Federal Law's

Question 1

The Secure & Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act, Title V of Housing & Economic Recovery Act)

Answer 1

-Minimum standards for licensure
-Established the NMLS (Nationwide MultiState Licensing System & Registry)
-Requires 20 hours of pre-licensing education
- Requires 8 hours of continued education
-Requires background checks & credit report checks for applicants & continued licensure
-Requires a written test
-Requires contractor loan processor & underwriters to have MLO license

Pre licensing education: 3 hours of federal law and regulations, 3 hours of ethics, 2 hours of training related to nontraditional mortgage products, 10 hours of elective education, and 2 hours of CA-DFPI Law.

Continuing education: 3 Hours of federal laws and regulations, 2 hours of Ethics topics, 2 hours of non-traditional mortgage training, & 1 hour of electives

Question 2

Truth in Lending Act (Regulation Z, TILA) 1968

Answer 2

HIGHLIGHT’S:
-Promotes informed use of credit (Disclosure of the APR)
-Provides right to rescission (3 days after close on owner-occupied refinance transactions)
-Advertising= requires disclosure of certain terms when ads include trigger terms
These trigger term’s include~ Down payment, term payment, any finance charge= the disclosure of the APR
- The 3/7/3 Rule: earliest close 7 days after initial disclosure; 3 business day waiting period before consummation if re-disclosure required penalties
-Violate rescission rights= borrower can rescind the loan for 3 years
-HOEPA= liable to borrower for all finance charges, cant sell on the secondary market
-Civil liabilities, Class action suits, Fines

DISCLOSURE’S:
-Within 3 business days of completed application (on specific transactions)
*The truth in lending disclosure The Truth in Lending Disclosure (APR) –REPLACED BY THE LOAN
ESTIMATE (TRID)
● CHARM Booklet (ARM’s)
At Closing:
● Notice of Right to Rescind (2
copies)

Question 3

Real Estate Settlement Procedures Act
(Regulation X, RESPA) 1974

Answer 3

HIGHLIGHTS:
-Comparing settlement services help’s a consumer shop
-Prohibits kickbacks, fee‐splitting and unearned fees
-Sets limits on escrow accounts
-Requires the HUD‐1 and GFE = replaced by the Closing Disclosure and Loan Estimate
-Penalties ‐ $10,000 /1 year in jail or both per violation

DISCLOSURES:
Within 3 Business Days of Completed Application:
-Loan Estimate (
-Mortgage Servicing Disclosure
-HUD Booklet on Settlement Costs
-Affiliated Business Arrangements
o Disclosed within 3 business days of application
o Include nature of relationship and range of charges
o Ownership interest in AFBA can be as small as 1% At Settlement:
-HUD‐1 Settlement Statement/OR/Closing Disclosure (see TRID)
-Initial Escrow Statement
o Estimate the next 12 months
o Given at closing or within 45 days After Settlement:
-Annual Escrow Statement
o Shows what’s going in and out of the escrow account
o No more than 2 months in reserves = will receive a refund
-Servicing Transfer Statement
o 15 days before and after transfer
o Hello/Goodbye Letter

Question 4

Homeowner’s Protection Act (HPA) 1998

Answer 4

HIGHLIGHT’S:
-Allows the borrower to request PMI cancellation when LTV reaches 80%
-Automatically terminates PMI when LTV reaches 78%

DISCLOSURE’S:
-Initial disclosure of HPA provisions with annual statements
-Disclosure of cancellation and automatic termination dates for fixed rate loans

Question 5

Home Ownership and Equity Protection Act (HOEPA) – Section 32 – high-cost home loans 1994

Answer 5

HIGHLIGHT’S:
-High‐cost home loans
-Doesn’t apply to: purchases, reverses, HELOCs, business loans
-Three coverage tests:
o APR test
▪ 6.5% over the APOR on a 1st lien loans over $50,000
▪ 8.5% over the APOR on 2nd lien loans and 1st lien loans under $50,000
o Points and Fees Test (for 2020)
▪ 5% of the total loan amount for a loan amount greater than $21,980
▪ 8% or $1,099 (whichever is less) for a loan less than $21,980
o Points and Fees Test (for 2021)
▪ 5% for the total loan amount for a loan amount greater than $22,052
▪ 8% or $1,103 (whichever is less) for a loan less than $22,052
o Prepayment penalty test
▪ More than 36 months after consummation or account opening
▪ In an amount more than 2% of the amount prepaid
-Requires homeownership counseling

DISCLOSURE’S:
-Must disclose to the borrower within 3 business days before closing if the loan is a high cost loan a disclosure including:
o Inform the consumer that the loan will not be effective until consummation or account opening occurs
o Explain the consequences of default
o Disclose loan terms such as APR, amount borrowed, and monthly payment
o In the case of variable‐ rate loans, explain the maximum monthly payment that may be required under the terms of the loan or credit plan

Question 6

Higher‐Priced Loans (Section 35)–Truth in Lending Act as amended by Housing and Economic Recovery Act of 2008

Answer 6

-Called Section 35 loans
-These are loans where the APR exceed the APOR by:
o 1.5% or more first first lien loans
o 3.5% or more for subordinate lien loans
-These loans must have escrow accounts

