OnCourse Learning by Colibri Flashcards
Pass the exam first time.
1
Q
What is RESPA?
A
Governs real estate settlement procedures, including rules about referral fees and required disclosures
2
Q
What is ECOA?
A
Ensures fair lending and prevents discrimination in credit access
3
Q
What is TILA?
A
Mandates truth in lending disclosures and advertising requirements
4
Q
What is the TRID Rule?
A
Combines TILA and RESPA requirements for loan estimates and closing disclosures
5
Q
What is the Loan Originator Compensation Rule?
A
Regulates how mortgage professionals can be paid
6
Q
What are QM/ATR Rules?
A
Ensures borrowers can repay loans and defines “qualified mortgages”
7
Q
What is the SAFE Act?
A
Sets licensing requirements for mortgage loan originators
8
Q
What is HMDA?
A
Requires lenders to report mortgage data to prevent discrimination
9
Q
What is FCRA/FACTA?
A
Credit reporting requirements and identity theft prevention
10
Q
What is GLB Act?
A
Privacy requirements for financial information
11
Q
What is the USA PATRIOT Act/BSA?
A
Anti-money laundering requirements
12
Q
What are Do-Not-Call Registry rules?
A
Telemarketing restrictions
13
Q
CFPB and HUD are the main _________ __________.
A
Regulatory Authorities
14
Q
What does RESPA stand for?
A
Real Estate Settlement Procedures Act
15
Q
What does the RESPA do?
A
- Protects consumers from excessive settlement costs.
- Limits the funds creditors can require consumers to deposit in escrow accounts.
- Establish disclosures, policies, and procedures to facilitate timely communications.
16
Q
What is an escrow account?
A
A side account to hold money which exists to protect both parties (borrower and lender)
17
Q
What is the CFPB?
A
Consumer Financial Protection Bureau
18
Q
What is the regulatory body that oversees consumer finance related transactions?
A
Consumer Financial Protection Bureau (CFPB)
19
Q
What is Regulation X?
A
This is the commonly referred to name for RESPA. They are one in the same.
20
Q
What types of loans does RESPA cover?
A
Residential
Way to remember:
RES-PA
RES-idential
21
Q
What types of loans are exempt from RESPA?
A
Non-residential transactions
22
Q
RESPA Term: Affiliated business arrangement
A
Relationship between service providers where one has ownership interest in the other – 1% or more.
Principle: The borrower has a right to know the ownership relationships of the businesses they participate in.
23
Q
Are affiliate business referrals allowed?
A
Yes. But it has to be disclosed if the ownership interest is 1% or more.
24
Q
What is an “agreement or understanding” under RESPA?
A
An agreement or understanding for the referral of settlement business that can be:
- Stated or written agreement
- Unwritten or not verbalized but established through:
- A practice
- A pattern
- A course of conduct for offering things of value in exchange for settlement business referrals
Key Exam Note: Remember that regulators don’t need to find a formal written agreement to prove a RESPA violation - they can establish an “agreement or understanding” simply by showing a pattern of behavior or practice of exchanging referrals for things of value.
25
What is a "bona fide discount point" under RESPA?
A payment by the borrower which:
1. Is specifically designated as a discount point
2. Reduces the interest rate on the loan
3. Typically equals 1% of the principal amount of the loan
–––
Key Exam Note: Make sure to distinguish bona fide discount points from other types of points that don't actually reduce the interest rate. The "bona fide" designation means there must be a genuine reduction in the interest rate in exchange for the point(s) paid.
26
What is a "borrower credit" under RESPA (formerly known as YSP or yield spread premium)?
A fee that:
1. Is paid by the lender to the borrower
2. Occurs when a loan is originated at a higher interest rate than the lowest rate the borrower qualifies for
3. Is used to subsidize closing costs (like origination or broker fees)
4. Is effectively "borrowed" from the lender since it's financed into the loan
–––
Key Exam Note: It's important to understand that while the old term "yield spread premium" is still sometimes used in the industry, regulators now refer to this as a "borrower credit." The key concept is that the borrower accepts a higher rate to reduce out-of-pocket closing costs.
