RESPA

Question 1

Real Estate Settlement Procedures Act: Federal mortgage law quick facts.

Answer 1

Regulation: Regulation X
Acronym: RESPA
Year Created: 1974
Main Purpose: Educate borrowers on the cost of their loans.
Disclosures/Notice Required: Escrow notices, notice of transfer of servicing, AFBA
Important Terms Related to this Law: Kickbacks, referral fees, escrow requirements, transfer of servicing.
Entity Responsible for Enforcement: CFPB

Question 2

RESPA does not cover:

Answer 2

Vacant land.

Large Tracts of Land. (25 acres or more - even if there is a dwelling on it)

Commercial of business loans.

The government, agencies or instrumentalities.

Temporary financing (bridge loans or swing loans)

Question 3

Explain the purpose of RESPA?

Answer 3

RESPA was created to help educate borrowers about the costs associated with a loan, which would lead borrowers to understanding what questions they need to ask when shopping for a mortgage loan. RESPA was also meant to eliminate kickbacks and referral fees that tend to inflate the cost of loans and limit deposits in escrow accounts to insure the payment of taxes and insurance.

Question 4

Explain RESPA’s requirements for escrow accounts?

Answer 4

RESPA regulates escrow accounts, specifically the amount of money that is in an escrow account at any given time. The amount of escrow funds that can be collected at settlement or upon creation of an escrow account is restricted to the amount sufficient to pay charges for taxes and insurance that are attributable to the period from the date the payments were last paid until the initial payment date.

Question 5

RESPA’s requirements for escrow accounts. (Cont’d)

Answer 5

Throughout the life of the escrow accounts, the servicer may charge the borrower a monthly sum equal to 1/2 of the total annual escrow payments for taxes and insurance that the servicer reasonably anticipates paying from the accounts. Also, the servicer can add an amount to maintain a cushion of no greater than 1/6 of the estimated total annual payment from the account.

Question 6

RESPA requires that a mortgage lender or broker that anticipates that they may sell the servicing rights of a loan is required to…

Answer 6

Let the borrower know that that may occur within 3 days after the receipt of application. The disclosure statement must advise that the servicing of the loan may be assigned, sold or transferred to any other person at any time.

Question 7

When a mortgage loan is assigned, sold or transferred, the former servicer must provide a…

Answer 7

A disclosure at least 15 days before the effective date of the transfer. This is generally referred to as the Goodbye Letter. A letter from the new servicer must also be sent within 15 days after the effective date of the transfer. This is generally known as the Hello Letter.

Question 8

Hello/Goodbye Letters must include:

Answer 8

The effective date of the transfer.

The name, address and toll-free or collect-call telephone number for an employee or department of the first servicer that can be contacted by the borrower to obtain answers to servicing transfer inquires.

The name, address and toll-free or collect-call telephone number for an employee or department of the new servicer that can be contacted by the borrower to obtain answers to servicing transfer inquires.

The date on which the old servicer will cease accepting payments related to the loan and the date the new servicer will begin to accept payments. (Must be same or consecutive date).

Whether the transfer will affect the terms or the availability of optional insurance and any action borrower must take to maintain the coverage.

A statement that the transfer does not affect the terms or conditions of the mortgage.

Question 9

During the 60-day period of transfer:

Answer 9

Beginning on the date of the transfer, no late fee or other penalty can be imposed on a borrower who has made a timely payment to the former servicer. Additionally, if the former servicer receives an incorrect payment on or after the effective date of the transfer, the former servicer must either transfer the payment to the new servicer or return the payment and inform the borrower of the power recipient of the payment.

Question 10

Section 8 of RESPA was created…

Answer 10

To eliminate the payment of referral fees and kickbacks between parties in a real estate transaction. RESPA reconsidered legitimate business relationships and established the term and documentation required for Affiliated Business Arrangements (ABA).

Question 11

What is an ABA?

Answer 11

A person who may refer business to a settlement service of a federally related mortgage loan, or an associate of such person, and has either an affiliate relationship with or a direct beneficial ownership interest of more than 1 percent in the provider of the settlement service.

Either person directly or indirectly refers business to that provider or influences the selection of that provider.

Question 12

The ABA disclosure must be delivered to the borrower when?

Answer 12

At the time of referral.

Question 13

Section 8: Kickbacks.

Answer 13

Section 8 also states that no person may give or receive a fee, kickbacks, or any other form of valuable compensation (or arrange to do so) for referring a potential borrower to a certain lender or service provider for a federally-related mortgage loan.

