Economic Edge: Notes, Musings and Links

 Here are the details to go with the Home Life Q&A with Bob Cox

Dodd Frank Financial Reform Act

Its Rules and Ramifications for Seller Financing

 

The Dodd Frank Financial Reform Act is the most sweeping financial reform legislation passed since the Glass Steagall Act in 1933. (aka The Banking Act of 1933)

 

Finding- The Congress finds that economic stabilization would be enhanced by the protection, limitation, and regulation of the terms of residential mortgage credit and the practices related to such credit, while ensuring that responsible, affordable mortgage credit remains available to consumers.

 

PURPOSE-It is the purpose of this section and section 129C to assure that consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay the loans and that are understandable and not unfair, deceptive or abusive.

 

In the nearly 2400 pages of this Act are items which will directly affect Seller Financing of residential real estate, regardless of whether they do a 1^st, 2^nd or other subordinate financing^.  This is an overview of those items and potential issues.

 

 MORTGAGE REFORM AND ANTI-PREDITORTY LENDING ACT

 

Title XIV, Subtitle A, Sec. 1401 Definitions

 

In regards to Sellers carrying real estate mortgages on properties they are selling, or Private Lenders making real estate loans, this section of the act:

 

1. 1.    This applies to any Residential Mortgage Loan described as:  Any consumer credit transaction that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling or on residential real property that includes a dwelling, other than a consumer credit transaction under an open end credit plan.

   

1. 2.    Sellers do not need to be a licensed mortgage originator to carry their own paper provided:

 

a)    They conduct and carry paper on no more than three transactions in any 12 month period.

 

b)   The loan is fully amortized.

 

c)    Is with respect to a sale for which the seller determines in good faith that the buyer has a reasonable ability to repay the loan.

d)   Has a fixed rate or an adjustable rate that is adjustable after 5 or more years, subject to reasonable annual and lifetime limitations on interest rate increases.

 

 

 

 

 

Title XIV, Subtitle B, Minimum Standards for Mortgages

Sec. 1411 Ability to Repay

 

 

1. 3.    If the seller of the property structures the sales contract on any other basis other than a fixed rate, fully amortized loan, i.e. a variable rate, interest only for a period then adjusting, the borrower/buyer needs to be qualified on the highest possible, fully indexed rate and APR.

 

a)                Creditor (Seller/lender) must verify and document the consumer’s ability to repay the loan including taxes, insurance and other assessments.

b)               If there are multiple loans, i.e. 1^st and 2^nd, creditor must verify and document the consumer’s ability to repay both loans.

c)                Determination must include consideration of:

                                           i.         Consumer’s Credit History

                                        ii.         Current Income

                                     iii.         Expected Income

                                     iv.         Current Obligations

                                     v.   Debt-to-Income Ratio or Residual Income after non-mortgage related debt and mortgage related debt.

                                  vi.   Employment Status

                               vii.   And other financial resources other than the consumers equity in the dwelling.

 

Title XIV, Subtitle B, Minimum Standards for Mortgages

Sec. 1414 Additional Standards and Requirements

 

1. 4.    If the APR on the transaction exceeds the average prime offer rate for a comparable transaction by 1.5 or more percentage points on a first lien, and prime offer rate plus 3.5 percentage points on a subordinate lien, then PREPAYMENT PENALTIES ARE PROHIBITED.

 

 

Title XIV, Subtitle B, Minimum Standards for Mortgages

Sec. 1416 Amendments to Civil Liability Provisions

 

1. 5.    Civil Liability Provisions:  Except as otherwise provided in this section, any creditor who fails to comply with any requirement imposed under this chapter, including any requirement under section 125 or chapter 4 or 5 of this with respect to any person is liable to such person in an amount equal to the SUM of

 

a)    Any actual damage sustained by such person as a result of the failure plus

 

b)   Twice the amount of any finance charge in connection with the transaction.