27
What are "fee-splitting and kickbacks" under RESPA?
Fee-splitting is paying or accepting unearned fees. Marking up a settlement service fee and splitting the overage with another provider.
Kickbacks are paying or accepting unearned fees. Similar to fee-splitting but specifically focused on payments for referrals.
–––
Key Exam Note: For RESPA violation purposes, there's an important distinction about markups: A violation only occurs if the marked-up fee is split between two parties. If a lender marks up a fee but keeps the entire markup (doesn't share it), it's not a RESPA violation. However, this could still violate TILA or be considered an unfair practice under other regulations.
Example: If a title examination costs $100, but the lender charges $150:
Legal: Lender keeps entire $50 markup
RESPA Violation: Lender splits the $50 markup with title company
28
What are "markups" under RESPA?
A markup is an upcharge in the actual cost of a settlement service and retention of the additional fee.
Key points for exam:
* Not a RESPA violation if the upcharge is kept entirely by one party (Supreme Court ruling)
* Becomes a RESPA violation if the markup is split between two parties
* Despite no RESPA violation, markups may still:
– Violate TILA (if exceeds amount received by service provider)
– Impact APR (if creditor retains portion of fee)
– Lead to unfair/deceptive practice claims if pattern exists
Example: If title examination costs $100, but lender charges $150:
No violation: Lender pays title company $100 and keeps $50
RESPA violation: Lender splits the $50 markup with title company
Key Exam Note: While unilateral markups may be legal under RESPA, they are risky and may violate other laws. Many states prohibit marking up third-party charges altogether.
29
What is a "mortgage broker" under RESPA?
A person who:
1. Is not an employee of a lender
Renders origination services
2. Serves as an intermediary between a borrower and lender in a federally-related mortgage loan
3. Includes persons who close loans in their own name in table-funded transactions
–––
Key Exam Note: The definition focuses on two main elements: independence from the lender and the intermediary role. Remember that table-funded transactions (where the broker closes in their own name) are specifically included in this definition.
30
What is a "referral" under RESPA?
Any action, either written or oral, that influences the selection of a provider of a settlement service.
–––
Key Exam Note: The definition is intentionally broad to capture any action that might steer a consumer to use a particular settlement service provider. It doesn't require a formal recommendation - any influence on the selection process can qualify as a referral.
31
What is a "settlement service" under RESPA?
Title companies, real estate agents, credit report providers, home inspectors, appraisers, etc.
–––
Key Exam Note: There are third party providers that make up a loan transaction.
32
What is a "sham affiliated business arrangement" under RESPA?
Third party provider is used without an actual service being provided.
–––
Key Exam Note: This is like a "hidden referral fee" which is not allowed.
33
What is a "thing of value" under RESPA?
Anything that has value and could be seen as a paid compensation.
–––
Key Exam Note: You can only be paid, via a thing of value, if you have actually performed services.
34
What are two special information booklets that clients need to receive under RESPA?
1. You Home Loan Toolkit: A Step-by-Step Guide (explains the settlement process, etc.)
2. What You Should Know About Home Equity Lines of Credit (used for open-end loans
35
What must happen at the time of a referral under RESPA?
An Affiliated Business Arrangement Disclosure must be provided.
What it does:
1. Describes the arrangement
2. Indicates the referral may result in benefit for the licensee
3. Estimate the costs that will be charged by the provider
4. Advise the borrower that he/she is not required to use the provider that other providers are available.
Must retain for 5 years.
–––
Note: You only have to tell a client about this when you actually refer the business.
36
What must happen if a loan servicer is no longer going to service a given loan under RESPA?
They must provide notice to the client no less than 15 days before the "transferor servicer" transfers the loan to the "transferee servicer".
