federal lending legislation - diehl education home...

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Federal Lending

Legislation

Chapter 4

Mortgage Principles and Practices 4th Edition (05/18/2012)

Chapter 4: Federal Lending Legislation

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Federal Law

• Laws requiring financial disclosures in real estate transactions:

– Truth in Lending Act and the Mortgage Disclosure Improvement Act

– Real Estate Settlement Procedures Act

– Homeowner’s Protection Act

– Equal Credit Opportunity Act

• Laws protecting privacy and consumer identification:

– Fair Credit Reporting Act, Fair and Accurate Credit Transactions Act Red Flag Rules

– Gramm-Leach-Bliley Act

– U.S. Patriot Act

– National Do Not Call Registry

• Laws/Rules prohibiting predatory lending:

– Home Ownership Equity Protection Act

– Federal Reserve Mortgage Loan Originator Compensation Rule



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Chapter Objectives

• Discuss disclosure provisions of federal laws related to mortgage lending.

• Identify procedures to protect the privacy of consumers.

• Describe regulations put in place to address predatory lending.

• Define education requirements for mortgage loan originators.



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Dodd-Frank Act

• Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

• Title X created Consumer Financial Protection Bureau and transfers rule-making and enforcement authority of the following:



• Truth in Lending Act (TILA)

• Real Estate Settlement Procedures Act (RESPA)

• Homeowners Protection Act (HPA)

• Fair Credit Reporting Act (FCRA)

• Fair and Accurate Credit Transactions Act (FACTA)

• Portions of Gramm-Leach Bliley Act (information privacy)

• Equal Credit Opportunity Act (ECOA)

• Home Mortgage Disclosure Act (HMDA)

• Home Ownership and Equity Protection Act (HOEPA)

• Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act)

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Financial Disclosure Laws

• Typical disclosures

– Total costs involved in transaction

– Relationships/compensation among parties to transaction

• May be imposed by federal or state law

• In this section:

– Truth in Lending Act (TILA)

– Mortgage Disclosure Improvement Act (MDIA) amending TILA

– Real Estate Settlement Procedures Act (RESPA)

– Homeowners Protection Act (HPA)

– Equal Credit Opportunity Act (ECOA)



6Mortgage Principles and Practices 4th Edition (05/18/2012)


Truth in Lending Act (TILA)

• Enacted in 1968 to prevent abuses in consumer credit

cost disclosures

• Administered by Consumer Financial Protection Bureau

• Implemented by Regulation Z

• Does not limit interest rates or finance charges

• Applies to credit extended to consumers

– Subject to finance charge

– More than four installments

– For other than business or commercial purposes

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TILA Disclosures

• When credit offered but before consummation

– Clear and conspicuous, in writing

• When credit terms are advertised

– Clear and conspicuous

– Certain information required with triggering terms

• Specific disclosures

– Truth in Lending Statement (TIL) and guide

– Consumer Handbook on Adjustable Rate Mortgages (CHARM booklet) and ARM program details (if applicable)

– When Your Home is on the Line (home equity loans)

• Maintain evidence for at least 2 years



TILA: APR and Finance Charges

• APR: Annual Percentage Rate

– Total cost of financing loan as %

– Includes interest rate on the note

– Reflects associated finance charges

• Finance charges

– Consumer credit as a dollar amount

– Spread out over life of loan

– Direct, indirect charges for extending credit

– Does not include charges payable in comparable cash

transaction



TILA: Finance Charges

• May include fees charged by someone other than creditor if creditor:– Requires use of third party– Retains portion of third party charge

• Fees charged by closing agent are finance charges only if creditor:

– Requires those particular services

– Requires imposition of charge

– Retains portion of third-party charge (to the extent of portion retained)

• Fees charged by mortgage broker are finance charges

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TILA: Finance Charges-Included

• Premiums for insurance

related to credit

transaction

• Charges imposed on

creditor by another for

purchasing or accepting

consumer's obligation

• Discounts to induce

payment by a means other

than use of credit

• Debt cancellation fee

• Interest, time price differential, any amount payable under add-on or discount system of additional charges

• Service, transaction, activity, carrying charges

• Points, loan fees, assumption fees, finder's fees, similar charges



TILA: Finance Charges-Excluded

• Application fees

• Charges for actual unanticipated late payment, over credit limit or delinquency/default

• Charges imposed by financial institution for paying items that overdraw account

• Fees for participation in credit plan

• Seller’s points

• Interest forfeited

• Certain fees for residential property transaction if bona fide and reasonable

• Discounts to induce payment for purchase by cash, check, other

• Premiums for voluntary insurance under some conditions

• Property insurance premiums under some conditions

• Some security interest charges if disclosed

Interest, dividends, deposit/investment income—are not deducted in computing finance charge.



TILA: Disclosing APR

• Must disclose APR when quoting interest rate

(including advertising)

• If not possible to provide APR in advance:

– For open-end credit, state corresponding annual

percentage rate

– For closed-end credit, state APR for sample

transaction

• Hint: Closing costs NOT associated with cash sale

are generally included in APR calculation

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TILA: Truth in Lending Statement

• Required for mortgage loans subject to RESPA secured by consumer’s dwelling (other than HELOCs)

• Must be given (along with other required disclosures) no later than 3 business days after receipt of consumer’s completed application

• Earliest loan close is 7th business day after disclosures delivered or placed in mail

• No fee may be charged for preparation of TIL

• No fee, other than bona fide and reasonable credit report fee, may be charged prior to delivery of TIL and other required disclosures

• May be made in language other than English at consumer’s request




• Required data in the “Federal Box”

• Mandatory statement

You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.




• Other Data for Closed-End Transactions

– Name of the lender/creditor

– Notice of a right to receive itemization

– Payment number, amount, timing

– New payment, late payment, prepayment provisions

– Description and identification of the security

– Loan assumability

– Refinancing notice

– Payment summary table (with additional data for adjustable or step-rate mortgages)

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TILA: TIL Accuracy / Redisclosure

• APR accurate if no variance above or below initial disclosure by more than:– 1/8% (.125) for regular transaction

– 1/4% (.25) for irregular transaction

• Multiple advance

• Irregular payment periods

• Irregular amounts

• Consumer must receive corrected disclosure at least 3 business days prior to loan consummation

• Cannot close loan until both waiting periods pass

• May be able to waive if bona fide financial emergency

• Not required to continue during waiting period



TILA: 3/7/3 Rule

• Initial disclosure within 3 business days of receipt of completed application

• Earliest consummation on 7th business dayafter disclosures delivered/mailed

• Consumer must receive corrected disclosure at least 3 business days before loan can be consummated

• Business day: All calendar days except Sundays and legal public federal holidays



TILA: 3/7/3 Rule Example 1

Example 1: The creditor takes an application for a fixed rate loan on Tuesday, May 1 and mails the initial TIL the next day, May 2. The earliest the loan can close—assuming the APR on the final TIL is within the tolerance—is Thursday, May 10—the seventh business day after mailing the initial disclosure.

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TILA: 3/7/3 Rule Example 2

Example 2: Friday, May 4, the interest rate goes up, causing the APR to increase by more than .125 percent. The creditor mails a revised TIL on Saturday, May 5. The consumer is assumed to have received it three business days later (Wednesday, May 9). The three business-day waiting period begins Thursday. Since the next day after the three business-day waiting period is a Sunday, the earliest this loan will close is Monday, May 14.



TILA: Rescission

• Rescind: Withdraw from contract; void mortgage

• Right extends to security interest of existing principal residence only (home equity, refinance, etc.)

