Mandatory Compliance Training for Loan OriginatorsSession Two in the Quarterly Series

August 18, 20151:30-3:30

NOTE: Session One was held May 20, 2015; Session Three will be held November 3, 2015

2015

Susan Costonis, C.R.C.M.Compliance Consulting & Training For Financial Institutions E-mail: susancostonis@msn.com s

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The material used in this text has been drawn from sources believed to be reliable. Every effort has been made to assure the accuracy of the material; however, the accuracy of this information is not guaranteed. The laws and regulatory guidance may be changed often so the user must verify whether or not the information remains current. The Mandatory Compliance Training for Loan Originators manual is sold with the understanding that the publisher and the editor are not engaging in the practice of law or accounting. We are not responsible for the actions of your company's employees.

The text is designed to address a variety of fair lending compliance issues. However, you will wish to consult with your compliance staff and/or attorney when you are not sure of an answer.

Published by:

Susan Costonis, C.R.C.MCompliance Training and Consulting for Financial Institutions

E-mail: susancostonis@msn.com 2a

All rights reserved. This material may not be reproduced in whole or in part in any form or by any means without written permission from the publisher.

Printed in the United States of America.

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INSTRUCTOR

Susan Costonis is a compliance consultant and trainer. She also has an affiliation with gettechnical inc. as an associate trainer. Her 37year career in banking and training began with 20 years at First National Bank an affiliate Wells Fargo Bank, in Fort Collins, CO. Susan has been a bank compliance consultant or compliance officer in Louisiana since 1998. During her career, Susan has successfully managed compliance programs and exams for institutions supervised by the OCC, FDIC, and Federal Reserve. She is a Certified Regulatory Compliance Manager and completed the ABA Graduate Compliance School. Susan also graduated from the University of Akron with a B.S in Art Education and the Graduate Banking School of the University of Colorado.susancostonis@msn.com (e-mail)

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TABLE OF CONTENTS ROLE OF THE MLO IN THE MORTGAGE LIFE CYCLE.......................................................................5

WHAT’S A COMPLETED APPLICATION?............................................................................7FORM OF THE APPLICATION AND MONITORING INFORMATION..............................8WRITTEN APPLICATION POLICY.........................................................................................9WHAT’S AN APPLICATION UNDER HMDA ?...................................................................10WHAT’S AN APPLICATION UNDER RESPA AND TRUTH IN LENDING?....................11BIG PICTURE ON MORTGAGE LIFE CYCLE.....................................................................12NAME AND NMLSR ID ON LOAN DOCUMENTS.............................................................17CHANGES WITH INTEGRATED DISCLOSURES...............................................................19REG B DISCLOSURES............................................................................................................20ABILITY TO REPAY FACTORS............................................................................................28ABILITY TO REPAY WORKSHEET.....................................................................................30COMPONENTS OF THE FNMA 1003 APPLICATION.........................................................31DECLARATIONS SECTION VIII...........................................................................................33INTEGRATED DISCLOSURES – WHAT’S OLD, WHAT’S NEW?....................................34COVERAGE OF FLOOD REGULATION..............................................................................36WHAT IS INSURABLE?..........................................................................................................38STANDARD FLOOD HAZARD DETERMINATION FORM...............................................40FLOOD INSURANCE CHANGES..........................................................................................42

APPENDIX....................................................................................................................................43REG B CHEAT SHEET APPRAISAL COPY RULES............................................................44MLO RESPONSIBILITY, CHARACTER, AND FITNESS; TRAINING..............................50LOAN CHECKLISTS – HMDA BANKS................................................................................52CFPB INTEGRATED DISCLOSURE RESOURCES.............................................................57INTEGRATED DISCLOSURE FREE RESOURCES.............................................................58INTEGRATED DISCLOSURE FREE CHECKLISTS............................................................59REAL ESTATE LOAN MATRIX............................................................................................62REAL ESTATE LOAN MATRIX –INTEGRATED DISCLOSURES....................................65

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ROLE OF THE MLO IN THE MORTGAGE LIFE CYCLE

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SEMINAR OBJECTIVES

(Note: A recording of the first session held on March 17th is available for purchase from the LBA. The third and final session in the series is scheduled for October 20th; the last session

will cover the closing process)

EXPECT THIS QUESTION IN THE NEXT COMPLIANCE EXAM:

DID ALL LOAN ORIGINATORS RECEIVE SUFFICIENT TRAINING IN 2015?

ANSWER: See Commentary to Reg Z 1026.36(f)(3)(iii))

Training . The periodic training required in § 1026.36(f)(3)(iii) must be sufficient in frequency, timing, duration, and content to ensure that the individual loan originator has the knowledge of State and Federal legal requirements that apply to the individual loan originator's loan origination activities. The training must take into consideration the particular responsibilities of the individual loan originator and the nature and complexity of the mortgage loans with which the individual loan originator works. An individual loan originator is not required to receive training on requirements and standards that apply to types of mortgage loans that the individual loan originator does not originate, or on subjects in which the individual loan originator already has the necessary knowledge and skill.

Session TWO in the quarterly series will focus on the “mortgage life cycle: and what are the requirements when the loan application has been completed? How do you underwrite and approve a mortgage loan request? What notices are required? What must they include?

WHAT YOU WILL LEARN:

Recap of the definition of an “application” among the lending regulations What disclosures are required within 3 business date after receiving a completed

application? Review of the “Ability to Repay” documentation requirements, and characteristics of

various qualified mortgage loan options. Flood Determination Process Applications taken on or after October 3, 2015 will be covered by the new “Integrated

Disclosure” provisions. This session will include an overview of the impacts of the changes in disclosures & timing requirements once an application has been completed

BONUS – Participants will receive a 10 question quiz and an answer key. Passing the quiz will demonstrate the effectiveness of your bank’s loan originator training program.

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WHAT’S A COMPLETED APPLICATION?

A completed application means an application in connection with which a creditor has received all the information that the creditor regularly obtains and considers in evaluating applications for the amount and type of credit requested (including, but not limited to, credit reports, any additional information requested from the applicant, and any approvals or reports by governmental agencies or other persons that are necessary to guarantee, insure, or provide security for the credit or collateral). The creditor shall exercise reasonable diligence in obtaining such information.

What are “procedures”? This is from the commentary to Reg B 1002.2 9(f). Procedures used. The term “procedures” refers to the actual practices followed by a creditor for making credit decisions as well as its stated application procedures. For example, if a creditor's stated policy is to require all applications to be in writing on the creditor's application form, but the creditor also makes credit decisions based on oral requests, the creditor's procedures are to accept both oral and written applications. What does this mean in plain English? It means that an informal inquiry, whether it’s all verbal or in writing, will be treated as an application and is subject to Regulation B requirements.

What is application information versus verifying the information?

Generally, the information is verified AFTER the application is received. Typically it involves:

1. Tax returns, W-2, Pay Stub, Proof of bonus or overtime pay, etc.2. Credit report, property inspections, appraisals3. Purchase agreement and sales contracts

What are the due dilegence requirements? Commentary to Reg B 1002.2 9(f)6. The regulation defines a completed application in terms that give a creditor the latitude to establish its own information requirements. Nevertheless, the creditor must act with reasonable diligence to collect information needed to complete the application. For example, the creditor should request information from third parties, such as a credit report, promptly after receiving the application. If additional information is needed from the applicant, such as an address or a telephone number to verify employment, the creditor should contact the applicant promptly.

NOTE REMEMBER TO EXERCISE DUE DILIGENCE TO “COMPLETE” THE APPLICATION, THEN VERIFY INFORMATION – Don’t violate RESPA by requesting verification prior to providing a GFE*

(Loan Estimate for covered applications on or after 10/3/15under the Integrated Disclosure Rules )

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FORM OF THE APPLICATION AND MONITORING INFORMATION

When must an application be in writing?

When a customer requests a loan for a mortgage on a dwelling that will be their permanent residence, Regulation B says: 1002.4(c)

Written applications. A creditor shall take written applications for the dwelling-related types of credit covered by §1002.13(a)Requests that require a written application are covered under the “monitoring” requirements of 1002.13(a)(1) and says…

(1) A creditor that receives an application for credit primarily for the purchase or refinancing of a dwelling occupied or to be occupied by the applicant as a principal residence, where the extension of credit will be secured by the dwelling, shall request as part of the application the following information regarding the applicant(s):

(i) Ethnicity, using the categories Hispanic or Latino, and not Hispanic or Latino; and RACE, using the categories American Indian or Alaska Native, Asian, Black or African American, Native Hawaiian or Other Pacific Islander, and White;

(ii) Sex;

(iii) Marital status, using the categories married, unmarried, and separated; and

(iv) Age.

(2) Dwelling means a residential structure that contains one to four units, whether or not that structure is attached to real property. The term includes, but is not limited to, an individual condominium or cooperative unit and a mobile or other manufactured home.

(b) Obtaining information. Questions regarding ethnicity, race, sex, marital status, and age may be listed, at the creditor's option, on the application form or on a separate form that refers to the application. The applicant(s) shall be asked but not required to supply the requested information. If the applicant(s) chooses not to provide the information or any part of it, that fact shall be noted on the form. The creditor shall then also note on the form, to the extent possible, the ethnicity, race, and sex of the applicant(s) on the basis of visual observation or surname.

(c) Disclosure to applicant(s). The creditor shall inform the applicant(s) that the information regarding ethnicity, race, sex, marital status, and age is being requested by the Federal Government for the purpose of monitoring compliance with Federal statutes that prohibit creditors from discriminating against applicants on those bases. The creditor shall also inform the applicant(s) that if the applicant(s) chooses not to provide the information, the creditor is required to note the ethnicity, race and sex on the basis of visual observation or surname.

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WRITTEN APPLICATION POLICY

Does your financial institution have a written loan application policy? It should state that a written application is required for principal dwelling loan requests. Exceptions should be documented. Another policy suggestion would be to provide a copy of an appraisal to the applicant, regardless of whether the loan is approved or not.

REG B (ECOA) Monitoring Information Procedures

A Fannie Mae Application (FNMA) is required for the following:

(I) Construction loan in which the Financial institution will provide permanent financing

(II) Down payment or purchase money seconds,

(III) Bridge loans in which a security interest is taken in the following properties: Dwelling being purchased (which will be the primary dwelling) -OR- Dwelling being purchased (which will be the primary dwelling) AND the current primary

dwelling, and(IV) When the financial institution receives an application for a loan to buy or refinance a

dwelling that is or will be owner-occupied and is secured by the dwelling, the financial institution must request the applicant to provide information about:(1) Ethnicity AND Race(2) Sex (gender)(3) Marital status (married, unmarried, separated)(4) Age

If the applicant declines to provide the information, the financial institution shall use visual observation and surname to note this information.

EXEMPT TRANSACTIONS:(1) This requirement does not apply to temporary financing to construct a dwelling unless the

request is for construction and the permanent financing.(2) A person can have only one principal dwelling at a time. If someone buys or builds a new

dwelling that will become their principal dwelling within a year or upon completion of construction, the new dwelling is considered their principal dwelling for the collection of monitoring information.