Question 14

What are the consequences for violating Section 8 of RESPA?

Answer 14

They are looking at a fine of up to $10,000 , up to 1 year in person or both. They also may be required to make payment to damaged parties up to 3 times the original fee that violated the section and if more that one individual is involved, then all parties are liable to the damaged borrower both jointly and separately.

Question 15

The Truth in Lending Act:
Federal Mortgage Law Quick Facts.

Answer 15

Regulation: Regulation Z
Acronym: TILA
Year Created: 1968
Main Purpose: Protect consumers from predatory lending practices.
Disclosure/Notice Required: HOEPA notice, homeownership counseling notice, TRID disclosures.
Important Terms Related to this Law: High-cost home loan, ability to repay, higher-priced loans, qualified mortgage, advertising, right of rescission, CHARMS booklet, Loan Estimate, Annual Percentage Rate.
Entity Responsible for Enforcement: CFPB
Other Laws that have influenced it: Dodd-Frank.

Question 16

Reg. Z applies to any individual or business that offers or extends credit if the following 4 conditions are met:

Answer 16

The credit is offered to consumers.

Credit is offered on a regular basis.

The credit is subject to finance charge (interest) or must be paid in more that 4 installments according to a written agreement.

The credit is for personal, family or household purposes.

Question 17

Reg. Z does not apply to what?

Answer 17

To loans made for business, commercial, or agricultural purposes and only applies to 1-4 unit properties.

Question 18

A creditor is considered to have regularly offered credit if they have done what?

Answer 18

If they extend credit more than 25 times in the preceding calendar year (or more than 5 times for transactions secured by a dwelling).

Question 19

TILA has a lot of rules that fall under it and it is important to remember what falls under the TILA umbrella.

Answer 19

TILA
|.
Dodd-Frank > HOEPA > HPML
|.
QM > ATR > LO Comp

Question 20

A creditor must keep all records of compliance with Reg. Z for how long?

Answer 20

For at least 2 years after the disclosure date.

Question 21

What are the consequences for false or inaccurate disclosure information, consistently understating the APR, or otherwise failing to comply with Reg. Z?

Answer 21

Fines up to $5,000 and be imprisoned for up to 1 year or both.

Question 22

Examples of Advertisements:

Answer 22

Newspaper and magazine ads.

Leaflets and flyers.

Catalogs.

Radio, TV, or public address systems.

Signs or displays.

Billboards.

Point of sale literature.

Price tags.

Cash register receipts.

Online, internet or social media.

Websites.

Question 23

If a creditor advertises directly to a borrower, they are required to:

Answer 23

Advertise only terms that are specific terms that the lender will offer in credit plans.

The ad must state the finance charge rate using the term Annual Percentage Rate or APR.

If the APR might increase after consummation of the loan, the ad must be specific on this detail.

A simple annual or periodic rate applied to an unpaid balance may be advertised in conjunction with the APR, but not more conspicuous that the APR.

Question 24

What is a Trigger Term?

Answer 24

A trigger term is a phrase that represents the attractive features of the credit plan within the advertisement.

Question 25

Give 3 examples of trigger terms used in advertising:

Answer 25

10 percent down payment.

$1000 down.

80 percent financing.

Question 26

The right to rescission is a special protection provided by TILA on what?

Answer 26

Owner-Occupier Refinance Transactions.

Question 27

Give 2 examples where the right of rescission does not apply:

Answer 27

This does not apply to purchases or refinance transactions on second or investment properties.

The borrower must notify the creditor of their wish to rescind the loan before midnight on the third business day after the following whichever comes last:
- the signing of the loan document.
- the delivery of the right to rescind notice, or
- the delivery of all disclosure.

Question 28

Right to refund notice:

Answer 28

The 2 copies of the right to rescind notice must be provided to the borrower along with one copy of the disclosure statement.

Question 29

Cancelled transaction:

Answer 29

The creditor is required to return any money or property or take any action that shows the transaction was cancelled within 3 calendar days after the borrower remits a rescission notice.

Question 30

The borrower’s right to rescind expires when?

Answer 30

If the required rescission notice is not provided to the borrower, or if there are errors on the disclosures, the borrower’s right to rescind expired 3 years after the closing, transfer of the interest in the property, or sale of the property, whichever occurs first.

Question 31

HOEPA is known as:

Answer 31

The Homeownership and Equity Protection Act.

Question 32

The following types of transactions are required to be tested against the HOEPA coverage tests. If they meet these coverage tests, then they are required to comply with restrictions under HOEPA on loan terms and other protections related to high-cost mortgages. These types of transactions are:

Answer 32

Purchase-money loans.