• Does not apply to purchase, construction, commercial, vacation/second homes, some refinance/consolidation loans by same creditor, state agency creditors

• Exercise by one consumer is effective for all consumers

• Creditor has 20 calendar days to return collected money

• Relieves borrower of liability for the loan, finance charges

• Right extends until midnight of the third business day after whichever of these is last:

– Loan consummation

– Delivery of required rescission notice

– Delivery of all material disclosures



TILA: Rescission Notice

• Creditors must provide 2 copies of notice of right

to rescind to each entitled consumer

• Must be in separate document and

conspicuously disclose:

– Retention/acquisition of security interest in

principal dwelling

– Right to rescind

– How to exercise right

– Effects of rescission

– Date on which rescission period ends

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TILA: Extended Rescission

• Possible extended three-year rescission period if:– Creditors fails to properly notify of the right to rescind

– Creditor fails to provide required material disclosures

• Disclosed finance charge considered accurate if understated by no more than:– 0.5% of the amount financed or $100

– 1% of the amount of some refinances or $100

• Extended rescission right expires after:– Three years from occurrence

– Transfer of interest in property

– Sale of property



TILA: Rescission for Foreclosures

• Rescission right after initiation of foreclosure on principal residence if

– Mortgage broker fee that should have been included in the finance charge was not

– Creditor did not provide properly completed Notice of Rescission

• Disclosed finance charge considered accurate if

– Understated by no more than $35

– Greater than amount required to be disclosed



TILA: Advertising

• Requires clear and conspicuous disclosure of terms

• Any specific loan terms shown in an ad must be actually available

• Triggering terms include:– Amount of down payment

– Amount of any payment

– Number of payments

– Period of repayment

– Amount of any finance charge

• Required disclosures with triggering term include:– Amount or percentage of down payment

– Terms of repayment

– Annual percentage rate, using that term spelled out in full

– Whether the note rate may increase

• If ad contains only APR, additional disclosures not required

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TILA: Advertising Triggering Terms

Triggering Terms (require disclosure)

Non-Triggering Terms (do not require disclosure)

20% downPay only $700 per monthOnly 360 monthly payments30-year financing available1% finance charge

5% APR loan available hereEasy monthly paymentsFHA financing available100% VA financing availableTerms to fit your budget



TILA: Advertising Closed-End

If Ad Includes: Must Disclose:

Rate •Each simple rate (current margin and index if more will apply)•Period of time each rate applies•APR for the loan

Payment amount

•Amount of each over life of loan•Period of time each payment will apply

Payment and rate comparison *

•Prominent statement that payment/rate subject to adjustment•Time period when first adjustment occurs

Term “fixed” when rate or payment can change

•Adjustable, variable, or ARM must appear before and as large as term “fixed”•Clear description of what’s fixed (payment and/or rate)•Statement that rate/payment can increase as appropriate

Balance expected to be repaid by specified future date

* if variable rate based on index/margin



TILA: Advertising Open-End

If Ad Includes: Must Disclose:

Any triggering term

•Any percentage-based loan fee and estimate of other fees•Any periodic rate expressed as APR•Maximum APR that may be imposed in variable rate plan

Initial APR not based on index/ margin

•Period of time initial rate is in effect•Reasonably current APR using index and margin

Minimum payment

•Whether balloon payment would result (equal prominence and proximity)

Promotional rates and payment

•Period of time promotional rate applies•APR that applies (if variable, within established accuracy)•Amounts & time periods of any payments•Alternatively, toll-free number for broadcast ads

Credit extended to borrower during term and creditor may impose a finance charge on the outstanding unpaid balance, such as HELOC

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TILA: Other Advertising Provisions

• Tax implications:

– Cannot be misleading

– Consumers must be advised to consult a tax adviser

• Misrepresentations are prohibited, for example:

– Loan product being endorsed or sponsored by government

– Misleading use of the current lender’s name

– Misleading claims of debt elimination

– Use of “counselor” to reference for-profit mortgage broker or mortgage creditor

– Making some required disclosures only in English in otherwise foreign language ads

• Clear and conspicuous standard



TILA: Appraisal on Closed-End

• Creditors, mortgage brokers, and affiliates prohibited from coercing, influencing, or encouraging appraiser to misstate value of dwelling:

– Implying that current/future work depends appraised value

– Excluding appraiser from consideration for reporting value that does not meet or exceed a minimum threshold

– Telling appraiser minimum value needed to approve loan

– Failing to compensate appraiser for not valuing at or above a certain amount

– Conditioning appraiser compensation on loan consummation



TILA: Appraisal on Closed-End

• Cannot extend credit if improper coercion has occurred unless able to document appraisal did not materially misrepresent value

• May ask appraiser to consider additional information or correct errors

• May obtain multiple appraisals if selecting most reliable

• May withhold compensation for breach or substandard work

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TILA: Servicing on Closed-End

• Servicing: Receiving scheduled periodic payments from borrower according to the terms of loan and making payments to loan owner/other third parties

• Violations:

– Failing to credit a payment as of the date of receipt (unless the delay results in no adverse consequences to the borrower)

– Pyramiding late fees by imposing late fee or delinquency charges in connection with a payment under certain circumstances

– Failing to provide statements showing payoff amounts

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TILA: True or False

1. TILA is implemented by Regulation Z.

2. TILA applies to real estate loans extended to

consumers and to companies.

3. The APR is also known as the note rate.

4. A credit report fee is the only fee that may be

collected before providing the required

disclosures.

5. An ad stating “APR of 3.65%” would trigger

additional disclosures.



TRUE

FALSE

FALSE

TRUE

FALSE

Determine whether the following statements about the Truth in Lending Act are true or false:

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TILA by the Numbers

1. Initial disclosures must be given within

__________________ of receipt of a

completed application.

2. A consumer who is not informed of the APR

may have the right to rescind a loan for up to

_____________ .

3. The earliest a loan can close is the

__________________ after disclosures are

delivered.



3 business days

7th business day

3 years

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TILA by the Numbers

4. If the APR changes, corrected disclosure must

be made no later than

_________________ before closing.

5. In order to be subject to TILA, the credit

offered must be subject to a finance charge or

payable by written agreement in more than

____ installments.



3 business days

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RESPA

• Real Estate Settlement Procedures Act of 1974

• Implemented as Regulation X

• With the passage of the Dodd-Frank Wall Street

Reform and Consumer Protection Act of 2010, RESPA

is under the regulatory authority of the new

Consumer Financial Protection Bureau

• Helps consumers shop for settlement services

• Eliminates unnecessary increases in costs of certain

settlement services



RESPA: Settlement Services

• Any service provided in connection with a

prospective or actual settlement

• Origination of federally-related mortgage loan

• Services by mortgage broker

• Services related to origination or processing

• Title services• Services by attorney• Document preparation• Credit reports and

appraisals• Inspections

• Settlement agent services• Mortgage insurance services• Hazard/flood insurance

services• Mortgage life/disability

insurance services• Services involving real property

taxes or other assessments• Services of real estate

agent/broker• Any other required services

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RESPA: Covered Transactions

• Covered: – One- to four-family residential property

– Conventional and government agency

– Most purchase loans, assumptions, refinances, property improvement loans, HELOCs, some construction loans

• Not covered:– All-cash sale

– Home seller takes back the mortgage

– A rental property transaction

– Temporary construction loans

– Other business purpose transaction

– Property of 25 acres or more

– Vacant or unimproved property (unless dwelling within 2 years)



RESPA: Section 8-Kickbacks

• Prohibits:

– Giving/accepting a fee, kickback, or anything of value in exchange for referrals of settlement service business (allows minimal value promotional items)

– Fee-splitting and receiving unearned fees

– “Required use” of specific settlement service providers

• Allows:

– Fees/salary for actual services performed/goods provided

– Payment between real estate agents and brokers

– Legitimate discounts if:• Combination of services results in lower price

• Optional to consumer

• Lower price not countered elsewhere

• Fines up to $10,000, 1 year prison, 3x liability



RESPA: AfBAs

• Affiliated business arrangements (ABAs or AfBAs) recognized as legitimate

• Individual, entity, associate in position to refer settlement services:– Has affiliate relationship or ownership interest of

more than 1% in settlement services provider AND– Refers business or in some way influences selection

of provider• Acceptable compensation:

– Legitimate fees, wages for actual services rendered, hours worked

– Bona fide compensation from ownership interest

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RESPA: Section 9-Title Insurance

