LESSON 3: GOVERNMENT INFLUENCE Flashcards
What is the purpose of the U.S. Department of Housing and Urban Development (HUD)?
HUD aims to provide housing and community development assistance and ensure fair and equal housing for all.
What was the purpose of the National Housing Act of 1934?
The National Housing Act of 1934 was designed to combat the lack of housing, excessive foreclosures, and a defunct building industry during the Great Depression.
What programs does HUD run or participate in?
HUD runs programs for homeownership, rental housing, reducing homelessness, and fighting housing discrimination.
Who runs HUD, and how is it structured?
HUD is run by a Secretary, appointed by the President and approved by the Senate. The agency is a cabinet-level government entity.
What is HUD’s fiscal years 2022—2026 strategic plan?
HUD’s mission is to create strong, sustainable, inclusive communities and quality affordable homes for all.
What is HUD’s first overarching goal?
HUD’s first goal is to advance economic opportunities for HUD-assisted residents and help them achieve self-sufficiency and financial stability.
What is the Federal Housing Administration (FHA)?
The FHA, created in 1934, insures mortgage loans to protect lending institutions against defaults. It is overseen by HUD.
What does the FHA mortgage insurance program do?
The program enables homebuyers to secure an FHA loan when they might not qualify for a conventional mortgage due to low credit scores, down payments, or a history of bankruptcy or foreclosure.
What is the purpose of the Fair Housing Act of 1968?
The Fair Housing Act prevents housing discrimination based on race, color, national origin, religion, sex, familial status, and disability.
What is Section 8 and who does it assist?
Section 8 is a HUD program that provides rental assistance through vouchers to low-income families, allowing them to choose housing from an approved list.
What is the difference between Section 8 and public housing?
Section 8 provides vouchers for private housing, while public housing units are owned by HUD. Section 8 participants can move and retain their vouchers; public housing tenants lose their benefits if they move.
What is the FHA loan and what are its requirements?
FHA loans are offered to homebuyers with low credit or low down payments. Requirements include a debt-to-income ratio under 43%, steady employment, and a down payment of at least 3.5%.
What is the Community Development Block Grant (CDBG)?
The CDBG program provides grants to urban communities to develop safer, more sanitary living environments, improve public services, and create economic opportunities.
What is the HOME Investment Partnerships Program (HOME)?
HOME provides grants for housing improvements, including rental assistance, construction, and rehabilitation of homes, especially for low-income families.
What is HUD’s role in homeless assistance?
HUD provides financial assistance to nonprofit organizations and local governments to offer shelter and services for the homeless.
What is the Fair Housing Assistance Program (FHAP)?
FHAP helps enforce fair housing laws by providing funds to state and local governments to support fair housing rules and compliance.
What is the goal of the Community Reinvestment Act (CRA)?
The CRA encourages financial institutions to meet the credit and lending needs of low- and moderate-income communities.
Who monitors financial institutions under the CRA?
The Federal Reserve, Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of Currency (OCC), and the Office of Thrift Supervision (OTS) monitor CRA compliance.
What financial institutions are excluded from the CRA?
Credit unions, brokerage firms, mortgage companies, non-bank lenders, venture capitalists, finance companies, and insurance companies are excluded.
What organizations can receive CRA funding?
Community Development Corporations, women and minority-owned businesses, affordable housing programs, and other local organizations focused on economic development.
What is a Community Development Corporation (CDC)?
A Community Development Corporation (CDC) is a nonprofit organization that directs community improvement projects or programs in local, economically distressed areas. It provides grants or loans to those considered too risky by banks.
What is the purpose of the Community Reinvestment Act (CRA)?
The CRA encourages financial institutions to lend in low- and moderate-income communities. It provides credit to financial institutions for funding a broad base of community programs.
How does the CRA affect the ability of banks to open or close branches?
Regulators have the authority to deny banks permission to open or close branches if they have not met the CRA guidelines, incentivizing banks to fund local projects.
How has the CRA benefited Texas?
The CRA has helped generate hundreds of millions of dollars for local communities, and as an incentive, the Texas Department of Banking reduces fees and increases lending limits for banks involved in CRA programs.
What impact has the CRA had on job creation in Texas?
The CRA funds are typically used in job creation programs, which invest in companies with growth potential, though this use may not always qualify for CRA credit.
What is one example of a successful CRA-funded project in Texas?
The Southern Dallas Development Corporation (SDDC) has helped generate 270 loans totaling more than $20 million, creating about 2,400 jobs and having an annual economic impact of over $112 million.
Did the CRA lead to risky lending?
Yes, research shows that the CRA led to riskier lending practices, with lending being elevated by 5% on average and loan defaults rising by 15% during the six quarters surrounding CRA exams.
What is the Truth in Lending Act (TILA)?
TILA is a U.S. federal law that promotes the informed use of consumer credit by requiring clear disclosure of terms, such as the Annual Percentage Rate (APR), for all consumer lenders.
What rights does the Truth in Lending Act grant to borrowers?
TILA grants borrowers the right to rescind certain loans within three business days following loan consummation, allowing them time to reconsider and potentially cancel the transaction.
What are the consequences of rescinding a loan under TILA?
If a loan is rescinded, the security interest becomes void, and the borrower is not liable for any amount, including finance charges. The bank must return money or property given within 20 days.
What types of loans are exempt from TILA?
TILA does not apply to business, agricultural, or commercial loans, credit to entities, or loans exceeding a certain threshold not secured by real estate or personal property.
What is the Federal Uniform Commercial Code (UCC) Bulk Transfer Act?