Question 7

Fair Credit Reporting Act (Regulation V, FCRA) 1968

Answer 7

HIGHLIGHT’S:
-Restricts use of credit reports
-Requires accuracy on credit reports
-Remove 7 years on most negative credit, 10 years on bankruptcies
-Fraud alerts (90 days)
-CRA must block info resulting from identity theft

DISCLOSURE’S:
-Adverse Action Notice Requirements:
● Disclose credit reporting agency used
● Disclose the CRA is not responsible for the denial
● Disclose the CRA provides a free copy of the exact report
● Must be given within 30 days of application
● The reason for the denial

Question 8

Fair and Accurate Credit Transaction Act of 2003 (FACTA)

Answer 8

HIGHLIGHT’S:
-Improves consumer access to credit information
-Resolution of consumer disputes
-Prevention and detection of identity theft

DISLCOSURE’S:
-Notice to Home Loan Applicant
Disclosure:
● Disclosure of credit score to the borrower
● Score factors, ranges of scores, date score computed
● Provided by the credit reporting agency with the credit report

Question 9

National Do Not Call Registry

Answer 9

-31 days to put someone on their list to not call
-numbers placed on the National Do Not Call Registry will remain permanently
-Calling times between 8am‐9pm
-Penalties = $40,000
-Cannot pull data over 30 days old from do not call registry
-Can call for up to 18 months if there is a business relationship in place
-if someone is requesting to be pre qualified then you have 90 days/3 months to call them

Question 10

Gramm‐Leach‐Bliley Act or Financial Modernization Act of 1999 (Privacy Act)

Answer 10

HIGHLIGHT’S:
-Protect confidentiality of non‐ public personal information (NPI or NPPI)

-Safeguard Rule – keeping borrower’s information safe

-Pretexting Rule‐ prohibits the solicitation or disclosure of NPI by false pretenses or deception

-Opt Out Rule – allows borrowers to opt‐out of sharing information with non‐affiliates

Question 11

Fair Housing Act 1968

Answer 11

Specifically prohibits for race, color, religion, sex or national origin but adds DISABILITY

Question 12

Equal Credit Opportunity Act (Regulation B, ECOA) 1974

Answer 12

HIGHLIGHT’S:
● Prohibit discrimination on specified classes:
o Race
o Color
o Religion
o National Origin
o Sex
o Marital Status
o Age
● CANNOT:
o Discourage from applying
o Ask about spouse, childbearing or child rearing
o Require disclosure of income received from alimony, child support, separate maintenance
● CAN:
o Inquire about race, ethnicity or sex for HMDA

DISCLOSURE’S:
-Notice of Adverse Action
● Approval, Counteroffer, Adverse Action
● Within 30 days of application Appraisal Notice
● Copy of appraisal after paid upon request within a
reasonable period of time ECOA Notice

Question 13

Home Mortgage Disclosure Act (Federal Reserve Board’s, Regulation C, HMDA) 1975

Answer 13

HIGHLIGHT’S:
-Used to track information to prevent discrimination
-Prevent redlining and blockbusting
-Must report information to the
regulator
-Must keep files for 3 years
-Can be taken:
o Face to face (can guess)
o Mail
o Telephone
o Internet

DISCLOSURE’S:
-1003 monitoring section X of the loan application

Question 14

FTC Red Flags

Answer 14

-Protect sensitive personal data
-Implementation of a written plan to detect and prevent
identity theft
-Penalty = $3,500 per incidence of non‐compliance
-Identifying red flags:
o Account activity/// Inconsistent information

Question 15

Dodd‐Frank

Answer 15

-Created the CFPB
-Prohibits Unfair Lending Practices
-Penalties for Irresponsible Lending
-Expands Consumer Protection on High‐Cost Mortgages
-Additional Disclosures
o Housing Counseling expansion

Question 16

Bank Secrecy Act/Anti‐Money Laundering (BSA/AML)

Answer 16

● FinCEN
● Suspicious Activity Reports (SAR)
o Within 30 days
o Transaction with more than $5,000 in cash or other assets is reported
o Must be kept for 5 years
o Requires companies to have policies for employees to identify suspicious activities

Question 17

Mortgage Acts and Practices- Advertising (Regulation N)

Answer 17

-Prohibits certain material representations
-Must be accurate communication of APR, interest, amount of fees or costs, fees or cost for any additional product that might be sold, terms, amounts, payments, relating to taxes or insurance, any prepayment
penalty, any teaser rates etc.

