Federal Truth in Lending Act
the term credit insurance includes:
- credit disability, unemployment or property insurance. -any other accident, loss-of-income, life or health insurance. -any debt cancellation or suspension agreement or contract.
a LO may be paid
- salary -an amount based on a fixed percentage of the loan amount, subject to a minimum and/or maximum, provided the percentage is the same for every loan that he originates. -through bonuses or contributions to a defined benefit or defined contribution plan as long as contributions made on behalf of an individual loan originator are not based on the terms of that originator's individual transactions. NOTE: The amount of the contributions, however, may be based upon the terms of the total transactions of the loan originator entity so long as the plan meets the requirements of a tax-advantaged plan. -through contributions to a profit-sharing plan. NOTE: Contributions made to a profit-sharing plan may not be based on the terms of an individual loan originator's transactions. As well, one of the following limitations must apply: -The contribution may not exceed 10 percent of the originator's total compensation for the specified timeframe; or -The loan originator may not have transacted more than10 transactions subject to the contribution within the 12-month period prior to the date of compensation
An ARM disclosure includes
- the period between adjustments - the lenght of the period of the initial interest rate -the initial interest rate
the Loan originator Compesation Rule covers all transactions secured by a dwelling except
-HELOCs -loans extended under open-end credit plans
what are characteristics of a higher-priced mortgage loan under TILA
-Secured by the consumer's principal dwelling -an APR that exceeds the rate for a comparable transaction by at least 1.5% for loans secured by a first lien on a dwelling -An APR that exceeds the rate for a comparable transaction by at least 3.5% for loans secured by a subordinate lien on a dwelling
a reverse mortgage transaction is a nonrecourse consumer credit obligation in which
-a consecual security interest .g., mortgage, deed of trust) is created in the consumer's principal dwelling to secure one or more advances; and -other than in the case of default, any principal, interest or shared appreciation or equity is due and payable only after: 1. the dwelling is transferred; or 2. the consumer dies or ceases to occupy the dwelling as a principal dwelling
for purpose of the rule, the term "loan origiantor" includes
-a licencensed mortgage LO -a mortgage broker, including a mortgage broker company that closes loans in its own name in table-funding transactions; and -employees of lenders that originate loans (e.g., registered loan originators and loan officers). Thus, lenders are excluded from the definition of "loan originator," but their employees who are originating loans are considered to be loan originators.
a creditor must maintain for three years after the date of payment, sufficient records to evidence:
-all compensation it pays to a loan originator, and -the compensation agreement taht governs those payments
actions that do not violate the misrepresentation of value prohibition include
-asking an appraiser to consider additional information about the dwelling or about comparable properties. -requesting that an appraiser: 1. provide additional information about the basis for a valuation; or 2. correct factual errors in a valuation. - obtaining multiple appraisals of the dwelling, provided the lender adheres to a policy of selecting the most reliable appraisal rather than the appraisal that states the highest value. -withholding compensation from an appraiser for breach of contract or for substandard performance of services as provided by contract. -taking action permitted or required by applicable federal or state statute, regulation or agency guidance.
regulation z prohibits a loan originator from
-being compesated for a transaction by both the consumr and another person; in other words, the LO may not be paid twice NOTE: An exception to the dual compensation rule applies to loan originator organizations, mortgage brokerages and creditors acting as brokers that receive compensation directly from a consumer. In such a case, the mortgage/lending entity may pay compensation to its employees and contractors, although such compensation may not be based on the terms of the transaction. - steering a consumer to a loan that provides the LO with greater compensation than ay other transaction the LO offered, or could have offered unless the loan is in the consumers interest
an additional appraisal is also not required if teh subject property is located in
-federal disaster area; or -rural city
the finance charge in a real estate loan transaction might include the following tpes of charges
-fees charged by a third party that conducts the loan closing (e.g., a settlement agent, attorney or escrow or title company), if the lender: 1. requires the particular services for which the consumer is charged 2. requires the imposition of the charge; or 3. keeps a portion of the third-party charge, which would be part of the finance charge - premium for credit life, account, health or loss of income insurance or other debt cancellation coverage, unless 1. the lender does not require the coverage and discloses this fact in writing; 2.the premium for the initial term of coverage and the term of the insurance are disclosed; and 3. one of the consumers signs or initials a written request for the coverage after receiving the disclosures -premiums for property or liability insurance unless 1. the coverage may be obtained from a person of the consumer's choice and this fact is disclosed; or 2. if the coverage is obtained from or through the lender, the premium for the initial term of coverage and the term of the insurance are disclosed
Actions that violate the misrepresentation of value include
-implying to an appraiser that his current or future retention depends on the amount at which he values the dwelling. -excluding an appraiser from consideration for future engagement because he reports a value that does not meet or exceed a minimum threshold. -telling an appraiser a minimum reported value that is needed to approve the loan. - failing to compensate an appraiser because he does not value the dwelling at or above a certain amount. -conditioning an appraiser's compensation on loan consummation
The finance charge in a real estate loan transaction might include the following types of changes
-interest -points, loan fees, assumption fees, finders fees, and similar charges paid by the consumer -mortgage broker fees (whether paid by the consumer directly to the broker or to the lender for delivery to the broker), even if the lender doesnt require the use of a mortgage broker or retains any portion of the charge -premium or other charges for any guarantee or insurance protecting the lender against the consumer's default or other credit loss -fees and amounts charged by a third party (i.e a person other than a lender) if the lender: 1. requires the use of a third party in extension of credit, even if the consumer can choose the third part, or 2. keeps a portion of the third party charge (the portion kept would be included in the transaction finance charge
A county is considered to be rural during the calendar year if:
-it is neither in a metropolitan statistical area or a micropolitan statistical area that is adjacent to a metropolitan statistical area, as defined by the U.S. Office of Management and Budget. -It falls in a census block that is not an urban area, as defined by the U.S. Census Bureau. - it falls in a census block designated as rural by the CFPB.