 

Title XIV, Subtitle B, Minimum Standards for Mortgages

Sec. 1420 Disclosures Required in Monthly Statements for Residential Mortgages

 

6. The seller carrying the contract is a Creditor.  Therefor the seller is required to send a monthly statement to the borrower the following to the extent applicable:

                                  

a)    The amount of the principal obligation under the mortgage

b)   The current interest rate in effect for the loan.

 

c)    The date on which the interest rate may next reset or adjust.

 

d)   The amount of any prepayment fee to be charged, if any.

 

e)    A description of any late payment fees.

 

f)     A telephone number and address that may be used by the borrower to obtain information regarding the mortgage.

 

(USE A COLLECTION ESCROW SERVICE!)

 

HIGH COST MORTGAGES

 

Title XIV,Subtitle C-High Cost Mortgages

Sec. 1431

 

The term “High-Cost Mortgage”, and a mortgage referred to in this subsection, mean a consumer credit transaction that is secured a by the consumer’s principal dwelling, other than a reverse mortgage transaction or bridge loan (with a term of 12 months or less), if any of the below are involved…

 

1. 1.    Interest Rate Triggers

a)    The APR exceeds the prime offering rate at the time of consummation’s of the transaction by more than 6.5%.

 

b)   If the loan amount is  $50,000.00, then the APR would need to exceed prime plus 8.5%.

 

c)    If a junior mortgage, then the APR would need to exceed prime plus 8.5%.

 

 

1. Point and Fee Triggers.  The total points and fees payable in connection with the transaction, other than bona fide third party charges not retained by the mortgage originator, creditor, or an affiliate of the creditor or mortgage originator, exceed….

 

a)    Transactions ≥ $20,000.00 or more, 5% of the total transaction amount.

 

b)   Transactions ≤ $20,000.00, the lesser of 8% of the total transaction amount or $1,000.00.

 

 

 

 

 

1. Introductory or Variable Interest Rates Triggers.

 

a)    Fixed Rate transactions, APR on the date of Consummation.

 

b)   In the case of a transaction in which the rate of interest varies solely in accordance with an index, then add the interest rate at the time of consummation to the maximum margin permitted at any time to determine APR.

 

c)    In the case of any other transaction in which the rate may vary at any time during the term of the loan for any reason, then determine APR by using the maximum rate that may be charged during the term of the loan.

 

1. Prepayment Fee Triggers.

 

a)    If the prepayment penalty exceeds more than 36 months after the consummation of the transaction.

 

b)   If such fees or penalties exceed, in the aggregate, more than 2 percent of the amount prepaid.

 

Title XIV,Subtitle C-High Cost Mortgages

Sec. 1432 AMENDMENTS TO EXISTING REQUIREMENTS FOR CERTAIN MORTGAGES

 

If it is determined that due to any of the above items 1-4, that a transaction is a High Cost Mortgage, then……

 

1. No Balloon Payments- NO high-cost mortgage may contain a scheduled payment that is more than twice as large as the average of earlier scheduled payments.

 

 

 

Title XIV,Subtitle C-High Cost Mortgages

Sec. 1433 ADDITIONAL REQUIREMENTS FOR CERTAIN MORTGAGES.

 

1. Late Fees- No Creditor may impose a late payment charge or fee in connection with a High-Cost Mortgage…

 

a)    In an amount that exceeds 4% of the amount of the payment past due;

 

b)   The loan documents must specifically authorize the charge or fee;

 

c)    A late fee cannot be charged before the end of the 15 day period beginning on the date the payment is due;

 

d)   A late fee cannot be charged more than once with respect to a single late payment.

 

e)    If there is an outstanding late fee owing, and a full payment for the applicable period is paid on or before its due date or within the grace period, THEN no additional late fee may be charged because the past owing late fee was not included in that payment.

 

f)     Failure to Make Installment Payment.  If, in the case of a loan agreement the terms of which provide that any payment shall first be applied to any past due principal balance, the consumer fails to make an installment payment and the consumer subsequently resumes making installment payment but has not paid all past due installments, the Creditor May impose a separate late payment charge or fee for any principal due until the default is cured.