The UCC Bulk Transfer Act protects creditors when stock in trade is transferred in bulk, requiring a complete list of creditors and inventory to be disclosed 10 days prior and six months after the transfer.
What is the main purpose of Regulation Z under TILA?
Regulation Z requires lenders to disclose key loan information, including APR, loan term, and total costs, ensuring consumers can make informed decisions when applying for credit.
What does Regulation Z prohibit?
Regulation Z prohibits lenders from compensating loan officers based on terms or conditions that benefit the officer but not the consumer, and from steering customers into loans with no benefit.
How does TILA help protect consumers?
TILA ensures consumers are informed about the terms of credit agreements, preventing deceptive practices and granting the right to rescind contracts if the terms are unsatisfactory.
Who enforces Regulation Z?
The Federal Trade Commission (FTC) enforces Regulation Z in real estate, auto, and most other industries, while the Federal Reserve enforces it for banks.
What does Reg. Z ensure for borrowers?
Reg. Z ensures that borrowers are given meaningful information to compare credit costs, including the Annual Percentage Rate (APR), and avoid uninformed use of credit.
What are the two methods of calculating interest?
Simple interest and add-on interest.
How does simple interest work?
Simple interest recalculates periodically based on the remaining principal, and the payment stays the same with decreasing interest as the principal is paid down.
How does an add-on interest loan work?
Interest is calculated upfront for the entire loan, and the total interest is added to the principal amount. For example, a $5,000 loan at 10% for five years results in a $7,500 total repayment.
What does Reg. Z require from lenders regarding disclosures?
Lenders must provide a disclosure statement before the credit transaction is consummated (contractually obligated).
What types of loans are excluded from being consumer loans under Reg. Z?
Loans made to partnerships, corporations, government agencies, commercial loans, and loans for more than $25,000 (except those for the purchase or refinance of a personal residence).
What must be disclosed in the Loan Estimate under TILA-RESPA?
The Loan Estimate must include a breakdown of the loan terms, interest rate, APR, and estimated closing costs.
What is included in finance charges under TILA?
Finance charges include interest, service charges, insurance premiums, late fees, and loan discount points.
Which types of credit transactions are not covered by TILA?
TILA does not cover credit issued to businesses, agricultural businesses, public utilities, home fuel budget plans, and certain student loans.
What is an example of TILA in practice?
Credit card offers, like Chase’s United Gateway Credit Card, which include APR details, fees, and terms as required by TILA.
What does APR represent?
APR is the yearly interest charged on a loan or paid on an investment, including fees but excluding compounding interest.
How does the APR differ from the nominal interest rate?
APR includes additional costs such as fees and closing costs, while the nominal interest rate does not.
What is the right of rescission?
The right of rescission allows consumers to cancel certain types of home loans within three days of signing, such as refinancing, HELOCs, and home equity loans.
What loans are not subject to the right of rescission?
The right of rescission does not apply to new home purchases, refinancing with the same lender for the same amount, or loans on properties other than primary residences.
How long is the right of rescission period?
The right of rescission is three business days, with Sundays and holidays not counted.
What happens if the lender fails to notify the borrower of the right to rescind?
If the lender fails to notify the borrower, the right to rescind extends for up to three years or until the property is sold.
What conditions trigger the start of the right of rescission period?
The right of rescission period starts once the borrower has signed the promissory note, received the TILA disclosure, and received two copies of the right to rescind notice.
How can a borrower exercise their right to rescind?
The borrower must notify the lender within the three-day window, and the lender must refund all money or property received within 20 days.
What does Regulation Z define as advertisements?
Regulation Z defines advertisements as commercial messages in any medium promoting, directly or indirectly, a credit transaction. This includes newspapers, radio, television, online ads, and direct mailers.
What are the key provisions of Regulation Z for open- and closed-end credit?
Two key provisions: advertised terms must be actually available, and required disclosures must be clear and conspicuous.
What is the “actually available terms” provision in Regulation Z?
The provision prohibits creditors from advertising terms that are not available to applicants. If specific credit terms are advertised, they must be provided to qualified applicants.
What is required for disclosures under Regulation Z?
Disclosures must be clear and conspicuous in advertisements.
What are “triggering terms” in open-end credit advertising?
Terms such as the amount or percentage of any down payment, the number of payments, or the dollar amount of any payment. These terms require additional disclosures in advertisements.
What additional disclosures are required for open-end credit advertisements?
Disclosures of minimum charges, periodic rate (APR), and membership/participation fees must be included in ads when finance charges are advertised.
What happens if an advertisement states no interest or no annual membership fee?
Negative statements such as “no interest” or “no fee” trigger the requirement for additional disclosures under Regulation Z.
What types of advertising does Regulation Z cover?
Regulation Z covers all types of advertising, including window displays, fliers, billboards, direct mail literature, and online ads.
What credit terms can be advertised without additional disclosures under Regulation Z?
Terms like “cash price,” “annual percentage rate” (APR), and general terms like “small down payment” or “reasonable monthly payments” can be advertised without additional disclosures.
What is the Equal Credit Opportunity Act (ECOA)?
The ECOA prohibits creditors from discriminating based on race, color, religion, national origin, sex, marital status, age, income from public assistance, or exercising rights under the Consumer Credit Protection Act.
What is the purpose of ECOA?
ECOA ensures financial institutions make loans on an equal basis to all creditworthy customers, regardless of discriminatory factors.
How does ECOA enable consumers?
ECOA allows consumers to obtain their credit report, requires credit reporting for married women, and prohibits discrimination on certain bases like race, religion, and income from public assistance.