• Prohibits seller from requiring use of particular

title insurance company as condition of sale

• Buyers may sue violators

– Three times all charges made for title insurance



RESPA: Section 10-Escrow

• Taxes, hazard insurance, other charges

• Does not mandate escrow accounts

• Some programs or lenders may require

– Loan with mortgage insurance

– TILA “higher-priced” loan for at least 12 months

• No more than 1/12 annual disbursement

• Allows cushion of 2 months

• Requires annual analysis

– Inform consumer of any shortage

– Return excess over $50 (if not delinquent)

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RESPA: Disclosures

• May not charge fee for preparing disclosures mandated by TILA and RESPA

• Disclosures required at various times throughout loan process

• With receipt of completed application:

– Submission of a borrower‘s financial information in anticipation of a credit decision

– If not given at loan application, MLO must provide within 3 business days unless

• Applicant withdraws application

• Lender turns down the loan



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RESPA: Within 3 Business Days

• HUD Settlement Costs Booklet

• Good Faith Estimate (GFE) of Settlement Costs– May only collect credit report fee prior to GFE and TIL

• Mortgage Servicing Disclosure Statement– Lender’s intent to service or transfer servicing



After the TIL and GFE are… And borrower intends to proceed,other fees may be collected…

Hand-delivered to the borrower That day

Emailed to the borrower with the borrower’s permission

Next day after send receipt is returned as evidence email was received

Faxed to the borrower Next day after signed TIL, GFE faxed back

Mailed to the borrower 3 business days after TIL, GFE mailed



RESPA: Other Disclosures

• Before Settlement Occurs

– Affiliated Business Arrangement (AfBA or ABA) Disclosure (at or prior to referral)

– HUD-1 Settlement Statement (1 business day prior if requested)

• At Settlement

– HUD-1 Settlement Statement

– Initial Escrow Statement (no later than 45 days from settlement)

• After Settlement– Annual Escrow Statement

– Servicing Transfer Statement (within 15 days of effective date)

• Does not include sale into secondary market unless servicing rights also transferred



RESPA: Good Faith Estimate

• Required by RESPA without charge

• Dollar amount of settlement charges the

borrower is likely to pay

• Required within 3 business days of receipt of

completed loan application

• May be provided by lender or MLO

• Requires used of HUD’s standardized GFE

– Will be replaced with integrated TIL and GFE

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RESPA: GFE Page 1

• Explains the purpose of disclosure

• Summarizes critical data necessary to “shop” for settlement services and the best loan

• Important dates

– Date through which interest rate available

– Estimate for all other settlement charges must be available for at least ten (10) business days

– Business day: Entity open to the public for business

• Loan summary

• Escrow account information

• Summary of settlement services



RESPA: GFE Page 1



RESPA: GFE Page 1

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RESPA: GFE Page 2

• Documents settlement charges

• Indicates acceptable tolerances

• If MLO permits borrower to shop for third party settlement services, must give written list of providers

– At time of GFE

– On separate paper



RESPA: GFE Page 2



RESPA: GFE Page 2

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RESPA: Average Charges• Permitted if service obtained on behalf of borrower or seller• Average cost based on

– Period of time (between 30 days and six months)

– Type of loan– Geographic area

• Not permitted if based on loan amount or property value• Total amount charged cannot exceed charges for specific

class of transaction• Same average charge must be used for all loans within

classification• Must retain all documentation used to calculate average

charge for 3 years• State prohibitions take precedence



RESPA: GFE Page 3

• Summarizes the categories of charges

• Tradeoff table– Shows relationship between total estimate

settlement charges and interest rate/monthly

payment

– Allows comparison of loan alternatives

• Shopping cart– Allows consumer to compare other GFEs



RESPA: GFE Page 3

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RESPA: GFE Page 3



RESPA: GFE Page 3



GFE: Availability of Terms

• Must be available for at least 10 business days

(days entity open to the public)

• MLO may extend period of availability

• Unless rate locked, does not apply to

– Interest rate

– Charges and terms dependent on interest rate

– Adjusted origination charges

– Per diem interest

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GFE: Tolerances

• Charges that may not exceed GFE amount

– Origination charge (e.g., fees associated with application, processing, underwriting, administrative)

– Credit or charge for interest rate chosen/adjusted origination charge while interest rate locked

– Transfer taxes

• Charges that cannot exceed 10% of GFE amount

– Lender-required settlement services, where the lender selects

– Lender-required services, title services and required title insurance, and owner's title insurance, when borrower uses provider identified by loan originator

– Government recording charges

• Amounts charged for all other settlement services may change at settlement

• MLO may cure tolerance violations at settlement or within 30 calendar days



GFE: Binding

• Loan originator bound to terms unless new GFE provided

• Revised GFE required within 3 business days of learning of changed circumstances

• Document reason for change and retain for at least 3 years

• Reasons for changing GFE:

– Changed circumstances that increase settlement costs to exceed tolerances

– Changed circumstances affecting eligibility for specific loan terms

– Borrower-requested changes affecting charges/terms

– Changes if interest rate not locked or lock expires

• If clearly disclosed, MLO can issue new GFE:

– New home purchase and

– Settlement expected more than 60 days from GFE



GFE: Changed Circumstances

• Includes:

– Acts of God, war, disaster, or other emergency

– Information relied on in providing the GFE that changes or is found to be inaccurate

– New information not relied on in providing the GFE

– Other circumstances particular to borrower or transaction (e.g. boundary dispute, flood insurance, environmental issues)

• Does not include basic information relied on unless:

– Changed or inaccurate afterwards

– MLO did not rely on that information

• Market fluctuations by themselves are not changed circumstance

• GFE expires in 10 business days if no intent to continue

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RESPA: HUD-1 Settlement Statement

• Completed by closing/settlement agent

• Itemizes all charges related to the transaction

– Borrower: $ to bring to settlement

– Sellers: $ to receive at settlement

• HUD 1-A may be used for loans with no seller

• Not required for open-end home equity loans

• Lender/servicer must retain for 5 years after settlement



RESPA: HUD-1

• Should be compatible with GFE– Charges from GFE paid by seller:

• Credit to borrower and charge to seller

– Charges from GFE paid by others:• Credit to borrower and show identity of party

• Paid Outside of Closing (P.O.C.) – Must be included on HUD-1 and marked P.O.C.

– Must not be included in computing totals

– Indirect payments from lender to mortgage broker may not be disclosed as P.O.C.

– Party paying must be identified

– Third party services covered by "no cost" provisions must be itemized, listed in borrower column

• Must be offset with a negative adjusted origination charge



RESPA: HUD-1 Page 1

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RESPA: HUD-1 Page 1



RESPA: HUD-1 Page 1



RESPA: HUD-1 Page 2

• Itemizes settlement charges paid by the

borrower and the seller:– Items paid in connection with the loan

– Items required by the lender to be paid in advance

– Reserves deposited with the lender

– Title charges

– Government recording and transfer charges

– Any additional settlement charges

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RESPA: HUD-1 Page 2



RESPA: HUD-1 Page 2



RESPA: HUD-1 Page 2

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RESPA: HUD-1 Page 3

• Compares exact amounts from GFE and actual

settlement charges on HUD-1– Charges that cannot increase

– Charges that cannot increase more than 10%

– Charges that can change

• Summary of loan terms



RESPA: HUD-1 Page 3



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RESPA: True or False

1. RESPA is implemented by Regulation X.

2. MLOs may not refer consumers to

settlement service providers with whom

they have an ownership interest.

3. Borrowers may request to see a completed

HUD-1 Settlement Statement 3 business

days prior to closing.



TRUE

FALSE

FALSE

Determine whether the following statements about the Real Estate Settlement Procedures Act are true or false:

74

RESPA: True or False

4. Kickbacks are addressed in Section 9 of

the Real Estate Settlement and

Procedures Act.

5. MLOs must provide required disclosures

within 3 business days of receiving a

completed application.



FALSE

TRUE

Determine whether the following statements about the Real Estate Settlement Procedures Act are true or false:

75

RESPA by the Numbers

1. RESPA applies to most loans secured by a

mortgage placed on residential properties

designed for occupancy for ________ families.