a safe harbor in the rule that facilitates compliance with the anti steering regulation provides that the LO is considered to be in compliance if he presents the consumer with loan options that provide
-lowest interest rate -no risky features(e.g., prepayment penalty, negative amortization or balloon payment) in the first seven years of the loan; and -the lowest total dollar amount for origination points or fees and discount points
restrictions apply in the following as they relate to a consmer credit transaction secured by a consumer's principal dwelling
-misrepresentation of value -financing simple-premium credit insurance -negative amortization -servicing practices
finance charge does not include
-points paid by the seller -security charges if itemized and disclosed such as 1. taxes and fees actually paid to public officials for determining the existence of or for perfecting, releasing or satisfying a security interest; 2 the premium for insurance in lieu of perfecting a security interest; or 3. any tax charged for recording a security instrument or document evidencing indebtedness. -if the transaction is secured by real property or is a residetial mortgage transactin, bona fide and reasonable fees for 1. title examination, abstract of title, title insurance, property survey and similar purposes; 2. preparing loan-related documents, such as deeds, mortgages and reconveyance or settlement documents; 3. notary services and credit reports; 4. property appraisal or inspections to assess the value or condition of the property, including fees related to pest infestation or flood hazard determinations, if the service is performed prior to closing; and 5. required amounts to be paid into escrow or trustee accounts, if they would not otherwise be included in the finance charge.
term "compensation includes"
-salaries, commissions, and any financial or similar incentives -bonuses, awards, or services -trips and similar prizes -fees charged and retained by an individual LO, no matter what the fee is called
a creditor or servicer may cancel an escrow account only upon the earlier of
-termiation of the underlying debt obligation or -five years after the loan was consummated, at the request of the consumer
if two appraisals are required, they may NOT be performed by the same appraiser and one of the two appraisals must include an analysis of
-the difference between the price at which the seller acquired the property and the price that the consumer is obligated to pay to acquire the property, as specified in the purchase agreement; -changes in market conditions between the date the seller acquired the property and the date of the consumer's agreement to acquire the property; and -any improvements made to the property between the date the seller acquired the property and the date of the consumer's agreement to acquire the property.
For an open-end home equity plan secured by the consumer's home that includes a variable annual percentage rate, similar disclosures are required, but in relation to the APR rather than the interest rate. These include:
-the fact that the APR, payment or term may change due to the variable-rate feature. -a statement that the APR does not include costs other than interest. -the index used in making rate adjustments and a source of information about the index. -the frequency of changes in the APR.
the Turth in lending act applies to each of the following
-the purchase of a single-family home. -a loan to purchase a tractor for use on a three-acre residential property. -a home equity loan with a term of six months.
Two written appraisals may be required before a lender extends a higher priced mortgage loan to a consumer if
-the seller acquired the property 90 or fewer days prior to the date of the consumer's agreement to acquire the property and the price in the consumer's agreement exceeds the seller's acquisition price by more than 10 percent; or -the seller acquired the property 91 to 180 days prior to the date of consumer's agreement to acquire the property and the price in the consumer's agreement exceeds the seller's acquisition price by more than 20 percent.