(3) This does not apply to requests for dwelling secured loans where the purpose is not for the purchase or refinance of a principal dwelling (for example a debt consolidation or HELOC, where the purpose of the line isn’t to purchase another principal dwelling).If a person doesn’t apply in person (by phone, mail or fax) the financial institution doesn’t have to make a special effort to collect the information IF the financial institution documents that the application was taken by phone, fax, or by mail.

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WHAT’S AN APPLICATION UNDER HMDA ?

This definition for HMDA is in 1003.2. A financial institution that had assets of $44 million as of 12/31/14 and has an office in an MSA is subject to HMDA reporting for 2015. The LAR (Loan application register) for ALL applications subject to HMDA will be due March 1, 2016 for 2015 activity.

Application.—(1) In general. Application means an oral or written request for a home purchase loan, a home improvement loan, or a refinancing that is made in accordance with procedures used by a financial institution for the type of credit requested.

What’s a pre-qualification under HMDA? (Commentary 1003.2(2))

A prequalification request is a request by a prospective loan applicant (other than a request for preapproval) for a preliminary determination on whether the prospective applicant would likely qualify for credit under an institution's standards, or for a determination on the amount of credit for which the prospective applicant would likely qualify. Some institutions evaluate prequalification requests through a procedure that is separate from the institution's normal loan application process; others use the same process. In either case, Regulation C does not require an institution to report prequalification requests on the HMDA/LAR, even though these requests may constitute applications under Regulation B for purposes of adverse action notices

What’s a pre-approval request under HMDA? (Commentary 1003.2(b)(3))

(2) Preapproval programs. A request for preapproval for a home purchase loan is an application under this section if the request is reviewed under a program in which the financial institution, after a comprehensive analysis of the creditworthiness of the applicant, issues a written commitment to the applicant valid for a designated period of time to extend a home purchase loan up to a specified amount. The written commitment may not be subject to conditions other than:

(i) Conditions that require the identification of a suitable property;

(ii) Conditions that require that no material change has occurred in the applicant's financial condition or creditworthiness prior to closing; and

(iii) Limited conditions that are not related to the financial condition or creditworthiness of the applicant that the lender ordinarily attaches to a traditional home mortgage application (such as certification of a clear termite inspection).

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WHAT’S AN APPLICATION UNDER RESPA AND TRUTH IN LENDING?

Beginning January 1, 2010 this definition applies for an application under RESPA, the Real Estate Settlement Procedures Act. This is found in Part 1024 of 12 CFR Chapter X

Application means the submission of a borrower's financial information in anticipation of a credit decision relating to a federally related mortgage loan, which shall include

1. the borrower's name,2. the borrower's monthly income,3. the borrower's social security number to obtain a credit report,4. the property address,5. an estimate of the value of the property, 6. the mortgage loan amount sought, and7. any other information deemed necessary by the loan originator.

(Warning – this cannot include verification documentation for income OR a purchase agreement! The preamble to the 2010 RESPA changes emphasizes that the borrower should receive a GFE WITHOUT requiring any verification information so they may “shop” – FDIC has warned banks not to REQUIRE a purchase agreement before providing a GFE-

An application may either be in writing or electronically submitted, including a written record of an oral application

NOTE: The RESPA FAQ – GFE General #23 says…23) Q: May a loan originator issue a GFE if the loan originator has not received one of the six pieces of information included in the definition of an application (borrower‘s name, borrower‘s monthly income, borrower‘s social security number, property address, estimate of the value of the property and mortgage loan amount sought)?

A: An application includes information the loan originator requires the borrower to submit in anticipation of a credit decision. If a loan originator issues a GFE, the loan originator is presumed to have received all six pieces of information.

Warning! Don’t issue a GFE without all the required information. A lender is held to the tolerance reimbursements on a GFE if you exceed the limits the customer must receive reimbursement to “cure” the tolerance violations.

What’s an application under Truth in Lending, Reg Z? 3. Written application. Creditors may rely on RESPA and Regulation X (including any interpretations issued by the Bureau) in deciding whether a “written application” has been received. In general, Regulation X defines “application” to mean the submission of a borrower's

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financial information in anticipation of a credit decision relating to a federally related mortgage loan.

BIG PICTURE ON MORTGAGE LIFE CYCLE

This information is listed as the “TIMETABLE” in the Real Estate Matrix; there is a 10.0 Matrix effective 10/3/15 for Integrated DisclosuresAT APPLICATION:

Written Application (1) Request Government Monitoring (2) CHARM Booklet & ARM Disclosure (4*) HELOC Booklet & Disclosure (4**)

3 BUSINESS DAYS AFTER RECEIVING APPLICATION RESPA Homeownership Counseling List (3) Servicing Disclosure Statement (1st Lien only) (3) Settlement Cost Booklet – Purchase only (3); “HOME LOAN TOOLKIT ” 10/3/15 Good Faith Estimate (3); Loan Estimate 10/3/15 Early TILA Disclosure (4) (Note: Wait 7 business days to close the loan, if the APR

becomes inaccurate, refer to 1029.19(a)(2)(ii) for re-disclosure requirements. Applies if the loan is subject to RESPA and secured by consumer’s dwelling, other than HELOC or timeshare.; Coverage change for Loan Estimate on 10/3/15 for secured real property

HPML (7) & ECOA (10) Appraisal NoticeBEFORE CLOSING

Through October 2, 2015 On/after 10/3/2015 Ability to REPAY (5) HCM Test (6) HCM Notice – 3 Business days

Prior to Closing (6) HCM Counseling Certification (6) HPML Test (7) HPML (7) and ECOA (10

Appraisals – No later than 3 Business Days Prior to Closing

Flood Determination (9) Flood Notice – Zones A & V only –

Approximately 10 days prior to closing (9)

Ability to REPAY (5) HCM Test (6) HCM Notice – 3 Business days

Prior to Closing (6) HCM Counseling Certification (6) HPML Test (7) HPML (7) and ECOA (10

Appraisals – No later than 3 Business Days Prior to Closing

Flood Determination (9) Flood Notice – Zones A & V only –

Approximately 10 days prior to closing (9)

Deliver Closing Disclosure 3 business days prior to closing

AT LOAN CLOSING Settlement Statement (HUD 1/1-A (3); Closing Disclosure 10/3/15 was provided 3

days prior to closing Final Truth in Lending Disclosure (5), Closing Disclosure 10/3/15 was provided 3

days prior to closing Right of Rescission Notice (6)

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HPML Escrow Account (7) Flood Insurance in Place (9)

4th BUSINESS DAY AFTER LOAN IS CLOSED Advance Loan Proceeds

TIMING IS EVERYTHING Preliminary Information Five IssuesAt application Five Issues As soon as possible Two Issues Within 3 business days after a traditional application Three Issues Within 3 business days after a RESPA application Four Issues Prior to closing Nine Issues; Ten with TRIDClosing preparation Six Issues Waiting periods before closing Three Issues At closing Four Issues After closing One Issue

PRELIMINARY INFORMATION:• One of the most common loan applications is a consumer purpose, closed-end request

that is secured by real estate and a dwelling. This application will trigger the need to document information or ask questions for FIVE

issues. ISSUE #1 –IS it a RESPA application; if yes, what is the application date? (Typically the date the customer requests a loan, if the loan is subject to RESPA it is not an application until you have

1. Applicant’s name2. Applicant’s social security number3. Property address4. Monthly income5. Estimate of property value6. Loan amount requested7. Any other information required by the bank (until 10/3/15)

1. Application Date Documenting the application date is critical because this date drives the time clock for providing disclosures & accurate HMDA reporting.

2. Ability to Repay type Is this loan subject to normal ATR documentation or is it a Qualified Mortgage?

3. Loan Type Is this a new loan or a refinance transaction? 4. Lien Status Is this a first or second-lien loan 5. Dwelling Type Is this the applicant’s principal dwelling, vacation home,

or non-owner occupied dwelling? NOTE: at the time of application, provide ARM disclosures if applicable

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AT APPLICATION– Five Issues

1. Written Application(with NAME and NMLS# of LO)

Reg B required a written application for the purchase or refinance of purchase # of a principal dwelling. Reg Z requires the name and NMLS # of the bank & lender effective January 1, 2014

2. Intent to apply for joint credit Reg B requires documentation of the joint intent to apply at time of application; signatures or initials on a credit application may be used.

3. Monitoring Data There are two types of requirements: HMDA banks (ethnicity, race & sex – reported; must also collect marital status & age) & non-HMDA banks (ethnicity, race, sex, marital status & age)

4. CIP rules Verify the applicant name, DOB, Address & SSN 5. Credit Insurance disclosures If the bank offers credit insurance, provide disclosure stating

that the bank can’t condition approval based on the purchase of insurance

APPLICATION LIFE CYCLE – Two Issues

AS SOON AS POSSIBLERisk-based pricing disclosures (credit score disclosures)

Most community banks use the “exception” option to provide a Credit Score Notice; there is one for loans secured by residential real property and one that is not secured.

Credit score disclosures This notice is required when a bank uses a credit score in connection with a residential real estate loan.

Disclosure of Credit Score information and Notice to Home Loan Applicant

The notices are often combined and prepared by a credit reporting agency.

WITHIN 3 BUSINESS DAYS AFTER A TRADITIONAL APPLICATION; SEE NEXT SECTION FOR ADDITIONAL RESPA ISSUES

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WITHIN 3 BUSINESS DAYS AFTER A TRADITIONAL APPLICATIONEarly Truth in Lending Disclosures1026.19(a)1026.2(a)(6)

IF RESPA APPLIES

Reg Z requires an Early TIL for a closed-end loan secured by the consumer’s dwelling (mobile home without land). It must be provided or mailed no later than the 3rd business day after application, unless the loan is denied or withdrawn in that 3 day period (General business day rule).

Waiting periods: Loan can’t close until:

7 th business day after initial disclosure is mailed/delivered or

3 rd business day after corrected disclosure was received .

EFFECTIVE 10/3/15 – TRID- Loan Estimate

1026.19 & 1026.37

Applies to consumer purpose real property, includes lot loan, construction loan, dwelling secured, trust applicants; HELOCs, reverse mortgages, mobile home without land, business purpose are exempt

HPML Copy of Appraisal Notice1026.35(c)

Effective 1/18/14 - provide “Notice of Right to Receive Valuation” within 3 business days after application. Several exemptions apply (QM, bridge, initial construction, <$25k, MH, streamlined ref.

ECOA Copy of Appraisal Notice1002.14

Effective 1/18/14 for first-lien - provide notice within 3 business days after application.

Form C-9—Sample Disclosure of Right to Receive a Copy of AppraisalsWe may order an appraisal to determine the property's value and charge you for this appraisal. We will promptly give you a copy of any appraisal, even if your loan does not close.You can pay for an additional appraisal for your own use at your own cost

NOTE: IF THE APPLICATION IS BOTH A HPML AND FIRST MORTGAGE:USE THE ECOA NOTICE WORDING TO SATISFY BOTH RULES ; this will appear on the Loan Estimate & Closing Disclosure for TRID loans.

