TILA Flashcards
What does TILA stand for?
Truth in Lending Act
What Regulation does TILA fall under?
Z
Purpose of TILA
Protects consumers against inaccurate and unfair practices by lenders and creditors
What year was TILA enacted?
1968
Loans covered under TILA
Closed-end credit (such as mortgages) and open-end credit (such as lines of credit)
APR definition
The cost to borrow money as a yearly percentage
Finance charge definition
The total amount of interest and loan charges a borrower will pay over the entire life of the mortgage loan (includes pre-paid charges)
Dwelling definition
A residential structure that contains 1-4 units, whether or not that structure is attached to a real property
Residential mortgage loan definition
Any loan primarily for personal, family or household use that is secured by a mortgage, deed of trust or other equivalent consensual security interest on a dwelling
Notice of right to rescind
Only applies to credit transactions for existing homes (i.e. home equity loans, home improvement loans and refinanced)
Creditor should deliver 2 copies to each consumer clearly disclosing the following:
1. The retention or acquisition of a security interest in the consumer’s principal dwelling
2. The consumer’s right to rescind
3. How to exercise the right to rescind, with a form
4. The effect of recission
5. The date the recission period expires
How long does the borrower have to rescind?
By midnight of the third day after the last of these 3 events has happened:
1. Borrower signed contract
2. TILA disclosure received
3. Borrower received 2 copies of the notice of their right to rescind
What are seller contributions/concessions?
A strategic arrangement where the seller covers certain costs or fees associated with the sale of their home
What does HOEPA stand for
Home Ownership and Equity Protection Act
When was HOEPA enacted?
1994
What is HOEPA?
An amendment to TILA to address abusive practices in refinances and closed-end home equity loans with high interest rates or fees
How to determine if a transaction is a high-cost mortgage
3 tests:
1. APR (if it exceeds the APOR (Average Prime Offer Rate) for a comparable transaction on the same day by 6.5 percentage points for a first-lien transaction, 8.5 for first-lien transactions that are for less than $50,000 and secured by personal property, or 8.5 for junior-lien transactions)
2. Points and fees (if they exceed 5% of the total loan amount for a loan greater than or equal to $20,000, or 8% of the total loan amount or $1,000 (whichever is less) for a loan less than $20,000)
3. Prepayment penalties (if you charge it more than 36 months after consumation or in an amount more than 2% of the amount prepaid - *prepayment penalties are banned for high-cost mortgages)
Difference between high-cost and higher-priced mortgages
High-cost:
1. APR
2. Points and fees
3. Prepayment penalties
Higher-priced - only the APR criteria
What does APOR stand for?
Average prime offer rate
Prohibited MLO compensation
MLOs are prohibited from receiving any payments that are based on the terms of the loan, such as interest rates or fees. This rule is intended to prevent conflicts of interest and ensure that loan originators act in the best interest of the borrower rather than for their own financial gain.
How long do you have to retain evidence of TILA compliance?
2 years
What must be included in the TIL disclosure statement?
- Finance charge expressed as an APR
- Total finance charges
- Amount financed
- Mandatory statement included: “You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.”
High cost mortgage restrictions
BAPS
- No balloon payment
- ATR (ability to repay)
- No prepayment penalty
- Speak to HUD-approved housing counselor
