National Test Outline Flashcards
Real Estate Settlement Procedures Act (RESPA)
The Real Estate Settlement Procedures Act (RESPA) is a federal law that imposes controls on the way lenders of federally backed home loans operate. … RESPA also prohibits various practices, such as kickbacks, referral fees, and unpaid fees, and it limits the use of escrow accounts.
Definition of “mortgage broker”
Mortgage broker means 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 involving a federally related mortgage loan, including such a person that closes the loan in its own name in a table-funded transaction.
Knowledge of the prohibitions, limitations and exemptions set by RESPA
exemptions: Loans for business, commercial, or agricultural purposes
- temporary financing
- loans secured by vacant land
- loan assumptions which are permissible without lender approval
- Loan conversion
- Transactions between lenders and investors for the sale of a closed loan.
Prohibitions- kickbacks, settlement statement
Criminal 10K or 1 year in jail
Class Action 1M or 1% net worth the lesser of the two
Types of loans to which RESPA is applicable
RESPA applies to federally related mortgage loans
Every home loan secured by a mtg.
-1st or subordinate lien on residential property, made with funds by, collateral insured by, made with funds regulated by Federal Government intended for sale to Fannie and Freddie.
-Conventional, FHA, VA, USDA
Sold in the secondary market
all purchase, rate and term, cash out, HARP
Settlement Services
Rendering of services by a mortgage broker (including counseling, taking of applications, obtaining verifications and appraisals, and other loan processing and origination services, and communicating with the borrower and lender)
A service that brings us to loan settlement
- mortgage brokers
- real estate brokers
- attorneys
- inspectors
- credit reporting agencies
- notaries
- title insurers
Required disclosures to the customer for a mortgage loan originator (MLO) who is
also a real estate broker
-LE(GFE)
-CD(HUD1)
-Special Information booklet
-ABA (at referral)
-Mtg. disclosure statement
-Servicing transfer statement(Hello, Goodbye
15/15.
-Initial Escrow 45 days
-annual escrow analysis
-10 HUD approved housing counseling agents
Required information from a borrower that must be included on an application (Regulation X)
ALIENS Address Loan Amount Income Estimated property value Name Social Security HUMDA reportable application
Bona fide discount points and application during a mortgage loan origination
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. Discount points will be discussed in further detail in a later section of the course.
Knowledge of third party settlement service providers
3rd party settlement service providers consist of Mortgage Brokers, Real Estate Brokers, attorneys, appraisers inspectors, notaries, credit reporting agencies and title insurers. It’s natural for these services to exchange referrals in the industry. RESPA goal is to eliminate these services from driving up the settlement costs. Examples are referral fees, fee splitting, exchanges for things of value: tickets, money, special rates.
Keep from driving the cost up on referral (no referral fee or fee splitting, or for ABA)
If the borrow can not shop the tolerance is 0% from LE to CD.
Third-party services are provided by appraisers, inspectors, credit reporting agencies, title insurers, and loan processors.
Overview of the foreclosure process
Foreclosure occurs when a borrower becomes unable to make payments on a mortgage loan. After the borrower goes into default, a property is foreclosed, and the proceeds are used to satisfy the unpaid loan debt or breach of the loan contract. Foreclosure is conducted via either judicial or non-judicial means. The exact type of foreclosure that occurs will depend on the state in which the property is located and whether the mortgage includes a power of sale clause.
If the mortgage does not include a power of sale clause, a lender must proceed with foreclosure by filing a lawsuit. This process is known as judicial foreclosure, and as the name suggests, requires the involvement of a court. If the mortgage does include a power of sale clause, no legal action is required. This process is known as non-judicial foreclosure. Many non-judicial foreclosures proceed, with variations among states, along the following steps:
At least 120 days before the foreclosure sale date, the lender must serve the borrower with a notice of default and record a notice of default in the county where the property is located
The lender must publish a notice of default once a week for four consecutive weeks, with the last notice appearing at least 20 days prior to the sale of the property
Sale of the property takes place by public auction, and the property must be sold to the highest bidder for cash
Prior to the sale, the borrower can cure the default by paying all past due amounts
RESPA includes provisions related to mortgage loan servicing in order to assist and protect borrowers who are in danger of losing their homes. These requirements largely focus on pre- foreclosure efforts, collectively referred to as loss mitigation.