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WITHIN 3 BUSINESS DAYS AFTER APPLICATION – RESPA ISSUES/TRIDEarly RESPA Disclosures1024.6 – Settlement Book1024.7 – GFE1024.21 – MSDSList of Providers – Appendix CCounseling List - 1024.20

Reg X requires these disclosures to be provided or mailed

within 3 business day after application: Settlement Cost Booklet (first lien purchase)

refinancings) (“Your Home Loan Tool Kit” on 10/3/15 for TRID)

Good Faith Estimate (LOAN ESTIMATE) List of service providers (if borrower can shop for

required 3rd party settlement service)

Mortgage Servicing Statement (only on 1st lien mortgages)

List of HUD-approved homeownership counseling organizations

CFPB Guidance An Interpretive Rule issued November 14, 2013 instructs banks to provide a list of the 10 organizations closest to the applicant’s location. To find this list, go to the CFPB’s website (www.consumerfinance.gov) and conduct a search for “homeownership counseling.” Simply enter the applicant’s zip code to obtain the appropriate list. MUST BE UPDATED EVERY 30 DAYS.

Denied/Withdrawn & definition of business day

If the application is denied or withdrawn within the three-business-day period, these early disclosures are not required. Under RESPA, a business day is a day on which the offices of the bank are open to the public for carrying on substantially all of the bank's business functions.

PRIOR TO CLOSING– NINE Issues

1. Ability to Repay/QM options 2. Flood Insurance 3. Appraisal or Valuation 4. Special HPML appraisal rules 5. High-Cost Mortgage Rules (HOEPA) 6. Corrected Early Truth in Lending Disclosure 7. HPML Escrow Account 8. Homeownership Counseling 9. Adverse Action

10. EFFECTIVE 10/3/15 FOR COVERED APPLICATIONS THE CLOSING DISCLOSURE MUST BE RECEIVED 3 BUSINESS DAYS PRIOR TO CLOSING! SEE “TRID CHECLIST IN THE APPENDIX”. The Closing Disclosure is considered “received” if mailed 3 days prior to the required date; by proof of e-sign receipt, or proof of overnight delivery, or proof that it was delivered in person. NOTE: - See the “Loan Checklist” pages in the Appendix for more information for TRID Loans

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NAME AND NMLSR ID ON LOAN DOCUMENTS

This information is from Reg Z 1026.36

(g) Name and NMLSR ID on loan documents. (1) For a consumer credit transaction secured by a dwelling, a loan originator organization must include on the loan documents described in paragraph (g)(2) of this section, whenever each such loan document is provided to a consumer or presented to a consumer for signature, as applicable:

(i) Its name and NMLSR ID, if the NMLSR has provided it an NMLSR ID; and

(ii) The name of the individual loan originator (as the name appears in the NMLSR) with primary responsibility for the origination and, if the NMLSR has provided such person an NMLSR ID, that NMLSR ID.

(2) The loan documents that must include the names and NMLSR IDs pursuant to paragraph (g)(1) of this section are:

(i) The credit application;

(ii) [Reserved]

(iii) The note or loan contract; and

(iv) The security instrument.

(3) For purposes of this section, NMLSR ID means a number assigned by the Nationwide Mortgage Licensing System and Registry to facilitate electronic tracking and uniform identification of loan originators and public access to the employment history of, and the publicly adjudicated disciplinary and enforcement actions against, loan originators.

Note: Additional requirements for providing a mortgage loan originator's NMLSR ID (unique identifier) can be found in Section 1007.105 of the CFPB's SAFE Act regulation (Regulation G).

From the commentary:36(g) Name and NMLSR ID on Loan Documents

Paragraph 36(g)(1)

1. NMLSR ID. Section 1026.36(g) requires a loan originator organization to include its name and NMLSR ID and the name and NMLSR ID of the individual loan originator on certain loan documents. As provided in § 1026.36(a)(1), the term "loan originator" includes creditors that engage in loan originator activities for purposes of this requirement. Thus, for example, if an individual loan originator employed by a bank originates a loan, the names and NMLSR IDs of the individual and the bank must be included on covered loan documents. The NMLSR ID is a

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number generally assigned by the NMLSR to individuals registered or licensed through NMLSR to provide loan origination services. For more information, see the SAFE Act sections 1503(3) and (12) and 1504 (12 U.S.C. 5102(3) and (12) and 5103), and its implementing regulations (12 CFR 1007.103(a) and 1008.103(a)(2)). A loan originator organization may also have an NMLSR unique identifier.

2. Loan originators without NMLSR IDs. An NMLSR ID is not required by § 1026.36(g) to be included on loan documents if the loan originator is not required to obtain and has not been issued an NMLSR ID. For example, certain loan originator organizations and individual loan originators who are employees of bona fide nonprofit organizations may not be required to obtain a unique identifier under State law. However, some loan originators may have obtained NMLSR IDs, even if they are not required to have one for their current jobs. If a loan originator organization or an individual loan originator has been provided a unique identifier by the NMLSR, it must be included on the covered loan documents, regardless of whether the loan originator organization or individual loan originator is required to obtain an NMLSR unique identifier. In any event, the name of the loan originator is required by § 1026.36(g) to be included on the covered loan documents.

3. Inclusion of name and NMLSR ID. Section 1026.36(g)(1) requires the inclusion of loan originator names and NMLSR IDs on each loan document. Those items need not be included more than once on each loan document on which loan originator names and NMLSR IDs are required, such as by including them on every page of a document.

Paragraph 36(g)(1)(ii)

1. Multiple individual loan originators. If more than one individual meets the definition of a loan originator for a transaction, the name and NMLSR ID of the individual loan originator with primary responsibility for the transaction at the time the loan document is issued must be included. A loan originator organization that establishes and follows a reasonable, written policy for determining which individual loan originator has primary responsibility for the transaction at the time the document is issued complies with the requirement. If the individual loan originator with primary responsibility for a transaction at the time a document is issued is not the same individual loan originator who had primary responsibility for the transaction at the time that a previously issued document was issued, the previously issued document is not required to be reissued merely to change a loan originator name and NMLSR ID.

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CHANGES WITH INTEGRATED DISCLOSURES

Applications Received Through 10/2/ 2015

Applications on or after 10/3/2015

NMLSR ID required on(i) The credit application; (ii) [Reserved] (iii) The note or loan contract; and (iv) The security instrument.

NMLSR ID required on(i) The credit application; (ii) The disclosures required by § 1026.19(e) and (f); (references to the Integrated Disclosures) It will be required on the LOAN ESTIMATE and CLOSING DISCLOSURE(iii) The note or loan contract; and (iv) The security instrument.

How does your loan software work now?

How will your loan software work for applications received on or after 10/3/15?

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REG B DISCLOSURES

o Written application required (A written application is required for an application for credit primarily for the purchase or refinancing of a dwelling occupied or to be occupied by the applicant as a principal residence, where the extension of credit will be secured by the dwelling) 12 CFR 1002.5(e) 12 CFR 1002.13

o Notice of intent of joint application A person’s intent to be a joint applicant must be given at the time of application. This requirement became effective 4/15/2004. Signatures on a promissory note may not be used to show intent to apply for joint credit. On the other hand, signatures or initials on a credit application affirming applicants’ intent to apply for joint credit may be used to establish intent to apply for joint credit. (See Appendix B). The method used to establish intent must be distinct from the means used by individuals to affirm the accuracy of information. For example, signatures on a joint financial statement affirming the veracity of information are not sufficient to establish intent to apply for joint credit 12CFR 1002.7(d)(3). There are some options on determining a person’s intent to be a joint applicant (Joint Intent Compliance):

1. Signed Applications – with both signatures

2. Signed Applications & Separate Affirmation – applications with the signatures are stronger proof when the form has a separate disclosure where applicants affirm joint intent. This is the best practice.

3. No written application – provide (at time of application) a joint intent disclosure so they can indicate joint intent

4. No written application & no applicant acknowledgement – the loan officer may document a note to the credit file; showing a date would be helpful

o Notice of incompleteness(or, in the alternative, a notice of action taken) 12 CFR 1002.9(c)

o Notice of Action Taken12 CFR 1002.9(a)(2) (consumer applicants); 12 CFR 1002.9(a)(3) (business applicants)

o Statement of reasons for adverse action or notice of right to obtain a statement of reasons 12 CFR 1002.9(b)

o Credit score disclosures on adverse action notices

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o NEW! Rules on providing appraisals and other valuations –NEW RULES – effective January 18, 2014. (See “Cheat Sheet” in the Appendix) Applies any time an appraisal or other valuation report is used in connection with an application for credit that is to be secured by a first lien on a dwelling (dwelling is a residential structure that contains one to four units whether or not that structure is attached to real property)., 12 CFR 1002.14. 14(a) From the Commentary: Providing appraisals and other valuations.1. Coverage. This section covers applications for credit to be secured by a lien on a dwelling, as that term is defined in § 1002.14, whether the credit is for a business purpose (for example, a loan to start a business) or a consumer purpose (for example, a loan to purchase a home).

Disclosure: The creditor shall mail or deliver a disclosure no later than the third business day after the application for a loan secured by a first lien on a dwelling a notice in writing of the applicant’s right to receive a copy of all written appraisals developed in connection with the application. The model language is in Appendix C-9 and says:

We may order an appraisal to determine the property's value and charge you for this appraisal. We will promptly give you a copy of any appraisal, even if your loan does not close. You can pay for an additional appraisal for your own use at your own cost.

Timing: Provide a copy of all appraisals and other written valuations developed in connection with an application secured by a first lien on a dwelling promptly upon completion or three business days prior to consummation (for closed-end or account opening for open-end credit), whichever is earlier. NOTE: Regulation B does NOT define business days From the commentary:

4. Timing. Section 1002.14(a)(1) requires that the creditor "provide" copies of appraisals and other written valuations to the applicant "promptly upon completion," or no later than three business days before consummation (for closed-end credit) or account opening (for open-end credit), whichever is earlier.

i. For purposes of this timing requirement, "provide" means "deliver." Delivery occurs three business days after mailing or delivering the copies to the last-known address of the applicant, or when evidence indicates actual receipt by the applicant, whichever is earlier. Delivery to or actual receipt by the applicant by electronic means must comply with the E-Sign Act, as provided for in § 1002.14(a)(5).

ii. The application and meaning of the "promptly upon completion" standard depends upon the facts and circumstances, including but not limited to when the creditor receives the appraisal or other written valuation, and the extent of any review or revision after the creditor receives it.

iii. "Completion" occurs when the last version is received by the creditor, or when the creditor has reviewed and accepted the appraisal or other written valuation to include any

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changes or corrections required, whichever is later. See also comment 14(a)(1)-7.

iv. In a transaction that is being consummated (for closed-end credit) or in which the account is being opened (for open-end credit), if an appraisal or other written valuation has been developed but is not yet complete, the deadline for providing a copy of three business days before consummation or account opening still applies, unless the applicant waived that deadline as provided under § 1002.14(a)(1), in which case the copy must be provided at or before consummation or account opening.

