(TILA) Truth In Lending Act (Regulation Z)

Question 1

TILA - Truth In Lending Act (Regulation Z)

Answer 1

• Deals with “Credit, APR, and Advertising” of consumer loans.
• It requires lenders to disclose the “complete cost of credit” to consumer loan applicants
• Established a “3 day right of rescission” in certain transactions (HELOC/REFI’s)

1. It “only takes one borrower rescinds” for the loan to be cancelled.
2. The rescission starts the “day “after” the documents are signed.
3. Creditor must return and money collected related to the loan within “20 calendar days”.
4. Consumers may rescind the credit transaction “until midnight of the third (3) business day”.
5. Borrower must receive “two copies of a Notice of Right to Rescind”

• If a borrower wasn’t notified or received 2 copies of Notice of Right to Rescind, rescission period may extended to “3 years”

6. TILA applies to transactions that are payable by written agreement with “more than 4 installments”

Question 2

TILA Disclosures

Answer 2

1. The “only” fee that may be collected prior to these disclosures are fees for “credit reports”
2. Genera TILA disclosures must be kept for “Two (2) years. Exceptions are:

• Loan Estimate (5) years
• Closing Disclosure (5) years

3. TILA Disclosures include the following:

• Loan Estimate and Closing Disclosure
• Consumer Handbook on Adjustable Rate Mortgages (CHARM booklet)
• When your Home is on the Line Disclosure (HELOC/REFI’s)
• TILA requires the disclosure of the “annual percentage rate (APR)”. Another word used for APR is “Effective Rate”. Another word used for “Interest Rate” is “Note Rate or Nominal Rate”
• Penalties: “$5,000 per day” for single violation, “$25,000 per day” for reckless violation, “$1,000,000 per day” for knowingly violating TRID.

Question 3

Mortgage Disclosure Improvement Act (MDIA) - 3/7/3 Rule. (Still apart of TILA)

Answer 3

• Initial disclosures within “3 business days” of receipt of completed application.
• Earliest consummation on “7th business day” after disclosures delivered/mailed
• “Re disclosure” - Consumer must receive corrected disclosure “at least 3 business days” before loan can be consummated if there was a significant variance in the APR.

Question 4

TILA Accuracy / Re Disclosure

Answer 4

1. APR is accurate if no variance above or below initial disclosure by more than:

• 1/8% (.125) for regular transactions (30yr fixed)
• 1/4% (.25) for irregular transactions (not a 30yr fixed)
• May be able to waive if “bona fide financial emergency to be determined by the lender.
• Business days: All calendar days except Sundays and legal public holidays (According to TILA)

**Exception to this rule is the “initial” Loan Estimate (any day in which the creditor’s office is open for business.

** 0-9 days (Business days)
** 10 and over (Calendar days)

Question 5

TILA Advertising (Triggering Terms)

Answer 5

1. If an advertisement contains any “one of the triggering terms” about the loan, that advertisement must include:

• Amount or percentage of down payment
• Terms of repayment
• Annual percentage rate, using that term spelled out in full or APR.

2. If ad contains “only APR”, NO additional disclosures are required.

Question 6

Qualified Mortgage (QM) (TILA)

Answer 6

If a lender issues a Qualified Mortgage- it receives “safe harbor” (legal protection) if the borrower later goes into foreclosure.

The QM rule essentially creates new categories of mortgages and imposes minimum underwriting standards for most loans, which is referred to as the “ability-to-repay” requirements. The most prominent clauses of the QM rule is:

• No-doc loans/NINA loans are not allowed
• Sets a maximum debt-to-income ratio (back end) of 43%
• Caps points and fees at “3 percent/3 points”
• “Loan terms over 30yrs prohibited”
• “Interest only loans not allowed/negative amortization loans not allowed
• Prohibits use of “teaser rates” in affordability calculations
• Requires that adjustable-rate mortgages (ARMs) be underwritten to the maximum interest rate that can be charged during the “first five years” of the loan term
• Prepayment penalties are “prohibited”: Prepayment penalties are prohibited, except for certain fixed rate, qualified loans.

Question 7

Ability-to-Repay (ATR) (TILA)

Answer 7

Creditors must consider “8 types of information” when establishing a borrower’s “ability to repay a mortgage loan:

1. Current Income or assets
2. Current employment status
3. Borrower’s credit history
4. Monthly payment for the mortgage
5. Borrower’s monthly payments on other simultaneous mortgage loans
6. Monthly payments for other mortgages-related expenses
7. Other debts of the borrower
8. Monthly debt payments compared to the borrower’s monthly income (DTI cannot exceed 43%)

Question 8

Home Ownership & Equity Protection Act HOEPA (32 & 35) (TILA)

Answer 8

HOEPA is a part the Truth In Lending Act (TILA - Reg Z

**Hard Money Loans

• Based off “Average Prime Offer Rate” (APOR)

1. High Cost Loans - Section 32 is triggered when:

• the APR exceeds the APOR by more than “6.5% on first lien loans” of $50,000 or higher or more than “8.5% on the first lien loans less than $50,000,
• or when the APR exceeds the APOR by more than “8.5% on second lien loans”
• Also a Section 32 if the total fees charged “exceed 5% of the total loan amount.

2. Higher Priced Loans - “Section 35” is triggered on loans where the loans exceed the average prime offer rate (APOR) by:

• “1.5% for first mortgage lien,
• “2.5% for first lien Jumbo loan (loan amount over $417,000), or
• “3.5% for subordinate mortgage lien