2. When necessary, a revised GFE must be

provided within __________________ of

receiving information sufficient to establish

changed circumstances.



1 to 4

3 business days

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RESPA by the Numbers

3. The interest rate shown in the Good Faith

Estimate must be available for at least

_________________ .

4. To cure tolerance violations, borrowers must

be reimbursed at settlement or within

__________________ after settlement.

5. RESPA does NOT apply to transactions

involving property of _____ acres or more.



30 calendar days

10 business days

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Homeowners Protection Act

• Lenders / servicers must notify borrower of rights related to private mortgage insurance (PMI)

– Initial written disclosure

– Annual reminder

• Applies to mortgages on single-family, primary residences– Does not apply to VA, FHA, or loans with no PMI

• Borrower may request PMI cancellation at 80% LTV if borrower has

– Good history of payment

– Not taken out any other loans on the property

– Not experienced a decline in the value of the home

• PMI automatically canceled at 78% LTV if borrower is current

• Borrower may accelerate cancellation date with additional payments



HPA: Disclosure Requirements

• Fixed rate mortgages

– Initial amortization schedule at closing

• Cancellation date borrower may seek to cancel PMI

• Automatic termination date

• Adjustable rate mortgages (ARMs)

– No amortization schedule at closing

– Lender must inform the borrower when the LTV

reaches 80%

• Final disclosure required after PMI coverage

terminated or cancelled

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HPA: High-Risk Loans

• Lender-defined high-risk loans subject to final PMI termination by category

– Conforming: First day of the month following midpoint of the loan’s initial amortization schedule(s) when borrower current

– Nonconforming: Date on which principal balance—based on initial amortization schedule(s)—scheduled to reach 77% LTV regardless of outstanding balance

• Written disclosure required at loan consummation for 78% + LTV



HPA: Changing Property Values

• HPA does not require servicers to consider current property value

• Some lenders/servicers may allow early PMI cancellation if property values increase under certain circumstances, e.g.:– Minimum amount of time passes

– Good payment history for minimum amount of time

– Documentation of home improvements to demonstrate the higher property value

81

HPA: True or False

1. The Homeowners Protection Act does not

apply FHA or VA loans.

2. Lenders are required only to provide an

initial written disclosure about PMI

cancellation rights.

3. Borrower-requested cancellation and

automatic termination of PMI does not

apply to high-risk loans.



TRUE

FALSE

TRUE

Determine whether the following statements about the Homeowners Protection Act are true or false:

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82

HPA by the Numbers

1. HPA generally does not apply to residential

loans made prior to ______.

2. If a borrower is current with payments, PMI is

automatically terminated when a mortgage

has been paid down to ______ of the

property’s original appraised value.

3. Borrowers may request cancellation of PMI

when a mortgage has been paid down to

______ of the property’s original appraised

value. Mortgage Principles and Practices 4th Edition (05/18/2012)


1999

78%

80%



Updates to Anti-Money Laundering Laws

EMinimum requirements consist of:• Development of internal policies,

procedures, and controls.• Designation of a compliance officer.• Ongoing employee training program.• Independent audit function to test for

compliance.



ECOA: Disclosures

• 30 days to notify applicants of decision

– Approved: Commitment Letter (optional)

– Incomplete: Notice of Incomplete Application

– Denied or offered less favorable terms: Statement of

Adverse Action, in writing

• With specific reason, or

• Notice of right to request reason within 60 days

• Right to request appraisal report used within 90 days of credit

decision

• Creditors required to furnish written appraisal no later than 3

business days prior to close for first lien loan

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85

ECOA: True or False

1. ECOA is implemented by Regulation C.

2. A Statement of Adverse Action must be

provided, in writing, to all credit applicants.

3. Creditors must furnish a copy of all written

appraisals related to applications for a first

lien residential loan promptly, even if the

application withdrawn.



FALSE

FALSE

TRUE

Determine whether the following statements about the Equal Credit Opportunity Act are true or false:

86

ECOA by the Numbers

1. Creditors must notify applicants of their

lending decision within ___________ of the

filing of a complete application.

2. When adverse action is taken, an applicant has

the right to request specific reasons for the

decision within ___________.

3. After a creditor notifies an applicant of an

action taken, the creditor is required to

maintain pertinent documentation for

___________.Mortgage Principles and Practices 4th Edition (05/18/2012)


30 days

60 days

25 months

87

Privacy and Consumer ID Laws

• Maintain integrity of relationship by

protecting consumer financial information


– Fair Credit Reporting Act (FCRA)

– Fair and Accurate Credit Transactions Act (FACTA)

– Gramm-Leach-Bliley Act

– U.S. Patriot Act

– National Do Not Call Registry



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Fair Credit Reporting Act (FCRA)

• Regulation V, supervised by Consumer

Financial Protection Bureau

• Deals with

– Access to credit information

– Rights of debtors to seek damages

– Responsibilities of creditors to protect against

identity theft

• If adverse action based on credit report, must

provide consumer with agency’s name,

address, phone number



FCRA: Consumer Rights

• Free copy of credit report annually and if:

– Information resulted in adverse action

– Victim of identity theft (with fraud alert)

– Inaccurate information resulting from fraud

– Public assistance or unemployed

• Other rights:

– Request credit score (not free) *

– Dispute incomplete/inaccurate information

– Limit prescreened offers

* Will be allowed for adverse action



FCRA: Credit Agency Obligations

• May not report negative credit information:

– More than 7 years

– Bankruptcies more than 10 years

– Most credit reporting agencies maintain:

• Chapter 11 bankruptcy for 7 years

• Chapter 7 bankruptcy for 10 years

• Must limit access to a credit file to those with

legitimate business need

• May not give out consumer credit information to an

employer, or a potential employer, without written

consent

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91

FCRA: True or False

1. FCRA is implemented by Regulation C.

2. Disclosure provisions of both the ECOA and

the FCRA can be satisfied with one adverse

action notice.

3. Consumers are entitled to a free copy of their

credit score used in taking any adverse

action.



FALSE

TRUE

TRUE

Determine whether the following statements about the Fair Credit Reporting Act are true or false:

92

FCRA by the Numbers

1. Consumer reporting agencies may not report

negative credit information that is more than

___________ old or bankruptcies that are

more than ___________ old.



7 years10 years



FACT Act (or FACTA)

• Fair and Accurate Credit Transaction Act of 2003

• Amends Fair Credit Reporting Act

• Provides for free copy of credit report annually from three

national credit bureaus

• Allows consumer to place fraud alerts and credit freezes

– Requires creditor to make reasonable effort to confirm

identity

• Requires businesses to truncate credit/debit card

information on receipts

• Requires measures to secure and dispose of sensitive

consumer credit information

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FACTA: Red Flag Rules

• Section 114 of the FACTA requires:

– Financial institutions and creditors to implement

written identity theft protection program

– Card issuers to assess the validity of change of

address requests

– Users of credit reports to reasonably verify the

identity of subject in case of address discrepancy

• Applies to any person/entity participating in

credit decision



FACTA: Red Flags

• Alerts, notifications, or warnings from consumer

reporting agency

• Suspicious documents

• Suspicious personally identifying information

• Unusual use of, or suspicious activity relating to, a

covered account

• Notices from customers, victims of identity theft, law

enforcement authorities, or other businesses about

possible identity theft in connection with covered

accounts

96

FACTA: True or False

1. FACTA amends the Equal Credit Opportunity

Act.

2. FACTA is primarily concerned with security of

consumer financial information.

3. The Red Flags Rules defines specific steps

that lenders must follow in order to secure

consumer financial data.



FALSE

TRUE

FALSE

Determine whether the following statements about the Fair and Accurate Credit Transaction Act are true or false:

1/29/2013

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97

FACTA by the Numbers

1. Red Flags Rules are contained in Section _____

of FACTA.

2. FACTA prohibits businesses from printing more

than _____ digits of any customer's

credit/debit card number or expiration date on

receipts.

