Regulation Z - Truth in Lending Act

Question 1

Triggering Terms - Open End Credit

Answer 1

If you say any of these:

• Finance charge
• APR
• Any other charges

You must say all of these:

• Transaction or other activity charges
• APR (and the fact that it may vary, if it can)
• Any membership or other participation fee

Question 2

Triggering Terms - Closed End Credit

Answer 2

If you say any of these:

• Downpayment information (in a credit sale only)
• Payment amount
• Number of payments or repayment period
• Any finance charge amount

You must say all of these:

• Downpayment information (only in a credit sale)
• Terms of repayment
• APR (and if it is variable, that fact)

Question 3

Reg Z Coverage

Answer 3

• Consumer Credit (personal, family, household purpose)
• Less than the annual threshold (if not secured by real estate or secondary education purpose)
• Subject to a finance charge
• Payable in more than four installments

Question 4

Finance Charge

Answer 4

“Cost of credit”

• Fee is paid because the money is borrowed to purchase something.
  1. Lender requires the service
  2. Fee wouldn’t be paid in a comparable cash transaction

Question 5

Ability to Repay

Answer 5

underwriting standards for all mortgage loans

creditor must make good faith determination that borrower has ability to repay

applies to consumer purpose, closed end, secured by a dwelling

must have reasonable 3rd party records to verify information

Question 6

Ability to Repay Underwriting Factors

Answer 6

1. expected income or assets
2. current employment status
3. monthly payment on the covered transaction
4. monthly payment on any simultaneous loan (HELOCs)
5. monthly payment for mortgage-related obligations (taxes, insurance, assessments)
6. current debt obligations, alimony, child support
7. monthly DTI or residual income
8. credit history

Question 7

Finance Charge Exceptions

Answer 7

1. Application fee paid by all applicants
2. Taxes
3. Discounts available to groups (members of an organization), to cash and credit customers (quantity discounts)
4. Exceptions for mortgage loans
   - appraisal
   - credit report
   - doc prep fee
   - taxes

Question 8

Prepaid Finance Charge

Answer 8

fees that are paid up front

Question 9

Qualified Mortgage Safe Harbor Vs. Rebuttable Presumption

Answer 9

1. Safe Harbor (deemed to comply)
   - APR below reg Z HPML threshold of 1.5% basis points above APOR if secured by first lien; 3.5% if secured by junior lien
2. Rebuttable Presumptions
   - Can be rebutted that the creditor did not make a reasonable and good faith determination of consumer’s ATR
   - ATR is above the threshold (but still a QM)

Question 10

Qualified Mortgage Requirements

Answer 10

1. No negative amortization, interest only, or > 30 year term
2. No balloon payments (unless “small creditor”)
3. 43% or less DTI
   - According to appendix x
   - Meets GSE purchase or government-guarantee or insurance test
   - “Points and fees” not above threshold (3% for loans above $101,953)