Question 18

Electronic Signatures in Global and National Commerce Act (E‐Sign Act)

Answer 18

o Allows for e‐signatures as long as the borrower gives permission

Question 19

USA Patriot Act

Answer 19

-Requires identification to be provided for mortgage loans
-Meant to identify if an individual is a terrorist or not
-Lender must verify the borrower’s identity

Question 20

Homeowner’s Protection Act

Answer 20

HIGHLIGHT’S:
-Allows the borrower to request PMI be removed at 80% LTV
-Requires PMI to be taken off by the servicer at 78%

DISCLOSURE’S:
● Initial Disclosure
-Requires a notice about the cancellation of PMI and their rights under the Homeowner’s Protection Act
-Notice Upon Cancellation Requires a notice be provided at time of cancellation of PMI

Question 21

Mortgage Assistance Relief Services (MARS) (REG O)

Answer 21

• Foreclosure rescues/loan modifications
• If you offer your services as a way to avoid foreclosure you are covered by the mars rule
  -It is illegal to charge upfront fee’s
  -Must be honest about key information on loan
• Prevents these individuals from obtaining a fee before they have actually obtained a loan modification or foreclosure help from the borrower’s servicer and the borrower accepts the loan modification/foreclosure
  help

Question 22

Loan Originator Compensation (Under TILA)

Answer 22

-No compensation based on “terms” or a proxy for a term
-No dual compensation
-No steering
-Individual LO can receive income in the following forms:
o Permissible bonuses
▪ Can’t be based off the terms of the LO’s transactions
▪ May not exceed 10% of the LO’s total compensation UNLESS the LO originated less than 10 loans during the preceding 12 months
o Contribution to a designated tax‐ advantaged defined contribution plan, as long as not based upon terms of the LO’s transactions
o Benefit under a designed tax advantaged defined benefit plan

Question 23

Ability to Repay (ATR) (Under TILA)

Answer 23

-Requires the creditor to make a reasonable and good faith determination at or before consummation that the consumer will have a reasonable ability to repay.
o Consummation v. Closing = Consummation is when the loan funds or the borrower receives their money. On
purchase, the closing and consummation is the same. On refinance transactions where rescission applies consummation is after the right of rescission expires.
-Considerations of Repayment Ability:
o Income and Assets
o Employment status
-The creditor must VERIFY that the information is correct through third party records (Example: W‐2’s, 1099s, tax returns, Verifications of employments)

Question 24

Qualified Mortgage (Under TILA)

Answer 24

-QM provides liability protection for creditors
-Creates a presumption that the creditor complied with the ATR Rule
● 4 types of QM loans:
o General
o Temporary
o Small Creditor
o Balloon‐Payment QMs
● General QM Loan Requirements:
o No neg am
o No interest only
o No balloon payments
o Cannot exceed 30 year terms
o May not have points and fees that exceed:
▪ 3% of the total loan amount for a loan greater than or equal to $100,000
▪ 5% of the total loan amount for a loan = or less than $100,000
▪ $1,000 for a loan less than or equal to $12,500 but less than $20,000
▪ 8% of the total loan amount for a loan less than $12,500
o Underwrite based on fully‐amortizing schedule using MAX rate permitted during the first 5 years
o Determine ATR
o Consumer’s total debt to income cannot exceed 43%
● Safe Harbor and Rebuttable Presumption:
o QMs that are not higher‐priced have safe harbor (they are presumed to comply with ATR req)
o QM’s that are higher priced have a rebuttable presumption that they comply with ATR requirements but a consumer can rebut that presumption
● Points and Fees include:
o Finance charges
o Loan originator compensation
o Real estate related fees
o Insurance premiums
o Maximum prepayment penalties Prepayment penalties paid in a refinance

Question 25

Mortgage Disclosure Improvement Act (MDIA)

Answer 25

-Closing date: on the 7th business day after initial disclosures is earliest a borrower can close
-Appraisal: must be given 3 business days prior to closing
-APR Variance – if there is a .125% variance then you must re‐disclose

Question 26

TRID (TILA-RESPA Integrated Disclosures)

Answer 26

HIGHLIGHT’S:
● Doesn’t apply to Reverse Mortgages or HELOCs
● Tolerances:
▪ Any other fees – title, recording fees
▪ Any fee the borrower picks
▪ Prepaid interest, taxes and insurance
▪ Charges paid to a third party not required by the lender
● Record Retention = 5 years
● Shopping for a service = lender must provide at least 1 provider for each service but the borrower can pick whoever they want
● Changed Circumstances:
o An Act of God
o New Information specific to the consumer
▪ Example: Change in program due to appraisal
o Information specific to the consumer or transaction that the creditor relied upon when providing the Loan Estimate and that was inaccurate or changed after the disclosures were provided
● Collection of fees:
o Cannot collect any fees until the borrower receives the LE and the lender receives the borrower’s intent to proceed
● Lender can’t require verification information before providing the LE

DISCLOSURE’S:
Loan Estimate
● Provided within 3 business days of application
● Loan cannot be closed any sooner than 7 business days
● Business day = day the lender is open for business (everyone is there, the lender is functioning)
● Redisclosure:
o Business days =all calendar days except Sunday Closing Disclosure
● Provided 3 business days before closing
● Need new Closing Disclosure:
o APR goes up more than 1/8%
o Addition of a prepayment penalty
o Change in loan product
o Must wait 3 business days before closing after re-disclosure for these three issues any other issues does not require the waiting period
-Home loan Toolkit
● Provided within 3 business days of application on purchase transactions only
-Escrow Closing Notice
o Must be provided 3 business days before closing an escrow account
o Must provide information on the cost to the borrower for not having an escrow account and the requirement of the borrower to pay taxes and insurances on their own