Chapter 2 Flashcards
The Dodd-Frank Act and the Consumer
Finance Protection Act created
Consumer Financial Protection Bureau
CFPB
following laws are regulated by CFPB
– Regulation B:
– Regulation C:
– Regulation F:
– Regulation H:
– Regulation N: – Regulation O: – Regulation P: – Regulation V: – Regulation X: – Regulation Z:
Consumer protection responsibilities previously handled by the
following offices are now consolidated and implemented under
the CFPB:
• Office of the Comptroller of the Currency (OCC) – Charters,
regulates, and supervises all National Banks
• Office of Thrift Supervision (OTS) – Supervises, charters, and
regulates federal thrift institutions
• Federal Deposit Insurance Corporation (FDIC) – Insures deposits
and examine and supervises financial institutions
• Federal Reserve – established a federal charter for banks to make
real estate loans and set up a way to influence rates
• National Credit Union Administration (NCUA) – Charters and
supervises federal credit union
• The Department of Housing and Urban Development (HUD), and
• Federal Trade Commission (FTC)
Congress pass the Real Estate Settlement Procedures Act (RESPA – Reg X )in 1974.
• Purpose is to help consumers become better
shoppers for settlement services and to eliminate
unnecessary increases in the costs due to kickbacks
and places limitation on the use of reserve accounts.
• The terms “settlement”, “loan consummation”,
“doc signing” and “closing” can be and are used
interchangeably under RESPA and within the
mortgage industry.
• Record Keeping - Any documents provided in
accordance with this section must be retained for five
(5) years from the date of execution.
Regulation X applies to
mortgage loans
on one-to-four unit residential
properties (owner occupied).
Sections of RESPA include:
– Section 6
– Section 8
– Section 9
– Section 10
– Section 10 —
Identifies amounts that can be
charged to maintain escrow accounts
– Section 9 —
States a seller cannot require the
use of a particular title company
– Section 8 —
Prohibits kickbacks, fee-splitting,
and unearned fees
– Section 6 —
Protects homeowners against
Mortgage servicing abuses
mortgage servicer
the company that collects
monthly mortgage payments, pays taxes, insurance and
notifies the borrower of late payments.
Forced-Placed Insurance -
Loan servicers
have the right to administer “Force-Placed
Insurance” when the servicer believes that the
policy has been canceled or not renewed.
– Servicer must notify the borrower 45 days before
– Servicer must send a 2nd notice 30 days before
Qualified Written Request, or “QWR”,
imposes a duty to respond to
borrowers’ inquiries. Upon receipt of a QWR, a mortgage servicer is required to
take certain steps, each of which is subject to certain deadlines:
section 6
Borrower complaints to servicers -
Loan servicers have five (5) days to
acknowledge a borrower’s complaint and 45 days to resolve or explain their
position.
section 6
Missed/Delinquent Mortgage Payments -
Servicers must attempt to speak
with delinquent borrowers within 36 days after the missed payment.
section 6
Servicers must mail/offer loss mitigation information
within 45 days of a
borrowers missed payment.
section 6
A servicer cannot file a pre-foreclosure Notice of Default (NOD)
until the
mortgage payment is 120 days late
section 6
Section 9 title insurance
Under RESPA, it is illegal for a property seller
to require the buyer to use a particular title
insurance company, either directly or
indirectly, as a condition of sale.
• If violated – the buyers may sue a seller who
violates this provision for an amount three
times (treble damages) all title insurance
charges.
escrow account
holds money for purposes of paying
taxes hazard insurance that mortgage lenders collect
every month, along with a mortgage payment.
according to section 10 the lender cannot require the borrower to
deposit more than
1/12th the annual amount into an
escrow account of the estimated payment of taxes,
insurance premiums or other charges.
section 10 says an escrow account analysis
is
required once a year, and borrowers
must be notified of any shortage.
A mortgage loan that includes mortgage
insurance MUST have
an escrow account.