3. All consumers are entitled to one free

disclosure of their consumer credit file every

__________ upon request from each of the

_______ nationwide credit bureaus.Mortgage Principles and Practices 4th Edition (05/18/2012)


114

five

12 monthsthree



Gramm-Leach-Bliley Act

• Financial Services Modernization Act of 1999

• Provisions in Title V - Privacy to protect and regulate disclosure of consumer financial information

• Gives enforcement authority to federal agencies and states

• Applies to financial institutions and other providers of financial services

– Lending, brokering, or servicing any type of consumer loan

– Transferring or safeguarding money

– Preparing individual tax returns

– Providing financial advice or credit counseling

– Providing residential real estate settlement services

– Collecting consumer debts



GLBA: Financial Privacy Rule

• Governs collection of nonpublic personal

information, for example, from

– Application

– Credit bureau or other source

– Transactions, such as balance, purchases

• Restricts when information may be disclosed to

affiliates and nonaffiliated third parties

• Requires Consumer Privacy Notice

• Provides opt-out opportunity

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GLBA: Consumer or Customer

• GLBA obligation different for each

• Consumer: Individual who obtains or has

obtained a financial product or service

– Consumer Privacy Notice before personal data is

disclosed to nonaffiliated third party

• Customer: Consumer with a continuing

relationship with a financial institution

– Consumers Privacy Notice annually during financial

relationship



GLBA: Safeguards, Pretexting

• Requires financial institutions to design, implement, and maintain safeguards to protect and control consumer data

• Written Safeguards Policy:

– Ensure security and confidentiality

– Protect against anticipated threats or hazards

– Protect against unauthorized access that could harm or inconvenience consumers

• Pretexting provisions

– Protects consumers from individuals and companies that obtain their personal financial information under false, fictitious, or fraudulent pretenses

102

GLBA: True or False

1. The formal title of GLBA is the Financial

Services Modernization Act of 1999.

2. A consumer is someone who has a

continuing relationship with a financial

institution.

3. The Privacy Rule allows consumers to opt out

of having their financial information shared.



TRUE

FALSE

TRUE

Determine whether the following statements about the Graham-Leach-Bliley Act are true or false:

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103

GLBA: True or False

4. A credit score would be considered

nonpublic personal information.

5. Customers must receive a financial

institution's privacy notice every two years

for as long as the relationship lasts.

6. Consumers must receive a financial

institution's privacy notice annually.



TRUE

FALSE

Determine whether the following statements about the Graham-Leach-Bliley Act are true or false:

FALSE



U.S. Patriot Act

• Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (2001)

• Eases restrictions on law enforcement for information gathering• Requires lenders and banks to create and maintain customer

identification programs (CIPs)• Prevent financing of terrorist operations/money laundering• Institutions must verify ID customers entering into formal

relationship• Minimum information required when opening new account:

– Name

– Date of birth

– Address

– Tax ID number or similar verification



National Do Not Call Registry

• Limits phone calls to consumers who request to be on list

• Managed by the FTC, the FCC, and states

• Applies to marketing via interstate phone calls

• Required maintenance:

– National list updated every 3 months

– Internal list updated every 30 days

• Allows consumers to file complaints with FTC

• Fines up to $16,000 per incident

• Established business relationship (EBR)

– Allows calls for up to 18 months from last transaction

– Allows calls up to 3 months from inquiry or application

– Consumer on internal list cannot be called even if EBR (unless in reference to current relationship)

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106

Do Not Call by the Numbers

1. When there is an established business

relationship, calls may be made for up to

____________ after the last purchase or

payment.

2. After an inquiry or application, calls may be

made for up to _____________.

3. Violations of Do Not Call could result in fines

up to ____________ per incident.

4. An organization’s federal DNC list must be

updated every ____________.Mortgage Principles and Practices 4th Edition (05/18/2012)


18 months

3 months

$16,000

3 months

107

Laws Against Predatory Lending

• Taking advantage of ill-informed consumers through:

– Excessively high fees

– Misrepresented loan terms

– Frequent refinancing that does not benefit the borrower

– Other prohibited acts


– Home Ownership and Equity Protection Act of 1994 (HOEPA)

– Higher-priced loans as defined by amendments to the Truth in Lending Act

– Some provisions of the Mortgage Reform and Anti-Predatory Lending Act (Title XIV of Dodd-Frank)





Home Ownership and Equity Protection Act

• HOEPA, 2002 amendment to the Truth in Lending Act, Section 32 of Regulation Z

• Establishes disclosure requirements, prohibits deceptive practices for high interest rate/fee loans

• Enforced by FTC for non-depository lenders and by each state’s attorney general

• Allows Fed to prohibit additional practices it finds to be unfair or deceptive

• Consumers can sue for recovery of statutory and actual damages, court costs, attorney fees

• May allow three-year right of rescission

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HOEPA: High Cost Triggers

• APR exceeds rates in Treasury securities:

– For a first mortgage, by more than 8%

– For a second mortgage, by more than 10%

• Total finance charge paid by the consumer exceeds the larger of:

– 8% of loan amount

– Specific dollar amount: $611 for 2012

• Redisclosure of APR triggers 3 business-day waiting period



HOEPA: High Cost Amendments

• When rules implemented

• APR exceeds rates in Treasury securities:

– For a first mortgage or $50,000+, by more than 6.5%

– For a second mortgage or smaller, by more than 8.5%

• Total finance charge paid by the consumer exceeds the larger of:

– 5% of loan amount over $20,000

– 8% or certain dollar amount under $20,000http://www.treasury.gov/resource-center/data-chart-

center/Pages/index.aspx



HOEPA: Prohibited Terms

• Balloon payments if less than 5 year-term unless bridge

• Negative amortization

• Repayment schedule consolidating more than 2 periodic payments

• Higher default interest rates

• Prepayment penalties prohibited unless:– Limited to first 2 years

– Prepayment penalty paid by refinancing lender

– PITI does not change in first 4 years

– DTI does not exceed 50%

• Due on demand clauses

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HOEPA: Prohibited Practices

• Grant loans on the collateral without regarding

borrower’s ability to repay

• Disburse proceeds from home improvement

loans to anyone other than the borrower

• Refinance a HOEPA loan into another HOEPA

loan within the first year

• Wrongfully document a closed-end, high cost

loan as an open-end loan



HOEPA: Verifying Repayment

• Must consider current & reasonably expected income,

employment, assets other than collateral, current

obligations, mortgage-related obligations

• Verified amount cannot be materially greater than that

verified at consummation

• Must use largest payment of P&I scheduled in first 7

years

• Must consider at least one:

– Debt-to-income

– Income after paying debt (cash flow)



HOEPA: Required Disclosures

Disclosure Form

You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.

If you obtain this loan, the lender will have a mortgage on your home.

You could lose your home, and any money you have put into it, if you do not meet your obligations under the loan.

You are borrowing $ _________ . [Optional credit insurance � is � is not included in this amount.]

The annual percentage rate on your loan will be ________ %.

Your regular frequency payment will be $________ .

[At the end of the loan, you will still owe us $ balloon amount .]

[Your interest rate may rise. Increases in the interest rate could raise your payment. The highest amount your payment could increase is to $ __________ .]

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115

HOEPA: True or False

1. The Home Ownership and Equity Protection Act

is an amendment to RESPA.

2. HOEPA rules apply to loans used to purchase or

refinance residential properties.

3. HOEPA requires lenders to verify the borrower’s

ability to repay a high cost loan.

4. Under HOEPA, lenders must disclose that a

borrower could lose the home and any equity if

in default.



FALSE

FALSE

TRUE

Determine whether the following statements about the Home Ownership and Equity Protection Act are true or false:

TRUE

116

HOEPA by the Numbers

1. The rules for HOEPA loans are contained in Section

_____ of Regulation Z.

2. HOEPA loans require additional disclosure at least

_________________ prior to loan consummation.

3. The total fee HOEPA trigger for 2012 is ______.

4. When Dodd-Frank rules are implemented, total

points and fees exceeding _____ of loan or APR

exceeding average prime offer rate by _____ on first

lien loans could trigger HOEPA disclosures.