What is the Home Mortgage Disclosure Act (HMDA)?
HMDA requires lending institutions to report and publicly disclose loan-level mortgage data, helping to identify discriminatory lending patterns and ensuring lenders meet community housing needs.
What does the HMDA data assist with?
It helps in determining if financial institutions are serving community housing needs, guides public officials in investments, and identifies potential discriminatory lending patterns.
What is FIRREA and why was it enacted?
FIRREA (1989) was enacted in response to a savings and loan crisis and provides guidelines for regulating financial institutions, creating bodies like SAIF, BIF, and RTC to help recover from failures.
What was the purpose of FIRREA?
FIRREA aimed to address the S&L crisis by providing regulatory guidelines and creating recovery institutions like SAIF and RTC to stabilize the economy.
What is the National Flood Insurance Program (NFIP)?
The NFIP provides flood insurance, helping to reduce the socio-economic impact of floods and ensuring properties in flood-prone areas have access to insurance coverage.
What was the goal of the National Flood Insurance Act of 1968?
The 1968 Act aimed to make flood insurance available and provide financial protection to property owners in flood-prone areas.
What does the National Flood Insurance Reform Act of 1994 mandate?
It mandates the purchase of flood insurance for properties in designated flood hazard areas financed by federally regulated lenders.
Why is the purchase of flood insurance mandatory for federally regulated loans?
Lenders cannot waive the flood insurance requirement for properties in flood zones, as failure to comply results in penalties.
What are the two main goals of the National Flood Insurance Program (NFIP)?
The NFIP aims to provide access to primary flood insurance and reduce national flood risk through floodplain management standards.
How does the NFIP reduce federal expenditures on disaster assistance?
The NFIP mitigates flood risk by promoting floodplain management standards and funding community resilience to reduce the need for federal disaster assistance after floods.
How many communities participate in the NFIP?
Over 22,000 communities participate, providing coverage to over 5 million properties with more than $1.3 trillion in coverage.
What is the financial impact of the NFIP?
The NFIP collects about $4 billion annually in premiums and offers financial protection against floods in all 50 states, DC, Puerto Rico, and territories.
What is the Right to Financial Privacy Act (RFPA) of 1978?
The RFPA of 1978 protects the confidentiality of personal financial records by creating a statutory Fourth Amendment protection for bank records. It was introduced in response to the U.S. Supreme Court decision in 1976, where the Court found that bank customers had no legal right to privacy regarding their personal financial records held by financial institutions.
Who introduced the RFPA?
The RFPA was introduced by House Representative John Cavanaugh and 11 other congressmen on June 30, 1977.
What was the main reason for the creation of the RFPA?
The RFPA was created due to privacy risks presented by the increased maintenance and access to customer information at financial institutions.
What was the U.S. Supreme Court’s ruling in California Bankers Association v. Schultz (1976)?
The Supreme Court held that the Constitution did not protect the privacy of personal information in records maintained by business and government. This decision led to the RFPA’s creation.
What was the outcome of United States v. Miller (1976) and why did it lead to the creation of the RFPA?
In United States v. Miller, the Supreme Court ruled that a bank customer does not have a legally recognizable expectation of privacy in records of accounts maintained by a bank. This case led Congress to pass the RFPA to reverse this decision concerning financial records and to protect individuals’ financial privacy.
What does the RFPA require for government access to financial records?
The RFPA requires that the financial records must be reasonably described, the customer must authorize access, or there must be a valid administrative subpoena, search warrant, judicial subpoena, or written request from authorized government authorities.
How does the RFPA protect customers’ privacy during a government request?
The RFPA mandates that government agencies provide advance notice to the customer of any requested disclosure of their financial records. The customer has 10 days (or 14 if mailed) to challenge the disclosure before it occurs.
Who does the RFPA apply to?
The RFPA applies only to the federal government, its officers, agents, agencies, and departments. It does not apply to private businesses, or state or local governments. It also covers certain financial institutions, such as depository institutions, money services businesses, and even some entities that issue credit cards.
What types of entities are considered “financial institutions” under the RFPA?
Financial institutions under the RFPA include banks, credit unions, depository institutions, money services businesses, money order issuers, traveler’s check issuers, U.S. Postal Service, securities and futures industries, and casinos. It also includes retailers and merchants that issue credit cards, like gas stations.
What entities are not covered by the RFPA?
The RFPA does not cover corporations, trusts, estates, unincorporated associations, large partnerships, and other non-individual entities.
What are the exceptions under the RFPA where financial records can be disclosed without customer consent?
- Disclosures not identifying a particular customer., 2. Disclosures in the financial institution’s interest (e.g., government loans, security interests)., 3. Disclosures in supervisory investigations., 4. Tax-related disclosures., 5. Disclosures under other federal statutes, judicial proceedings, or administrative rules., 6. Emergency disclosures or disclosures for national security purposes.
How does the RFPA deal with Suspicious Activity Reports (SARs)?
Financial institutions and their employees are immune from civil liability when filing SARs about suspicious criminal activity. SARs must be filed for transactions involving certain thresholds, such as insider abuse, federal crimes involving over $5,000, or transactions involving illegal activities. However, no notice is provided to customers when SARs are sent to law enforcement, which is a loophole in the RFPA.
What types of transactions trigger a Suspicious Activity Report (SAR)?
SARs must be filed for insider abuse, federal crimes involving transactions over $5,000 with identified suspects or $25,000 without, transactions over $5,000 suspected of involving illegal funds, or transactions with no apparent lawful purpose. SARs must also be filed for cash transactions exceeding $10,000 in one or multiple related transactions.
