Disclosure Terms

Question 1

Adverse action:

Answer 1

the term used to describe a decision by a lender not to extend credit to a consumer on the terms that the consumer requested.

note: It is illegal for a lender or creditor to take adverse action based on a consumer’s personal characteristics such as race, gender, marital status, etc. ECOA requires that consumers are properly notified of their loan status within 30 days.

Question 2

Affiliated business arrangement:

Answer 2

an arrangement in which a person who is in a position to refer a consumer to a settlement service provider has either an affiliate relationship with or a direct or beneficial ownership interest of more than 1% in the provider of settlement services.

note: referring consumers to an affiliated settlement service provider is legal if the individual or entity making the referral discloses the arrangement to the consumer at the time the referral is made.

Question 3

Annual percentage rate (APR):

Answer 3

APR is a uniform measurement of the cost of a loan, including interest and financed costs of closing, expressed as a yearly percentage rate.

Question 4

Borrower credit:

Answer 4

borrower credits are incurred when a loan applicant accepts an interest rate that is higher than the best rate for which they qualify. The difference is used to defray closing costs.

note: Previously, this overage was referred to as “yield spread premium,” or YSP, and it was often retained by the creditor. Today, regulatory reform has ensured that the person benefiting from the higher rate is the borrower, not the creditor.

Question 5

Closing Disclosure:

Answer 5

the final disclosure provided in almost all mortgage loan transactions, summarizing the actual costs of the loan obtained.

Question 6

Finance charge:

Answer 6

a finance charge is a uniform measurement of the cost of a loan expressed as a dollar amount.

note: It is the total of all fees and charges paid to lender or broker or for their benefit required to bring a loan to settlement.

Question 7

Lender credits:

Answer 7

lender credits represent a certain amount of financing made available to borrowers by their lender in order to pay certain closing costs.

note: Lender credits are typically “made up” by the lender through an increased interest rate.
- Lender credits are disclosed on the Loan Estimate.

Question 8

Loan Estimate:

Answer 8

an initial disclosure provided in almost all mortgage loan transactions, providing a summary of good-faith estimates of costs related to the loan being sought.

Question 9

Lock-in agreement:

Answer 9

an agreement made between a borrower and a lender to hold an interest rate and specific number of points while a mortgage loan application is processed.

Question 10

Note rate:

Answer 10

the note rate is the stated interest rate on a mortgage or loan agreement.

Question 11

Rescission:

Answer 11

the ability to cancel a transaction for a refinance or for a home equity loan.

note: The rescission period, when it applies, is generally three business days;

a three-year rescission period applies to transactions when the creditor failed to provide notice of the right to rescind.

The right to rescind is only available for loans secured by the borrower’s principal dwelling.

Question 12

Servicing transfer:

Answer 12

servicing transfers occur when the rights to service a mortgage loan are transferred from one financial institution to another.

note: Servicing rights are frequently transferred at least once, if not more often, over the life of a loan.

Question 13

Yield spread premium:

Answer 13

now known as a borrower credit, a yield spread premium (YSP) is a fee collected by a broker or lender which the borrower uses as a credit toward closing costs in exchange for paying a higher interest rate.