Refinances.

Closed-end home equity loans.

Open-end credit plans (examples: HELOCs).

Question 33

There are some exceptions; these types of transactions are exempt from HOEPA:

Answer 33

Reverse mortgages.

Construction loans.

Loans originated and directly financed by a Housing Finance Agency.

Loans originated under the U.S. Department of Agriculture’s Rural Development Section 502 Direct Loan Program.

Question 34

Starting January 2022, the points and fees test is:

Answer 34

5% of the loan amount for loans greater than $22,969 (OR)

For loans less than $22,929 the lesser of 8% of the loan amount of $1,103.

Question 35

There are three separate HOEPA coverage tests they are based on:

Answer 35

The transactions APR (Annual Percentage Rate).

The amount of points and fees paid in connection with the transaction; and

The prepayment penalties that are charged under the loan or credit agreement.

Question 36

The first test is the APR test, if the APR on the mortgage exceed the Average Prime Offer Rate (APOR) for a comparable transaction by more than the below percentage then the loan is considered a high-cost home loan:

Answer 36

• 6.5 % for first lien transactions
• 8.5 % for first lien transactions that are for less than $50,000 and secured by personal property
• 8.5 % for junior-lien transactions (second mortgages)

Question 37

The second test is the point and free test, if a transaction exceeds the following thresholds then the loan is considered a high-cost mortgage:

Answer 37

• 5 % of the total loan amount greater than or equal to $22,052
• 8 % of the total loan amount or $1,079 (whichever is less) for a loan amount less than $22,052

Question 38

The last test is the prepayment penalty coverage test, a transaction is a high-cost mortgage if the loan includes a prepayment penalty that:

Answer 38

• Is more than 36 months after consummation or account opening
• In an amount more than 2 % of the amount prepaid

Question 39

True or false. HOEPA also restricts or banks some risky loan features for high-cost mortgages, including balloon payments, prepayment penalties and due-on-demand features.

Answer 39

False

Question 40

Name four things that HOEPA further restricts on high-cost mortgages:

Answer 40

Recommending default on any existing loan to be refinanced by a high cost mortgage.

Charging a fee to modify, defer, extend or amend a high-cost mortgage.

Late fees cannot exceed 4 % of the past-due payment, and pyramiding late fees is prohibited.

Fees for payoff statements are generally banned.

Question 41

High-priced Mortgages (HPML) are:

Answer 41

Similar to high-cost mortgages and are covered in Section 35 of TILA.

Question 42

A mortgage loan covered by Section 35 is a closed-end consumer credit transaction secured by a consumer’s principal dwelling with an APR that exceeds the APOR for a comparable transaction by:

Answer 42

• 1.5 % for loans secured by a first lien loan.
• 3.5 % for second lien loans.

Question 43

A creditor is prohibited from what?

Answer 43

They are prohibited from extending a higher-priced mortgage loan without first obtaining a written appraisal of the property to be mortgaged. The appraisal must be provided to the borrower no later than 3 business days prior to consummation.

Question 44

Name two things when originating higher-priced mortgages, the creditor cannot do?

Answer 44

Rely on the collateral alone for repayment of the loan, without considering the borrower’s financial ability to make payments.

Rely on the consumer provided information on income and assets without verification.

Question 45

The ATR Rule has 8 underwriting factors that creditors must consider and verify those eight underwriting factors are: (1 of 8)

Answer 45

1. Current or reasonably expected income or assets (other than the value of the property that secures the loan) that the consumer will rely on to repay the loan.

Question 46

The ATR Rule has 8 underwriting factors that creditors must consider and verify those eight underwriting factors are: (2 of 8)

Answer 46

2. Current employment status (if you rely on employment income when assessing the consumer’s ability to repay)

Question 47

The ATR Rule has 8 underwriting factors that creditors must consider and verify those eight underwriting factors are: (3 of 8)

Answer 47

3. The monthly mortgage payment for this loan.

Question 48

The ATR Rule has 8 underwriting factors that creditors must consider and verify those eight underwriting factors are: (4 of 8)

Answer 48

4. Monthly payment on any simultaneous loan secured by the same property.

Question 49

The ATR Rule has 8 underwriting factors that creditors must consider and verify those eight underwriting factors are: (5 of 8)

Answer 49

5. Monthly payment for property taxes and insurance that you required the consumer to buy, and certain other costs related to the property such as homeowner’s association fees or ground rent.