What is the purpose of the Graham-Leach-Bliley Financial Modernization Act of 1999?
The act aims to protect individual privacy by limiting how and what information can be shared or sold between businesses or corporations.
What must companies do according to the Graham-Leach-Bliley Act?
Companies must provide privacy notices to customers, explaining information-sharing practices and giving consumers the right to limit some sharing of their information.
Which institutions does the Graham-Leach-Bliley Act apply to?
It applies to all financial institutions, including mortgage lenders, mortgage brokers, investment advisors, tax preparers, debt collectors, and providers of real estate settlement services.
What must be included in a company’s privacy notice under the Graham-Leach-Bliley Act?
The notice must clearly explain the information the company collects, with whom it shares the information, and how it safeguards it. It must be delivered annually, allow opt-out, and include clear instructions for opting out.
What does the Graham-Leach-Bliley Act say about non-public information?
It applies only to non-public information. Mortgage companies can release information that is recorded on public deeds, like deeds of trust.
What is the difference between a consumer and a customer under the Graham-Leach-Bliley Act?
A consumer is someone who obtains a financial product or service for personal use. A customer is a consumer with a continuing relationship. Only customers are required to receive privacy notices.
When can a customer not opt out of information-sharing under the Graham-Leach-Bliley Act?
Customers cannot opt out when companies share information with essential service providers like loan processors, document preparation companies, or data processors.
What is “pretexting” and how does it relate to the Graham-Leach-Bliley Act?
Pretexting is the practice of obtaining customer information under false pretenses. The act prohibits this practice.
What is an electronic signature (eSignature) as defined by the ESIGN Act?
An eSignature is an electronic sound, symbol, or process that is logically associated with a contract or record, executed or adopted by a person with the intent to sign the record.
What does the Electronic Signatures in Global and National Commerce Act (ESIGN) specify?
ESIGN specifies the legal effect and enforceability of electronic contracts and signatures but does not address how to validate the authenticity of those signatures.
How does the Uniform Electronic Transactions Act (UETA) differ from ESIGN?
UETA is a procedural law that allows electronic records and signatures as legal equivalents to paper records and signatures, whereas ESIGN specifies the enforceability of e-signatures in federal law.
What is required under UETA for electronic transactions?
Both parties must agree to conduct the transaction electronically. The consumer must be able to decline to use electronic means for future transactions.
What is the significance of the Patriot Act regarding financial institutions?
The Patriot Act requires financial institutions to track account ownership and disclosures and allows the government to access financial information for terrorism investigations without customer notification or warrants.
What are the primary goals of RESPA (Real Estate Settlement Procedures Act)?
RESPA regulates settlement costs and procedures, ensures consumers are informed about mortgage loans and associated fees, and prohibits kickbacks and referral fees that increase settlement costs.
What are the consequences of violating RESPA?
Violations can result in criminal prosecution with fines up to $10,000 or imprisonment for one year, civil prosecution with penalties three times the settlement service charge, and fines for businesses up to $1,000,000 or 1% of net business value.
How does RESPA protect consumers?
It provides consumer protection by requiring full disclosure of escrow account practices, lender servicing practices, and relationships between service providers. It also ensures proper disclosure of affiliated companies.
What are the amendments to RESPA designed to address?
Amendments address issues like excessive escrow deposits, lack of timely payments of real estate taxes, and inconsistencies in recordkeeping and local title information.
What should financial institutions do before relying on electronic signatures in transactions?
They should obtain necessary consents for electronic transactions, disclose the right to withdraw consent, and provide means for withdrawal of consent if needed.
What is the mission of the TDHCA?
The mission of the Texas Department of Housing and Community Affairs (TDHCA) is to help Texans achieve an improved quality of life through community development, serving as a conduit for grants, funds, and partnerships. It also provides affordable housing opportunities for those who qualify based on their incomes.
How does the TDHCA accomplish its mission?
The TDHCA accomplishes its mission by administering programs efficiently, transparently, and lawfully, and by strategically investing resources to develop high-quality affordable housing. It acts as a conduit for federal grants and housing funds and partners with private investors and lenders.
Who does the TDHCA partner with to administer funds?
TDHCA partners with Public Housing Authorities, private developers, cities and counties that do not receive federal funds directly, and non-profit and community-based organizations.
What is the role of TDHCA in housing program compliance?
TDHCA ensures compliance with state and federal housing laws, maintaining the health and safety of its housing portfolio while ensuring efficient and effective expenditure of state and federal resources.
What does the TDHCA regulate in Texas?
The TDHCA regulates affordable housing, housing-related services, community service programs, and the state’s manufactured housing industry. It certifies Community Housing Development Organizations (CHDOs) and licenses manufactured housing retailers, brokers, and salespersons.
What is the Texas Bootstrap Loan Program?
The Texas Bootstrap Loan Program provides low-income families with an opportunity to help themselves through “sweat equity,” requiring participants to provide at least 65% of the labor to build or rehabilitate a home. The program is administered through TDHCA’s Colonia Self-help Centers and State Certified Owner-Builder Housing Programs.
What is the My First Texas Home program?
My First Texas Home offers low-interest mortgage loans to first-time homebuyers or those who have not owned a home in the past three years. The program serves families with very low- to moderate-income (30 to 115% of AMFI).
What is the Texas Mortgage Credit Certificate Program?
The Texas Mortgage Credit Certificate Program allows qualified buyers to claim a credit of up to $2,000 against federal taxes based on a percentage of mortgage interest paid. The credit is valid for the term of the mortgage loan as long as the borrower occupies the property as their primary residence.