Notice must include:
– Transfer date
– Contact information for the transferee servicer
– Date transferor servicer will no longer accept payments
– Whether the transfer will affect availability of insurance products
– Statement that the mortgage terms will not be affected
37
What disclosures are required related to escrow accounts under RESPA?
1. Initial escrow account statement is usually provided at settlement, but lender technically has 45 days from the settlement to deliver. 60 days after a service transfer.
2. Annual escrow account statement is intended to prevent escrow overages. This is due within 30 days of the computation year for the account.
38
Is this scenario legitimate under RESPA?
Kohler Home Solutions is a mortgage brokerage firm. The company has a 20% ownership interest in a local title company, Moreland Title Services. Kohler regularly refers clients to Moreland; in each transaction where a referral is made, Kohler requires its employees to provide the client with a disclosure that outlines the relationship between the two companies. The disclosure also explains that the client is not required to use the services of Moreland Title, and may select a different provider of their own choosing instead.
Yes.
In this scenario, Kohler Home Solutions is fulfilling its legal obligation to disclose an affiliated business arrangement to its clients. By not only disclosing the existence of the relationship but also emphasizing the fact that a client may select an alternative provider, the company is meeting the requirements under Regulation X.
39
Regarding the management of escrow accounts, mortgage payment issues, and other important servicing matters, how quickly does the loan servicer need to respond within _____ days.
Five
40
Force-placed insurance can or cannot be used unless there is a reasonable basis to believe the borrower has not maintained insurance.
Cannot
Notes: Force-placed insurance is very expensive, and the mortgage servicer is required to do due diligence prior to moving forward with "force-placed insurance".
41
What's the difference between judicial and non-judicial foreclosure processes?
Judicial: Must go before a judge to initiate the foreclosure process
Non-Judicial: Follow other state provisions
42
What was the intention of the Equal Credit Opportunity Act?
Eliminate discriminatory treatment of credit applicants, and promote the availability of credit to all creditworthy applicants.
43
What are the two violations under ECOA?
Redlining: When creditors refuse to make loans in certain neighborhoods because of the residents' personal characteristics
Reverse Redlining: When creditors target neighborhoods with elderly, immigrant, and minority residents.
44
What is the nickname for ECOA?
Regulation B
45
Which regulatory bodies enforce the ECOA?
CFPB
– Office of Fair Lending and Equal Opportunity
– FTC also retains some authority
46
What loans are covered by ECOA?
A-B-C loans are covered.
A = Agriculture
B = Business
C = Commercial
47
What is an "adverse action" under ECOA?
Negative action taken by the creditor. A denial or a counter offer with terms less favorable that the borrower requests.
Only relevant to action initiated by a creditor.
48
What does "discriminate" mean under ECOA?
Any protected class personal characteristic that is used in a negative way.
49
What does "elderly" mean under ECOA?
62 years or older
50
What does "marital status" mean under ECOA?
You "MUS" only use three terms when designating the marital status of someone.
M = Married
U = Unmarried
S = Separated
51
What are the "prohibited basis" under ECOA?
Race, color, religion, national origin, sex, marital status, public assistance, and a part of a consumer credit protection program
52
How long does a creditor have to make a decision regarding a loan application under ECOA?
30 days - called Notice of Action
53
What's required when an "adverse action" is taken by a creditor under ECOA?
Reasons for denial, description of credit requested, info on the CRA if the action was based on the credit report, etc.
54
How long does a creditor have to provide a notice of incomplete application to an applicant under ECOA?
30 days
55
How long does a creditor have to provide an appraisal report under ECOA?
3 days upon receipt or at closing – whichever comes first
56
What is the purpose of the Home Mortgage Disclosure Act (HMDA)?
The HMDA is a federal fair lending law designed to discourage redlining by monitoring mortgage lending practices. It ensures financial institutions are meeting the borrowing and depositing needs of their communities.
57
What type of institutions must comply with HMDA?
