Federal Mortgage Related Laws Flashcards
What does RESPA stand for? When was it enacted?
Real Estate Settlement Procedures Act. 1974.
What is the purpose of RESPA?
1) To allow customers to obtain info on costs of closing so that they can shop for settlement services.
2) To protect consumers from excessive settlement costs and unearned fees.
RESPA’s regulations are known as which Regulation?
Regulation X
What loans are covered by RESPA?
Transactions involving a federally-related mortgage loan and secured by a lien on residential properties. Home purchase loans, refinances, lender-approved assumptions, property improvement loans, HELOC and reverse mortgages.
What loans are exempt from RESPA?
1) Loans for business, commercial or agricultural purposes.
2) Temp financing loans such as construction.
3) Loans secured by vacant land.
4) Loan assumptions which are permissible without lender approval.
5) Transactions between lenders and investors for the sale of a closed loan to a purchaser in the secondary market.
6) Loan conversations when a new not is not required.
What is a Bona fide discount point?
Discount points paid by the borrower to reduce the interest rate
What is a 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.
What are some examples of settlement services?
Third party services such as appraisers, inspectors, credit reporting agencies, title insurers and loan processors.
When is the special information booklet known as the “Your Home Loan Toolkit: A Step-by-Step Guide” due to the borrower?
3 business days after a loan application is received
For the purposes of the Good Faith Estimate, what key information defines an application under Regulation X?
1) Name
2) Monthly income
3) SSN
4) Property address of home securing the loan
5) Estimated value of home securing the loan
6) Loan Amount
7) Any other info deemed necessary by LO
In regards to costs, changes between estimated and actual charges are prohibited for what types of charges?
1) Origination charges
2) Charges for locking an interest rate
3) Transfer taxes
In regards to costs, there is a 10% tolerance for differences between total amount of actual and estimated charges for what types of charges?
1) Lender-required settlement services performed by a provider chosen by the lender
2) Lender-required services and title and insurance services if the loan application uses a provider recommended by the lender
3) Recording fees
What are some examples of changed circumstances that cause the amounts stated on the GFE to exceed permitted tolerances?
1) Acts of God, war and other emergencies
2) Changes to or inaccuracies in information the lender relied on when preparing the GFE
3) New info about the borrower or transaction
RESPA prohibits anyone from giving or accepting unearned fees. Provide some examples of these types of fees.
1) Referrals fees
2) Fee-Splitting
3) Exchange of “things of value” for business referrals
What is a judicial foreclosure?
It requires the involvement of a court. The mortgage includes a power of sale clause.
What is a non-judicial foreclosure?
If the mortgagee does not have a power of sale clause, no legal action is required. Lender provides borrower with a notice of default and records a notice of default with the county (at least 120 days prior to foreclosure date sale.
What does ECOA stand for? When was it enacted?
Equal Credit Opportunity Act. 1974
What is the purpose of ECOA?
To eliminate discriminatory treatment of credit applicants. It’s regulations are intended to promote the availability of credit to all creditworthy applicants regardless of race, color, religion, national origin, sex, marital status, age or if an applicant has income from a public assistance program.
ECOA’s regulations are known as what Regulation?
Regulation B
What loans are covered by ECOA?
All extensions of credit, including business, commercial and agricultural use are covered by ECOA.
What is adverse action?
A creditor’s refusal to offer credit in the amount or according to the terms requested by a loan application.
What is the definition of elderly?
Age 62 or older
When should a notice of action taken be delivered?
Within 30 days of receipt of a loan or credit application.
What is to be included on an adverse action notice?
A statement of the reasons for the unfavorable decision. It must include a statement that ECOA prohibits discrimination against credit applicants. Must also include the name and address of the creditor and the name of the agency that enforces the lenders compliance with the law. Also includes a description of the credit.
What are acceptable reasons for denial on a credit application?
1) not of legal age to enter a contract
2) fails to demonstrate sufficient credit worthiness based on permittable factors such as income and credit history
3) fails to submit info needed to complete application
When is an appraisal due to an applicant?
