Definitions Flashcards
Define: Federally-related mortgage loans
Loans secured by a first or subordinate lien on residential property which are designed for the occupancy of one to four families made by any lender which meets any of the following criteria:
- Made with funds insured by the federal government (e.g., FHA loans)
- Is regulated by the federal government
- The loan is insured by HUD
- Made with funds from a lender regulated by the federal government or that has deposits insured by the federal government (e.g., depository institutions regulated by the FDIC or NCUA)
- The lender:
- intends to sell the loan to Fannie Mae, Freddie Mac, or Ginnie Mae, or
- makes more than $1,000,000 in residential real estate loans per year
- Is regulated under the Truth-in-Lending Act
Define: Affiliated business arrangement
An arrangement in which a person who is in a position to refer business…or an associate of that person has either an affiliate relationship with or a direct or beneficial ownership interest of more than 1% in a provider of settlement services and refers business to that provider or affirmatively influences selection of that provider
Define: Agreement or understanding
An arrangement to offer things of value in exchange for referral of business related to settlement services
Prohibited by Regulation X
Define: Bona fide discount point
Discount points paid by the borrower which reduce the interest rate
Typically, one point is equal to 1% of the principal amount of the loan
Define: Borrower credit
A fee paid to the borrower by the lender when a loan is originated at a higher interest rate than the lowest rate for which the borrower qualifies
AKA: Yield spread premium (YSP)
Define: Fee-splitting
Generally understood to refer to paying or accepting unearned fees, or marking up the fee for a particular settlement service and splitting the overage with another settlement service provider
Prohibited by Regulation X
Not specifically defined by RESPA or Regulation X
Define: Kickbacks / Referral Fees
- No person may give or receive any thing of value arising from the referral of settlement services that are part of a federally-regulated mortgage settlement.
- A person or entity referring settlement services may not, as part of a mortgage transaction, refer a borrower to a settlement service provider and then receive compensation for the referral from that provider.
Referral
- Any oral or written action directed to a person which has the effect of affirmatively influencing the person’s selection of a settlement service provider when the person will pay for that service or pay a charge attributable in whole or in part for the service.
- Also occurs when a person paying for a settlement service is required to use a particular settlement service provider.
Thing a value may include
- Money, things, discounts, salaries, commissions, fees, stocks, and dividends
- Distributions of partnership profits
- Franchise royalties
- Services or sales/rentals at special prices or rates
- Trips and/or payments of another person’s expenses
- Credits against existing obligations
[Section 8 of RESPA]
penalty for violating Section 8 is a fine of up to $10,000 and/or up to one year in prison
Define: Markups
An upcharge in the actual cost of a settlement service and retention of the additional fee
The Supreme Court has held that unless an upcharge is split between two parties, a violation of RESPA has not occurred
Define: Mortgage broker
A person, other than an employee of a lender, that renders origination services and serves as an intermediary between a borrower and a lender in a transaction that involves a
federally-related mortgage loan
Define: Settlement service
Any service provided in connection with a real estate settlement
Define: Sham affiliated business arrangement
A partnership or joint venture created between settlement service providers for the illegal purpose of splitting fees under the guise of a bona fide affiliated business arrangement
Prohibited by Regulation X
Define: Thing of value
A thing in the form of money, tangible or intangible property, commercial interests, or anything else the primary significance of which is economic gain to the recipient
Exchange of Things of Value for business referrals specifically prohibited by Regulation X
Define: Payment
Giving or receiving of any thing of value
Does not require transfer of money
Define: Mortgage Loan Servicing
The receipt of mortgage payments from a borrower, including payments for taxes and insurance that are deposited in an escrow account, and forwarding these payments to the owner of the loan and to third parties, such as providers of homeowners’ insurance
Define: Judicial foreclosure
If the mortgage does not include a power of sale clause, a lender must proceed with foreclosure by filing a lawsuit
Define: Non-judicial foreclosure
If the mortgage does include a power of sale clause, no legal action is required
Define: Adverse action
A creditor’s refusal to offer credit in the amount or according to the terms requested by a loan applicant
Define: Discriminate
Using a prohibited basis, such as ethnicity or sex, as a basis for treating a loan applicant less favorably than other applicants
Define: Elderly
Age 62 or older
Define: Marital status
The state of being unmarried, married, or separated, according to applicable state laws.