an escrow account may not be canceled regardless of a consumers request unless
-the unpaid balance is less than 80% of the original value of the property; and -the consumer is current on the loan
a lender must provide a copy of each written appraisal without charge no later than:
-three business days prior to consummation of the loan; or -30 days after the creditor determines that the loan will not be consummated
a LO must also maintain for three years after the date of the receipt of payment, recording evidence:
1- all compensation -received from a creditor, consumer, or another person; and -paid to any individual LO 2. the compensation agreement that governs each receipt of payment
TILA applies to any individual or business that offers or extends credit, whether directly or through a mortgage broker, when
1. credit is offered or extended to consumers 2. the offering or extesion of credit is done regularly 3. the credit is subject to a finance charge or is a payable, by a written agreement in more than 4 installments; and 4. the credit is primarily for personal, family, or household purposes (12 CFR 1026.1)
prepaid finance charges include
1. loan origination doscount and commitment fees 2. any prepaid PMI premiums, FHA upfront mortgage insurance premium (UFMIP), VA funding fees or USDA guaranty fees 3. underwritng, processing, tax services and courier fees, if paid to the creditor 4. buydown funds and 5. prepaid interest
finance charge is the total of
1. prepaid finance charges; plus 2. charges paid over the term of the loan (e.g., the total interest and mortgage insurance premiums, if any, which would be paid over the term of the loan, if paid according to the payment schedule).
among other exclusions, TILA does not apply to credit extended
1. primarily for business, commercial, or agriculture purposes 2. to other than a natural person 3. in excess of the applicable threshold, unless it is secured by - real proprerty; or -personal property (e.g., a manufactured home) to be used as the consumer's principal dwelling.
An escrow account need not to be established for a tranaction if at the time of consummtion
1.during the preceding calendar year, more than 50 percent of the creditor's total covered transactions (i.e., a consumer credit transaction that is secured by a dwelling, including any real property attached to the dwelling) were secured by a first lien on properties that are located in counties that are either "rural" or "underserved"; 2. during the preceding calendar year, the creditor and its affiliates together originated 2,000 or fewer covered transactions secured by a first lien; 3. as of the end of the preceding calendar year, the creditor and its affiliates that regularly extend covered transactions had total assets of less than $2,052,000,000 together; and 4. the creditor and its affiliates do not maintain an escrow account for any extension of consumer credit secured by real property or a dwelling that the lender or its affiliate currently services other than escrow accounts established: -during the period from April 1, 2010 through May 1, 2016; or -after consummation as an accommodation to assist distressed consumers in avoiding default or foreclosure. ** this is known as the small creditor exemption
because an APR is based on the term of the loan, the APR for a 15year loan cannot be compared to the APR for a
30 year loan. The APRs being compared must be for loans within the same term
negative amortization
A creditor may not extend credit to a first-time borrower in connection with a closed-end transaction, the terms of which may result in negative amortization, unless the creditor receives documentation that the consumer has obtained homeownership counseling from a counseling organization or counselor certified by HUD. However, a creditor is prohibited from steering or otherwise directing a consumer to choose a particular counselor or counseling organization for the required counseling.
financing single-premium credit insurance
A creditor may not finance any premiums or fees for credit insurance in connection with a consumer credit transaction secured by a dwelling (including home equity lines of credit [HELOCs]). NOTE: The prohibition does not apply to credit insurance for which premiums or fees are calculated and paid in full on a monthly basis.
an example of amount financed
For Example If a borrower applied for a $200,000 loan and paid $7,000 in prepaid finance charges, the amount financed would appear as $193,000.
the provsions are implemented by
Regulation Z
the Dodd Frank Act granted rulemaking authority under
TILA to the Consumer Financial Protection Bureau (CFPB) as well as the authority to supervise and enforce compliance with TILA an its implelenting regulations by entitities under its jurisdiction (Dodd-Frank Act, Title 10, §1002(12)(O), (14); §1062, §1100A)
Accoring to the truth in lending act, when does refinancing occur?
When an existing obligation is satisfied and replaced by a new obligation.
no later than the third day after its receipt of an application,
a lender must provide the following written statement to a consumer who applies for a higher priced mortgage loan: "We may order an appraisal to determine the property's value and charge you for this appraisal. We will 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."
misrepresentation of value
a lender or mortgage broker, or an affiliate of either, may not directly or indirectly coerce, influence or otherwise encourage an appraiser (i.e., a person who engages in the business of providing assessments of the value of dwellings, including a person that employs, refers or manages appraisers and affiliates of such persons) to mistate or misrepresent the dwelling's value
in order to protect consumers from unfair practices involving LO copensation, Regulation Z prohibits
a lender or other person from basing a LO compesation on the terms of condition of a mortgage transaction (e.g., interest rate, a prepayment penalty, origination of a set number of loans at a rate higher than a benchmark rate, collateral type, etc.).
grace periods allow a creditor that has exceeded one of the various thresholds in the preceding caladener year to operate, in a certain circumstances as
a small creditor with respect to transactions with applications received before April 1 of the current calander year
A lender may not extend a higher-priced mortgage loan to a consumer without obtaining, prior to consummation,
a written appraisal of the property serving as collateral for the loan. The appraisal must be performed by a certified or licensed appraiser who conducts a physical visit of the interior of the subject property.