v. Even if the transaction will not be consummated (for closed-end credit) or the account will not be opened (for open-end credit), the copy must be provided "promptly upon completion" as provided for in § 1002.14(a)(1), unless the applicant has waived that deadline as provided under § 1002.14(a)(1), in which case as provided for in § 1002.14(a)(1) the copy must be provided to the applicant no later than 30 days after the creditor determines the transaction will not be consummated or the account will not be opened

5. Promptly upon completion—examples. Examples in which the "promptly upon completion" standard would be satisfied include, but are not limited to, those in subparagraphs i, ii, and iii below. Examples in which the "promptly upon completion" standard would not be satisfied include, but are not limited to, those in subparagraphs iv and v below.

i. Sending a copy of an appraisal within a week of completion with sufficient time before consummation (or account opening for open-end credit). On day 15 after receipt of the application, the creditor's underwriting department reviews an appraisal and determines it is acceptable. One week later, the creditor sends a copy of the appraisal to the applicant. The applicant actually receives the copy more than three business days before the date of consummation (or account opening). The creditor has provided the copy of the appraisal promptly upon completion.

ii. Sending a copy of a revised appraisal within a week after completion and with sufficient time before consummation (or account opening for open-end credit). An appraisal is being revised, and the creditor does not receive the revised appraisal until day 45 after the application, when the creditor immediately determines the revised appraisal is acceptable. A week later, the creditor sends a copy of the revised appraisal to the applicant, and does not send a copy of the initial appraisal to the applicant. The applicant actually receives the copy of the revised appraisal three business days before the date of consummation (or account opening). The creditor has provided the appraisal copy promptly upon completion.

iii. Sending a copy of an AVM report within a week after its receipt and with sufficient time before consummation (or account opening for open-end credit). The creditor receives an automated valuation model (AVM) report on day 5 after receipt of the application and treats the AVM report as complete when it is received. On day 12 after receipt of the application, the creditor sends the applicant a copy of the valuation. The applicant actually receives the valuation more than three business days before the date of consummation (or account opening). The creditor has provided the copy of the AVM report promptly upon completion.

iv. Delay in sending an appraisal. On day 12 after receipt of the application, the creditor's underwriting department reviews an appraisal and determines it is acceptable. Although the creditor has determined the appraisal is complete, the creditor waits to provide a copy to the applicant until day 42, when the creditor schedules the

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consummation (or account opening) to occur on day 50. The creditor has not provided the copy of the appraisal promptly upon completion.

v. Delay in sending an AVM report while waiting for completion of a second valuation. The creditor receives an AVM report on day 5 after application and completes its review of the AVM report the day it is received. The creditor also has ordered an appraisal, but the initial version of the appraisal received by the creditor is found to be deficient and is sent for review. The creditor waits 30 days to provide a copy of the completed AVM report, until the appraisal is completed on day 35. The creditor then provides the applicant with copies of the AVM report and the revised appraisal. While the appraisal report was provided promptly upon completion, the AVM report was not.

Waivers: An applicant may waive the timing requirement to receive the copy; the waiver must be obtained at least three business days prior to consummation or account opening; if a waiver is provided and the transaction isn’t consummated or opened the creditor must provide copies no later than 30 days after determining that the loan will not be consummated or the account opened. From the commentary:

6. Waiver. Section 1002.14(a)(1) permits the applicant to waive the timing requirement if the creditor provides the copies at or before consummation or account opening, except where otherwise prohibited by law. Except where otherwise prohibited by law, an applicant's waiver is effective under § 1002.14(a)(1) in either of the following two situations:

i. if, no later than three business days prior to consummation or account opening, the applicant provides the creditor an affirmative oral or written statement waiving the timing requirement under this rule; or

ii. if, within three business days of consummation or account opening, the applicant provides the creditor an affirmative oral or written statement waiving the timing requirement under this rule and the waiver pertains solely to the applicant's receipt of a copy of an appraisal or other written valuation that contains only clerical changes from a previous version of the appraisal or other written valuation provided to the applicant three or more business days prior to consummation or account opening. For purpose of this second type of waiver, revisions will only be considered to be clerical in nature if they have no impact on the estimated value, and have no impact on the calculation or methodology used to derive the estimate. In addition, under § 1002.14(a)(1) the applicant still must receive the copy of the revision at or prior to consummation or account opening

7. Multiple versions of appraisals or valuations. For purposes of § 1002.14(a)(1), the reference to "all" appraisals and other written valuations does not refer to all versions of the same appraisal or other valuation. If a creditor has received multiple versions of an appraisal or other written valuation, the creditor is required to provide only a copy of the latest version received. If, however, a creditor already has provided a copy of one version of an appraisal or other written valuation to an applicant, and the creditor later receives a revision of that appraisal or other written valuation, then the creditor also must provide the applicant with a copy of the revision to comply with § 1002.14(a)(1). If a creditor receives only one version of an appraisal or other valuation that is developed in connection with the applicant's application, then that version must be provided to the

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applicant to comply with § 1002.14(a)(1). See also comment 14(a)(1)-4 above.

Reimbursement: A creditor shall not charge an applicant for providing a copy of appraisals and other written valuations as required under this section, but may require applicants to pay a reasonable fee to reimburse the creditor for the cost of the appraisal or other written valuation unless otherwise provided by law. From the commentary:

1. Photocopy, postage, or other costs. Creditors may not charge for photocopy, postage, or other costs incurred in providing a copy of an appraisal or other written valuation in accordance with section 14(a)(1).

2. Reasonable fee for reimbursement. Section 1002.14(a)(3) does not prohibit a creditor from imposing a reasonable fee to reimburse the creditor's costs of the appraisal or other written valuation, so long as the fee is not increased to cover the costs of providing copies of such appraisals or other written valuations under § 1002.14(a)(1). A creditor's cost may include an administration fee charged to the creditor by an appraisal management company as defined in 12 U.S.C. 3350(11). Section 1002.14(a)(3) does not, however, legally obligate the applicant to pay such fees. Further, creditors may not impose fees for reimbursement of the costs of an appraisal or other valuation where otherwise prohibited by law. For instance, a creditor may not charge a consumer a fee for the performance of a second appraisal if the second appraisal is required under 15 U.S.C. 1639h(b)(2) and 12 CFR 1026.35(c)

Definitions from the commentary

14(b)(1) Consummation.

1. State law governs. When a contractual obligation on the consumer's part is created is a matter to be determined under applicable law; § 1002.14 does not make this determination. A contractual commitment agreement, for example, that under applicable law binds the consumer to the credit terms would be consummation. Consummation, however, does not occur merely because the consumer has made some financial investment in the transaction (for example, by paying a nonrefundable fee) unless, of course, applicable law holds otherwise.

2. Credit vs. sale. Consummation does not occur when the consumer becomes contractually committed to a sale transaction, unless the consumer also becomes legally obligated to accept a particular credit arrangement.

14(b)(2) Dwelling.

1. "Motor vehicles" not covered. The requirements of § 1002.14 do not apply to "motor vehicles" as defined by 12 U.S.C. 5519(f)(1).

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14(b)(3) Valuation.

1. Valuations—examples. Examples of valuations include but are not limited to:

i. A report prepared by an appraiser (whether or not licensed or certified) including the appraiser's estimate of the property's value or opinion of value.

ii. A document prepared by the creditor's staff that assigns value to the property.

iii. A report approved by a government-sponsored enterprise for describing to the applicant the estimate of the property's value developed pursuant to the proprietary methodology or mechanism of the government-sponsored enterprise.

iv. A report generated by use of an automated valuation model to estimate the property's value.

v. A broker price opinion prepared by a real estate broker, agent, or sales person to estimate the property's value.

2. Attachments and exhibits. The term "valuation" includes any attachments and exhibits that are an integrated part of the valuation.

3. Other documentation. Not all documents that discuss or restate a valuation of an applicant's property constitute a "valuation" for purposes of § 1002.14(b)(3). Examples of documents that discuss the valuation of the applicant's property or may reflect its value but nonetheless are not "valuations" include but are not limited to:

i. Internal documents that merely restate the estimated value of the dwelling contained in an appraisal or written valuation being provided to the applicant.

ii. Governmental agency statements of appraised value that are publically available.

iii. Publicly-available lists of valuations (such as published sales prices or mortgage amounts, tax assessments, and retail price ranges).

iv. Manufacturers' invoices for manufactured homes.

v. Reports reflecting property inspections that do not provide an estimate of the value of the property and are not used to develop an estimate of the

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value of the property.

vi. Appraisal reviews that do not include the appraiser's estimate of the property's value or opinion of value.

Withdrawn, denied or incomplete applications : the requirements still apply for applications that are not consummated

Copies in Electronic form: the copies may be provided in electronic form if all E-Sign (Electronic Signatures in Global and National Commerce Act) are followed

This is the portion of page five of the NEW Closing Disclosure that “reminds” consumer a copy of the appraisal should have been provided

o Collecting required monitoring information when applicable (purchase or refinance of a principal dwelling) 12 CFR 1002.13

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ABILITY TO REPAY FACTORS

Documenting the “Ability to Repay” for certain applications became effective January 10, 2014. A creditor may not make a “covered loan” unless a “reasonable and good faith determination” has been made at or before consummation that the “consumer will have the reasonable ability to repay the loan according to its terms”. There are eight general ability repay factors. (See the “Repayment Ability Risk and Requirements Matrix that outlines Non-qualified mortgages, Standard QM, Special QM, HUD/FHA QM, Small Creditor Portfolio QM, Small Creditor Balloon Payment QM). These rules apply to any consumer credit transaction that is secured by a dwelling (per 1026.2(a)(1), including any real property attached to a dwelling -, see EXEMPTIONS below

What is covered?1026.43   Minimum standards for transactions secured by a dwelling.

(a) Scope. This section applies to any consumer credit transaction that is secured by a dwelling, as defined in § 1026.2(a)(19), including any real property attached to a dwelling, other than: (1) A home equity line of credit subject to § 1026.40; (2) A mortgage transaction secured by a consumer's interest in a timeshare plan, as defined in 11 U.S.C. 101(53(D); or

EXEMPTIONS1. Reverse mortgage2. Temporary of “bridge” loan of 12 months or less, such as a loan to finance the

purchase of a new dwelling where the consumer plans to sell a current dwelling within 12 months or a loan to finance the initial construction of a dwelling;

3. A construction phase of 12 months or less of a construction-to-permanent loan4. An extension of credit made pursuant to a program administered by a Housing

Finance Agency

What is prohibited?(c) Repayment ability. (1) General requirement. A creditor shall not make a loan that is a covered transaction unless the creditor makes a reasonable and good faith determination at or before consummation that the consumer will have a reasonable ability to repay the loan according to its terms.

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What are the factors?

1. The consumer's current or reasonably expected income or assets, other than the value of the dwelling, including any real property attached to the dwelling, that secures the loan;

2. If the creditor relies on income from the consumer's employment in determining repayment ability, the consumer's current employment status;

3. The consumer's monthly payment on the covered transaction, calculated in accordance with paragraph (c)(5) of this section;

4. The consumer's monthly payment on any simultaneous loan that the creditor knows or has reason to know will be made, calculated in accordance with paragraph (c)(6) of this section;

5. The consumer's monthly payment for mortgage-related obligations; 6. The consumer's current debt obligations, alimony, and child support; 7. The consumer's monthly debt-to-income ratio or residual income in accordance with

paragraph (c)(7) of this section; and8. The consumer's credit history.