Unmarried refers to persons who are single, divorced, or widowed.
These are the only terms that creditors are allowed to use when making inquiries related to marital status under ECOA.
Define: Prohibited basis
- Race
- Color
- Religion
- National origin
- Sex: This protected characteristic includes sexual orientation and gender identity
- Marital status
- Age, as long as the loan applicant is old enough to enter a contract
- Receipt of income from a public assistance program
- Exercising of rights under the Consumer Credit Protection Act, which includes the Truth-in-Lending Act
Define: Closed-end loan
In a closed-end transaction, a lender disburses all of the funds at closing and demands repayment within a specified period of time
Ex., A loan to purchase a home and a mortgage refinancing to secure a lower interest rate
Define: Open-end loan
A lender gives the borrower a limit on the amount of funds that he/she can withdraw, and the borrow can request a cash advance in any amount
Payments depend on the interest due on the amount withdrawn
The primary characteristic of an open-end loan is that both the borrower and the lender anticipate repeat transactions
Define: CFPB Business day
- General definition: Any day on which the creditor’s offices are open to the public for carrying out substantially all business functions.
- Alternate definition; All calendar days except Sundays and legal public holidays
(Day always means a standard calendar day. Never 24 hours.
The general definition applies to deadlines for providing the Loan Estimate
The alternate definition applies to
* The deadline for providing a Closing Disclosure
* The period of time that is assumed to elapse between the mailing of a Loan Estimate or Closing Disclosure and a consumer’s receipt of it
* The waiting period that must elapse:
* Between providing a Loan Estimate and consummation
* Between providing a Closing Disclosure and consummation
Define: Dwelling
A residential structure
- containing one to four units
- an individual condominium unit
- a cooperative unit
- a mobile home
- a trailer
whether or not the structure is attached to real property
Define: AP
Annual Percentage Rate
Define: APOR
Average Prime Offer Rate
An annual percentage rate that is based on average interest rates, fees, and other terms on mortgages offered to highly qualified borrowers
Define: Rebuttable presumption
The assumption that a fact is accepted by a court until it is disproven
Define: Application
The submission of the following items by the consumer to a creditor for the purpose of obtaining an extension of credit
- Name
- Monthly income
- Social Security Number for purposes of obtaining a credit report
- Property address
- Estimate of the value of the property
- Loan amount sought
Define: Consummation
(Within the context of loans)
Closing
(The date the borrower becomes legally obligated on the loan)
Generic definition: The act of making something complete or perfect
Define: Depository institution
A financial institution that obtains its funds mainly through deposits from the public.
Includes
- commercial banks
- savings and loan associations
- savings banks
- credit unions
Define: Non-depository institution
An entity that does not accept deposits but offers other financial services.
Includes
- insurance
- mutual funds
- pension funds
- brokerage firms
Define: Mortage credit product
Any form of credit that is
- secured by real property or a dwelling
- offered or extended to a consumer primarily for personal, family, or household purposes
Define: Loan fraud
- Occurs when, with intent to defraud, a person makes a deliberate misstatement or omits a material piece of information which would affect the person’s decision regarding the loan transaction
- Such an act may be committed by a borrower or a lender
Mortgage loan fraud may be fraud for housing and/or fraud for profit.
Define: Fraud for housing
(AKA Fraud for Property)
A borrower lying about their income and/or assets in order to qualify for a mortgage loan.
May include using
- a straw buyer
- silent seconds
Define: Fraud for profit
- May involve a number of individuals such as
- seller
- mortgage licensee
- appraisers
- Can take many forms such as
- Occupancy fraud
- Documentation fraud
- Appraisal fraud
Define: Occupancy fraud
A representation that the buyer will reside in the property when that is not the case
Define: Documentation fraud
Knowingly making written false statements or concealing material facts to influence the approval of a loan
Define: Appraisal fraud
The use of an inflated appraisal to secure a larger loan or to flip a property
Define: Financial NPI
NPI
- provided by a consumer to a financial institution
- resulting from any transaction with the consumer or any service performed for the consumer
- otherwise obtained by the financial institution
Includes
- information such as name, address, Social Security Number
- other information on a loan application
- any information derived from the loan origination process, such as:
- account numbers
- payment history
- loan balances
- deposit balances
- credit card purchases
- credit report
Does not include information which is publicly available, such as
- government records
- information in a telephone directory
- information dispensed by the government)
- any information specifically directed by a consumer to remain private, such as an unlisted telephone number
NPI: Nonpublic personal information
Define: Financial PII
PII
- provided to a financial institution by a consumer in connection with a credit transaction
- information secured by the financial institution in connection with such a transaction
PII: Personally-identifiable information
Define: PII
Personally-identifiable information
Any representation of information that permits the identity of an individual to whom the information applies to be reasonably inferred by either direct or indirect means
Define: NPI
Nonpublic personal information
Information that has not been previously disclosed to the general public and is otherwise not available to the general public
Define: Customer
A consumer with whom the institution has a continuing relationship
Define: Consumer
An individual who has obtained an isolated financial product or service from a financial institution for personal, family, or household reasons, but does not have an ongoing relationship with the institution (e.g., arranged for a wire transfer, cashed a check, etc.)