Both depository and non-depository institutions must comply with HMDA by collecting and reporting data on mortgage lending practices.
58
What personal characteristics must creditors request from applicants in mortgage-related credit transactions?
Creditors must request information on the applicant’s ethnicity, race, sex, marital status, and age for HMDA compliance.
59
What law requires creditors to explain the purpose of collecting demographic data?
The Equal Credit Opportunity Act (ECOA) requires creditors to explain that the federal government mandates the collection of demographic data to monitor compliance with anti-discrimination laws.
60
How must creditors collect demographic information if applicants do not provide it?
If applicants do not provide demographic information, creditors must record it based on visual observation and surname, as required by law.
61
What are the requirements for collecting demographic information in different application formats?
In-person/video call: The creditor must request and collect demographic data.
Phone application: The creditor must request the data and explain its purpose.
Mail/electronic application without video: No additional request is required if the applicant does not provide the data.
62
How long must creditors retain records related to ECOA compliance?
Creditors must retain records for at least 25 months after notifying an applicant of action taken or application incompleteness.
63
What records must creditors retain for 25 months under ECOA?
Creditors must retain:
Applications received
Demographic data collected for ECOA compliance
All written or recorded information used to evaluate the application
Copies of:
Notice of Action Taken
Statement of specific reasons for adverse action
Any written complaints alleging an ECOA violation
64
What records must creditors retain for 25 months when ECOA notification requirements do not apply?
For applications not requiring ECOA notification (e.g., certain commercial credit applications), creditors must retain all written or recorded information about the applicant, including notes indicating action taken.
65
What is overt discrimination in lending?
Overt discrimination is the blatant refusal to offer credit based on protected characteristics such as ethnicity or religion.
66
What is disparate treatment in lending?
Disparate treatment occurs when a creditor treats a loan applicant differently based on their membership in a protected class, despite being similarly situated to other applicants.
Example: If a female applicant with the same income and employment as a male applicant is offered a higher interest rate, this constitutes disparate treatment and violates ECOA.
67
Why is disparate treatment significant in lending?
It is one of the most common forms of discrimination in lending and directly violates ECOA by unfairly disadvantaging protected-class applicants.
68
What is disparate impact in lending?
Disparate impact occurs when a neutral policy unintentionally creates a discriminatory effect on a protected class. This can lead to liability under ECOA even if there was no intent to discriminate.
Example: A lender requiring mortgage loans to be at least $250,000 may disproportionately exclude lower-income applicants, including protected-class members, from accessing credit.
69
What are prohibited inquiries under ECOA?
Creditors cannot ask loan applicants about characteristics that define them as members of a protected class (e.g., national origin).
Exceptions include:
Immigration status inquiries
Race/ethnicity data for special-purpose credit programs
Demographic data collection for ECOA and HMDA compliance
70
What does ECOA say about discouragement in lending?
ECOA prohibits creditors from making oral, written, or advertising statements that discourage protected-class individuals from applying for credit.
71
When can a creditor require a co-signer for a mortgage loan?
Creditors cannot require a spouse or another individual as a co-signer if the applicant qualifies for credit on their own. However, additional signatures may be required in community property states for debt collection upon default or death.
72
What are some prohibited lending practices under ECOA?
Lenders may not:
✅ Refuse to consider public assistance as income
✅ Assume a woman of childbearing age will stop working
✅ Refuse to consider pension, annuity, or retirement benefits
✅ Refuse to consider alimony or child support (unless the applicant chooses to disclose it as income)
73
What did the CFPB warn lenders about in CFPB Bulletin 2014-03?
Lenders cannot request excessive documentation for Social Security disability income or ask for medical opinions on an applicant’s disability duration after receiving a benefits verification letter.
74
What is the primary goal of ECOA regarding creditworthiness?
ECOA ensures that consumers are not denied credit on a prohibited basis while allowing creditors to evaluate loan applications using lawful financial criteria.