All government-insured or guaranteed loans
FHA/VA
must have an escrow account
Subjects violators to criminal and
civil penalties, including:
Respa penalties
–Fines up to $10,000 and/or –Imprisonment up to one year –Liability up to three times the amount of the charge paid for the service (civil lawsuit). pg23
when to disclose Home Loan Toolkit (Respa)
Loan Estimate (Tila)
Mortgage Servicing Disclosure Statement (respa)
List of HUD approved home counselors (respa)
at or w/in 3 business days of application
when to disclose affiliated business arrangement (afba)disclosure (respa)
closing disclosure: 3 days prior to consummation (tila)
before settlement
timing for finalized closing disclosure (tila)
intial escrow statement (w/in 45 days of closing) Respa
at settlement
timing for annual escrow statement (respa)
servicing transfer statement (respa)
after settlement
There are six (6) items that make up a complete
application:
- Name(s) of borrower
- SSN for each borrower
- Gross monthly income of borrower(s)
- Loan amount sought
- Address of subject property (acceptable to use TBD/UNK)
- Estimate of property value
Affiliate Business Arrangement
Disclosure (AfBA)
An “affiliated business
arrangement” exists when the referring party has
a greater than 1% ownership interest in the
business receiving the referral. Must be retained
for 5 years.
(Before settlement)
Closing Disclosure (Preliminary Closing Disclosure) -
sets forth a complete list of the actual
settlement costs that will be charged at the
closing.
(Before settlement)
Closing Disclosure (Final Closing Disclosure) –
Shows the actual finalized settlement costs of the loan transaction. Separate forms may be prepared for the borrower and the seller. (At Settlement)
Initial Escrow Statement –
Itemizes the
estimated taxes, insurance premiums and
escrow account charges.
• Usually given at settlement, but lender has 45 days
from settlement to deliver. Sometimes referred to as
the “HELLO LETTER”.
(At Settlement)
Annual Escrow Statement –
Summarizes escrow
account deposits and payments during the year.
(Required by RESPA Section 10).
(After Settlement)
Servicing Transfer Statement –
Required if the
loan servicer sells or assigns the servicing rights to
another servicer.
• The loan servicer must notify the borrower 15 days before the
date of a servicing transfer.
• This is often referred to as a “goodbye” letter.
• There is also a statutory 60-day “grace period”.
(After Settlement)
The Consumer Financial Protection
Bureau was created by?
Dodd-Frank Wall Street Reform and
Consumer Protection Act.
Diana files a complaint with her mortgage servicer, how long does the servicer have to acknowledge receipt of Diana’s complaint?
5 days
______________ is a disclosure that provides notice regarding the lender’s intentions on transferring or retaining the servicing of the loan
Mortgage servicing disclosure
Under RESPA section ________ it is illegal for a property seller to require the buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale?
9
The definition of a “Complete Application” according to RESPA, includes all of the following EXCEPT?
most recent two months of bank statements.
A lender may not use ____on the Loan Estimate in the “property address” section.
N/A
Quiz1 REspa
TRUTH IN LENDING ACT (TILA) -
REG Z
The Truth in Lending Act (TILA) is administered by
the CFPB.
– TILA requires lenders to disclose
the complete cost
of credit to consumer loan applicants.
TILA requires disclosure of the Annual Percentage
Rate (APR).
in advertising
The only fee that may be collected prior to these
(TILA) disclosures are
fees for credit reports.
MLOs and servicers are prohibited from charging a
fee for
the preparation of the TILA Disclosures.
TILA Disclosures are required in two general
areas:
When creditors offer credit but before the
transaction is consummated.
2. When credit terms are advertised to potential
customers.
- anyone who gives false or inaccurate
disclosure information, consistently understates the
APR, or otherwise fails to comply with Reg. Z can be
fined up to
$5,000 and be imprisoned for up to 1
year or both.