32

3 business days$611

5%6.5%



Higher-Priced Loans

• Defined by Housing and Economic Recovery Act of 2008, amending Truth in Lending Act

• Closed-end loans secured by borrower’s principal dwelling where APR exceeds average prime offer rate by at least:

– 1.5 percentage points for first lien loans, or

– 3.5 percentage points for junior lien loans

• Excludes

– Initial construction of a dwelling

– Temporary or "bridge" loan with a term of 12 months or less

– Reverse mortgage transaction

– Home equity line of credit

• APR measured against the applicable average prime offer rate

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40



Higher-Priced Loans

• Creditors must verify repayment ability

• Prepayment penalties generally prohibited unless limited to first 2 years of loan. Prohibited if:

– Amount of the periodic payment of principal, interest, or both can change at any time during first 4 years of loan

– The source of prepayment funds is a refinance by the lender or its affiliate

• Escrow account

– Hazard insurance, PMI, property tax

– Required for 1st lien securing borrower’s principal dwelling

– Hazard insurance escrow may not required if HOA maintains master insurance policy

– Property tax escrow may not be required if HOA pays

119

Higher-Priced Loans: T/F

1. Regulation X sets forth specific requirements for

handling higher-priced mortgage loans.

2. This definition of higher-priced mortgage loans

includes home purchase loans but not home

construction loans.

3. HELOCS are not subject to provisions related to

higher-priced mortgage loans.

4. The APR test for higher-priced loans references

the average prime offer rate (APOR).



FALSE

TRUE

TRUE

Determine whether the following statements about higher-priced loans are true or false:

FALSE

120

Higher-Priced Loans by the Numbers

1. A higher-priced loan has an APR that exceeds the

applicable average prime offer rate by ______ for

first lien loans or _____ for junior lien loans.

2. Provisions related to higher-priced loans do not

apply if the borrower intends to sell the home

within _____________.

3. When a first lien jumbo loan exceeds the applicable

average prime offer rate by ______ , lenders may

require establishment of an escrow account.



1.5%3.5%

12 months

2.5%

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41



Loan Originator Compensation Rule

• Federal Reserve Board final rule (April 1, 2011)

• Amendment to Regulation Z

• Applies to closed-end credit on principal dwelling

• Applies to all “loan originators,” including mortgage brokers, employees, and those employed by depository institutions

– “Loan originator:” A person who for compensation or other monetary gain, or in expectation of compensation or other monetary gain, arranges, negotiates, or otherwise obtains an extension of consumer credit for another person.

• Prohibits creditors from compensating MLOs based on loan’s interest rate or other loan terms

• Allows other types of compensation, such as hourly, flat fee

• Fees paid to affiliated third parties considered part of compensation



SAFE Act

• Title V, Secure and Fair Enforcement for Mortgage Licensing Act

• Key component of the Housing and Economic Recovery Act of 2008 (HERA)

• Establishes minimum standards for the licensing and registration of mortgage loan originators (MLOs)

• Nationwide Mortgage Licensing System & Registry (NMLS)

– Centralized and standardized system for mortgage licensing



SAFE Act Objectives

• License applications and reporting requirements

• Licensing and supervisory database

• Information flow among regulators

• Increased accountability and tracking

• Streamlined licensing process

• Enhanced consumer protections and anti-fraud measures

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SAFE Act Objectives

• Access to free MLO employment and disciplinary and enforcement actions

• Require MLOs to act in consumer’s best interests, to greatest extent possible

• Facilitate responsible behavior/training in subprime mortgage market

• Provide comprehensive training related to nontraditional mortgage products

• Manage consumer complaints



SAFE Act: MLO Defined

• Individual who, for compensation or gain or in the

expectation of compensation or gain:

(A) Takes a residential mortgage loan application, or

(B) Offers or negotiates terms of a residential mortgage loan.

• “Assists” in obtaining or applying includes:

– Advising on loan terms (including rates, fees, other costs)

– Preparing loan packages

– Collecting information on behalf of the consumer



SAFE Act: MLO Defined

• Mortgage loan originator exclusions:

– Purely administrative or clerical tasks

– Licensed real estate broker activities unless compensated by lender, broker, MLO

– Extending credit on timeshare plans

– Loan processors and underwriters who don’t represent to public to conduct loan origination activities

• Independent contractor must be state-licensed MLO to engage in loan origination activities as loan processor or underwriter

• Unique identifier from NMLS:

– Federally registered – MLOs employed by depository institution

– State-licensed – all other MLOs

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SAFE Act: Other Definitions

• Administrative or Clerical Tasks• Depository Institution• Federal Banking Agencies• Loan Processor or Underwriter• Nontraditional Mortgage Product• Real Estate Brokerage Activity• Registered Mortgage Loan Originator• Residential Mortgage Loan• State-Licensed Mortgage Loan Originator• Unique Identifier



SAFE Act: Licensing

• Background check (fingerprints, criminal check)

• Personal history and experience

• Authorization to obtain an independent credit report, and information relative to any administrative, civil, or criminal findings

• Never had a mortgage loan originator license revoked in any government jurisdiction

• Not convicted of or pled guilty or nolo contendere to

– Felony in in the past 7 years

– Any felony involved an act of fraud, dishonesty, or a breach of trust, or money laundering



SAFE Act: Character & Fitness

• Must exhibit character and fitness

• Must operate honestly, fairly, and efficiently

• Must not show lack of financial responsibility, such

as:

– Current outstanding judgments (except medical

expenses)

– Current outstanding tax/government liens or filings

– Foreclosures within past 3 years

– Pattern of seriously delinquent accounts within past

3 years

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SAFE Act: Prelicensing Education

• Minimum 20 hours of NMLS-approved prelicensing

education on national topics:

– Federal law and regulation (3 hours)

– Ethics, including fraud, consumer protection, and fair

lending (3 hours)

– Lending standards for nontraditional mortgage products (2

hours)

– Electives (12 hours)

• States may impose additional requirements, specific

topics



SAFE Act: National MLO Exam

• State-licensed MLOs must pass national NMLS exam

– Federal mortgage-related laws (35%)

– General mortgage knowledge (25%)

– Mortgage loan origination activities (25%)

– Ethics (15%)

• May include a state/territory-specific component

• Can fail only 3 consecutive times, then must take prelicensing education again



SAFE Act: License Renewal

• Minimum 8 hours of annual continuing education:

– Federal Law and Regulation (3 hours)

– Ethics, including fraud, consumer protection, and fair lending (2 hours)

– Nontraditional mortgage products (2 hours)

– Elective (1 hour)

• States/territories may impose additional requirements

• No credit for the same CE class in consecutive years

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133

SAFE Act: True or False

1. The SAFE definition of loan originator does not

include someone who extends credit for

timeshare plans.

2. Independent contractors underwriting residential

mortgage loans must be state-licensed as a MLO.

3. MLOs employed by depository institutions must

be state-licensed.

4. MLOs must include their NMLS unique identifiers

on business cards.



TRUE

TRUE

FALSE

Determine whether the following statements about the Secure and Fair Enforcement Mortgage Licensing Act are true or false:

TRUE

134

SAFE Act by the Numbers

1. State-licensed mortgage loan originators must complete

at least ___________ of prelicensing education, then at

least ___________ of annual continuing education.

2. Approved prelicensing and CE courses must include at

least _________ on federal law and regulation.

3. Candidates for licensure may only take and fail a

component of the SAFE MLO Test ____ consecutive

times.