Initial escrow statements
Initial escrow account statement: this disclosure is typically given at settlement. However, the lender has 45 days from settlement to deliver it. The initial escrow statement must show:
o The amount of the borrower’s mortgage payment and the portion that is deposited into the escrow account
o Itemized taxes, insurance, and other payments to be made from the escrow account during the computation year
o The amount that the servicer has selected as a cushion
o A “trial running balance” (the accounting process used to reach target balances
over the course of a computation year)
Annual escrow account statement: this disclosure is due within 30 days of completion of the escrow account computation year, and it must provide:
o An account history and a projection of the payments for the coming year
o A statement showing both last year’s and the current year’s monthly mortgage
payment, and the amount of the payment that is deposited into the escrow account
o The total amount paid both into and out of the escrow account for the past computation year
o The escrow account balance at the end of the period and an explanation of how the servicer is handling any surplus
o An explanation of how the borrower is to pay any deficiency
If a loan’s servicing is transferred to a new servicer, the new servicer must provide an initial
escrow account statement within 60 days of the date on which the transfer occurs.
Changes that can be made to the HUD1/GFE
- Can revise if changing circumstances.
- Increase in closing cost (initial rate increases on an unlocked loan)
- affect the value of the property i.e. storm damage
- negatively affect borrowers ability to qualify
- consumer waits more than 10 days to indicate intent to proceed
- settlement delayed more than 60 days - new construction
Consumer waiting longer than 10 days to acknowledge with intent to proceed. LE is only good for 10 days.
Issuing a GFE when not all information has been provided.
You can give a GFE without all the information, but when new information comes in, it needs to be revised and disclosed immediately.
Factors that cannot be used to discriminate
Race
Color
Religion
National origin
Sex
Marital status
Age, as long as the loan applicant is old enough to enter a contract
Receipt of income from a public assistance program
Exercise of rights under the Consumer Credit Protection Act, which includes the Truth- in-Lending Act
Notifying borrower of action taken
Within 30 days of receipt of a loan or credit application, lenders must notify consumers in writing of action taken.
Circumstances when it is acceptable to deny credit/loan
The applicant is not of legal age to enter into a contract
The applicant fails to demonstrate sufficient creditworthiness, based on consideration of
permitted factors, such as income and credit history
The applicant fails to submit information needed to complete the application (see next section)
Components of a “notice of adverse action”
the notice must provide a statement of the reasons for the unfavorable decision, and must include a statement that ECOA prohibits discrimination against credit applicants. This notice must also include the name and address of the creditor and the name of the agency that enforces the lender’s compliance with the law. A description of the credit is also provided on the notice and, if the adverse action was based on data from a consumer credit report, information on the credit reporting agency must also be included
Definition of “adverse action”
a creditor’s refusal to offer credit in the amount or according to the terms requested by a loan applicant (with the exception of a successful negotiation of loan terms and conditions between a creditor and an applicant). In open-end transactions, such as those for HELOCs, the term includes the termination of an account or an unfavorable change in the terms of its use, or a refusal to approve an application for a credit line increase.
General provisions of Regulation B
To stop the discrimination and poor treatment of consumers with bad credit or who live in areas perceived to have poor credit
Section 202.5. Regulation B prohibits creditors from requesting and collecting specific personal information about an applicant that has no bearing on the applicant’s ability or willingness to repay the credit requested and could be used to discriminate against the applicant.
Exceptions to providing the appraisal report
Creditors must deliver a copy of an appraisal “promptly upon completion” or three business days prior to consummation, whichever is earlier; however, some exceptions exist. As previously stated, the timing requirement may be waived by the borrower, and he or she may agree to receive a copy at or before consummation. In order to do this, the borrower must submit an oral or written request to the creditor three business days prior to consummation. If the creditor denies a loan application or the application is withdrawn by the consumer, the obligation to provide copies of valuations still exists. However, the deadline is extended to 30 days after the date on which the creditor determines the transaction will not proceed
Required disclosures when an application is denied
If the creditor takes adverse action on the application, the notice must provide a statement of the reasons for the unfavorable decision, and must include a statement that ECOA prohibits discrimination against credit applicants. This notice must also include the name and address of the creditor and the name of the agency that enforces the lender’s compliance with the law. A description of the credit is also provided on the notice and, if the adverse action was based on data from a consumer credit report, information on the credit reporting agency must also be included
Acceptable terms used to describe 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.
Adverse action notice, including when multiple applicants/guarantors are on the loan
request
Where there is more than one applicant for a mortgage loan, notice is only required to be given to one individual; where there is an apparent primary applicant, that is the person to whom the notice must be provided
Definition of “elderly”
62 and older
“Disparate treatment” scenarios
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, the creditor is engaging in disparate treatment. For example, if a creditor offers a loan with a higher interest rate to a female loan applicant whose income and employment is comparable to that of a male applicant who receives an offer for a loan at a lower interest rate, a violation of ECOA has occurred. This is one of the most common forms of discrimination.
Record retention timelines
25 months (confirm notes - this was pulled from Quzlets)