The following are specific disclosures required by
Regulation Z:
The Loan Estimate and the Closing Disclosure.
– Consumer Handbook on Adjustable Rate
Mortgages/CHARM booklet within three business
days of an application. (only for ARM loans)
– When Your Home is on the line disclosure - within
three business days of an application (only for home
equity installment loans and home equity lines of
credit)
– Notice of Right to Rescind: All individuals with
ownership interest should receive 2 copies of the
right to rescind.
TILA disclosure must be kept for at
least
two years.
EXCEPTIONS: Lenders must retain
the Closing Disclosure for
five (5)
years and the Loan Estimate for
three (3) years.
The APR tells a borrower the
total cost of financing a
loan in percentage terms as a relationship of the total
finance charges to the total amount financed.
– The APR reflects certain
finance charges associated
with the loan, spread out over the life of the loan.
Finance Charge - Regulation Z defines the finance
charge as
the cost of consumer credit as a dollar
amount. It includes any charge payable by the
consumer because of the extension of credit.
A BUSINESS DAY IS DEFINED BY?
TILA
Business day:
All calendar days
except Sundays and legal public
holidays (According to TILA)
–with the exception of the “initial”
Loan Estimate, which defines a
business day as
ANY day that the
creditors office is open for business
The Mortgage Disclosure Improvement Act
(MDIA) (also known as the 3/7/3 act) states that:
– Initial disclosures are required within three (3)
business days of receipt of completed
application.
– Earliest consummation is on the 7th business
day after disclosures delivered/mailed.
– If redisclosure is required - consumer must
receive corrected disclosure at least 3
business days before loan can be
consummated. pg34
APR Accuracy and Redisclosure - According to
Regulation Z, the annual percentage rate is
generally considered accurate if it does not vary
above or below the APR initially disclosed by more
than:
– 1/8% (.125) for a regular transaction (30-year
fixed/Traditional Mortgage)
– 1/4% (.25) for an irregular transaction (Not a
30-year fixed/Non-traditional mortgage)
The Right of Rescission applies to any credit
transaction involving the establishment of a security
interest in a principal residence, such as:
– Refinances
– Home equity loans/Home equity lines of credit
This right of rescission does not apply to the
following:
– Purchase loans
– Construction loans/Commercial loans
– Loans on vacation or second homes
TILA allows borrowers have the right to
cancel
certain credit transactions.
Creditors must inform consumers of their right to
rescind by providing
two copies of a Notice of
Right to Rescind document to each consumer
entitled to rescind.
– If a borrower rescinds, the borrower is entitled to
a full refund of any funds provided to escrow
within 20 days.
Home Ownership and Equity Protection Act -
HOEPA addresses certain deceptive and unfair
practices in home equity lending.
HOEPA amends the Truth in Lending Act (TILA) and establishes
requirements for
certain loans with rates and fees above a
certain threshold.
TILA and the Home Ownership and Equity Protection Act
HOEPA
require additional disclosures, and limitations on loan
terms apply to certain loans with high interest rates and/or
high loan fees.
In order to figure out whether a loan is a high-cost loan, we
must compare
our loan’s APR against the Average Prime Offer
Rate (APOR).
HOEPA, Section 32 – HIGH COST – is closed end
loan or open-end credit plan secured by a borrower’s
principal residence.
A loan is considered a High-Cost Loan if any of these
thresholds are met:
– The first lien on the property has an APR that exceeds
the value of the APOR Index (as of the loan lock-in
date) by more than 6.5 percentage points.
– A second mortgage has an APR that exceeds the value
of the APOR Index (as of the loan lock-in date) by more
than 8.5 percentage points.
– When the total points and fees payable in conjunction
with the loan exceed 5% for a transaction is $21,549
(8% for loans less than $21,549).
HIGHER-PRICED MORTGAGE LOANS sometimes
known as “HPMLs” or “Section 35 loans”.