75
Can age or receipt of public assistance be considered when evaluating creditworthiness?
Generally, no, but exceptions include:
Age can be considered only in the applicant’s favor (e.g., stable retirement income).
Public assistance income can be considered only to determine its reliability for repayment.
76
When can a creditor consider an applicant’s age?
To determine legal capacity to enter a contract (e.g., under 18 cannot legally sign).
In an empirically derived credit scoring model, but an elderly applicant’s age cannot be a negative factor.
77
Can a creditor consider an applicant’s telephone listing?
NO: The presence of a listing in the applicant’s name cannot be considered.
YES: Whether there is a telephone in the applicant’s residence may be considered.
78
What income factors can a creditor legally consider?
A creditor may consider:
✅ Amount and likelihood of continuance of income
✅ Alimony, child support, or separate maintenance (if applicant chooses to disclose)
79
What aspects of credit history can a creditor review?
Applicant’s credit history
✅ Spouse’s credit history (if designated jointly)
✅ Corrections requested by the applicant
✅ Former spouse’s credit history (if relevant to the applicant’s creditworthiness)
80
Can a creditor consider an applicant’s immigration status?
Yes, immigration/residency status can be considered if necessary to determine creditor’s rights and remedies for repayment.
81
How must creditors treat married and unmarried applicants?
Creditors cannot treat married and unmarried applicants differently or discriminate based on marital status.
82
How do state property laws impact credit decisions?
Creditors may consider state property laws when assessing creditworthiness.
In community property states, a spouse may be required to co-sign to ensure debt settlement upon default or death.
83
Think about the example of Angelica (pregnant woman) and Rex (MLO). What ECOA violations did mortgage loan originator Rex commit?
🚨 Violations:
❌ Asking about Angelica’s pregnancy, future children, and work plans—this is discrimination.
✅ NOT a violation:
✔ Requiring Christopher to co-sign certain documents in a community property state is allowed for legal lien enforcement.
84
What does ECOA encourage creditors to do to identify potential violations?
ECOA encourages creditors to conduct self-tests to detect potential discriminatory practices and ensure compliance with fair lending laws.
85
What protections does ECOA provide for self-test results?
Self-test results are privileged if:
✅ The information remains confidential and is not shared with the public.
✅ The creditor takes corrective action to address any discriminatory practices.
However, regulators or courts may still review the results to determine if they are privileged.
86
What must a self-test program include to meet ECOA standards?
A self-test must include more than just reviewing loan files. Effective programs often include:
✅ Testers – Pairs of applicants (one protected-class member, one non-protected) to compare treatment.
✅ Analysis of experiences to identify potential discriminatory behavior.
87
How do testers help identify discriminatory lending practices?
Testers apply for the same loan type with similar financial qualifications:
One is a protected-class member, the other is not.
Their treatment by the lender is compared to detect disparate treatment or discrimination.
Regulators also use testers to monitor fair lending compliance.
88
What types of damages does ECOA authorize for violations?
ECOA allows for:
✅ Actual damages
✅ Punitive damages (subject to limits)
✅ Attorney’s fees & legal costs
89
What are the limits on punitive damages under ECOA?
$10,000 for individual actions
The lesser of $500,000 or 1% of the creditor’s net worth for class actions
90
What is the statute of limitations for ECOA violations?
5 years for individual and class actions.
5 years for Attorney General enforcement actions.
1 additional year for individuals to file a private lawsuit if they learn of discrimination through a DOJ action.
91
When can the Attorney General file an action under ECOA?
The Attorney General can file suit if there is evidence of a pattern or practice of discrimination by a creditor.
92
What is the Truth-in-Lending Act (TILA)?
TILA, enacted in 1968 as part of the Consumer Credit Protection Act (CCPA), promotes the informed use of credit by requiring clear disclosure of loan costs and terms.
93
What are the primary goals of TILA?