 

 

3. Acceleration of Debt- No high cost mortgage may contain a provision which permits the Creditor to accelerate the indebtedness, except when repayment of the loan has been accelerated by default in payment, or pursuant to a due-on-sale provision, or pursuant to a material violation of some other provision of the loan document unrelated to payment schedule.

 

4.  Prohibitions on Evasions, Structuring of Transactions, and Reciprocal Arrangements- A Creditor may not take any action in connection with a high-cost mortgage—

 

a)    To structure a loan transaction as an open-end credit plan, (HELOC), or another form of loan for the purpose and with the intent of evading the provisions of this title; or

 

b)   To divide any loan transaction into separate parts for the purpose and with the intent of evading provisions of this title.

 

5.   Pre-Loan Counseling Required.  In general a Creditor may not extend credit to a consumer under a High Cost mortgage without first receiving certification from a counselor that is approved by the Secretary of Housing and Urban Development, or at the discretion of the Secretary, a State housing finance authority, that the consumer has received counseling on the advisability of the mortgage.

 

 

CORRECTIONS AND UNINTENTIONAL

VIOLATIONS OF HIGH COST MORTGAGE

 

1. 1.     A Creditor or assignee in a High Cost mortgage who, when acting in good faith, fails to comply with any requirement under this section will not be deemed to have violated such requirement if the Creditor or assignee establishes that either….

 

a)    Within 30 days of the loan closing and prior to the commencement of any action, the consumer is notified of or discovers the violation, appropriate restitution is made, and whatever adjustments are necessary are made to the loan to either, at the choice of the consumer

 

                                                                      i.            Make the loan satisfy the requirements of this chapter; or

 

                                                                   ii.            In the case of a High Cost mortgage, change the terms of the loan in a manner beneficial to the consumer so that the loan will no longer be a High Cost mortgage.

                           Or

 

b)   Within 60 days of the Creditor’s discovery or receipt of notification of an unintentional violation or bona fide error and prior to the commencement of any action, the consumer is notified of the compliance failure, appropriate restitution is made, and whatever adjustments are necessary are made to the loan to either, at the choice of the consumer…

 

                                                                    i.            Make the loan satisfy the requirements of this chapter; or

 

                                                                 ii.            In the case of a High Cost mortgage, change the terms of the loan in a manner beneficial so that the loan will no longer be a High Cost mortgage.

 

 

 

 

 

 

 

 

Title XIV, Subtitle F-Appraisal Activities

Sec. 1471. PROPERTY APPRAISAL REQUIREMENTS

 

1. In General- A creditor may not extend credit in the form of a higher–risk mortgage to any consumer without first obtaining a written appraisal of the property to be mortgaged prepared in accordance with the requirements of this section.

 

2.  Higher-risk Mortgage Defined- For purposes of this section, the term “higher-risk” mortgage means a residential mortgage loan, secured by a principal dwelling…

 

a)    If the mortgage has an APR that exceeds Prime plus 1.5% on a loan size ≤ $417,000.00 or

 

b)   If the mortgage has an APR that exceeds Prime plus 2.5% on a loan size of ≥ $417,000.00.

 

c)    If the mortgage has an APR that exceeds Prime plus 3.5% on a subordinate loan.

 

3.       Appraisal Requirements-

a)    PHYSICAL PROPERTY VISIT-An appraisal of the property to be secured by a higher-risk mortgage does not meet the requirements unless it is performed by a certified or licensed appraiser who conducts a physical property visit of the interior of the mortgage property.

 

b) UNDER CERTAIN CIRCUMSTANCES, (flipping), where a property is sold within 180 days for a price greater than the original sales price, a second appraisal is required, and cannot be charged to the borrower.

Long-time Mail Tribune readers will remember copy desk editor Birch Storm’s weekly “Offbeat” column where he shared a lot of reader feedback about the Meatless Taco, the Muted Trumpet and other permutations of this august publication.

 Birch passed away last week in Indiana.

 Birch was the irreverent sort, but less cynical than many people in the profession. His sight wasn’t the best, but he was a sharp-eyed copy reader and one of the best of the many whom I’ve worked over the years.

