompanying Rider (Form 3188.44) (ARM Plan Nos. 2726 and 2728).  In addition, Fannie Mae Texas Home Equity Fixed/Adjustable Rate Note (without conversion option) (Form 3528.44), along with the accompanying Rider (Form 3187.44) (ARM Plan Nos. 2727 and 2729).  The ARM Plans for these new Texas 50(a)(6) documents are standard 7/1 and 10/1 LIBORS. 
Compliance update for the week of February 21st, 2005:
Freddie Mac:  Freddie Mac has released two new One-Year LIBOR ARM products: Freddie Mac Adjustable Rate Note 5542 & Rider 5142, 1-Year LIBOR Index, Assumable after Initial Period, First Business Day of Preceding Month Lookback ) and Freddie Mac Adjustable Rate Note 5541 and Rider 5141, 1-Year LIBOR Index, Assumable during Life of Loan, First Business Day of Preceding Month Lookback.

Freddie Mac also introduced Home Possible Mortgages "to meet the needs of more low- to moderate-income Borrowers. The Home Possible Mortgage suite provides low-downpayment options and credit flexibility. The suite also includes Home Possible Neighborhood SolutionSM Mortgages designed to help firefighters, law enforcement officers, healthcare workers and teachers who live in the communities they support."

See new chapter A34 in their Seller's guide for Home Possible Mortgages information and requirements .

HUD:  Hud has officially discontinued for the 92068F with no replacement  and  27050C Homeowners Fact sheet (use 92900 B in it place).
Compliance update week of February 7th.
STATE: New recording requirements in MONTANA, 3 inch top margin, 1 inch bottom and sides on page 1. 1 inch bottom sides and top on all subsequent pages,  Return after recording address on upper left corner (it may be in recording margin). Effective in July 2005.  You should check your FHAs the new security instruments have these margins already in the design.
FANNIE MAE:  Fannie issued 4 new Interest First ARM notes:
3535 for plans 3516, 3505, 3518 use Rider 3187
3537 for plan 3514 use Rider 3189
3536 for plan 3513 use Rider 3111
3534 for plans 3515, 3504, 3517 use Rider 3182.
VA released an Errantum to Circular 26-04-12 dated December 10, 2004.  In summary the VA Hybrids allowed for a 5 percent life time caps for those fixed/ adjustable loans with first adjustment periods of less than 5 year and a 1 year annual cap.  It also allowed for a 6 percent lifetime cap for those loans with first adjustment periods of 5 or more years and for loans with a 6 % lifetime cap VA  allowed for a 2 % first adjustment.   This has not changed, what has been clarified concerns the second and subsequent adjustments are limited to 1% - EVEN IF the first adjustment was 2% -the second adjustment and those thereafter must be 1%.  Please check your notes, rider and disclosures and programming to make sure you have 1% for the subsequent adjustments not 2%.
Compliance update for the week of January 7th.
FREDDIE MAC: Freddie updated there initial interest notes on their website, go to forms and documents in single family, then to notes and you can pull up the most recent version.  Not mandatory until April - but if lenders are using for interest only they may need to use revised forms now.
HUD:  Per Mortgagee letter 2005-1, HUD now allows for the Get your Home Inspected disclosure  (92564cn) to be incorporated in any sales agreement not just the FHA version, if the disclosure is not part of the sales agreement then it needs to be reexecuted and the stand alone form of the 92564 can be used.   HUD letters 2005-2 to 2005-5 also released- no forms impacted.  All letters available on HUDCLIPs.
Compliance update for the week of December 27th 2004,
FHA: HUD issued Mortgagee Letter 2004-46 which hikes the maximum insurable mortgage amount to $172,632 for single family homes for most areas and $312,895 for high cost areas such as California.  Other mortgagee letters also released covering Total Scorecard and Property Flipping policies and procedures.  Letter available on HUDCLIPS.
Freddie Mac- released letter 2004-5 in December with a selling guide update and new conventional loan limits.
State Issues:  Annual rate changes for escrow accounts announced in Wisconsin - .72% and Connecticut - 1.5%.
National Regulations: FACT Act, effective July 1,2005 lenders must develop procedures to properly dispose of consumer information obtained from consumer reports to protect consumers against indenty theft.
Compliance update December 14, 2004.  
VA issued Circular 20-04-12, dated December 10, 2004 effective immediately.
The VA changed the maximum guaranty amount of $60,000, for certain loans in excess of $144,000, to an amount equal to 25 percent of the Freddie Mac conforming loan limit. In orther words VA loans can now be guaranteed up to the Fannie/Freddie limits. Veterans on active duty that are deemed eligible to receive disability and are awaiting discharge may be entitled to a waiver of the funding fee not just active duty servicepeople. The Native American Direct Loan program has been extended to December 31, 2008.
Tthe “traditional” Adjustable Rate Mortgages (ARMs)have been reinstated in a manner similar to that by which HUD insures adjustable rate mortgages under section 251 of the National Housing Act. The legislation provides authority through September 30, 2008. VA can now guaranty a 1 year ARM program. New caps to the hybrid ARMs have been increased to 2%/6% for loans with a fixed interest rate of 5 or more years
December 6, 2004 update:  Per Fannie Announcement 04-08 and Freddie Mac press release of November 30, 2004,  the 2005 Loan Limits are:
  • $359,650 for mortgages on one-family properties (up from $333,700);
  • $460,400 for mortgages on two-family properties (up from $427,150);
  • $556,500 for mortgages on three-family properties (up from $516,300); and
  • $691,600 for mortgages on four-family properties (up from $641,650).

For first and second mortgages on properties in Alaska, Hawaii, Guam and the U.S. Virgin Islands limits are 50 percent higher.  Second mortgages limits are 179, 825 (combined first and second can not exceed 359,650 for loans sold to Fannie). 

Compliance Corner (11/24/04)

By: Peggy O’Keefe, PresidentFinancial Forms and Services, Inc. Just the FACTS…or so it seems in compliance circles as of late. The FACT Act (Reg. V, the Fair and Accurate Credit Transaction Act) regulations are final and many of its provisions are effective December 1, 2004.  The provision creating the most recent discussion in mortgage industry is Section 212, Disclosure of Credit Score.  This section requires Mortgage Lenders that use credit scores to provide the mandated “Notice to Home Loan Applicants” disclosure to its applicants. Although the disclosure is brief and rather generic the completion of this form is unique to each lender, lenders must report any and all sources used to arrive at a credit score.  This mandated disclosure form is now part of the standard forms library and should be reviewed by each lender to ensure it meets with its particular needs.   In their recently revised Pamphlet 26-7, change 4, VA is requiring lenders to disclose to the veteran how long it will take to recoup the closing costs for Interest Rate Reduction Refinance Loans (IRRLs). The Rate Reduction Certification form has been modified to include the disclosure of this calculation. We have had a few questions regarding the Fannie Mae’s recent statement on Mandatory Arbitration.  Simply stated, Fannie will not accept loans with mandatory arbitration language.  The standard Fannie Mae/Freddie Mac security instruments and notes DO NOT contain this language so no language modification is required.  This is not the case with many custom sub-prime lending documents where mandatory arbitration clauses are common.  Those loans will require a waiver of the arbitration language prior to any sale to Fannie Mae. Looking at the future compliance issues we are monitoring the discussions of zero down payment FHA mortgage loans and a possible change in the VA guaranty to conforming loan limits levels. Any changes to forms as a result will be made as needed. 


Updated 10/6/13

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