Question 50

The ATR Rule has 8 underwriting factors that creditors must consider and verify those eight underwriting factors are: (6 of 8)

Answer 50

6. The borrower’s debts alimony, and child-support obligations.

Question 51

The ATR Rule has 8 underwriting factors that creditors must consider and verify those eight underwriting factors are: (7 of 8)

Answer 51

7. Monthly debt-to-income ratio or residual income.

Question 52

The ATR Rule has 8 underwriting factors that creditors must consider and verify those eight underwriting factors are: (8 of 8)

Answer 52

8. Credit history

Question 53

When did the Qualified Mortgage Rule of a section of TILA go into effect?

Answer 53

2014

Question 54

There are four types of qualified mortgages:

Answer 54

1. General QM
2. Temporary QM
3. Small Creditor
4. Balloon Payment QM

Question 55

True or False: The QM requirements generally focus on prohibiting certain risky features and practices such as negative amortization and interest-only periods and loan terms loan than 30 years.

Answer 55

True

Question 56

Explain Safe Harbor:

Answer 56

A QM loan that is not higher-priced has a safe harbor. If the loan has a safe harbor, then they are conclusively presumed to comply with the ATR requirements. Under a safe harbor, if a court finds that a mortgage a lender originated was a QM then that finding conclusively establishes that the lender complied with the ATR requirements when they originated the mortgage.

Question 57

Explain Rebuttable Presumption:

Answer 57

A rebuttable presumption occurs when a QM loan is a higher-priced mortgage. Under a rebuttable presumption, if a court finds that a mortgage a lender originated was a higher-priced QM, a consumer can argue that the lender violated that ATR Rule. For the consumer to win that argument, they must show that based on the information available to the lender at the time, that the consumer did not have enough residual income left to meet living expenses after paying their mortgage and other debts.

Question 58

There are different requirements for the different types of QM but over the four types of QM there are a few things that remain the same:

Answer 58

A loan cannot be QM if they have negative amortization or interest-only payments.

A loan cannot have a term longer than 30 years.

There is a threshold on points and fees for QM loans - generally 3 % of the loan balance.

Question 59

There are four types of QM loans but the most common and the one that most MLOs will come across is the General QM. To be considered a General QM the creditor must:

Answer 59

Underwrite based on fully-amortizing schedule using the maximum rate permitted during the first 3 years after the date of the first payment.

Consider and verify the consumer’s income, assets, debt obligations, alimony and child support obligations.

Determine that’s the consumer’s total monthly debt-to-income is no more than 43 %.

Question 60

To be considered a qualified mortgage, points and fees cannot exceed the following threshold (as of January 1, 2022):

Answer 60

3% of the total loan amount for a loan greater than or equal to $114,847.

$3,445 for a loan amount greater than or equal to $68,908 but less than $114,847.

5% of the total loan amount for a loan greater than or equal to $22,969 but less than $68,908.

$1,148 for a loan amount greater than or equal to $14,356 but less than $22,969.

8% of the total loan amount for a loan amount less than $14,356.

Question 61

What law does the Loan Originator Compensation amend?
A.) The Truth in Lending Act
B.) The Real Estate Settlement Procedures
C.) The Dodd-Frank Wall Street Reform Act
D.) The TILA-RESPA Integrated Disclosure Rule

Answer 61

A.) The Truth in Lending Act

Question 62

True or False: Loan Originator Compensation went into effect in 2014.

Answer 62

True

Question 63

LO Comp defines “a term of a transaction” as:

Answer 63

“Any right or obligation of the parties to a credit transaction.”

Question 64

LO Comp imposes duties on loan originator organizations to make sure that their individual loan originators are licensed or registered as applicable under the SAFE Act and other applicable law. In origination companies, such as; depository institutions and bona fide nonprofits, the rule requires them to:

Answer 64

Ensure that their loan originator employees meet the character, fitness, and criminal background standards, like existing SAFE Act licensing standards.

Provide training to their loan originator employees that is appropriate and consistent with those loan originators’ origination activities.

Question 65

Give three Examples of Compensation…

Answer 65

Compensation is considered annual or other period bonuses, awards or merchandise, services, trips, or similar prizes as well as salaries and commissions.

Question 66

What are two examples of “safe harbor” types of compensation?

Answer 66

The loan originator’s overall dollar volume.

The long-term performance of the originator’s loans.

Question 67

Give an example of steering?

Answer 67

An example of steering would be an MLO pushing a borrower to choose an ARM because that ARM even though an ARM is not a good choice for the borrower. Usually there is an incentive for the MLO to push that product - like higher compensation.