4. After a third failure, candidates must wait at least

___________ before taking the test again.



20 hours

3 hours

3

6 months

8 hours

135

Key Term Review

• 3/7/3 Rule

• Affiliated Business Arrangement (AfBA)

• Annual Percentage Rate (APR)

• Equal Credit Opportunity Act (ECOA) / Regulation B

• Fair and Accurate Credit Transactions Act (FACT Act)

• Fair Credit Reporting Act (FCRA) / Regulation V

• Good Faith Estimate (GFE)

• Gramm-Leach-Bliley Act

• Home Ownership and Equity Protection Act (HOEPA)

• Homeowners Protection Act (HPA)



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136

Key Term Review

• Housing and Economic Recovery Act of 2008 (HERA)

• HUD Uniform Settlement Statement (HUD-1)

• Mortgage Disclosure Improvement Act (MDIA)

• Real Estate Settlement Procedures Act (RESPA) / Regulation X

• Red Flag Rules

• Rescind

• Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act)

• Truth in Lending Act (TILA) / Regulation Z

• Truth in Lending Statement (TIL)

• U.S. Patriot Act





Summary

Federal Law Highlights DisclosuresThe Truth in Lending Act (Regulation Z, TILA) 1968; amended by Mortgage Disclosure Improvement Act (MDIA) 2009

Enforced by CFPB

• Promotes informed use of credit by disclosing costs in a uniform manner

• Applies to loans with more than four installments

• Provides right of rescission for three business days after loan consummation on refinance of owner-occupied property

• Completed application requires use of TIL Statement (credit terms, including APR and total finance charges, payment amounts, and due dates)

• Imposes a prescribed tolerance between TIL APR and final APR

• 3/7/3 Rule – Initial disclosure within 3 business days; earliest close 7th business day after initial disclosure; 3 business-day waiting period if redisclosure required

Within 3 Business Days of Completed Application:

• TIL statement/guide• When Home is On the

Line (home equity loans)

• CHARM booklet (ARM loans)

At Settlement (for loans on primary residence):

Notice of right to rescind (2 copies)

General:APR in ads with

triggering terms



Summary

Federal Law Highlights DisclosuresReal Estate Settlement Procedures Act (Regulation X, RESPA) 1974

Enforced by CFPB

• Helps consumers compare settlement services

• Covers loans for one- to four-family residential property

• Prohibits kickbacks, fee-splitting, and unearned fees

• Sets limits on escrow accounts• Prohibits sellers requiring use of a

particular title insurance company• Requires Good Faith Estimate (GFE) of

settlement charges; tools for comparison

• Requires use of HUD-1/HUD-1A to clearly show all charges imposed on borrowers and sellers (except for open-end equity)

Within 3 Business Days of Completed Application:

• Good Faith Estimate• Servicing Disclosure • HUD BookletBefore Settlement:• AfBA Disclosure• HUD-1 (1 business

day, if requested)At Settlement:• HUD-1• Initial EscrowAfter Settlement:• Annual Escrow• Servicing Transfer

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Summary

Federal Law Highlights Disclosures

Homeowners Protection Act (HPA) 1998

Enforced by CFPB

• Applies to single-family residential dwellings

• Allows borrowers to request PMI cancellation when LTV reaches 80%

• Automatically terminates PMI when LTV reaches 78%

• Allows borrowers to accelerate the cancellation date by making additional payments that bring the LTV to 80%

• Initial disclosure of HPA provisions with annual reminders

• Disclosure of cancellation and automatic termination dates for fixed rate loans



Summary


Fair Credit Reporting Act (Regulation V, FCRA) 1968

Enforced by CFPB

• Gives consumers access to the same information about themselves that lenders use when making credit decisions

• Entitles consumers to free credit report upon adverse action or identity theft

• Allows consumers to dispute credit report

• Provides additional rights for identity theft victims and active duty military personnel

A one-time written notice of derogatory information, separate from Truth in Lending disclosures



Summary


Fair and Accurate Credit Transaction Act of 2003 (FACTA or FACT Act)

Enforced by CFPB

• Amends the Fair Credit Reporting Act to help consumers fight identity theft

• Mandates limits on information sharing• Entitles consumers to annual free credit

report• Allows consumers to place fraud alerts

and credit freezes• Requires businesses to truncate

credit/debit card numbers on receipts• Mandates businesses to secure and

properly dispose of sensitive personal information in a consumer’s credit report

• Red Flag Rules requires financial institutions and creditors to implement a written identity theft prevention program

When Applying for Credit:•Home Loan Applicant Credit Score Information

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Summary

Federal Law Highlights DisclosuresGramm-Leach-Bliley Act or Financial Services Modernization Act of 1999 (The Privacy Act)

Enforced by CFPB

Financial Privacy Rule: • Restricts when and under what

circumstances personal financial information may be disclosed to non-affiliated third parties

• Allows consumers how to opt out of allowing information to be shared

Safeguards Rule:• Requires all financial institutions to

design, implement, and maintain safeguards to protect customer information while it is in the custody and control of the institution and its agents

Pretexting Provisions:• Protects consumers from those who

obtain personal information under false, fictitious, or fraudulent pretenses

Before Disclosing Information to Non-Affiliated Third Parties:• Consumer Privacy Policy (and annually to customers as long as the relationship continues)



Summary

Federal Law Highlights DisclosuresNational Do Not Call Registry

Enforced by Federal Trade Commission

• Allows consumers to put phone numbers on a national do not call list

• Applies to any plan, program, or campaign to sell goods or services through interstate phone calls

• Requires companies to maintain national and internal lists of customers and prospects and keep them updated regularly

• Allows business to call a consumer with whom it has an established business relationship (EBR) for up to 18 months after the consumer's last purchase, delivery, or payment; or up to 90 days after an inquiry

• Imposes fines of up to $16,000 per violation

None



Summary

Federal Law Highlights DisclosuresU.S. Patriot Act (Uniting and Strengthening America by Providing Appropriate Tools to Intercept and Obstruct Terrorism Act) 2001

• Requires lenders and banks to create and maintain customer identification programs (CIPs) to verify identity of customers entering into a formal relationship

• Mortgage brokers must also perform the lender’s CIP

• Patriot Act Information Disclosure

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Summary


Civil Rights Act 1866

Prohibits all racial discrimination, private or public, in the sale and rental of property. Allows someone claiming unlawful discrimination to sue only in federal district court

None

Fair Housing Act 1968

• Prohibits any discrimination in the sale, lease, or loan terms for residential property based on race, color, religion, sex, national origin, disability, or familial status

• Allows someone claiming discrimination to file a written complaint to the nearest HUD office within one year of the alleged violation

• Fair/Equal Housing/Lending posters and logos

• Post availability of information in lobby (depository institutions)



Summary


Equal Credit Opportunity Act (Regulation B, ECOA) 1974

Enforced by CFPB

• Prohibits discrimination in granting credit to people based on: sex, age (if at least 18), marital status, race, color, religion, national origin, receipt of public assistance, exercised rights under the Consumer Credit Protection Act

• Requires credit bureaus to keep separate files on married spouses, if requested

• Prohibits creditors from refusing to consider or discounting income from alimony, child support, maintenance if borrower chooses to disclose it

• Allows borrowers to request copy of appraisal report used in credit decision within 90 days

• ECOA statement of rights, including right to receive a copy of appraisal report

• Notification of credit decision within 30 days of application (statement of adverse action if declined, incomplete, or change of terms offered)



Summary


Home Mortgage Disclosure Act (Regulation C, HMDA) 1975

Enforced by CFPB

• Determines if financial institutions are serving the housing needs of their communities.

• Applies to financial institutions and non-depository institutions with assets in excess of $10 million or who originate more than 100 loans/year

• Identified possible discriminatory lending patterns through the collection and disclosure of data about applicant and borrower characteristics.