Promptly after they are completed or least 3 business days prior to consummation, whichever is earlier. Borrowers can waive the timing requirement as long as they receipt a copy at or prior to consummation.
What is not considered to be valuations under ECOA?
1) Internal docs that merely restate a dwelling’s estimated value as listed in the appraisal or written valuation.
2) Publicly available government agency statements of appraised value.
3) Publicly available lists of valuations
4) Manufactures’ invoices for manufactured homes.
5) Reports reflected property inspections that do not provide, and are not used to develop, an estimate of the property’s value.
6) Appraisal reviews that don’t include the appraiser’s estimate of the property value or opinion of value
7) An appraisal review that does not itself state an estimate that is different from the appraisal.
What is redlining?
The refusal to offer credit in particular neighborhoods due to the race or ethnicity of the residents (also considered Overt Discrimination).
What is disparate treatment?
When a creditor treats a loan applicant who is a member of a protected class differently from other loan applicants who are similarly situated but not members of a protected class.
What are the ECOA rules surrounding requiring a co-signer?
It’s prohibited to require a signature from an applicant’s spouse or of another person who is not a joint applicant, if the individual qualifies on his or her own for credit.
What are considered prohibited factors/practices when it comes to lending?
1) refusing to consider public assistance as income
2) assume a woman of childbearing age will stop working to raise children
3) refuse to consider income from a pension, annuity or retirement benefit
4) refuse to consider regular alimony or child support
What does TILA stand for? When was it enacted?
Truth In Lending Act. 1968.
What are the primary goals of TILA?
1) Protect consumers by disclosing the costs and terms of credit
2) Create uniform standards for stating the cost of credit, therefor encouraging consumers to compare the costs of loans offered by different creditors.
3) Ensure that advertising for credit is truthful and not misleading
4) Provide borrowers with the right to rescind certain types of mortgage transactions.
TILA regulations are known as what Regulation?
Regulation Z
TILA applies to all credit transactions that meet which following four conditions?
1) credit is offered to consumers
2) Offer or extension of credit is made regularly
3) Credit includes a finance charge or a written agreement stating that the loan may be repaid in more than four installments.
4) Credit is primarily for personal, family or household purposes
What is the definition of business day?
any day on which the creditor’s offices are open to the public for carrying out substantially all business functions. It means all calendar days except Sundays and legal public holidays.
What is the definition of dwelling?
a residential structure that contains 1 to 4 unites whether or not the structure is attached to real property. It includes an individual condo unit, cooperative unit, mobile home or trailer, if used as a residence.
What is the definition of a residential mortgage transaction?
A transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained in the consumer’s principal dwelling to finance the acquisition or initial construction of that dwelling.
Define finance charge.
the cost of credit as a dollar amount
Define APR
a measure of the cost of credit, expressed as a yearly rate.
What is included in a finance charge?
Fees paid to 3rd parties if the creditor requires the use of a particular third party or retains a portion of the third-party charge.
What is NOT included in a finance charge?
Any fees of the type that are payable in a comparable cash transaction, such as taxes.
What fees are included in the APR?
1) PMI
2) Discount points and mortgage broker fees
3) Origination fees
4) processing fees
5) underwriting fees
Which fees are NOT included in the APR as they are in the calculation of the finance charge?
1) title fees
2) escrow fees
3) notary fees
4) appraisal and credit report fees
5) document preparation fees
What is a three-year rescission period?
It’s available to a borrower who did not receive a notice of the right to rescind or accurate Truth In Lending disclosures at the time that he/she entered an agreement for a mortgage loan.
What must the Notice of the Right to Rescind include?
1) creditor’s retention or acquisition of a security interest in the consumer’s principal dwelling
2) consumer’s right to rescind
3) instructions on how to exercise the right to rescind, including a form to use, stating the lender’s business address
4) date that the right of rescission expires
5) a description of the effects of rescission for the consumer
What does HOEPA stand for? What was it enacted?
The Homeownership and Equity Protection Act. 1994
Why was HOEPA put in place?
It creates protections under TILA for loans with high interest rates and high fees and refers to these loans as “high cost mortgages.” It discourages transactions and abuses in the subprime lending market.