Higher-priced mortgage loans are closed-end
mortgage loans that are secured by the borrower’s
principle dwelling.
If the loan being made is a higher-priced
mortgage loan, the originator must
establish:
– The borrower’s ability to repay the mortgage loan.
– An escrow account for taxes and insurance for the first
five years.
– A full appraisal with a physical visit of the interior of the
property has been performed by a certified or licensed
appraiser.
– An additional appraisal may be required if the property
was acquired less than 180 days prior to the sales
contract.
Home Ownership and Equity Protection Act
Prohibits the following:
Balloon payments
– Negative amortization
– Prepayment penalties
– Acceleration of debt. Strictly prohibited.
Includes any provision that would enable the
creditor to call the loan before maturity.
– Prohibits refinancing a HOEPA loan into
another HOEPA loan within the first 12 months
Prohibitions in Advertising
• Misrepresentations about government endorsement. Statements
that lead consumers to the incorrect assumption that a mortgage
product is endorsed by the government are illegal.
• Misleading use of the current lender’s name. Some lenders and
mortgage brokers have made direct solicitations that lead consumers
to the incorrect assumption that their own lender is contacting them
with information on mortgage products.
• Misleading use of the term counselor. An advertisement cannot
refer to a for-profit lender, mortgage broker or its employees as a
“counselor”.
• Misleading foreign-language advertisements. Some
advertisements target immigrants who lack fluency in English by
advertising favorable lending terms in their first language, while
providing information on the additional and less favorable lending
terms in English.
Appraisal Prohibited Practices under TILA.
– Implying to an appraiser that current or future retention
of the appraiser depends on the amount at which the
appraiser values a consumer’s principal dwelling.
– Excluding an appraiser from consideration for future
engagement because the appraiser reports a value of a
consumer’s principal dwelling that does not meet or
exceed a minimum threshold.
– Telling an appraiser a minimum reported value of a
consumer’s principal dwelling that is needed to approve
the loan.
– Failing to compensate an appraiser because the
appraiser does not value a consumer’s principal dwelling
at or above a certain amount.
Loan Originator Compensation Rule:
– Prohibits creditors from compensating MLOs
based on the loan’s interest rate or other
terms associated with the rate/terms of the loan.
– The law further prohibits against dual
compensation; that is, it restricts an originator
to being paid by either the borrower OR the
lender on a given transaction, but not both.
– Loan originator organizations must keep a
record of payments from a creditor and
payments to individual originators for three (3)
years. Citation:
Ability-to-Repay (ATR) Mortgage Rules require lenders
to
make a reasonable, good-faith determination before
or when a loan is consummated, that the borrower has a
reasonable ability to repay the loan.
Creditors must consider 8 types of information when
establishing a borrower’s ability to repay a mortgage
loan:
- Current or reasonably expected income or assets.
- Current employment status.
- Borrower’s Credit History.
- Monthly mortgage payment for this loan.
- Monthly payment on any simultaneous loans secured
by the same property. - Monthly payments for property taxes and insurance.
- Other debts, including alimony, and child support
obligations. - Monthly debt-to-income ratios.
Qualified mortgages prohibit or limit
the risky
features that harmed consumers in the recent
mortgage crisis.
Qualified Mortgages - the requirements include:
– Full Documentation (No-doc loans ineligible):
loans where the creditor does not verify income or
assets cannot be qualified mortgages.
– No excess upfront points and fees – max 3% of
the loan amount: Limits points and fees, including
those used to compensate loan originators, such as
loan officers and brokers.
– Cap on how much income can go toward debt –
max 43% DTI: Qualified mortgages generally will be
provided to people who have DTI ratios less than or
equal to 43%.
Qualified Mortgages - the requirements include:
Maximum loan term of 30 years.
– Prepayment penalties prohibited –
prepayment penalties are generally prohibited,
except for certain fixed-rate, qualified loans.
– No risky or toxic features: No negative
amortization, no balloon payments, no Interest-
only loans.