✅ Protect consumers by requiring cost and term disclosures
✅ Standardize credit cost disclosures for easier loan comparisons
✅ Ensure truthful credit advertising
✅ Give borrowers the right to rescind certain mortgage transactions
94
Why was TILA significant in consumer protection?
TILA was the first federal law to require credit disclosures, ensuring transparency and fairness in lending practices.
95
What regulation implements TILA?
TILA is implemented through Regulation Z (i.e., TILA) (12 C.F.R. §1026.1 et seq.) which sets the rules for credit disclosures and lending practices.
96
Which agency is primarily responsible for enforcing TILA?
The Consumer Financial Protection Bureau (CFPB) has primary authority for implementing and enforcing TILA and Regulation Z.
97
Do other agencies have authority over TILA?
Yes, the FTC and federal bank regulators retain some supervisory and enforcement authority, but the CFPB is the primary regulator. Agencies coordinate through Memoranda of Understanding.
98
What is Reg Z?
Truth in Lending Act (TILA)
99
What is the rule-of-thumb regarding what loans TILA covers?
TILA covers residential loans 95% of the time.
TILA and RESPA are very similar.
100
What are the two types of loans covered by TILA?
TILA covers two types of credit transactions:
✅ Closed-end loans – Fixed loan amount disbursed at closing with a set repayment period (e.g., mortgages, refinances).
✅ Open-end loans – Credit is revolving, allowing multiple withdrawals and repayments (e.g., HELOCs, credit cards).
101
What is a closed-end loan under TILA?
A closed-end loan is when a lender disburses all funds at closing, and the borrower repays over a set period.
Examples:
✔ Home purchase loans
✔ Mortgage refinances
102
What is an open-end loan under TILA?
An open-end loan allows a borrower to withdraw funds repeatedly up to a credit limit.
Payments depend on the amount borrowed and interest due.
Examples:
✔ Home Equity Line of Credit (HELOC)
✔ Credit cards
103
Which type of loan requires less disclosure material under TILA?
Open-end loans because there is less known about how the loaned funds will be used and how quickly.
104
Who is considered a "creditor" under TILA?
A creditor under TILA is a person or business that:
✅ Regularly extends consumer credit
✅ Applies finance charges or requires repayment in more than four installments
✅ Receives the initial payments on the debt
105
When is a person considered to "regularly extend consumer credit" under TILA?
A person regularly extends consumer credit if they:
✔ Extend credit secured by a dwelling more than 5 times per year
✔ Originate more than 1 high-cost mortgage (HOEPA loan) in a 12-month period
✔ Originate any HOEPA loan through a mortgage broker in a 12-month period
106
What is the definition of an "application" under TILA?
An application is the submission of a consumer’s financial information for the purpose of obtaining credit. A complete mortgage application includes:
✔ Consumer’s name
✔ Social Security Number (for credit report)
✔ Income
✔ Property address
✔ Estimated property value
✔ Loan amount sought
107
How does TILA define a "business day"?
TILA provides two definitions of a business day:
1️⃣ General definition – Any day the creditor’s offices are open for business (applies to Loan Estimate deadlines).
2️⃣ Specific definition – All calendar days except Sundays and legal public holidays (applies to:
✔ Closing Disclosure deadlines
✔ Waiting periods before consummation
✔ Mail delivery waiting periods).
108
What is "consummation" under TILA?
Consummation is the moment a consumer becomes contractually obligated on a loan. It typically occurs at closing, but state laws may vary.
109
What is the definition of a "dwelling" under TILA?
A dwelling is any residential structure with 1 to 4 units, including:
✔ Condos
✔ Co-ops
✔ Mobile homes
✔ Trailers (if used as a residence)
110
What is a "residential mortgage transaction" under TILA?
A residential mortgage transaction is a loan used to acquire or construct a consumer’s principal dwelling, secured by a:
✔ Mortgage
✔ Deed of trust
✔ Purchase money security interest
111
What are the two uniform standards TILA uses to state the cost of credit?