 I’ve often missed his sense of humor, his noise-maker toys and loud pronouncements across the cramped old MT newsroom when he saw something of import in those pre-Internet days at our former building on the other side of Sixth Street .

He always had a hilarious and witty perspective on what often seemed mundane. Perhaps it had something to do with minding a hen house during his off hours at his home in Talent.  

Among the lasting impressions of my years here at the MT will be from that fateful January day in 1986. I was on the phone with our city editor In the days when the MT had an Ashland Bureau. I remember hearing Birch’s voice in the background: ”It blew up.”

“What do you mean?” the editor asked.

“The space shuttle just blew up.”

Tragedy stalks this business every day. While others agonized, eulogized and tried to come to grips with the Challenger astronauts, Birch sifted through the reams of wire dispatches, looking for what told the story best. He was a professional under prssure.

 I’ve missed him for years and I’m sure others do to.

 Here is a link to Birch’s obituary.

http://www.thebraziltimes.com/story/1746781.html

The lead story in today’s Mail Tribune (June 21, 2011) brought back old memories.

Apparently things never change in the Rogue Valley, merely the players and details.

One of the first stories I wrote when I went to work for the MT in the summer of 1979 was about baseball and beer. Sound familiar?

During the winter of 1978-79, Doug and Julie Emmans decided to move their Northwest League baseball team from Bend to Medford. Miles Field had a larger capacity than Bend’s stadium and the Rogue Valley had considerably more people.

In December of 1978, the Medford City Council voted 5-3 to recommend approval by the Oregon Liquor Control Commission for Doug Emmans to sell draft beer at games. Emmans already had an OLCC license for selling malt beverages in Bend and it appeared that was that.

Note so fast.

The three councilmen on the short end of the vote — Monte Stamper, Fred Phelps and Hugh Jennings — writing as Medford council president, vice president and member, sent a list of seven objections to Emmans’ OLCC bid. They wrote that such a permit would provide “access to young people” to consume beer illegally, and could subject the city to legal liability. A petition with 200 signatures and another 651 signed form cards, expressing opposition to sale of beer at A’s games led the OLCC to deny three one-day special-use permits for the opening series in mid-June.

When the home-opener rolled around on June 19, it was my job to find out what the 1,900 fans thought about baseball and beer. I had just graduated from college in May and even though I had attended Medford Giants and Rogue Valley Dodgers games in the 1960s and early 1970s, I didn’t know the players involved in the council chamber tussle from those on the field.

I polled 201 fans, who were 21 and older, and found 139 favored sale of beer at Miles Field games, 39 thought it should not be sold and 23 were of no persuasion.

Among the trends I discovered were that many of the supporters of beer sales were admittedly non beer drinkers, or drank very little and had no interest in buying it at the ballpark. They believed it was an individual decision.

Fans opposing beer sales pointed to three areas: Children, rowdy behavior and possible post-game traffic hazards. For reasons I still haven’t figured out, the older the fan, the more likely he or she approved of beer being sold.

The late Ben Fagone, a former mayor at the time and eventually a 5 percent owner of the team, was highly vocal about the matter.

“I think it stinks,” he told me. “They (the OLCC) are going with the minority. If they have a hearing and we load it up, are they going to reverse their decision?”

Fagone, never one to mince words, took aim at the city council members: “If the councilmen looked in the mirror to see what they saw three or four or five years ago, they wouldn’t be calling the kettle black. If the OLCC can be swayed by the minority then I think it is time something is done about the OLCC itself. Six hundred names doesn’t make a hearing.”

Like I noted earlier, I didn’t know the players in this “brewhaha” by face. I expected a variety of answers, including one from a  fan seated in the stands along the first-base line:

“I don’t think much of your method of finding out what people think, but it’s understandable. I come to the game to enjoy it. It’s not right to drink at the game, just like it’s not right to drink beer and drive.”

I asked for his name.

“Monte Stamper.”

