Aceable Agent Level 22

Main Takeaways Regarding TRID

- The TILA-RESPA Integrated Disclosure (TRID) initiative combined the efforts of the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA). - The two integrated closing forms created to help the consumer control costs and understand the closing process are the Loan Estimate and Closing Disclosure forms. - Loans subject to TRID include most closed-end consumer mortgages. - Loans exempt from TRID include home equity lines of credit, reverse mortgages, or mortgages secured by a mobile home or by a dwelling that is not attached to real property — as well as loans made by persons who are not considered "creditors."

Predatory Lending Red Flags

- unbelievable low interest rate - pressure to act fast - unwanted risk - high or unpredictable fees - lying on the application

Common Predatory Lending Practices

1. Equity Stripping - Equity stripping is when a lender makes a loan on a borrower's home equity that they may not be able to pay back. If not, they repossess the home 2. Bait and Switch -Bait and switch is when a lender advertises a good rate or loan product, but then offers a different, less-good one for no stated reason. The unfavorable terms might be hidden, like large fees, a too-high variable rate, or other nasty surprises 3. Loan Flipping when a lender refinances a loan with a new long-term high-cost loan. The borrower pays a bunch of points and fees every time the loan is flipped 4. Packing -Packing involves charging the borrower for services or fees they don't actually need. A common one is unnecessary credit insurance 5. Hidden Balloon Payments - a technique involves offering a low rate, then revealing at closing that you're actually offering a balloon loan that will have to be refinanced or paid off in a few years.

According to RESPA rules, what is the maximum number of months of payments a lender can keep in escrow for a borrower?

14 months

buyer rebate

A buyer rebate is when a buyer receives money during a closing without the lender's knowledge.

Regulation Z

Implements the Truth in Lending Act requiring credit institutions to inform borrowers of the true cost of obtaining credit in their disclosure statement - the regulation that enforces TILA - once administered by the Federal Reserve Board, now by the CFPB

Under ECOA, can a loan officer ask you about your marital status if you're applying for the loan without a co-borrower? Why or why not?

NO! They can't ask that! It's not permissible to ask a person taking out a loan without a co-borrower about their marital status (unless you're in a community property state). Beyond that, they can only ask if you are married, unmarried, or separated. They can't use language like "divorced" or "widowed."

What is the relationship between TILA and Regulation Z?

TILA is a law, Regulation Z are the rules for how the law is carried out

T/F: A loan applicant has the right to have a cosigner other than a spouse

TRUE; An applicant has the right to have a cosigner other than a spouse, if a cosigner is needed.

What does the Community Reinvestment Act require?

The CRA requires banks to create loans in the communities they operate in. - an institution's performance in helping their community is taken into account when approving new banks - encourages banks to make loans in the low- and middle-income communities they operate in

What two disclosure forms would a borrower getting a loan today receive?

The Loan Estimate and the Closing Disclosure

debt consolidation

The act of combining all debts into one monthly payment, typically extending the terms and the length of time required to repay the debt

Flipping

When a property is purchased and then quickly resold at a value that is artificially inflated by false appraisals, loan fraud has taken place; no significant repairs or improvements have been made to the property, so the higher resale price is not justified the first buyer is reselling the property to someone who is participating in the fraudulent activity and creates false appraisal information

Was it legal under the ECOA for a loan officer to ask you what your race or ethnicity was? Why or why not?

Yes, it was legal to ask about your race or ethnicity. And you were free to decline to answer. What would not be allowed is offering you different terms or denying your loan based on your race or ethnicity. Lending institutions collect information about customer race and ethnicity so that they have data about whether they are, in fact, offering the same terms to customers with similar credit profiles regardless of race.

TILA-RESPA Integrated Disclosure (TRID)

a Know Before you Owe (KYBO) mortgage initiative that integrates the RESPA disclosures with the TILA disclosures The TILA-RESPA Final Rule, the amendments, and corrections are collectively referred to as the TILA-RESPA Rule. The TILA-RESPA rule also provides a detailed explanation of how the forms should be filled out and used. TRID requires that lenders give borrowers two disclosures: the Loan Estimate and the Closing Disclosure. - administered by the CFPB - replaced the GFE and HUD-1 forms with the Loan Estimate (LE) and Closing Disclosure (CD) forms -combines the requirements of TILA and RESPA

Truth in Lending Act (TILA)

a federal law intended to ensure that credit terms are disclosed in a meaningful way so consumers can compare credit terms more readily and knowledgeably; it protects consumers against inaccurate and unfair credit billing and credit card practices TILA covers real estate loans, loans for personal/family/ or household purposes, & consumer loans of $25,000 or less. It does NOT cover business loans -requires disclosures, including APR, for all loans - allows certain borrowers a three-day right of rescission -created advertising rules for loans