What is the Texas Statewide Homebuyer Education Program (TSHEP)?
The Texas Statewide Homebuyer Education Program (TSHEP) works with local nonprofit organizations to teach comprehensive pre- and post-purchase homebuyer education, certifying participants as homebuyer education providers.
What is the Colonia Self-Help Centers (SHC)?
SHCs provide on-site technical assistance for low and very low-income families on housing, community development, infrastructure improvements, and outreach activities. They operate in specific counties and are carried out by local nonprofit organizations, community action agencies, or local housing authorities.
What is the Contract for Deed Conversion Initiative?
The Contract for Deed Conversion Initiative helps residents of colonias near the Texas-Mexico border convert their contract for deed into a traditional note and deed of trust.
What is the purpose of the Safe Act?
The Safe Act establishes a Nationwide Mortgage Licensing System and Registry to promote uniformity, reduce regulatory burdens, enhance consumer protection, and reduce fraud in the residential mortgage industry. It requires state licensing programs for loan originators with education, testing, and background checks.
What is required under the SAFE Act for loan originators?
Loan originators must be qualified, registered, and licensed, and they need to obtain a unique identifier number from the National Mortgage Licensing System and Registry (NMLSR). This number must be printed on all loan documents, and their compensation cannot be based on loan terms or factors like prepayment penalties.
What disclosures are required under the Truth in Lending Act (TILA) and RESPA?
Mortgage loan disclosures under TILA and RESPA (combined after January 10, 2014) must include warnings on negative amortization, anti-deficiency protections, creditor payment policies, escrow accounts, and other loan terms. Additionally, it includes disclosures of settlement charges, loan originator fees, appraisal management company fees, and more.
What does the CFPB do?
The Consumer Financial Protection Bureau (CFPB) enforces federal consumer financial law, ensuring fair, transparent, and competitive markets for consumer financial products. It protects consumers by investigating complaints, researching financial products, enforcing laws against unfair practices, and enhancing financial education.
What is the role of the Administrative Procedure Act (APA)?
The Administrative Procedure Act (APA) governs the rulemaking process for federal agencies, requiring public notices, comments, and judicial review. It specifies procedures for rulemaking, amending, and repealing rules, and addresses the standards for judicial review and exceptions to the general procedural requirements.
How do federal agencies issue rules under the APA?
Federal agencies issue rules through various methods, including formal, informal (notice-and-comment), hybrid, direct final, and negotiated rulemaking. The APA sets forth requirements for public participation in rulemaking and details exceptions and standards for agency actions.
What is the Home Ownership and Equity Protection Act (HOEPA)?
The Home Ownership and Equity Protection Act (HOEPA) was enacted in 1994 as an amendment to the Truth in Lending Act (TILA) to address abusive practices in refinances and closed-end home equity loans with high interest rates or high fees.
What types of loans are subject to HOEPA coverage?
Most mortgage loans secured by a consumer’s principal dwelling are subject to HOEPA. Loans exempted include reverse mortgages, construction loans, Housing Finance Agency loans, and loans originated through the USDA Rural Housing Service Direct Loan Program.
What additional requirements are there for “High Cost” mortgages under HOEPA?
“High cost” mortgages have additional requirements, including prohibiting balloon loans, pre-payment penalties, and financing points and fees. Late fees are limited to 4% of the overdue payment, and escrow accounts for taxes and insurance are required.
What are the criteria for a mortgage to be considered “High Cost” under HOEPA?
- APR exceeds the average prime offer rate by more than 6.5% for first mortgages or 8.5% for second mortgages. 2. Points and fees exceed 5% of the total transaction amount (8% for loans under $20,000). 3. A prepayment penalty is allowed after 36 months or exceeds 2% of the transaction amount.
What must creditors do before offering a high-cost mortgage?
Creditors must obtain confirmation from a federally certified or approved homeownership counselor that the consumer has received counseling on the advisability of the mortgage.
What is the role of a mortgage servicer?
A mortgage servicer manages your mortgage payments, collects payments, ensures proper payment distribution, and may handle issues with the loan or borrower.
How is a mortgage servicer different from a lender?
The lender originates the loan, while the servicer handles day-to-day loan management after closing. Sometimes, the lender and servicer are the same entity, but in many cases, they are different.
Who are the key parties involved in mortgage servicing?
- Servicer: Collects payments, pays the mortgage note holder, and manages escrow accounts. 2. Lender: Originates the loan and may sell servicing rights. 3. Investor: Buys mortgage-backed securities and receives portions of the loan’s principal and interest. 4. Regulator: Ensures compliance with federal and state mortgage servicing rules.
What does the CFPB require of loan servicers?
The CFPB requires servicers to respond to requests for information, manage escrow accounts, maintain policies for timely borrower contact, and ensure compliance with error resolution and loss mitigation options.
What is the ability-to-repay rule?
The ability-to-repay rule requires lenders to determine, in good faith, that the borrower can repay the loan. This involves considering income, assets, employment status, debts, credit history, and expenses.
What are the eight required underwriting guidelines under the Ability to Repay rule?
- Current income/assets. 2. Current employment status. 3. Monthly mortgage payment. 4. Payments on simultaneous loans. 5. Property-related expenses. 6. Other debts (e.g., alimony). 7. Debt-to-income ratio. 8. Credit history.
What defines a “qualified mortgage” (QM)?
A QM provides regular payments, does not allow negative amortization, balloon payments, or interest-only payments, and has limits on points and fees (3% of loan amount). It must not exceed a 43% debt-to-income ratio, except for specific exemptions.
Which loans are exempt from the Ability-to-Repay rule?
