UST: Compliance - Advertising

Question 1

A mortgage loan originator placing an advertisement (e.g., flyer, billboard, window display, direct mail literature, telephone solicitation) for consumer credit must comply with the advertising requirements of what act/reglation?

Answer 1

Truth in Lending Act or Regulation Z

Question 2

What requirements apply to consumer credit advertising?

Answer 2

• Credit advertising may not be false or misleading
• Disclosures must be made clearly and conspicuously (i.e., in a reasonably understandable form)
• Specific credit terms may only be stated if those terms actually are or will be arranged or offered to the consumer
• Bait-and-switch credit promotions are not allowed (e.g., advertising a loan at very attractive terms and then informing potential customers that that loan is not available but that a loan with different terms is)

Question 3

What are trigger terms on a closed end loan?

Answer 3

• The amount or percentage of any down payment (e.g., “5% down,” “95% financing,” “$6,200 down”), except when the amount of the down payment is zero
• The number of payments or period of repayment (e.g., “360 monthly payments” or “30-year loan”)
• The amount of any payment (e.g., “payments of less than $1,400 per month”)
• The amount of any finance charge (e.g., “total financing costs of less than $3,000”)

Question 4

What are trigger terms on a open end loan?

Answer 4

• The amount of any finance charge (e.g., “total financing costs of less than $3,000”)
• The amount of other charges, such as late payment fees, title, appraisal, or credit report fees (e.g., “$0 late payment fees!,” “appraisal fee waived!”)
• Taxes imposed on the credit transaction
• Payment terms of the home equity plan

Question 5

What are the disclosures required for a closed-end loan?

Answer 5

• Amount or percentage of the down payment
• Terms of repayment (i.e., the payment schedule - the number, timing, and amount of the payments, including any final balloon payment, scheduled to repay the debt)
• Annual percentage rate, using that term or the abbreviation “APR”

Question 6

What are the disclosures required for an open-end loan?

Answer 6

• Any loan fee that is a percentage of the credit limit
• An estimate, as a dollar amount, of any fee to open the plan
• Any periodic rate used to compute the finance charge, and
• The maximum annual percentage rate may be imposed under a variable-rate plan

Question 7

If an ad states a simple annual rate of interest, and more than one simple annual rate of interest will apply over the term of the advertised loan, the ad must clearly and conspicuously disclose what information?

Answer 7

• Each applicable simple annual rate of interest
• In a variable-rate transaction, a rate determined by adding a reasonably current index and margin must be disclosed
• The period of time during which each simple annual rate of interest will apply
• The APR for the loan

Question 8

If an ad states the amount of any payment, it must clearly and conspicuously disclose what information?

Answer 8

• The amount of each applicable payment over the term of the loan, including any balloon payment (based on a reasonably-current index and margin for a variable-rate loan)
• The period of time during which each payment will apply
• For credit secured by a first lien on a dwelling, the fact that the payments do not include amounts for taxes and insurance premiums, if applicable, and that the actual payment obligation will be greater

Question 9

Since an ad for credit secured by a dwelling must avoid causing confusion between fixed- and variable-rate loans. It may therefore not use the word “fixed” to refer to rates, payments, or the credit transaction for what transactions?

Answer 9

• For a variable-rate transaction
• For any transaction where the payment will increase (e.g., a stepped-rate mortgage transaction with an initial lower payment), or
• In an ad for both variable-rate transactions and non-variable-rate transactions

Question 10

When can the use of the word “fixed” be used when advertising variable-rate loans?

Answer 10

• The phrase “adjustable-rate mortgage,” “variable-rate mortgage,” or “ARM” appears in the advertisement before the first use of the word “fixed” and is at least as conspicuous as any use of the word “fixed” in the ad, and
• Each use of the word “fixed” to refer to a rate or payment is accompanied by an equally prominent and closely proximate statement of the time period for which the rate or payment is fixed and the fact that the rate may vary or the payment may increase after that period

Question 11

An ad for credit secured by a dwelling may not state or do what?