Loan Application Register•Report to supervisory agencies on a loan-by-loan and application-by-application basis every March

Community Reinvestment Act (CRA) 1977

• Encourages financial institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods

• Requires periodic evaluation of compliance

None

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50



Summary

Federal Law Highlights DisclosuresHome Ownership Equity Protection Act (HOEPA) 1994

Enforced by CFPB

• Amends Regulation Z (Section 32) to prohibit deceptive and unfair practices

• Establishes additional disclosure requirements

• Defines high cost loan as: The APR exceeds the rates on Treasury securities of comparable maturity by more than 8% for 1st mortgage, more than 10% for 2nd mortgage; or the total points and fees exceed greater of 8% of loan amount or $611-2012

• Uses some different criteria to define total finance charges

• Prohibits balloon payments (on loans of less than 5 years), negative amortization, demand clauses

• Limits prepayment penalties• Allows 3 business-day right of

rescission

Section 32 disclosures:• Consumer notice • Warning that lender

will have mortgage• The APR• The regular payment

amount, including any allowed balloon

• The loan amount• Any credit insurance

premiums• For variable rate

loans, the amount of the max. monthly payment and fact that payment may increase



Summary

Federal Law Highlights DisclosuresHigher-Priced Loans –Regulation Z §1026.35 as amended by Housing and Economic Recovery Act of 2008

Enforced by CFPB

• Closed-end mortgage loans secured by borrower’s principal dwelling where APR exceeds applicable average prime offer rate by at least 1.5% for first lien loans or 3.5% for junior lien loans

• Creditors obligated to verify repayment ability

• Prepayment penalties generally prohibited

• Escrow account must be established for property taxes and mortgage-related insurance premiums required by creditor

• No extended right of rescission

None



Summary

Federal Law Highlights DisclosuresMLO Compensation Rule (Reg Z Section 1026.36)

Enforced by CFPB

• Amends Regulation Z (§ 1026.36)• Prohibits compensation based on loan

interest rates or other terms/conditions other than loan amount

• Prohibits dual compensation (borrower paid and lender paid) to MLOs

• Prohibits steering consumers to specific lenders to gain greater compensation unless loan is in borrower’s interest

• Sets safe harbor rules for presenting loan options to consumers

Present loan options from significant number of creditors

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Summary

Federal Law Highlights DisclosuresThe Secureand FairEnforcementfor MortgageLicensingAct of 2008(SAFE Act,Title V ofHousing andEconomicRecoveryAct)

Enforced by CFPB

• Establishes minimum standards for the licensing of state-licensed mortgage loan originators and registered mortgage loan originators

• Provides for the establishment and maintenance of a Nationwide Mortgage Licensing System and Registry for the residential mortgage industry

• Requires minimum 20 hours of prelicensing education for state-licensed MLO applicants

• Requires background checks for applicants• Requires passage of national NMLS exam

(which may include state/territory component)

• State-licensed MLOs require minimum 8 hours of annual continuing education

• Requires contractor loan processors and underwriters to have MLO license

•Display of license•Use of NMLS unique ID on applications and other documents

152

Chapter 4 Quiz

1. Which law requires mortgage loan originators

to provide borrowers with a Good Faith

Estimate of closing costs?

A. FCRA

B. HMDA

C. RESPA

D. TILA



153

Chapter 4 Quiz

2. The most important disclosure requirement

under the Truth in Lending Act is the

A. amount of index.

B. amount of the loan origination fee.

C. APR.

D. name of the secondary market purchaser.



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154

Chapter 4 Quiz

3. How many business days after closing does

the consumer have the right to rescind a

refinance of his personal residence?

A. 2

B. 3

C. 5

D. There is no right of rescission.



155

Chapter 4 Quiz

4. Which will trigger the required disclosures of

the Truth in Lending Act if included in an

advertisement for credit?

A. “Affordable Financing”

B. “Easy Monthly Payments”

C. “FHA Financing Available”

D. “Only 360 Monthly Payments”



156

Chapter 4 Quiz

5. If an advertisement discloses only the APR,

what additional disclosures are required?

A. amount of any finance charges

B. percentage of down payment

C. terms of repayment

D. no additional disclosures are required



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157

Chapter 4 Quiz

6. Which act requires mortgage lenders to give

consumers information about obtaining their

credit report when they are turned down for a

loan?

A. ECOA

B. FCRA

C. RESPA

D. TILA



158

Chapter 4 Quiz

7. Under what circumstances does RESPA allow a

sale to be conditioned on the use of a

particular escrow company chosen by the

seller?

A. if full disclosure is made

B. if no kickbacks are involved

C. if no unearned fees are involved

D. under no circumstances



159

Chapter 4 Quiz

8. Which regulation mandates the use of

the HUD-1 Settlement Statement?

A. Regulation B

B. Regulation C

C. Regulation X

D. Regulation Z



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160

Chapter 4 Quiz

9. For how many months after a loan closes may a mortgage loan originator call a customer whose phone number is on the National Do Not Call Registry to solicit new business?

A. 3 months

B. 6 months

C. 18 months

D. No calls can be made to a number on the registry.



161

Chapter 4 Quiz

10. Which law includes Red Flag Rules that require financial institutions and creditors to implement procedures to protect customer identity?

A. Fair and Accurate Credit Transaction Act

B. Fair Credit Reporting Act

C. Gramm-Leach-Bliley Act (The Privacy Act)

D. Homeowners Protection Act



162

Chapter 4 Quiz

11. The SAFE Act requires state-licensed

originators to have a minimum of how many

hours of approved prelicensing education?

A. 8

B. 12

C. 20

D. 24



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163

Chapter 4 Quiz

12. The Home Ownership and Equity Protection

Act

A. amends the Homeowners Protection Act.

B. does not consider optional credit insurance as a

finance charge.

C. gives borrowers with high cost loans three

business days to rescind the loan.

D. permits negative amortization only for the first

five years of a loan.



164

Chapter 4 Quiz

13. According to the Homeowners Protection Act,

borrowers may request cancellation of their

mortgage insurance premiums when the LTV

reaches

A. 75%.

B. 78%.

C. 80%.

D. 82%.



165

Chapter 4 Quiz

14. As a result of the Mortgage Disclosure

Improvement Act, how soon can a residential

loan close?

A. the next business day

B. after three business days for a refinance or home

equity loan

C. within three business days of applying

D. on the seventh business day after delivery of

required disclosures



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166

Chapter 4 Quiz

15. Which fee can be collected prior to delivery of

a Truth in Lending Statement and a Good Faith

Estimate?

A. appraisal fee

B. credit report fee

C. origination fee

D. No fees can be collected prior to delivery

of these disclosures.



167

Chapter 4 Quiz

16. A mortgage broker rents office space from a

title company at a discount in exchange for

referring customers for settlement services.

Which federal law does this arrangement

violate?

A. RESPA

B. SAFE Act

C. TILA

D. It does not violate any federal law.



168

Chapter 4 Quiz

17. The APR on an initial TIL for a 30-year fixed

rate loan is 6.25%, and the APR on the final TIL

is 6.5%. After redisclosure, how long must the

borrower wait to close the loan?

A. 1 business day

B. three business days after redisclosure

C. seven business days after redislcosure

D. There is no waiting required since the difference

is within the acceptable tolerance.



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169

Chapter 4 Quiz

18. A “higher-priced loan” is one that has

A. an APR that exceeds the applicable average prime offer rate by at least 1.5% for a first lien loan.

B. an APR that exceeds the rates on Treasury securities of comparable maturity by more than 8%.

C. total points and fees greater than 8% of the loan amount.

D. total points and fees greater than 10% of the loan amount for junior liens.



170

Chapter 4 Quiz

19. Which statement about loan origination fees

on a GFE is FALSE?

A. The fee cannot change unless there is a changed

circumstance.

B. The fee includes services performed by or on

behalf of the mortgage loan originator.

C. Lender and mortgage broker fees for the same

transaction must be itemized.

D. Origination fees must be expressed as lump sum.



171

Chapter 4 Quiz

20. According to the SAFE Act, which incident

from 10 years ago would NOT automatically

disqualify an applicant for a loan originator

license?

A. conviction for felony assault

B. conviction for felony fraud

C. conviction for felony money laundering

D. revocation by the state of a mortgage

broker’s license



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172

Chapter 4 Quiz

21. Which of these circumstances would NOT be an acceptable reason to provide a revised GFE to a borrower?

A. The borrower lost the income from a part-time job and so was no longer eligible for the specific loan terms identified in the GFE.

B. The borrower requested to change the loan term from 15 to 30 years.

C. The mortgage loan originator regretted overlooking certain liabilities in order to qualify the borrower for a better interest rate.

D. The title company discovered a junior lien on the property that was not considered when preparing the GFE.



173

Chapter 4 Quiz

22. A 10% tolerance is allowed between the

amount shown on the GFE and the actual

amount due at closing for which of these

charges?

A. charge for the interest rate chosen when

locked

B. government recording charges

C. origination fee

D. transfer taxes