Home Equity Lines of Credit (HELOCs), reverse mortgages, timeshares, construction loans, bridge loans, non-standard loans like loan modifications, and loans made in rural areas.
What is the purpose of a real estate appraisal?
A real estate appraisal is a report estimating the fair market value of a property based on factors like location, square footage, condition, and comparable sales.
What disclosures are required by the CFPB for mortgage loans?
The CFPB requires two disclosures: the Loan Estimate (replaces the Good Faith Estimate and Truth-in-Lending Disclosure) and the Closing Disclosure (replaces the HUD-I Settlement Statement and final Truth-in-Lending Disclosure). These disclosures must be used for applications after October 1, 2015.
What is agricultural lending?
Agricultural lending includes loans to fund crop production, livestock, farmland, machinery, and other farm-related assets.
What does the Agricultural Loan Guarantee Program (ALG) provide?
The ALG provides financial assistance to establish or enhance farming or ranching operations or agricultural-related businesses, with guarantees based on a tiered structure up to $500,000 or 80% of the loan amount.
What is TAFA/TDA’s role in agricultural loans?
TAFA/TDA supports lenders’ capital and adds protection against reasonable risks by guaranteeing a percentage of the loan debt, but does not negotiate terms or loan amounts.
Who is eligible for the Agricultural Loan Guarantee Program?
All agricultural enterprises are eligible, but the borrower must meet the lender’s underwriting criteria and work with the lender to submit an application to TAFA.
Which loans are covered under the new disclosure rules?
Purchase money loans, refinances, loans secured by 25 acres or less, loans secured by vacant land, construction-only loans, and timeshare loans.
Which loans are not covered under the new disclosure rules?
Reverse mortgages, Home Equity Lines of Credit (HELOCs), mobile home-only loans, and loans made by creditors originating fewer than 5 loans per year.
What triggers a lender’s obligation to provide a Loan Estimate?
A Loan Estimate must be provided when the consumer’s name, income, social security number (for credit report), property address, estimated property value, and loan amount are known.
What is the definition of ‘consummated’ in lending terms?
‘Consummated’ refers to the date the borrower signs the loan documents.
How long does the creditor have to deliver the Loan Estimate?
The creditor has 3 days to deliver the Loan Estimate to the borrower.
What is a Loan Estimate?
A Loan Estimate outlines the loan’s potential costs, including title insurance, interest rates, closing costs, and monthly payments, and is not an approval or denial of the loan.
What does reviewing loan terms involve?
Reviewing loan terms includes checking the loan repayment period, interest rate, fees, and special conditions, to understand obligations and determine if the loan is a good fit.
What is a prepayment penalty?
A prepayment penalty is a fee for paying off a loan early.
What is a balloon payment?
A balloon payment is a large one-time payment due at the end of the loan term.
What is a fully-indexed interest rate?
The fully-indexed interest rate is the interest rate calculated using the index value and margin at the time of consummation when the initial interest rate is unknown.
What is the role of the Closing Disclosure?
The Closing Disclosure provides detailed information about the loan and the final costs to be paid at closing.
How long before closing must the Closing Disclosure be delivered?
The Closing Disclosure must be delivered 3 days before consummation (closing).
What happens if the Closing Disclosure is delivered by email?
If no read receipt is returned, a 6-day window is required before closing.
What happens if the Closing Disclosure is delivered by overnight mail?
Receipt confirmation does not confirm the buyer’s receipt of the document, requiring a 6-day window before closing.
What is the Waiver of Three Day Rule?
Under no circumstances can the lender, seller, agent, or title company receive a waiver of the three-day requirement. Buyers can only get a waiver if there is a bona fide personal financial emergency, which is narrowly defined as a foreclosure.
What are Triggering Events?
Triggering events refer to circumstances, such as changes in payment schedules or terms, that could result in changes to the periodic payments on an adjustable loan. For example, an adjustable loan where the periodic payment will change at a certain date.
What does the Projected Payments table disclose?
The Projected Payments table shows estimates for periodic payments, including Principal & Interest, Mortgage Insurance, Estimated Escrow, Estimated Total Monthly Payment, and Estimated Taxes, Insurance & Assessments.
What does the Periodic Payment Table include?
It includes the principal & interest, mortgage insurance, and estimated escrow payments, with the possibility of showing the periodic payments after a triggering event if they differ from the initial payment.
What is Mortgage Insurance in the context of the Projected Payments Table?
Mortgage insurance refers to any mortgage guarantee that provides coverage similar to mortgage insurance, such as VA or USDA guarantees, even if not technically considered insurance under state law.
What is Estimated Escrow?
Estimated Escrow is the amount the lender collects monthly to cover property taxes, homeowners insurance, and mortgage insurance premiums. This amount may change yearly based on adjustments to taxes and insurance premiums.
How are the Periodic Payments table and triggering events connected?
The Periodic Payments table may contain up to four columns. If more than four triggering events occur, a range of payments will be shown in the fourth column, reflecting changes in periodic payments due to these events.
What is disclosed in the Closing Costs table?
The Costs at Closing table discloses the Estimated Closing Costs, including Loan Costs, Other Costs, and the Estimated Cash to Close. This is the amount the borrower will need to pay at closing.
What are Loan Costs?
Loan Costs include the lender’s fees and fees for third-party services required to obtain the loan. They are broken down into Origination Charges, Services You Cannot Shop For, and Services You Can Shop For.
What is disclosed under “Other Costs”?
Other Costs include taxes, government fees, prepaid items, initial escrow payment at closing, and other items required to be paid at or before closing as per the contract for sale.
