TILA Flashcards
TILA
Truth in lending Act
What regulation is TILA?
Z; TILA the GODZILLA
When was TILA enacted?
1968
Who enforces TILA?
CFPB and FTC
What sub act is TILA under?
CCPA Consumer Credit Protection Act
What is the purpose of TILA?
C.A.R. Cost of credit, Advertising must be “truthful” and accurate, Right to rescind.
TILA applies to…
business that “regularly extend credit” (means more than 5 loans secured by real property per year)
What are exceptions of TILA?
- A.B.C.
- Organizational credit (ex. churches)
- Student Loans
- It does not apply to credit in excess of $57,200 unless the loan is secured by real property
What are the disclosures under TILA?
- Loan estimate or LE- due within 3 business days of application
- Open-end credit disclosure- due within 3 business days of application
- Closing disclosure or CD- due 3 business days PRIOR to closing
- Notice of Right to Rescind aka Right to Cancel- due at closing
- Early ARM disclosure- due within 3 business days of application
- Charm Booklet- due within 3 business of application
LOCNEC
What is the CHARM booklet?
Consumer Handbook on Adjustable Rate Mortgages, ARMs 101 for the borrower, ONLY for ARMs
What is the Early ARM Disclosure?
Disclosure for every ARM product that the borrower inquires about
What is the Open End Credit Disclosure?
“What you should know about Home Equity Lines of Credit”, HELOC 101 for the borrower, ONLY for HELOC
What is the Notice of Right to Rescind?
PRINCIPAL, NON PURCHASE transactions only, 3 day cooling off period after closing
How many Notice of Right to Rescind must be sent?
2 copies of RTR per person who has ownership of the property
What happens if you FAIL to comply with notice of right to rescind?
RTR is extended for 3 years up at time of consummation/funding.
If borrower acts upon RTR, how soon must the lender return the money?
20 Calendar days
What are the Interest Rate Disclosures Requirements?
- Lenders must supply borrowers with an initial rate adjustment notice the first time the interest rate adjusts 210-240 calendar days before the first payment at the new rate is due
- Every adjustment after the initial must be disclosed 60-120 calendar days prior
What are Advertising Prohibitions under TILA?
- Lenders cannot advertise term that they don’t actually offer
- Tax Benefits for mortgages
- Misleading ads of the lending terms
- Can advertise the interest rate but it CANNOT be more conspicuous than the APR
- Trigger Terms- can use but there are exceptions
- APR can be advertised by itself
- APR- Annual Percentage Rate = Cost of credit expressed as a percentage (total cost of credit)
- Finance Charges = Cost of credit expressed as a dollar amount
What is a Trigger Term for advertising?
Any advertisement that discloses hard numbers about the loan; except $0 down
What must the ad state if there is a trigger term?
- APR
- Amount and percentage of down payments
- Terms of repayment
What fees can affect the APR and are included in Finance Charge?
LENDER/BROKER CONTROLED: Origination Processing Underwriting Discount Points Mortgage Insurance/ Funding fee Commitment fee/ Lock in fee Broker Fee (YSP) Per Diem Interest
What fees DO NOT affect APR and are NOT included in Finance Charge?
THIRD PARTY FEES: Title Insurance Appraisal Notary Inspection fee Escrow Credit Report Fee
What is HPML?
High Price Mortgage Loan
- Applies to primary residence for refinance or purchase of closed-end loans
- APOR= Average Prime Offer Rate
- APR Triggers or Threshold
What section is HPML?
Section 35 under TILA
What are the APR triggers and thresholds for HPML?
- 5% above the APOR for 1st lien
- 5% above the APOR for 2nd lien
- 5% above the APOR for Jumbo Loans
If a loan is considered HPML…
- Must verify ATR
- Prepayment penalty limited to the first 2 years*****
- Escrow is required for the first 5 years (unless the property is a condo or co-op)
What is HOEPA?
Home Ownership and Equity Protection Act
AKA HIGH COST
What section is HOEPA?
Section 32 under TILA
What is the purpose of HOEPA?
- Created to help combat predatory lending practices
- Applies to primary residence only: purchase or refinance of closed-end loans
- Special HOEPA Disclosures- due 3 business days prior to closing
What are the APR triggers and thresholds for HOEPA?
- 5% above APOR for 1st lien
8. 5% above APOR for 2nd lien
What are the points and fees thresholds for HOEPA?
- 5% or more of the loan amount (loans $21,549 or more)
2. Lesser of $1,077 or 8% of the loan amount (loans under $21,549)
What is the prepayment penalty triggers for HOEPA?
- If there is a prepayment penalty on the loan after the first 36 months
- If the prepayment penalty is more than 2% of the loan amount
If a trigger is set for HOEPA the loan cannot have…
- Balloon payment
- Neg Am
- Prepayment penalties
- Increase of rate after default
- Acceleration of debt
- Refinancing within 1 year UNLESS it benefits borrower
- Direct payment to home improvement contractors
In order to get a HOEPA loan the borrower must…
- Verify ATR
2. Receive counseling
Can a HOEPA loan be sold on the secondary market?
Yes but must let the buyer know it is a HOEPA loan
What are exceptions to HOEPA?
HECM (reverse mortgage, 2nd Homes/ Investment properties, Construction Loans
What are the penalties under TILA?
Damages plus attorney costs (damages can be twice the finance charges)
Civil Charges: $5,000 per individual and or 1 year in prison