Answer 11

• State that a product is a “government loan program,” “government-supported loan,” or otherwise endorsed or sponsored by any government entity unless the ad is for an FHA loan, VA loan, or similar loan program that is, in fact, endorsed or sponsored by a government entity
• Use the name of the consumer’s current creditor if the ad is not sent by or on behalf of that creditor, unless:
  1. The name of the person or lender making the advertisement is disclosed with equal prominence, and
  2. The ad includes a clear and conspicuous statement that the person making the advertisement is not associated with, or acting on behalf of, the consumer’s current creditor
• Make any misleading claim that the product offered will eliminate debt or result in a waiver or forgiveness of a consumer’s existing loan terms with, or obligations to, another lender
• Use the term “counselor” to refer to a for-profit mortgage broker or mortgage lender, its employees, or persons working for the broker or lender that are involved in offering, originating, or selling mortgages
• Provide information about some trigger terms or required disclosures (e.g., an initial rate or payment) only in a foreign language, and provide information about other trigger terms or required disclosures (e.g., information about the fully-indexed rate or fully-amortizing payment) only in English

Question 12

What is a creditor according to TILA?

Answer 12

A creditor is:

• A person, including a lender and a table funding mortgage broker, that regularly extends credit that is:
  1. Subject to a finance charge, or
  2. Payable by written agreement in more than four installments, or
  3. A credit card issuer

Question 13

According to TILA, when must a borrower receive a loan estimate?

Answer 13

• No later than three business days after receiving a completed application, and
• No later than seven business days prior to consummation

Question 14

According to TILA, when must a borrower receive a closing disclosure?

Answer 14

A Closing Disclosure must be provided no later than three business days prior to consummation.

Question 15

Acording to TILA, disclosures are not required by what kind of mortages?

Answer 15

These disclosure requirements do not apply HELOCs, reverse mortgages, or chattel-dwelling loans (such as those secured by a mobile home or a dwelling not attached to real property).

Question 16

What is the Annual Percentage Rate (APR)?

Answer 16

The APR represents the relationship of the total finance charge to the total amount financed as a yearly rate. It is not the same as the nominal rate (i.e., the interest rate shown in the note), as it includes all finance charges, not just interest. As a result, it is usually higher than the nominal rate and enables the borrower to compare the percentage costs of different loans.

Question 17

What is the finance charge?

Answer 17

The finance charge is the cost of consumer credit as a dollar amount. It includes any charge payable, directly or indirectly, by the consumer and required, directly or indirectly, by the lender for the extension of credit.

Question 18

What is the finance charge a total of?

Answer 18

• Prepaid finance charges, and
• Charges paid over the term of the loan (e.g., the total interest and mortgage insurance premiums, if any, which would be paid over the term of the loan)

Question 19

What might the finance charge in a real estate loan transaction include?

Answer 19

• Interest
• Points, loan fees, assumption fees, finder’s fees, and similar charges paid by the consumer
• Mortgage broker fees (whether paid by the consumer directly to the broker or to the lender for delivery to the broker), even if the lender does not require the use of a mortgage broker or retains any portion of the charge
• Premiums or other charges for any guarantee or insurance protecting the lender against the consumer’s default or other credit loss
• Fees and amounts charged by a third party (i.e., a person other than the lender) if the lender:
  1. Requires the use of a third party in the extension of credit, even if the consumer can choose the third party, or
  2. Keeps a portion of the third-party charge, to the extent of the portion retained
• Fees charged by a third party that conducts the loan closing (e.g., a settlement agent, attorney or escrow or title company) if the lender:
  1. Requires the particular services for which the consumer is charged
  2. Requires the imposition of the charge, or
  3. Keeps a portion of the third-party charge, to the extent of the portion retained
• Premiums for credit life, credit accident, credit health insurance, loss-of-income insurance, or other debt cancellation coverage, unless:
  1. The lender does not require the coverage and discloses this fact in writing
  2. The premium for the initial term of coverage and the term of the insurance are disclosed, and
  3. The consumer signs or initials a written request for the coverage after receiving the disclosures
• Premiums for property or liability insurance, unless:
  1. The coverage may be obtained from a person of the consumer’s choice and this fact is disclosed, and
  2. If the coverage is obtained from or through the lender, the premium for the initial term of coverage and the term of the insurance are disclosed

Question 20

What might the finance charge in a real estate loan transaction NOT include?