– For ARMs - Must be underwritten as a fully
amortizing loan at the maximum interest rate
that the loan can adjust to in the first five (5)
years.
TILA applies when credit is payable by written agreement in __________ installments.
more than four (4) installment
Which regulation requires disclosure of the Annual Percentage Rate (APR) in advertising?
TILA
A higher-priced loan is one that
uses the average prime offer rate as an index
A high cost loan is one that is defined as a mortgage loan (first lien) where the APR exceeds the average prime offer rate by
6.5%
How long must the closing disclosure be kept?
5 years
A Qualified Mortgage may contain all of the following terms except?
A 40 year term loan
A Qualified Mortgage may contain all of the following terms except?
A 40 year term loan
quiz2tila
The TRID rule doesn’t apply to the following
types of mortgage loans:
– Home equity lines of credit (HELOC),
– Reverse mortgages,
– Mortgages for mobile homes not secured by real
estate,
– Loans from anyone who funds no more than five
loans in a calendar year (typically sellers assisting in
financing properties that they are selling).
Loans that are exempt from the TRID requirements
will continue to use the GFE, HUD and TILA
disclosure forms.
Creditors must retain records that show compliance
with Loan Estimate requirements must be kept for
.
three years
Creditors must retain records that show compliance
with Closing Disclosure requirements and all
related documents for at least
five years after
consummation.
The LE is also provided to give the consumer a way to
compare
initial costs disclosed by the lender with the
actual closing costs on the loan.
The creditor is required to either give or mail the Loan
Estimate to a borrower no later than.
three (3) business
days after taking the borrower’s application and no later
than seven business days prior to consummation
The Revised Loan Estimate due to Rate Lock - In
limited circumstances, creditors are permitted (or
required)
to revise information provided on an
original Loan Estimate.
Valid Changed Circumstances -
if changed circumstances
cause the charges listed on the Loan Estimate to increase the
creditor may issue a revised Loan Estimate.
Refinance:
a statement that refinancing will depend on
the borrower’s future financial situation, property value,
and market conditions, and that refinancing may not be
possible.
Servicing:
a statement of whether or not the creditor
intends to service the loan or transfer servicing to
another entity.
Closing Disclosure
– The Closing Disclosure replaces the HUD
Settlement Statement.
– The new form is used to help consumers
understand the final (actual) costs and terms
of the transaction.
– Copies of the Closing Disclosure must be kept by
the creditor for at least five (5) years.
– Creditor is responsible for providing the
statement to the borrower.
– The settlement agent is responsible for
providing to the seller.
Loan Calculations table, which lists the
following information:
– Total of Payments: the total number of payments
scheduled.
– Finance Charge: the cost of the loan, expressed as a
dollar amount.
– Amount Financed: the loan amount available for the
consumer’s use.
– Annual Percentage Rate (APR): expressed as a
percentage.
– Total Interest Percentage (TIP): the amount of interest
that the borrower will pay over the loan term, expressed
as a percentage of the loan amount. pg80
The TILA-RESPA Integrated Disclosures do not apply to all of the following except
The TRID rule doesn’t apply to the following types of mortgage loans:
–Home equity lines of credit (HELOC),
–Reverse mortgages,
–Mortgages for mobile homes not secured by real estate,
–Loans from anyone who funds no more than five loans in a calendar year (typically sellers assisting in financing properties that they are selling).
How long must the loan estimate disclosure be kept?
3 years
If the loan estimate has been revised after receiving information establishing changed circumstances affecting settlement costs, loan terms, or borrower requested changes – when must a revised loan estimate be provided to the borrower.
3 business days
Which of the following would allow a 10% cumulative tolerance?
Recording fees.
Which law requires MLOs to provide borrowers with a Loan Estimate of potential closing costs?
TILA
Which fee can be collected prior to delivery of the Loan Estimate?
Credit report fee
QUIZ #3 TRID