What are Services You Cannot Shop For?
These are third-party services that the consumer cannot shop for, such as appraisal fees, flood determination fees, and certain government funding fees.
What are Services You Can Shop For?
These are third-party services that the consumer can shop for and will pay for at settlement. Examples include title insurance and certain types of insurance premiums.
What does “Total Closing Costs” include?
Total Closing Costs includes all the costs disclosed under the Loan Costs and Other Costs sections, along with any lender credits.
What is Closing Costs Financed?
Closing Costs Financed is the portion of the closing costs that is paid from the loan amount, calculated by subtracting the third-party payments from the loan amount. If it is positive, it is disclosed as a negative number.
How is Down Payment/Funds from Borrower calculated?
In a Purchase transaction, it’s the difference between the property purchase price and the loan principal. In other transactions, it’s the difference between the total amount of existing debt being satisfied and the loan amount.
What is Seller Credits?
Seller Credits is the total amount that the seller will pay for items included in the Loan Costs and Other Costs tables, disclosed as a negative number.
What is Adjustments and Other Credits?
Adjustments and Other Credits is the total amount of items in the Loan Costs and Other Costs tables paid by others than the loan originator, creditor, consumer, or seller, and amounts the consumer is required to pay at closing. Disclosed as a negative number.
What are examples of items that are paid by persons other than the loan originator, creditor, consumer, or seller?
Examples include gifts from family members and credits from developers or homebuilders applied to items in the Loan Costs and Other Costs table.
What does Adjustments and Other Credits include?
It includes funds provided to the consumer from subordinate financing, housing assistance grants, or similar sources.
What is disclosed on page 3 of the Loan Estimate?
Page 3 includes contact information, a Comparisons table, an Other Considerations table, and a place for the consumer to sign to acknowledge receipt of the Loan Estimate.
What should the contact information on page 3 of the Loan Estimate contain?
It should include the name, NMLS/License ID number of the creditor, mortgage broker, if any, and loan officer. It should also include the email/phone number of the individual loan officer.
What is disclosed in the “In 5 Years” section?
It discloses the total amount the consumer will have paid in principal, interest, mortgage insurance, and loan costs by the end of the 60th month, and the amount of principal paid by that time.
What is the Annual Percentage Rate (APR)?
The APR is disclosed in the Comparisons table on page 3 and is calculated according to specific regulations.
What is the Total Interest Percentage (TIP)?
The TIP is the total amount of interest the consumer will pay over the loan term, expressed as a percentage of the loan amount. For example, a $100,000 loan with $50,000 in interest results in a TIP of 50%.
What does the Other Considerations section include?
It includes information on Appraisal, Assumption of the loan, Homeowner’s Insurance, Late Payment charges, Refinance statements, servicing intentions, and State law protections for Refinance transactions.
What does “Late Payment” refer to?
A Late Payment refers to an increase in the interest rate triggered by a missed payment, but does not include acceleration, actual collection fees, referral/extension charges, or interest charged after the due date.
Is the consumer required to sign the Loan Estimate?
No, the consumer is not required to sign the Loan Estimate. If included, the signature statement only confirms receipt, not acceptance of the loan.
What is the Closing Disclosure (CD)?
The CD is the document that replaces the HUD-I form and TIL form. It provides actual figures for loan terms, costs, and cash required at closing, and must be reviewed before signing.
What is disclosed on Page 1 of the Closing Disclosure?
Page 1 includes general information, the Loan Terms table, Projected Payments table, and Costs at Closing table. It also includes Closing, Transaction, and Loan Information such as Closing Date, Disbursement Date, and Settlement Agent details.
What information is included under Closing Information on Page 1 of the CD?
Closing Information includes the Date Issued, Closing Date, Disbursement Date, Settlement Agent name, File #, Property address, Sale Price, and Appraised/Estimated Property Value.
What is disclosed under Transaction Information on Page 1 of the CD?
It includes the names and addresses of the Borrower, Seller, and Lender in the transaction.
What is disclosed under Loan Information on Page 1 of the CD?
Loan Information includes Loan Term, Purpose, Product, Loan Type, Loan ID#, and mortgage insurance case number (if applicable).
How does the Loan Terms table in the Closing Disclosure compare to the Loan Estimate?
The Loan Terms table in the CD includes the same information as in the Loan Estimate but updated to reflect the final terms of the loan at consummation.
What does the Projected Payments table in the Closing Disclosure show?
The Projected Payments table shows the payment breakdown, including principal, interest, insurance, and escrow for the loan, updated to reflect the actual terms of the loan at consummation.
What information is disclosed in the Costs at Closing section?
Total Closing Costs, including itemized Loan Costs, Other Costs, and Lender Credits, as well as the Cash to Close amount.
What is the Cash to Close amount?
The estimated amount the consumer will pay or receive at closing, the same as in the Calculating Cash to Close table (Page 3 of the Closing Disclosure).
When is the Alternative Costs at Closing table used?
For transactions without a seller, where the Alternative Estimated Costs at Closing table was disclosed on the Loan Estimate.
Where are the Loan Costs and Other Costs tables disclosed?
On separate pages (Page 2a and 2b) of the Closing Disclosure.
What specific charges are disclosed in the Loan Costs table?
- Loan originator compensation as Origination Charges., 2. Borrower-Paid compensation to third-party loan originators., 3. Services Borrower Did Not Shop For., 4. Services chosen from the Written List of Providers.
How are Prepaids disclosed?
Prepaids, including homeowner’s insurance, mortgage insurance, prepaid interest, and property taxes, are disclosed with their applicable time periods.