1️⃣ Finance charge – The total cost of credit expressed as a dollar amount (12 C.F.R. §1026.4(a)).
2️⃣ Annual Percentage Rate (APR) – The total cost of credit expressed as a yearly rate (12 C.F.R. §1026.22(a)).
These help consumers compare loan offers from different creditors.
112
What does "cost of credit" mean under TILA?
The overall amount of money one has to pay to borrow.
Example: $200k loan – one has to pay back the $200k plus $150k (interest + other fees = cost of credit)
113
When can a loan originator charge fees before providing TILA disclosures?
Loan originators cannot charge fees before providing TILA disclosures, except for a reasonable credit report fee.
114
What fees are included in the finance charge under TILA?
✅ Fees paid to third parties, if the lender requires their use or retains part of the fee.
✅ Credit life, disability, or employment insurance (unless optional and the borrower provides written consent).
✅ Mortgage broker fees (always included, even if the lender does not require the broker’s services).
115
What fees are not included in the finance charge under TILA?
❌ Fees that are payable in a comparable cash transaction, such as taxes.
❌ Optional insurance (if the borrower voluntarily chooses it and signs a written statement).
116
What are the “Special Rules” under Regulation Z for finance charge calculations?
1️⃣ Closing agent charges – Included if required by the lender or if the lender retains part of the fee.
2️⃣ Mortgage broker fees – Always included, even if the lender does not require the broker’s services.
117
What is the accuracy tolerance for finance charges in closed-end loans under TILA?
A finance charge is accurate if:
✔ It is not understated by more than $100
✔ It is greater than the required disclosure amount
118
How does an inaccurate finance charge impact other disclosures?
An inaccurate finance charge affects:
✅ Amount financed
✅ Annual Percentage Rate (APR)
If the finance charge is inaccurate, creditors must re-disclose the affected amounts.
119
What happens if a finance charge or APR is inaccurately disclosed?
Consumers may have the right to rescind the loan for up to three years after consummation if the finance charge or APR is inaccurate.
120
How is the APR defined under Regulation Z?
APR is the cost of credit expressed as a yearly rate, including:
✔ Interest rate
✔ Finance charges (PMI, discount points, broker fees, origination fees, processing fees, underwriting fees)
121
What fees are excluded from APR calculations?
❌ Title fees
❌ Escrow fees
❌ Notary fees
❌ Appraisal & credit report fees
❌ Document preparation fees
122
Why is APR especially useful for borrowers considering adjustable-rate mortgages (ARMs)?
The APR calculation for ARMs accounts for future interest rate changes, giving borrowers a more accurate cost estimate over the loan term.
123
What are the accuracy tolerances for APR in closed-end mortgages?
✔ Regular loans – APR must be within 1/8% (0.125%) of the actual APR.
✔ Irregular loans (multiple advances, irregular payments) – APR must be within 1/4% (0.25%) of the actual APR.
124
When is an APR error not a violation of Regulation Z?
If the error resulted from:
✅ A miscalculation in a tool used in good faith
✅ The creditor promptly stops using the tool & notifies the CFPB
The creditor must correct and re-disclose the APR.
125
What is a finance charge?
A fee you have to pay for borrowing money.
126
Are property taxes a finance charge?
No, because they are payed whether you are borrowing money or not.
127
What is the question you should ask when trying to determine whether or not something is a "finance charge"?
"Would I pay this fee if I was paying cash for said thing?"
128
What's the core difference between finance charges and APR?
Finance charges are in dollar amounts, and APR is in annual percentage.
129
What does the CHARM Booklet cover?
Information about adjustable rate mortgages:
Consumer Handbook on Adjustable Rate Mortgages
130
What is a Loan Program Disclosure?
A specific set of information for the product covered. If multiple products are being compared, a disclosure for each is required.
131
How long before a rate change should a disclosure be delivered to the consumer?
At least 60 but no longer than 120
132
Is a Home Equity Plan an open-ended or closed-ended loan?
