CHAPTER 3: THE INITIAL APPLICATION Flashcards
Pre-Qual
is only a review of what the borrower says they make, the assets and the
estimated value of the property. You can give an estimate of qualifications.
On a Pre-Approval you are…
verifying the information before you issue a final PreApproval. Much better for the Realtor to show properties.
Truth in Lending Act (TILA, Regulation Z):
• There are eight parts to TIL.
• MDIA, Advertising, HOEPA, APR, LE, Charms Booklet, Qualified Mortgage (QM) and
Loan Officer Compensation
• The major part of TILA is protecting the borrower from interest rate and disclosure abuse
and predatory lending. This disclosure includes the LE, in making sure all of the fees and
costs are disclosed.
• Advertising has to be honest with what you have and an APR anytime you have a number
on your marketing piece. All advertising must be kept for two years from the last time
you ran the marketing program.
• All files must be kept for three years and the CD for 5 years. The hard copy files can be
destroyed once the files are digitized.
• Penalties up to $5,000 and one year in jail for violating TILA
The Mortgage Acts and Practices Rule (MAP, Regulation N):
• Covers abuses in advertising.
• This includes advertising something you don’t have, bait and switch and using terms that
mislead or tell the borrower they should not apply.
Counseling and Suitability of Products and Programs:
• As a professional MLO, it is your responsibility to counsel a borrower as to the products
that you have available, so they can make an educated decision.
• Just because grandpa says only 1 30 year fixed, there circumstances may lead to other
options.
• Ask questions.
An Application & 1003:
• Remember PENCIL. If you don’t have all of the items, you are not responsible for giving
Federal Comprehensive Pre-Licensing Education Course 125
Chapter 3: The Initial Application
Copyright 2020 – Mortgage Educators and Compliance – All Rights Reserved
an LE.
o Property address
o Estimated property value
o Name of the borrower
o Social Security Number to pull a credit report
o The borrower’s income
o Loan amount requested
• Fannie Mae 1003 or FHLMC 65 are the applications needed to obtain all of the
information you will need to make a credit decision. It is also called URLA – Uniform
Residential Loan Application.
• New 1003 – Fannie Mae and Freddie Mac have designed a new 1003, which has now
been delayed until 2021.
Home Mortgage Disclosure Act (HMDA, Regulation C):
• Requires all lenders to collect data on all applications and report it annually or starting in
2020, quarterly.
• Mortgage Brokers are exempt because they can’t underwrite or fund loans.
• HMDA requires you to collect data, thus Reg C for collection of data means HMDA.
Equal Credit Opportunity Act (ECOA, Regulation B):
• Age – you must be 18 or older to obtain a mortgage
• Discrimination - None of the discriminatory items can be used to make or decline the
loan, they must be kept neutral.
• Underwriting/Credit Decision – When a complete underwriting package is delivered to
the underwriting department, a decision to decline or approve must be issued within 30
days, unless if the file is suspended, it is then extended to 90 days.
• Appraisal – an appraisal is to be delivered to the borrower no less than 3 business days
before closing. The exception would be if there was an AWI issued by Fannie Mae or
Freddie Mac or on an FHA Streamline refinance or an IRRRL streamline VA refinance.
• Adverse Action – if the loan is declined or cancelled an adverse action must be issued
within 30 days, detain why the action was taken.
The Fair Housing Act (FHA):
• Remember under Fair Lending, Fair Housing and ECOA, it is required you must allow all
consumers to apply for a loan, it doesn’t mean the loan will be granted, but they must be
allowed to apply.
• Fair Housing was amended by ECOA. Age is exempt because of Reverse Mortgages and
55 and over subdivisions.
TILA- RESPA Integrated Disclosure (TRID)
• Replaced the GFE and TIL
• Page one gives all of the details of the loan program, the payments including escrows and
showing total costs of the loan. If there is assistance in costs paid by the seller or lender,
the credit will be shown on page 2.
• Page two is a detailed breakdown of costs and fees that will be charged to get the loan.
That includes all costs and fees.
• Three Fee tolerances –
o Zero tolerance – when you quote and it is incorrect, you will pay the difference.
There may be exceptions but be very conscious of what you are quoting.
o 10% tolerance is a cumulative of the costs including title, recording fees and
lender required inspections. If the borrower selects their own company, then you
have no liability.
o No Tolerance – you have no liability because the borrower selects the provider.
• Any CHANGED CIRCUMSTANCE results in a new LE being issued within three
business days. The Final LE must be received no later than 4 business days before
closing.
• Business Day – the LE and Changed Circumstance is any day the company is open, but
never Sunday or legal holidays.
• Page 3 of the LE – Shows three comparisons, including 5-year cost, PAR and TIP (Total
Interest Percentage). General information on appraisal, insurance, late pays, refinancing
and servicing
• The LE may be required to be signed by the lender, but does not obligate the borrower,
only indicates they have received a copy.
Home Loan Tool Kit:
Required on all purchases within 3 business days of application.
Consumer Handbook on Adjustable Rate Mortgages (Charm’s Booklet):
Required for all ARM loans whether purchases or refinances within 3 business days of
application
Homeownership Counseling Disclosure
- Optional counseling to all buyers at their own cost.
- Must provide the disclosure on all transactions
- Mandatory for Reverse Mortgages or High Cost loans.
4506T:
- Sent to IRS to confirm the numbers on the tax returns from the borrower are the same.
- Can help in determining whether fraud exists
Electronic Signatures in Global and National Commerce Act (E-Sign Act):
• E-mail and faxing are not considered electronic.
• The borrower must give you written approval and they have to be allowed to go back to
hard copy if they wish.
• You must determine at the best of your ability, is the borrower able to digital delivery.