How is it done?A creditor must verify the information that the creditor relies on in determining a consumer's repayment ability under § 1026.43(c)(2) using reasonably reliable third-party records

NOTE: use this link to download , select “Ability to Repay Worksheet”http://www.bankerscompliance.com/compliance-resources/free-downloads.htm

A financial institution is not required to make qualified mortgages. However a creditor is prohibited from making a consumer purpose loan secured by a dwelling unless the ability to repay standards have been satisfied.

See the Appendix for an expanded version of the Repayment Ability Risk & Requirements Matrix

See the Appendix for Highlights of the July 8, 2014 Bulletin Clarifying mortgage lending rules to assist surviving family members

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ABILITY TO REPAY WORKSHEET

Current/Reasonably Expected Income or assets (Excluding the value of the dwelling and any attached real property)

Source of Income: _____________________________ Verification Document: _________________________

Employment Status (If relying on employment income; may be verified orally if record made for file)

Employer/Self Employed: _______________________ Verification: ___________________________________

Monthly Mortgage Payment

Amount: _____________________________________ Verification Document: _________________________

Monthly Simultaneous Loan Payment(s) (loans secured by the same property)Amount: _____________________________________ Verification Document: _________________________

Monthly Mortgage-Related Obligations/Payments (property taxes, HOA fees, hazard & flood ins.)

Taxes: _______________________________________ Verification Document: ________________________Hazard Insurance: ______________________________ Verification Document: ________________________Flood Insurance: _______________________________ Verification Document: ________________________Other: _______________________________________ Verification Document: ________________________Total: _______________________________________

Current Debt Obligations (installment, credit card, alimony, child support, use Section G of FNMA declarations)

Total Amount: ________________________________ Verification Document(s): _______________________

Monthly Debt to Income Ratio and/or Residual Income

DTI: ____________ RI: ____________ Verification Document: __________________________

Credit History

Comments: ___________________________________ Verification Document: _________________________

Type of Loan: _____ Non-QM _____ Standard QM _____ Special QM_____ HUD (FHA) QM _____ Small Creditor Portfolio QM _____ Small Creditor Balloon QM

Lender Comments: ______________________________________________________________________________________________________________________________________________________________________________________________________

Lender: ________________________________________

Date: _____________________________

This worksheet is intended to satisfy the minimum Ability to Repay requirements under §1026.43(c) of Regulation Z. Additional forms may be necessary to accommodate multiple applicants.

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COMPONENTS OF THE FNMA 1003 APPLICATION

The Form 1003 contains the following information:

1. Instructions and Signatures: The first section contains certain instructions for the borrowers and explains who needs to complete the form. The instructions are also designed to meet the requirements of Regulation B and UDAAP.

2. Section I - Type of Property and Term of Loan: The loan product that is applied for is entered in this section. Certain information such as Agency Case Number and Lender Case Number would be filled by the loan originator.

3. Section II – Property Information and Purpose of Loan: This section contains information relating to the property that will be used as collateral for the loan. The loan purpose and title information is also entered.

4. Section III – Borrower Information: Personal information of the borrower and co-borrower is entered.

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5. Section IV – Employment Information: Two years of employment history is entered in this section. Part-time, temporary, and seasonal jobs held in last two years should also be entered.

6. Section V – Monthly Income and Combined Housing Expense Information: This section contains the income information for the borrower and co-borrower. The second set of information is the Combined Monthly Housing Expense information which determines the current cost of housing expense. The borrower should seek the loan originator’s assistance when filling the proposed expense information in the Initial 1003.

7. Section VI – Assets and Liabilities: The information relating to all the assets and liabilities of the borrowers is entered here. The section also requires detailed information of any real estate owned by the borrowers in the Scheduled of Real Estate Owned.

8. Section VII – Details of Transaction: Details of the structure of the property transaction is entered here.

9. Section VIII – Declarations: Declarations related to past credit, current residency status, purpose of residence, and other declarations are made. Certain sections may require the borrowers to provide detailed explanations.

10. Section IX – Acknowledgement and Agreement: The borrowers provide acknowledgment to various disclosures and affirmations.

11. Section X – Information for Government Monitoring Purposes: The section requires ethnicity, race, and gender information which is required by Home Mortgage Disclosure Act (HMDA) and Regulation B for fair lending purposes. The section also contains additional information that the loan originator needs to enter.

12. Continuation Sheet/Residential Loan Application: The sheet is used to enter any additional information such as when there is not enough space in the form or when detailed explanations are required.

Lender's ConsiderationsReviewed By

The loan originator or loan processor should have the primary responsibility to review the form for completeness and consistency of information. Any discrepancy in the income, employment, or asset information should be investigated and verified through independent sources. The lender’s Quality Control (QC) department may perform additional reviews of the form to ensure operational effectiveness. Internal audit, compliance, and risk management department would form the final layer of reviews to ensure that the form is being correctly completed.

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DECLARATIONS SECTION VIII

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ATR FACTOR

INTEGRATED DISCLOSURES – WHAT’S OLD, WHAT’S NEW?

This is a link to the CFPB website to compare the “new & old” FORMShttp://www.consumerfinance.gov/knowbeforeyouowe/compare/

OLD NEWCurrent: Initial TIL disclosure + Good Faith Estimate; Final HUD-1 and final TIL disclosures, applies for applications taken UNTIL 8/1/15.

- Applications taken on or after 8/1/15= NEW Loan Estimate and NEW Loan Disclosure

OLD NEWCURRENT TIMING – A copy of the HUD statement must be given to the borrower at closing or mailed as soon as possible after closing. *If requested, the borrower is entitled to INSPECT a copy 24 hours prior to closing!

Applications taken on or after 8/1/15 – the LOAN DISCLOSURE must be provided 3 business days PRIOR to closing; these are three “precise” business days and are the same as the rescission days.

OLD COVERAGE NEW - COVERAGEA consumer loan request, regardless of the purpose, that is secured by a first or subordinate lien on residential real property, including the refinancing of a dwelling secured loan is subject to RESPA. However, there are several exemptions including:

Property of more than 25 acres Temporary financing Vacant Land Business Purpose Loan Modifications HELOC’s

Must be a “creditor” that makes more than five mortgages per calendar year, the coverage is EXPANDED from the current provisions of RESPA (1024.5) and TRUTH IN LENDING (1026.3 and 1026.19) to the provisions in TRUTH IN LENDING found in 1026.37 for the LOAN ESTIMATE and 1026.38 for the CLOSING DISCLOSURE. These are some EXEMPTIONS from coverage:

HELOC’s Reverse Mortgages Chattel-dwelling loans, such as secured by a

mobile home or a dwelling that is NOT attached to real property (i.e. land)

In addition to consumer purpose dwelling secured transactions, certain loans have been subject to TILA but were exempt from RESPA. These loan types have been ADDED to the TILA-RESPA Integrated disclosure requirements:

Construction-only loans Loans secured by vacant land or by 25 or

more acres Credit extended to certain trust for tax are

estate planning are coveredOLD -Applications taken BEFORE 8/1/2015 NEW- Applications taken on or after 8/1/2015Application means the submission of a consumer's financial information for the purposes of obtaining an extension of credit

the submission of the consumer's name, the consumer's income,

(3) (i) Application means the submission of a consumer's financial information for the purposes of obtaining an extension of credit.

(ii) For transactions subject to § 1026.19(e), (f), or (g) of this part, an application consists of

the submission of the consumer's name,

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the consumer's social security number to obtain a credit report,

the property address, an estimate of the value of the property, the mortgage loan amount sought any information deemed necessary by

the creditor

the consumer's income the consumer's social security number to

obtain a credit report, the property address, an estimate of the value of the property, and the mortgage loan amount sought

OLD – TIMING OF DISCLOSURES and VERIFICATION OF INFORMATION

NEW – TIMING OF DISCLOSURES and VERIFICATION OF INFORMATION

Provide the GFE and early disclosures within 3 business days of the application date unless the request is denied in 3 business days.The applicant should not be charged a fee, other than a credit report fee, until the GFE has been provided. Verification of information may not be done until the applicant indicates an “intent to proceed”

See the CFPB “ DISCLOSURE TIMELINE”It is14 pages long, link in the SupplementThe applicant should not be charged a fee, other than a credit report fee, until the GFE has been provided. Verification of information may not be done until the applicant indicates their “intent to proceed”. If this intent is given more than 10 business days after the Loan Estimate was delivered or placed in the mail, the creditor may use a revised Loan Estimate.

ADDITIONAL RESOURCES FOR INTEGRATED DISCLOSURES ARE IN THE APPENDIX

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COVERAGE OF FLOOD REGULATION

General Rule The regulations apply when (MIRE) making, increasing, renewing or extending a loan:

Secured by a building or a mobile home

Located or to be located in an area determined by the Director of the Federal Emergency Management Agency to have special flood hazards.

Note: Sections dealing with conducting and documenting determinations (and the fees charged for conducting a determination) apply to loans secured by buildings or mobile homes, regardless of location.

Designated Loan The term means a loan secured by a building or mobile home that is located or to be located in a special flood hazard area in a participating community.

Building The term means a walled and roofed structure, other than a gas or liquid storage tank, that is principally above ground and affixed to a permanent site, and a walled and roofed structure while in the course of construction, alteration, or repair.

Mobile Home The term means a structure, transportable in one or more sections, that is built on a permanent chassis and designed for use with or without a permanent foundation when attached to the required utilities. For purposes of this part, the term mobile home means a mobile home on a permanent foundation. The term mobile home includes a manufactured home as that term is used in the NFIP. Note: The term mobile home does not include a recreational vehicle.

Special Flood Hazard Area The term means the land in the flood plain within a community having at least a one percent chance of flooding in any given year, as designated by the Director of FEMA.

Participating CommunityThe term means a community that has fulfilled the requirements for participating in the NFIP and in which flood insurance is currently being sold.

Non-participating Community The term means a community located in an area having special flood hazards, but is not participating in the NFIP.

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Community Status Information Information about a community, its status (participating or non-participating) and the date of the current map is located on FEMA’s website at http://www.fema.gov/fema/csb.shtm.

Purchased Loans The purchase of a loan is not an event that requires the purchaser to make a new determination at the time of purchase. However, if the lender becomes aware at some point during the life of the loan that flood insurance is required, then the lender must comply with the Regulation. Similarly, if the lender extends, increases or renews the loan, the Regulation applies.

Table-Funded Loans Loans made through a table funding process are treated as though the party providing the funds has originated the loan. The funding party must comply with the Regulation.

SHORT VERSION OF FLOOD INSURANCE:- See the MATRIX, #9

The Flood Disaster Protection Act applies to any improved real estate loan or mobile home loan (regardless of where the mobile home will be located). Complete a Standard Flood Hazard Determination Form for each property before the loan is closed. If the improved real estate or mobile home securing the loan is located or is to be located in an area identified as having special flood hazards, a Flood Hazard Notice must be delivered to the customer within a “reasonable period of time” before closing (not less than 10 days) & must be signed. The requirements of this Act apply to increases, extensions, and renewals as well as commercial and agricultural loans secured by improved real estate.