Answer 20

• Points paid by the seller
• Security interest charges, if itemized and disclosed, such as:
  1. Taxes and fees actually paid to public officials for determining the existence of, or for perfecting, releasing, or satisfying, a security interest
  2. The premium for insurance in lieu of perfecting a security interest, and
  3. Any tax charged for recording a security instrument or document evidencing indebtedness
• If the transaction is secured by real property or is a residential mortgage transaction, bona fide and reasonable fees incurred for:
  1. Title examination, abstract of title, title insurance, property survey, and similar purposes
  2. Preparation of loan-related documents (e.g., deeds, mortgages, and reconveyance or settlement documents)
  3. Notary services and credit reports
  4. Property appraisal or inspections to assess the value or condition of the property, including fees related to pest infestation or flood hazard determinations, if the service is performed prior to closing, and
  5. Amounts required to be paid into escrow or trustee accounts, if they would not

Question 21

What is a prepaid finance charge?

Answer 21

A prepaid finance charge (PFC) is any finance charge paid separately, in cash or by check, before or at consummation of a transaction or withheld from the proceeds of the loan at any time. PFCs are direct loan charges paid by the borrower (not a third party) that must be included in computing the annual percentage rate.

Question 22

What do prepaid finance charges include?

Answer 22

• Loan origination, discount, and commitment fees
• Any prepaid private mortgage insurance premium (PMI), FHA upfront mortgage insurance premium (UFMIP), VA funding fee, or USDA guaranty fee
• Underwriting, processing, tax service, and courier fees, if paid to the creditor
• Buy-down funds
• Prepaid interest

Question 23

What is the “amount financed?”

Answer 23

The amount financed is the actual amount of credit that the borrower will receive from the creditor. It is not the loan amount; it is the loan amount less any prepaid finance charges (e.g., the loan origination fee and discount points).

Question 24

What is the “total of payments?”

Answer 24

The total of payments is usually the total of the finance charge (prepaid and ongoing charges scheduled to be paid over the term of the loan) and the amount financed. If the loan is an adjustable-rate mortgage, the amount may be subject to change if the annual percentage rate changes.

Question 25

When must the lender provide corrected disclosures if the APR at the time of consummation varies from the disclosed APR by more than how much?

Answer 25

• One eighth of 1% (.125%) in a regular transaction
• One quarter of 1% (.25%) in an irregular transaction (i.e., one involving multiple advances, irregular payment periods [other than an odd first period] or irregular payment amounts [other than an odd first or final payment])

Question 26

What is an adjustable-rate-mortgage?

Answer 26

For an adjustable-rate mortgage (ARM), the interest rate will change periodically over the term of the loan based upon:

• An index to which the rate is tied, and
• The margin added to cover the creditor’s expenses and profit

Question 27

In addition to other pertinent facts about the loan, the borrower must be given information about what?

Answer 27

Therefore, in addition to other pertinent facts about the loan, the borrower must be given information about the index, the margin, and the frequency of rate adjustments.

Question 28

For an ARM loan secured by a borrower’s principal residence, with a term exceeding one year, additional disclosures must be provided at the time an application form or before the consumer pays a nonrefundable fee? What are these disclosures?

Answer 28

• The Consumer Handbook on Adjustable-Rate Mortgages (CHARM Booklet), published by the Federal Reserve Board and the Federal Home Loan Bank Board, or a similar booklet
• A loan program disclosure for each variable-rate loan program in which the consumer expresses an interest. The disclosure should include, if applicable:
  1. The fact that the interest rate, payment, or term of the loan may change
  2. The index or formula used in making adjustments and a source of information about the index or formula
  3. An explanation of how the interest rate and payment will be determined, including an explanation of how the index is adjusted (e.g., by the addition of a margin), and
  4. Additional information to assist a borrower in fully understanding how the adjustable rate will affect the loan during its life

Question 29

What disclosures are required upon settlement of the loan?

Answer 29

Upon settlement of the loan, another set of disclosures, showing final costs and expenses, must be presented to the borrower, either at the formal settlement meeting or promptly by mail