Open-ended
133
What disclosures are required for an open-ended loans?
Time frame:
Immediately in person
Within 3 days if over the phone
Type:
General disclosures
Keep a copy of the information
Subject to change
Risk of losing the home
Possibility of unfavorable actions by the creditor
134
Are there any special disclosures for Home Equity Plans with adjustable rates?
Yes. A bunch.
A long list about all of the ways the consumer can be affected by the rates and changes.
135
What are creditors not able to do in Home Equity Plans?
Change the APR unless based on an index not controlled by the creditor
Demand early repayment unless fraud has been committed, default, or other actions which adversely impact the loan
Change any term
Change the index and margin unless the index is no longer available
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What is Rescission under TILA?
Legal exemption which voids an agreement
3-business-day: intended to give the borrower an opportunity to reconsider whether he/she wants the loan
3-year: available to a borrower who did not receive notice of the right to rescind or other required disclosures
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What types of loans are not susceptible to the right of rescission?
Residential mortgage transactions
Refinances with the same creditor that made the original loan
Lending transactions with state agencies
An advance in a series of advances
Renewal of optional insurance products
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Who must receive the notice of the right to rescind according to TILA?
Anyone with an ownership stake in the property must receive a right to rescind notice.
Everyone must receive two copies of the notice.
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If there are multiple owners, do all the owners have to claim the right to rescind for the loan to be rescinded?
No. Only one is needed.
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Can consumer waive the right to rescind?
Yes. They have to submit a written request providing a "bone fide financial emergency".
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Remember the Kevin Tran anecdote: Home Equity Loan but then gets injured a day after...
Kevin Tran recently retired from a long teaching career. Now that he has more time on his hands, Kevin decides to take out a home equity line of credit in order to finance some renovations on his home. He completes and submits his loan application and is approved quickly. However, the morning after closing (a Saturday), Kevin suffers an injury while moving furniture to prepare for construction. A tear in muscle tissue leaves him unable to engage in extended physical activity for the next six months. Discouraged and unable to continue with his plans, Kevin elects to rescind his loan. He contacts his loan originator, who instructs him to simply write and sign a letter stating his wish to rescind. Kevin does this immediately and sends it via email.
Kevin’s loan qualifies him for the three-business-day right to rescind. The law states that simply providing notice of a desire to rescind is permissible, meaning that Kevin’s email effectuates rescission of his transaction.
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Can you advertise a product you can't deliver?
No.
It has to be "reasonably" available.
If there are requirements to receive the advertised product, those terms must be shown (not in small print). No bait and switch.
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In advertising, what must you do if you specify something with a "trigger term"?
No bait and switch. All of the specific information that is related but also be provided.
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If you are advertising tax deductible benefits with a loan product, what else must you do under TILA?
You must disclose that not all funds may be tax deductible, and to consult a tax professional.
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What loans are regulated by HOEPA?
Only applies to the "principle dwellings" and it meets at least one of the below thresholds:
APR
Points and fees
Prepayment penalty
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What loans are exempt from HOEPA?
Reverse mortgages
Bridge loans
Loans originated by a housing finance agency and for which the agency is the creditor
Loans originated by the USDA
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What is an HPML?
Higher-priced mortgage loans
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What is the Lending Originator Compensation Rule?
It discourages:
Compensation based on loan terms
Dual compensation
Steering
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What are permissible compensation types for Loan Originators?
LO's overall dollar volume
Long-term performance of the LO's loans
Hourly rate based on actual hours worked
Loans made to new verses existing customers
Paymen fixed in advance for each loan the LO arranges
Percentage of closed applications
Quality of LO's loan files to creditor
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What are the major disclosures required under TRID?
Loan Estimate
Closing Disclosure
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What loans are excluded from the TRID disclosure rules?
Home equity lines of credit
Reverse mortgages
Mortgages secured by a mobile home or a dwelling that is not attached to a real property
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