Define: Creditor
A creditor includes any business that
- Obtains and/or uses a consumer report in connection with a credit transaction
or
- Furnishes information to consumer reporting agencies
or
- Advances funds to or on behalf of a person that promises to repay the funds or to repay them from specific property pledges by or on behalf of the person
This definition includes mortgage brokers and mortgage lenders
Define: Straw buyer
- A person who buys something on behalf of another person in order to circumvent legal restrictions or enable fraud
- The creation of a fictitious person who will appear to make a purchase or obtain a loan
Define: Air loan
An unscrupulous broker obtains a mortgage in a straw buyer’s name on a non-existent property in order to collect the loan proceeds illegally
Define: Straw purchase
(AKA: Nominee purchase)
Any purchase wherein an agent agrees to acquire a good or service for someone who is often unable or unwilling to purchase the good or service themselves, and the agent transfers the goods or services to that person after purchasing them
Define: Silent seconds
- A second mortgage placed on an asset for down payment funds that are not disclosed to the original mortgage lender
- Used when a buyer can’t afford the down payment required by the first mortgage
Define: Fraud for housing
Committed by borrowers who, often with the assistance of loan officers or other personnel, misrepresent or omit relevant details about employment and income, debt and credit, or property value and condition with the goal of obtaining or maintaining real estate ownership
Define: Fraud for profit
Committed by industry professionals who misstate, misrepresent, or omit relevant details about their personal or their clients’ employment and income, debt, and credit, or property value and condition with the goal of maximizing profits on a loan transaction
Define: Loan conversion
Any conversion of a federally related mortgage loan to different terms that are consistent with provisions of the original mortgage instrument, as long as a new note is not required, even if the lender charges an additional fee for the conversion
Define: 2/2/2 Rule
Evaluates loan eligibility, which typically requires
- 2 years of W-2s
- 2 years of tax returns
- 2 months of bank statements
Define: Regulation B
Equal Credit Opportunity Act
(ECOA)
Define: Regulation X
Real Estate Settlement Procedures Act
(RESPA)
Define: Regulation Z
Truth in Lending Act
(TILA)
Define: Regulation V
Fair Credit Reporting Act
(FCRA)
Define: Regulation G
Federal Registration of Residential Mortgage Loan Originators
(S.A.F.E. Mortgage Licensing Act)
Define: Regulation H
State Compliance and Bureau Registration System
(S.A.F.E. Mortgage Licensing Act)
Define: Real estate brokerage activity
Any activity that involves offering or providing real estate brokerage services to the public, such as
- Acting as a real estate agent or real estate broker for a buyer, seller, lessor, or lessee of real property
- Bringing together parties interested in the sale, purchase, lease, rental, or exchange of real property
- Negotiating, on behalf of any party, any portion of a contract relating to the sale, purchase, lease, rental, or exchange of real property (other than in connection with providing financing with respect to any such transaction)
- Engaging in any activity for which a real estate license or registration is required under the law
- Offering to engage in any real estate brokerage activity as defined in the law
Define: Amount financed
The actual amount of credit that the borrower will receive from the creditor.
- It is not the loan amount
- It is the loan amount less/plus any prepaid finance charges
- If a borrower applied for a $200,000 loan and paid $7,000 in prepaid finance charges, the amount financed would appear as $193,000.
- If the prepaid finance charges were added into the loan and financed, the loan amount would be $207,000 and the amount financed would be $200,000.
Define: Regulation C
Home Mortgage Disclosure Act