What items are disclosed as Other Costs?
Fees not required by the creditor, such as real estate commissions, HOA fees, inspection fees, and other costs not required to be disclosed elsewhere.
How are Total Closing Costs (Borrower-Paid) disclosed?
Total closing costs paid by the consumer, reduced by any Lender Credits, are listed as Total Closing Costs (Borrower-Paid).
What is included in the Closing Cost Subtotals?
Total of Borrower-Paid At or Before Closing, Seller-Paid At or Before Closing, and Paid by Others.
What are Lender Credits?
Amounts credited by the lender to reduce the consumer’s upfront closing costs.
What are the benefits of Lender Credits?
- Lower upfront costs.
- May help purchase a home sooner.
- Possible avoidance of PMI with a larger down payment.
- Potential savings if the home is sold soon after purchase.
How do Lender Credits impact monthly payments?
Depending on the amount of credits, your monthly payments may increase slightly but will be more manageable than paying upfront closing costs.
What are the drawbacks of Lender Credits?
- Higher interest rate could result in more paid over the life of the loan.
- The total cost could be much higher in the long term if the interest rate increases significantly.
How are lender-paid items disclosed on the Closing Disclosure?
Lender-paid items are listed under Paid By Others, with an (L) indicating that the creditor pays the item at consummation.
What does the Calculating Cash to Close table show?
It shows the changes in amounts from the Loan Estimate to the Closing Disclosure, including Sale Price, Closing Costs, and Adjustments.
What is the purpose of the Summaries of Transaction table?
It displays the amounts due from or payable to the borrower and seller, based on the Closing Disclosure.
What is included in the Due from Borrower at Closing?
The sum of Sale Price, Closing Costs Paid at Closing, Other charges, and Adjustments, including amounts for personal property and unpaid seller items.
What types of Adjustments are disclosed?
Adjustments for amounts owed by the consumer, such as rent, taxes, insurance, or fuel purchased by the seller in advance.
What is included in Paid Already by Borrower at Closing?
Deposit, loan amount, existing loans assumed, credits, and adjustments for unpaid seller items.
What are “Adjustments for Items Unpaid by Seller”?
These are amounts due to the consumer to be paid by the seller, disclosed in two places. The first includes items like taxes, insurance premiums, mortgage insurance, assessments, and ground rent unpaid by the seller. The second includes additional amounts like unpaid utilities, rent collected in advance, and interest on loan assumptions.
How is the “Total Due from the Borrower at Closing” disclosed?
It is disclosed as a positive number, representing the total amount due from the borrower.
How is the “Total Paid Already by or on Behalf of the Borrower at Closing” disclosed?
It is disclosed as a negative number, representing the total amount already paid by or on behalf of the borrower.
What does the sum of the “Total Due from the Borrower” and “Total Paid Already by or on Behalf of the Borrower” represent?
The sum represents “Cash to Close,” which could be either from the borrower (positive) or to the borrower (negative).
What is disclosed as the “Due to Seller at Closing”?
It is the sum of the sale price of the property, the sale price of any personal property included in the sale, adjustments, and adjustments for items paid in advance by the seller.
What is disclosed as the “Due from Seller at Closing”?
It includes any excess deposit, closing costs paid by the seller, loan assumptions, mortgage payoffs, seller credit, and adjustments for unpaid items.
What information is disclosed on Page 4 about loan features?
It discloses information like future loan assumption, late payment fees, negative amortization, partial payment policies, and escrow account details.
What does the disclosure of an “Escrow Account” include?
If established, it includes the amount of escrowed and non-escrowed property costs, initial escrow payment, and monthly escrow payment. If not established, it discloses estimated property costs and any escrow waiver fee.
What property costs are disclosed?
Property taxes, homeowner’s insurance, charges from cooperative or homeowners associations, ground rent, leasehold payments, and certain required insurance premiums.
What is TIP (Total Interest Percentage)?
TIP is the total interest a consumer will pay over the life of the loan, expressed as a percentage of the loan principal. It is based on full, timely payments and no overpayments.
How are Construction Loans disclosed with Permanent Financing?
The creditor can choose to disclose the construction and permanent phases as one transaction or as separate transactions, with either one combined set of disclosures or separate ones for each phase.
What is required for Construction Loan Disclosures?
Appendix D of Regulation Z provides guidelines for estimating and disclosing the terms of construction loans, including the interest portion of the finance charge and the projected payments.
What is the primary requirement for delivering the Loan Estimate (LE)?
The Loan Estimate (LE) must be issued by the lender within three days after receiving all six required elements of the application. This timeline should be easy to meet unless there is a change that requires a new LE to be issued.
What is the primary concern regarding the Closing Disclosure (CD)?
The Closing Disclosure must be delivered to the borrower at least three days prior to consummation (closing) and settlement. Issues may arise with delivery methods and the borrower’s acknowledgement of receipt, which can affect the closing timeline.
What are the two delivery methods for the Closing Disclosure?
- Email: If sent via email and no confirmation of receipt is received, the lender must assume the email will be opened within three days. This means the three-day clock starts and must be completed before closing. If there is no read receipt, the lender must allow for a six-day window prior to closing.
How does the email delivery of the Closing Disclosure affect the timeline?
If a Closing Disclosure is sent via email without a read receipt, the lender must assume that the borrower will open the email within three days, meaning the three-day waiting period is extended. This results in a six-day window before the closing can occur.
When does the three-day clock for the Closing Disclosure start?
The three-day clock starts when the Closing Disclosure is delivered, and the lender must ensure that the borrower receives it at least three days prior to closing and settlement.