Dodd-Frank Act

a financial reform act that provided common-sense protections, creating a new consumer watchdog to prevent mortgage companies and pay-day lenders from exploiting consumers; main goal was to protect people from unfair and abusive financial practices, and to make sure things like the 2006-2007 financial crisis didn't happen again

Equal Credit Opportunity Act

a law that prohibits lending discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or use of public assistance; administered by the Federal Trade Commission

In loan fraud, flipping involves buying a property and then quickly reselling it for a lot more money with a loan, using:

a phony appraisal and a straw buyer

"Know Before You Owe" Program

a program created by the CFPB that combines two federally required mortgage disclosures into a single, simpler form that makes the costs and risks of the loan clear and allows consumers to comparison shop

Subprime Mortgage

a type of mortgage that is normally made to borrowers with lower credit ratings where lenders offers a mortgage with a higher interest rate because the lender views the borrower as having a larger-than-average risk of defaulting on the loan

Secure and Fair Enforcement for Mortgage Licensing Act of 2008

aka SAFE act; a law that requires mortgage loan originators, or MLOs, to be licensed according to national standards -The primary purpose of the SAFE Act is to protect consumers and reduce fraud. -created the Nationwide Mortgage Licensing System and Registry (NMLS), a nationwide database of licensed MLOs, and required every state to participate in the registry. -Per the SAFE Act, a person is prohibited from engaging in the business of originating residential mortgage loans unless they register as an MLO and receive a unique NMLS identifier -regulates the licensure of *mortgage loan originators* -requires mortgage loan originators to take pre-licensing and continuing education courses

affiliated business arrangement (ABA)

aka controlled business arrangement; when a real estate brokerage provides services related to closing transactions via subsidiary companies that *operate under the corporate umbrella of that brokerage* ex: a real estate firm, title insurance company, mortgage broker, home inspection company, and even a moving company may agree to offer a package of services to consumers. In order to operate within the RESPA regulations, an affiliated business arrangement must: 1. Provide consumers with written disclosure of the affiliation 2. Provide consumers with estimated charges for provided services 3. Communicate to consumers that they are free to obtain services elsewhere 4. Refrain from charging or paying referral fees among the subsidiary companies

Closing Disclosure (CD)

aka the closing statement is a form used to itemize services and fees charged to the borrower by the lender when applying for a real estate loan - it consolidates the HUD-1, Good Faith Estimate, and Truth in Lending Act (TILA) disclosures - For loans that require a Loan Estimate and that proceed to closing, creditors must provide the Closing Disclosure reflecting the actual terms of the transaction. The creditor is generally required to ensure that the consumer receives the Closing Disclosure no later than three business days before consummation of the loan. The Closing Disclosure should contain the actual terms and costs of the transaction.

Loan Estimate

an estimate of what the terms of the loan will be and how much it will cost - It must contain *a good faith estimate* of credit costs and transaction terms. - The creditor must deliver or place it in the mail *no later than the third business day after having received the consumer's application.* -It must also be delivered or placed in the mail no later than the seventh business day before consummation of the transaction.

The Financial Protection Bureau (CFPB)

an independent agency created by Dodd-Frank to develop and enforce clear and consistent rules for the financial marketplace and hold financial firms to higher standards; responsible for supervising banks, credit unions, and other financial companies to enforce federal consumer financial laws & to *protect borrowers from dishonest lending practices* goals: - create easier-to-use mortgage disclosure forms - improve consumer understanding -aid in comparison shopping for the borrower - prevent surprises at the closing table, a.k.a. "know before you owe"

Real Estate Settlement Procedures Act (RESPA)

federal law that aims to help consumers become better shoppers for settlement (loan closing) services by *requiring disclosures that spell out the costs associated with closing* and *eliminate kickbacks and unearned referral fees* that unnecessarily increase the costs of closing a transaction -prohibits kickbacks and referral fees from lenders - created requirements that lenders disclosure the cost of closing using specific disclosure forms (originally the GFE and HUD-1)

predatory lending

includes the unfair, deceptive, or fraudulent practices of some lenders during the loan origination process; a lender deceives or take advantage of a borrower

Annual Percentage Rate (APR)

the TOTAL cost of getting a loan, expressed as a percentage; its the ratio of the total cost of financing to the loan amount; the cost of financing includes interest paid, discount points, and loan fees, but does not include other fees that would have to be paid regardless of financing (ex, title insurance or home inspection fees) it allows borrowers shopping for loans to compare the true cost of each loan

Usury

the illegal act of lending money at unreasonably high interest rates

federal funds rate

the interest rate that banks charge other banks for overnight loans

prime rate

the interest rate that's issued for mortgage borrowers with what lenders deem "good credit"; typically 3 percentage points about the federal funds rate, which is set by the government