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WHAT IS INSURABLE?

Any “ building or mobile home securing a loan and any personal property securing such loan located in a building or mobile home securing a ‘loan’ must be ‘covered’ for the full term of the loan by flood insurance.” This means any insurable structure located in a flood-hazard zone must be covered by an appropriate amount of flood insurance.

An insurable structure is a structure with at least two load-bearing walls and a roof. It must be affixed to land, and at least 50 percent of its value must be above ground. This definition includes almost all residential and commercial structures, as well as other buildings such as garages and barns. Storage facilities like silos and grain storage buildings are also covered. The rules don’t cover gazebos, pavilions, pole barns, and storage tanks, which don’t have two load-bearing walls and a roof.

Buildings under construction are covered. Insurability begins the moment construction begins on any part of the building above the slab, and continues throughout construction. However, coverage stops if construction halts for 90 continuous days or more.

Mobile homes are covered if the following three conditions exist:

1. The mobile home must rest on a permanent foundation, meaning no weight rests on any wheels or axles. The foundation may be as simple as concrete blocks, even if they’re non-continuous. The foundation must be able to resist flotation, collapse, or lateral movement.

2. The mobile home must be anchored to the foundation according to the community tie-down regulations. (There’s a prize to the first person who knows what they are locally)

3. The mobile home must be connected to utilities.

If these three conditions are met, any loan secured by a mobile home, regardless of whether the land it sits upon is owned or rented by the borrower, and regardless of whether the land secures the loan, must be covered by flood insurance. If the mobile home does not meet these standards, flood insurance is not mandatory.

The rules also require coverage of the contents of insurable structures, if the contents also secure the loan. This means property stored inside buildings covered by flood insurance must also be insured, subject to certain rules. Property stored in the basement of a structure is not insurable unless it is necessary to the maintenance of the building. Personal property stored outside the building is not insurable, but property that is normally stored outside that is now stored inside an insurable structure, such as crops that are stored in an insurable storage building after harvest, is insurable. Mobile property, such as an automobile or trailer, normally stored inside an insurable structure like a garage is not insurable, as these can be easily removed in the event of a flood.

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Lenders should be particularly cautious about content coverage on loans secured by commercial real estate. Taking contents (inventory or equipment) is a common practice with commercial loans. In this case contents coverage must also be purchased.

The flood insurance requirements apply to all loans secured by structures in flood-hazard areas. The rules apply equally to junior mortgages, open or closed-end loans, refinances, purchase money, construction and even when the real estate is taken as an “abundance of caution”.

SPECIAL NOTE FOR COMMERCIAL LENDERS:

Abundance of Caution Loans – Frequently Asked Questions

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STANDARD FLOOD HAZARD DETERMINATION FORM

The determination of whether a structure is in a special flood-hazard area may be made by the bank or by a third party. If a check of the maps shows that any part of a structure lies in the flood-hazard area, the entire structure must be covered by flood insurance. On the other hand, if part of the land taken as collateral is located in a flood-hazard area, but none of the structure itself is in the flood-hazard area, no insurance is required. Land may not be insured against flood, only structures.

A fee may be charged to the borrower for making the determination that’s made by a third party. Determinations made by a third party may be used only if the accuracy for making the determination is guaranteed by the third party. Ultimately, the bank is responsible for the accuracy of the determination and the only party who can make the final decision as to whether flood insurance is required for the loan.

Lender’s Responsibility It is the lender’s responsibility to determine if a building or mobile home offered as collateral for a loan is or will be located in a special flood hazard area. The lender must also determine if the area is a participating or a non-participating community.

Document the determination of flood hazard status, whether the building is in a low-to-moderate flood risk area or in an SFHA, on the Standard Flood Hazard Determination Form (SFHDF) shown in Appendix 3;

Provide notice to the borrower if collateral is, or will be, in an SFHA per the appropriate sample Notice of Special Flood Hazard and Availability of Federal Disaster Relief Assistance, the two versions of which are shown in Appendix 4;

Require that adequate flood insurance is obtained for buildings in SFHAs; Require the escrow of flood insurance premiums if escrow is required for other items,

such as hazard insurance and taxes; During the term of the loan, ensure that flood insurance is maintained or obtained if the

lender becomes aware that the building involved subsequently becomes part of an SFHA; and

Force place flood insurance if the borrower allows the policy to lapse or if insurance is inadequate.

Third Party The lender remains responsible for the determinations, even if it contracts with a third party to perform such services. Any third party performing determination services must guarantee the accuracy of the information provided.

The Flood Insurance Administration (FIA) maintains a list of Flood Zone Determination Companies. The list reflects companies that have contacted FIA or maintained contact with FIA about the services they offer relating to the NFIP. FIA attempts to maintain the list as current, but relies on information provided by these companies. FIA does not attest to the quality of accuracy of the services offered. FIA does not approve, endorse, regulate, or otherwise sanction any company on this list.

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Use of Form A lender must use the standard flood hazard determination form (SFHDF) to document the determination. The SFHDF may be used in a printed, computerized, or electronic manner. Note: While it may be a common practice in some areas for lenders to provide a copy of the SFHDF to the borrower to give to the insurance agent, lenders are neither required nor prohibited from providing the borrower with a copy of the form. The borrower’s signature is not required on the SFHDF, but proof of receipt of the notice if a property is located in a SFHA IS required.

Duration of the Form A lender may rely on a previous determination using the SFHDF when increasing, extending, renewing or purchasing a loan secured by a building or a mobile home. The lender may rely on the previous determination if:

A subsequent loan involving a refinancing or assumption is made:

on the same property;

by the same lender who obtained the original determination; and

The other requirements contained in Section 528 are met.

Note: The Act omits the ``making'' of a loan as a permissible event to rely on a previous determination. A refinancing or assumption made by a lender other than the lender who obtained the original determination constitutes “making” a new loan, thereby requiring a new determination.

Section 528 Requirements Section 528 of the Act requires that a lender may rely on a previous determination only if:

The original determination was recorded on the SFHDF;

The original determination was made within the previous seven years; and

There were no map revisions or updates affecting the security property since the original determination was made.

Retention of Form A lender shall retain a copy of the completed determination form, in either hard copy or electronic form, for the period of time the lender owns the loan.

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FLOOD INSURANCE CHANGES

On June 22, the Agencies announced a joint final rule that implements certain provisions of both the Homeowner Flood Insurance Affordability Act and Biggert-Waters Flood Insurance Reform Act. This is a link to the announcement:http://www.federalreserve.gov/newsevents/press/bcreg/20150622a.htm

A few of the highlights from the Final Rule include: Requires institutions to provide borrowers of residential loans outstanding as of January

1, 2016 the option to escrow flood insurance premiums and fees. NOTE: There is a “small lender exception for the mandatory escrow; however there are certain qualifications to be eligible for the exemption

New and revised sample notice forms and clauses concerning the escrow requirement and the escrow options.

An exemption from the requirement to purchase flood insurance for a structure that is a part of a residential property if that structure is detached from the primary residence and does not also serve as a residence. One significant clarification: To be eligible for the exemption, the detached structure must be used primarily for “consumer” purposes and cannot be used primarily for commercial or agricultural purposes.

Clarified that regulated lending institutions have the authority to charge a borrower for the cost of force-placed flood insurance coverage beginning on the date on which the borrower's coverage lapses or becomes insufficient.

Stipulates the circumstances under which a lender must terminate force-placed flood insurance coverage and refund payments to a borrower.

One thing not addressed in this final rule was private flood insurance. The Agencies stated that they plan to address this at another time.

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APPENDIX

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REG B CHEAT SHEET APPRAISAL COPY RULES

It’s important to read the entire regulation and commentary to the sections that have been changed. These cheat sheets may help to develop checklists for compliance.

REG B APPRAISAL COPY RULEChanges to Reg B §1002.04 and §1002.14 are amendedWhen? Effective date was January 18, 2014What’s new? This change requires a creditor to give an applicant a copy of all appraisals and written

valuations that were developed in connection with a credit application that is secured by a first lien on a dwelling.

Timing The copy must be provided 3 business days prior to closing for a closed-end request or account opening for open-end credit, whichever is earlier.

Waiver The applicant can waive the 3-day rule, but the lender must still provide the copy at or before closing or account-opening.

Loan doesn’t close The creditor must still provide the copies no later than 30 days after determining that consummation won’t happen or the account isn’t opened.

Consumer only NO – this will also apply to business purpose first-lien loan applicationsWhat definitions are new?

Dwelling still means a residential structure of one to four units, whether or not attached to real property. Dwelling does not include a “motor vehicle” (i.e. cars, trucks, motorcycles, recreational boats & marine equipment, motor homes, campers)Valuation – means any estimate of the value of a dwelling developed in connection with an application for credit.

Timing and disclosures

The disclosure of “Right to Receive a Copy of Appraisals” must be provided 3 business days from the application date

A copy of each appraisal or written valuation must be given promptly on completion or 3 business days before closing for a closed-end request or account opening for open-end credit; whichever is earlier unless there is a waiver.

What is the new disclosure form? C-9 has been revised; it’s “Sample Disclosure of Right to Receive a

Copy of Appraisals.”What can go wrong? Copy is required even if the application is incomplete, denied,

withdrawn, offered but not accepted. This is not just for closed loans.

Can’t charge the applicant for the cost of the copy; you CAN charge for the appraisal

Can be provided electronically, but only if E-SIGN is followed (unless application was electronic)

This applies to business loans if there is a first-lien on a dwelling Be careful with waiver documentation for the 3 business day

timing; the commentary says the waiver can be done orally or in writing. There are restrictions for Non-QM HPML appraisals; they have their own set of rules

Get the waiver at least 3 business days before closing unless is only for a copy of an appraisal/valuation that was changed for clerical reasons from a previous version that was given within the timing

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requirements. At the time of application the loan was going to be a subordinate

lien and it’s later determined that it WILL be a first lien, the notice must be mailed or delivered no later than 3 business days after determining the first lien position

Who knew? This change actually REDUCES the scope of appraisal coverage to first lien applications secured by a dwelling. Copies MUST be provided under this new rule; the “old” rule gave the applicant a right to request a copy or the lender routinely provided copies.

Bottom line Provide a notice and provide a copy within the time frames

Form C-9—Sample Disclosure of Right to Receive a Copy of Appraisals.We may order an appraisal to determine the property's value and charge you for this appraisal. We will promptly give you a copy of any appraisal, even if your loan does not close.

You can pay for an additional appraisal for your own use at your own cost

Additional clarification:CoverageIt seems simple enough to say the Regulation B appraisal rule (the rule) applies anytime you have an application for a loan that is to be secured by a first lien on a dwelling. This would include applications to be secured by new construction, rentals, vacant dwellings and applications for preapprovals or pre-qualifications. However, bankers need to be careful exactly “what” constitutes an application, especially when it comes to agricultural and commercial lending. Does it meet the Regulation B definition of an application (and thus trigger these requirements) even if you don’t trigger other disclosures? For example, bankers doing a renewal or extension of an existing loan will likely do so in response to a borrower’s request. Thus, there is an application for credit, even if it is not formally documented in writing.