There were 36 home games that summer and the OLCC eventually granted eight one-day special use permits in August. Emmans who figured he lost $300 a night in revenue, took it all in stride.

“Maybe it’s just me,” Emmans said. “But I see more enthusiasm here tonight.”

As he waited in line for his 75-cent, 14-ounce cup of beer, Henry Buckingham told me: “It’s almost like it was a free country.”

Earthquakes, tsunamis, wild fires, tornadoes, volcanic eruptions — we’ve seen it all in the first half of 2011.

Erickson Air-Crane crews often find themselves in the middle of catastrophic events. Such was the case last month during the wildfires that swept across Texas.

Here is a letter sent by a grateful Texan to the company.

Unless you were a Trail Blazer fan during the Kermit Washington era you might never have heard of The American University, located just across the Maryland border in northwest Washington, D.C.

I picked up a master’s degree at American University during the early Reagan Administration era before returning to the Rogue Valley.

For years, I didn’t hear much from American and the university didn’t hear much from me.

Never mind American University managed to lose my diploma and it took a couple of years letter writing and telephone calls to finally get a replacement copy shipped to Medford. (I still have a very thick file of correspondence somewhere in the home office.)

Some time after the advent of ubiquitous emails I managed to land on American’s Alumni Update blast list.

When the May update hit my inbox this morning I quickly scanned the alumni notes to see if any of my cohort had made a splash. There were none, but the final entry caught my eye:

Ken Wells, SOC/BA ’81, promoted to executive vice president and chief marketing officer of PremierWest Bank

I clicked on the link and this is what I found.

It may merely be a simple collection of People in Business notes I compile from time to time, but I can now report that good ol’ AU is linked to my daily habitat.

Newly released government filings, detail some of the issues PremierWest Bank and its parent company PremierWest Bancorp are working through to regain profitability.

PremierWest’s filing shows that $100 invested in the bancorp’s stock on the final day of 2005, would have dwindled to $2.95 at the end of 2010. After earning $14.3 million and $14.8 million in 2006 and 2007 respectively, PremierWest suffered a $7.8 million setback in 2008 before the full force of the real estate bubble and financial markets melt down resulted in a $146.6 million free fall in 2009. Last year, PremierWest showed enough buoyancy to trim its losses $7.5 million.

The return on average assets slipped from 1.49% in 2006 all the way to a negative 9.29 in 2009, before improving to 0.51% last year.

There are still the TARP and other regulatory issues to deal with, not to mention continued real estate woes in many of the regions PremierWest serves in Oregon and California. But while PremierWest treads its own troubled financial waters, there are factors beyond local control.

“We rely on the Federal Home loan Bank of Seattle as a source of liquidity,” PremierWest states, adding the FHLB of Seattle provides a source of wholesale funding for immediate liquidity and borrowing needs. “Changes or disruptions to the FHLB of Seattle or the FHLB system in general, may materially impair the Company’s ability to meet its growth plans or to meet short and long term liquidity demands.”

PremierWest goes on to say: “The Federal Housing Finance Agency reaffirmed FHLB of Seattle’s “undercapitalized” classification” on Dec. 31, 2010.

Like PremierWest and other banks with similar regulatory restrictions, the FHLB of Seattle cannot pay a dividend on its common stock and cannot repurchase or redeem common stock.

“While the FHLB of Seattle has announced it does not anticipate that additional capital is immediately necessary, and believes that its capital level is adequate to support realized losses in the future, the FHLB of Seattle could require its members, including (PremierWest), to contribute additional capital in order to return the FHLB of Seattle to compliance with capital guidelines.”

PremierWest’s total market share actually grew to 8.36% in 2009 before dropping to 6.84% in 2010. Its strongest showing is in Siskiyou County, where it attracted more than one in five dollars on deposit, according to the FDIC. But purely in dollar figures, the $365.2 million deposited in Jackson County dwarfs the other 12 markets where it operates.

You can delve into PremierWest’s frank self-assessment at http://www.snl.com/Cache/10916308.pdf?O=3&IID=4054224&OSID=9&FID=10916308