Notice RequirementThe required notice is only triggered for those applications in which a creditor would be required to provide a copy of an appraisal or valuation. If a lender takes an application and has determined that there will be no new appraisal or use any type of valuation the notice is not required. Knowing what the Reg considers to be an “appraisal” and / or “valuation” is also very important. The Commentary does provide some examples. For example, it specifically states that governmental agency statements of appraised value that are publically available are not considered valuations. However, reports developed by internal staff (or government agency statements that are adjusted by the lender) and reports approved by a government-sponsored enterprise that provide a value are considered valuations. Thus, a valuation, for the purposes of Reg B, can be a document prepared by someone other than a traditional appraiser.The Commentary to Regulation B is clear the requirements do not apply if a lender uses a previously developed appraisal or valuation in connection with a renewal request. If a lender uses a prior valuation in connection with a new application, the regulation is less clear, but a possible position is that a lender doesn’t have to provide the appraisal notice or copy under Regulation B because the valuation is not developed in connection with the new application. However, it may be simpler to provide the notice in every case.

Waivers

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It’s no surprise that the idea of obtaining a waiver has grown quite popular with some lenders.However, it would be a best practice to only give the option for the waiver on a case-by-case basis. For example, if a lender knows the appraisal is going to be completed later than anticipated, inform the borrower that there is a waiver available if they don’t want to wait an additional three business days after the appraisal is provided. Keep in mind any waiver you get must still be obtained from the borrower at least three business days prior to closing. Since the CFPB believes the use of a waiver equates to the applicant giving away their rights, any practice that consistently results in a waiver will leave your financial institution with a lot of questions from examiners at the next exam.The Small Entity Compliance Guide specifically states, if you receive a completed valuation,you must promptly provide it to the applicants, even if they do not pay for it. Once an appraisal orvaluation has been completed, you have to provide a copy to the borrower, whether the loan closes or not. Collecting the appraisal fee before ordering the appraisal is a way to manage this risk.

DocumentationSo, with the notice requirement and all the timing issues in this rule, how does a financial institution prove compliance? First, there is no requirement to obtain the borrower’s signature on either the appraisal notice or showing that a copy of the appraisal was received. Likewise, there is no requirement to retain a copy of the notice provided. However, lenders will want to be able to demonstrate that the procedures and processes ensure the notice is given in a timely manner and a copy of any appraisal or valuation is provided promptly. It is a best practice to have some documentation in the file as to the date the copy of the appraisal or other valuation was provided to an applicant to demonstrate the lender waited the appropriate time to close the loan.

What’s an Appraisal?Regulation B never really defines the word “appraisal” but they do define the term “valuation”. An appraisal is a valuation. A valuation includes any document, which establishes a value for a dwelling that cannot be obtained from public sources. For example, if you obtain a tax-assessed value maintained by the County Assessor and do nothing to modify that value, it is not considered a valuation. This unaltered value is also readily available to the applicant. On the other hand, if the bank takes the assessor’s value and adjusts it 10% based on comparable dwellings, the bank has created a valuation, for the purpose of this requirement. Additionally, since this value is not publically available to the applicant, it would fall under the appraisal notice and free copy requirements of Regulation B.Another common example of a valuation is numerical values from secondary market underwriting programs. For example, if the underwriting system returns a value for the dwelling, it is not publically available and is therefore considered an appraisal and is subject to the rule. If the bank manually enters a value into the underwriting program, it could also be considered a valuation depending on the circumstances. It all depends on where the entered value was derived from. For example, if the tax-assessed value is entered, it’s not a valuation. If the value entered is from a previously obtained appraisal, if could be argued this did not trigger the requirements because it’s not a new appraisal (developed in connection with that application).

Completed Applications

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Several Forum participants asked about the definition of a “completed application” for the purpose of starting the clock for the 3 business day notice requirement, particularly from the commercial and agricultural sides of the bank. It is important to note that the appraisal rule requirements are NOT triggered by a completed application. Rather, they are triggered by a request for credit. These are two totally different things.Bankers can debate about what is and what isn’t an application. This problem begins with the fact that every regulation looks at applications and certain timing requirements differently. The term “completed application” is found in Regulation B but it pertains mostly to approvals and/or denials of a credit request. The term is not mentioned in the appraisal rule section of Regulation B because those requirements are triggered when the bank receives a request for credit that will be secured by a first lien on a dwelling and where the bank will obtain an appraisal. A request for credit occurs when an applicant says to a lender, “I would like to borrow / renew / refinance / extend a loan”. Whatever terminology is used to request credit from the bank, it is an application and the bank will need to provide the appraisal notice and also provide a copy of the appraisal promptly. It is also important to note a request for credit can be received by phone, in-person, mail, internet, etc. In other words, lenders don’t need a piece of paper that’s signed by the applicant to have a request for credit.Here are some regulatory references to prove our point:A. Application:...any oral or written request for an extension of credit that is made in accordance withprocedures used by a creditor for the type of credit requested. [§1002.2(f)]B. Procedures Used:… refers to the actual practices followed by a creditor for making credit decisions, as wellas its stated application procedures. For example, if a creditor’s stated policy is to require allapplications to be in writing on the creditor’s application form, but the creditor also makescredit decisions based on oral requests, the creditor’s procedures are to accept both oral andwritten applications. [Commentary to §1002.2(f) #2]C. Appraisal Requirements Driven by the ApplicationA creditor shall provide an applicant a copy of all appraisals and other written valuationsdeveloped in connection with an application for credit that is to be secured by a first lien on adwelling. [§1002.14(a)(1)]A creditor shall mail or deliver to an applicant, not later than the third business day after thecreditor receives an application for credit that is to be secured by a first lien on a dwelling, anotice in writing of the applicant's right to receive a copy of all written appraisals developed inconnection with the application. [1002.14(a)(2)]There is no reference to the term “completed application.

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Notice RequirementsA request for credit, secured by a first lien on a 1-4 family dwelling is subject to the appraisal rule. The next step is to provide the appraisal notice. The notice must be provided within 3 business days of an application (request for credit). The notice does not have to be provided to each applicant, rather one applicant (must be the primary applicant, when apparent) can receive the notice on behalf of all applicants. The notice may be provided electronically; however, it must comply with E-SIGN. The only exception is if the notice is provided on or with an application that can be accessed electronically.

ExemptionsThe loan type doesn’t matter. In other words, the rule will apply whether the request is for a construction loan, bridge loan, HELOC or a commercial/agricultural loan or line of credit. Also, watch those cross-collateralization clauses. A lender may have a covered application and not even realize it. The rule also does not make exceptions for occupancy status, whether the dwelling is taken as an abundance of caution or whether the dwelling has little value relative to the amount requested. REPEAT WARNING - if the request will be secured by a first lien on a dwelling and an appraisal will be obtained, the bank owes a notice and copy.

Business Days?The notice must be provided within 3 business days of application. The CFPB failed to define “business days” within the Regulation, which has led to confusion. They have; however, indicated that a “reasonable” definition is sufficient. It may be prudent to adopt Regulation Z’sdefinition since there is a very similar appraisal requirement for Higher-Priced Mortgage Loans.Regulation Z defines a business day (for these purposes) as “a day on which the creditor's offices are open to the public for carrying on substantially all of its business functions”. To demonstrate the 3-business day delivery, assume the application is received on Monday. The notice should then be provided or placed in the mail by the end of business Thursday.

Most compliance experts advise against is using the definition to exclude Saturday in the notice provision (“delaying the delivery”) and to include Saturday in the copy and closing provisions (“expediting the applicant to close”). These rules are intended to provide adequate notice and adequate time to review documents so any action to contradict the spirit of the law coulddraw examiner scrutiny.

Appraisal CopyOnce the appraisal is completed and reviewed by the bank to make sure it meets the bank’sstandards and adequately documents the value of the property, a copy must be provided to theapplicant promptly. When the appraisal is considered “complete” can occur at any time during the loan process; however, the copy generally cannot be provided less than 3 business days prior to closing (unless the lender has a waiver, which is discussed below).If the free copy is delivered in person, the loan can close in three business days. For example, if you hand-deliver on Monday, you can close on Thursday. If the free copy is mailed, you have to allow three business days for it to be considered “delivered”, then you must wait three more business days to close the loan. If you count Saturday and the copy is mailed on Monday, the loan can be closed on the following Monday. The copy may also be provided electronically; however, it must comply with E-SIGN.

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Previous AppraisalsIf a bank intends to rely on a prior appraisal, most compliance experts believe the notice and copy requirements will apply. Regulation B states, in §1002.14(a)(1), you must provide a copy of any appraisal or other written valuation developed in connection with an application that is to be secured by a first lien on a 1-4 family dwelling. The key here is “developed in connection with”. In other words, if a lender receives an application and will rely on an existing appraisal that was developed for another loan, you don’t have a covered application. This means the appraisal notice isn’t technically required under §1002.14(a)(2) and neither is the free copy under §1002.14(a)(1). However, it may be simpler to provide the notice, in case there are updates to a previously developed value.The Commentary to §1002.14(a)(1) helps to further understand the “developed in connection with ” requirement and also provides clarification as to how this section applies to loan renewals. It states, if a new appraisal is developed in connection with an application for a renewal, it is a covered application (meaning the notice and free copy are required). However, when an application for a renewal includes a reliance on a previously developed appraisal, it is not a covered application (meaning no notice and no free copy).

Closing Commercial/Ag LoansLenders have asked regarding commercial/agricultural loans. Specifically, questions about the ability to close agricultural purpose loans (such as to purchase equipment) that are to be secured by a 1st lien on a dwelling. The concern was whether closing could occur on the same day that an application is received and the answer is absolutely, but only as long as the lender is not going to obtain/perform a valuation. Remember, even though the transaction may result in a first lien on a dwelling through a direct mortgage or cross-collateralization, if the bank is not going to order or obtain a new valuation in conjunction with the new equipment loan, a reasonable position is that the bank is not required to provide the notice or a copy of the valuation.

Appraisal ChangesThere have been concerns that technical corrections to a valuation would restart the 3-businessdays prior to closing clock and ultimately delay closing. The answer is not necessarily, if the applicant has already received a copy of the valuation three business days prior to closing and provides the lender with a waiver. Only in the case of a “clerical” change can a waiver be obtained within three business days of closing. Waivers are discussed more below. If the estimated value or the method used to determine the value is not impacted by the change, there is no reason to further delay closing. The applicant should; however, receive a final copy of the appraisal that includes all the technical corrections.

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MLO RESPONSIBILITY, CHARACTER, AND FITNESS; TRAINING

This information is from Reg Z 1026.36(f)(3)(ii(B)

Paragraph 36(f)(3)(ii)(B)

1. Financial responsibility, character, and general fitness. The determination of financial responsibility, character, and general fitness required under § 1026.36(f)(3)(ii)(B) requires an assessment of all information obtained pursuant to paragraph (f)(3)(i) and any other reasonably available information, including information that is known to the loan originator organization or would become known to the loan originator organization as part of a reasonably prudent hiring process. The absence of any significant adverse information is sufficient to support an affirmative determination that the individual meets the standards. A review and assessment of financial responsibility is sufficient if it considers, as relevant factors, the existence of current outstanding judgments, tax liens, other government liens, nonpayment of child support, or a pattern of bankruptcies, foreclosures, or delinquent accounts. A review and assessment of financial responsibility is not required to consider debts arising from medical expenses. A review and assessment of character and general fitness is sufficient if it considers, as relevant factors, acts of unfairness or dishonesty, including dishonesty by the individual in the course of seeking employment or in connection with determinations pursuant to the qualification requirements of §   1026.36(f), and any disciplinary actions by regulatory or professional licensing agencies. No single factor necessarily requires a determination that the individual does not meet the standards for financial responsibility, character, or general fitness, provided that the loan originator organization considers all relevant factors and reasonably determines that, on balance, the individual meets the standards.

2. Written procedures for making determinations. A loan originator organization that establishes written procedures for determining whether individuals meet the financial responsibility, character, and general fitness standards under § 1026.36(f)(3)(ii)(B) and comment 36(f)(3)(ii)(B)-1 and follows those written procedures for an individual and complies with the requirement for that individual. Such procedures may provide that bankruptcies and foreclosures are considered under the financial responsibility standard only if they occurred within a recent timeframe established in the procedures. Such procedures are not required to include review of a credit score.

Paragraph 36(f)(3)(iii)

1. Training. The periodic training required in § 1026.36(f)(3)(iii) must be sufficient in frequency, timing, duration, and content to ensure that the individual loan originator has the knowledge of State and Federal legal requirements that apply to the individual loan originator's loan origination activities. The training must take into consideration the particular responsibilities of the individual loan originator and the nature and complexity of the mortgage loans with which the individual loan originator works. An individual loan originator is not required to receive training on requirements and standards that apply to types of

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mortgage loans that the individual loan originator does not originate, or on subjects in which the individual loan originator already has the necessary knowledge and skill . Training may be delivered by the loan originator organization or any other person and may utilize workstation, internet, teleconferencing, or other interactive technologies and delivery methods. Training that a government agency or housing finance agency has established for an individual to originate mortgage loans under a program sponsored or regulated by a Federal, State, or other government agency or housing finance agency satisfies the requirement in § 1026.36(f)(3)(iii), to the extent that the training covers the types of loans the individual loan originator originates and applicable Federal and State laws and regulations. Training that the NMLSR has approved to meet the licensed loan originator continuing education requirement at § 1008.107(a)(2) of this chapter satisfies the requirement of § 1026.36(f)(3)(iii), to the extent that the training covers the types of loans the individual loan originator originates and applicable Federal and State laws and regulations. The training requirements under § 1026.36(f)(3)(iii) apply to individual loan originators regardless of when they were hired.

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LOAN CHECKLISTS – HMDA BANKS

There are several helpful checklists available as a free download from this website:

http://www.bankerscompliance.com/compliance-resources/free-downloads.htm

The individual checklists are not provided in this supplement because of format issues. Go directly to the website to download HMDA Bank Loan Checklists (Version 1.1)

NOTE: THESE ARE EFFECTIVE UNTIL THE INTEGRATED DISCLOSURE CHANGES; SEE THE INTEGRATED DISCLOSURE CHECKLIST SECTION THAT MAY BE USED 10/3/15

You will find these checklists in WORD; they can be modified for your use:

1. PURCHASE/CONSTRUCTION (Fixed Rate/HMDA)2. Refinance (Fixed Rate/HMDA, includes “refinanced” home equity loans)3. HOME IMPROVEMENT/HOME EQUITY (Fixed Rate/HMDA)4. PURCHASE/CONSTRUCTION (Adjustable Rate Mortgage/HMDA)5. Refinance (Adjustable Rate/HMDA, includes “refinanced” home equity

loans)6. HOME IMPROVEMENT/HOME EQUITY (Adjustable Rate Mortgage/HMDA)7. HOME EQUITY LINE OF CREDIT (HMDA)8. AGRICULTURAL/COMMERCIAL REAL ESTATE LOAN (HMDA)

A sample of #1 is on the next page as a pdf and can NOT be modified

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Special Notes: *If application is for construction/permanent financing: A Servicing Transfer Disclosure, Good Faith Estimate and Preliminary Truth in Lending disclosure, for both the construction phase and the permanent financing, must be provided within 3 business days of the initial application.** Cannot include verification documentationSee PRIOR TO CLOSING ON NEXT PAGE

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N

NOTES: *** HPML escrow rules do not apply to construction loans, bridge loans or other temporary financing with a term of 12 months or less, HELOCs, or Reverse Mortgages. HPML appraisal requirements do not apply to construction loans, bridge loans with a term of 12 months or less (if in connection with the purchase of a primary dwelling); Qualified Mortgages; streamlined 1st lien refinancings meeting certain conditions; smaller dollar loans; loans secured by manufactured homes (until 7-18-15), mobile homes, boats, or trailers; or reverse mortgages. Certain flipped transactions require a second appraisalSee next pages for Closing & After Closing

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See Next Page After Closing

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After Closing

ALL NOTES: *If application is for construction/permanent financing: A Servicing Transfer Disclosure, Good Faith Estimate and Preliminary Truth in Lending disclosure, for both the construction phase and the permanent financing, must be provided within 3 business days of the initial application.** Cannot include verification documentation*** HPML escrow rules do not apply to construction loans, bridge loans or other temporary financing with a term of 12 months or less, HELOCs, or Reverse Mortgages. HPML appraisal requirements do not apply to construction loans, bridge loans with a term of 12 months or less (if in connection with the purchase of a primary dwelling); Qualified Mortgages; streamlined 1st lien refinancings meeting certain conditions; smaller dollar loans; loans secured by manufactured homes (until 7-18-15), mobile homes, boats, or trailers; or reverse mortgages. Certain flipped transactions require a second appraisal.

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CFPB INTEGRATED DISCLOSURE RESOURCES

The CFPB has a link to resources on this page:

http://www.consumerfinance.gov/regulatory-implementation/tila-respa/

It includes:

Compliance guide: A plain-language guide to the new rules in a FAQ format which makes the content more accessible for industry constituents, especially smaller businesses with limited legal and compliance staff.

Guide to forms: Provides detailed, illustrated instructions on completing the Loan Estimate and Closing Disclosure.

Disclosure timeline: Illustrates the process and timing of disclosures for a sample real estate purchase transaction.

Integrated loan disclosure forms & samples: Downloadable Loan Estimate and Closing Disclosure forms in both English & Spanish and samples for different loan types.

Videos: A series of webinars to address implementation of the new rule. Please note that registration is required to view the recordings. Topics include an overview of the final rule, frequently asked questions, loan estimate form, and the closing disclosure form.

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INTEGRATED DISCLOSURE FREE RESOURCES

This is the link: http://www.bankerscompliance.com/compliance-resources/integrated-disclosures-resources.htm

Welcome to our Integrated Disclosures Resource page.  Here you will find all things "Integrated Disclosures" in one convenient location.  We hope you find the page helpful as you navigate through the requirement in preparation for the August 1, 2105, mandatory compliance date.

**These tools are for reference only and should not be used until the October 3, 2015 mandatory compliance date.**

Tools

Integrated Disclosures Compliance Timeline   (Version 1.2) This tool will assist lenders in understanding when certain documents need to be delivered, received and other milestones during the loan origination process.

Loan Estimate & Closing Disclosure Rounding Cheat Sheet (Version 2.0)This tool will help lenders understand the complicated rounding requirements associated with this rule.  It is also a good way to double check your loan software.

Real Estate Matrix 10.0We have updated our Real Estate Matrix to include the Integrated Disclosures requirements. 

Escrow Analysis Worksheet DraftThis worksheet has been updated to remove references to the HUD 1/1A. 

Real Estate Loan Checklists (Version 2.0)These Real Estate Loan Checklists include the Integrated Disclosures requirements and should not be used until the October 3, 2015, effective date.

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INTEGRATED DISCLOSURE FREE CHECKLISTS

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NOTE: There are TWO additional checklists available; one for Home Equity Line of Credit (Secured by Real Property) and another for Agricultural/Commercial-Purpose Real Estate Loans. The checklists are in WORD and on a LEGAL page format. They can be CUSTOMIZED for your use.

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REAL ESTATE LOAN MATRIX

The Real Estate Matrix was created by Bankers Compliance Consulting in Nebraska. The author wishes to acknowledge and thank Bankers Compliance Consulting for providing this information and other valuable tools to the financial services industry. The basic format is available in a free download from their website at:

http://www.bankerscompliance.com/compliance-resources/free-downloads.htm

PLEASE GO DIRECTLY TO THE WEBSITE TO DOWNLOAD THE MATRIX.

THIS WILL ALLOW OPTIONS TO FORMAT. YOU CAN USE ADOBE FEATURES TO CREATE A LARGER IMAGE THAT IS EASIER TO READ

NOTE: This is version 9.3; this version should replace any prior versions; it was updated on June 20, 2014 with some minor changes. The changes included clarification about the HPML appraisal requirements.

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MANDATORY TRAINING FOR LOAN ORIGINATORS 2014 63© Susan Costonis, C.R.C.M.Compliance Training and Consulting

REAL ESTATE LOAN MATRIX –INTEGRATED DISCLOSURES

PLEASE GO DIRECTLY TO THE WEBSITE TO DOWNLOAD THE MATRIX.

THIS WILL ALLOW OPTIONS TO FORMAT. YOU CAN USE ADOBE FEATURES TO CREATE A LARGER IMAGE THAT IS EASIER TO READ

http://www.bankerscompliance.com/compliance-resources/integrated-disclosures-resources.htm

The matrix on the website still indicates that it applies for loan applications taken on or after 10/3/15, The CFPB has delayed the effective date to October 3, 2015 from August 1, 2015.

NOTE: This version 10.0 should replace any prior versions; it incorporates the major changes because of the Integrated Disclosure requirements.

**These tools are for reference only and should not be used until the October 3, 2015, mandatory compliance date.**

Note the expanded time table on the last page; note the matrix is typically a 2 page document. It has been expanded to several pages to make it easier for you see the information.

MANDATORY TRAINING FOR LOAN ORIGINATORS 2014 64© Susan Costonis, C.R.C.M.Compliance Training and Consulting

MANDATORY TRAINING FOR LOAN ORIGINATORS 2014 65© Susan Costonis, C.R.C.M.Compliance Training and Consulting

MANDATORY TRAINING FOR LOAN ORIGINATORS 2014 66© Susan Costonis, C.R.C.M.Compliance Training and Consulting

NOTE: THIS IS EXPANDED TO A FULL LANDSCAPED PAGE AFTER THE NEXT TWO PAGES

MANDATORY TRAINING FOR LOAN ORIGINATORS 2014 67© Susan Costonis, C.R.C.M.Compliance Training and Consulting

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NOTES

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