TILA requires that lenders provide
accurate and truthful information to consider relating the cost and terms of credit being offered, so they may more easily compare various credit offers
if a higher priced loan is a first lien on a principal dwelling the creditor must, before consummation, establsih
an escrow account for payment of property taxes and premiums for any required mortgage related insurance (e.g., property and/or casualty insurance or mortgage insurance). However: -an escrow account is not required for a loan secured by shares in a cooperative; and -insurance premiums need not be included in an escrow account for loans secured by dwellings in condominiums, planned unit developments or other common interest communities in which: 1. dwelling ownership requires participation in a governing association; and 2. the governing association has an obligation to the dwelling owners to maintain a master policy insuring all dwellings.
the APR can be determined using the
annual percentage rate computations found in Appendix J of Regulation Z or any other computation tool that can accurately determine the rate. (Most interest rate calculators do not satisfy the requirement.)
prepaid finance charge is
any finance charge paid separately, in cash or by check, before or at consummation of a transaction or withheld from the proceeds of the loan at any time. They are direct loan charges paid by the borrower (not a third party) that must be included in computing the annual percentage rate
The CFPB publishes APORs for a broad range of transactions in a table updated
at least weekly, as well as the methodology used to arrive at the rates.
the APOR is an APR derived from
average interest rates, points and other loan pricing terms currently offered to consumers by a representative sample of lenders for mortgage transactions that have low-risk pricing characteristics.
TILA requires a creditor (i.e., a person, including a lender and a table-funding mortgage broker, who regularly extends credit that is subject to a finance charge or is payable by written agreement in more than four installments, or a credit card issuer) to make
certain written disclosres before the consummation of a credit transaction
A lender that knows, at or before loan consummation, of a violation of this prohibition may not extend
credit based on the appraisal, unless it documents that it has acted with reasonable diligence to determine that the appraisal does not materially misstate or misrepresent the dwelling's value.
For an ARM loan secured by a borrower's principal residence with a term exceeding one year, additional
disclosures must be provided either at the time an application form is provided or before the consumer pays a nonrefundable fee, whichever is earlier.
TILA regulations would apply to a loan
for the purchase of a family summer home.
For an ARM, the interest rate will change periodically, based on an index to which the rate is tied and the margin added to cover the creditor's expenses and profit. Therefore, the borrower must be given information about
he index, the margin and the frequency of rate adjustments, in addition to other pertinent facts about the loan
if the lender must obtain two appraisals,
he may charge the consumr for only one of them
In 2009, a number of significant changes were made to the TILA and Regulation Z in order to
implement provisions of the Housing and Economic Recovery Act (HERA), the Mortgage Disclosure Improvement Act (MDIA) and the Emergency Economic Stabilization Act. The changes went into effect in 2014 (e.g., the Ability to Repay Rule) and 2015 (e.g., the TILA-RESPA Rule).
the Truth in Lending Act, which is Title 1 of the consumer credit protection was enacted
in 1968, in order to promote the informed use of credit
if an application is accessed by the consumer in electronic form, the required disclosures may be provided
in electronic form on or with the application
Loan originator Marley Mayfair was compensated for a loan origination transaction by both the borrower and a lender for whom he is not an employee or a contractor. Under Regulation Z, this
is prohibited
A higher-priced loan
may not have a term of less than 12 months
a county is considered to be underserved during a calander year if
no more tha two creditors transacted first-lien covered transactions five or more times in the county Exempted creditors must establish an escrow account for any first-lien higher-priced mortgage loan for which, at consummation, there is a commitment by a nonexempt person to acquire the loan.
a safe harbor is a
provision included in a law or regulation that provides protection against liability or penalty to an entity if certain conditions are met and or good faith demonstrated
In connection with a consumer credit transaction secured by a consumer's principal dwelling, a servicer must provide an accurate statement of the total outstanding balance required to pay off the borrower's debt in full as of a specified date no more than _____ business days after receiving a request from or on behalf of the consumer.
seven. . In connection with a consumer credit transaction secured by a consumer's principal dwelling, a servicer must provide an accurate statement of the total outstanding balance required to pay off the debt in full as of a specified date. The statement must be provided within a reasonable time, but in no case more than seven business days after receiving a request from or on behalf of the consumer.
a factor is a proxy if
the LO has teh ability to add, drop, or change it when originating the loan. For example, the LO could encourage a borrower to take a loan that includes a term that would place it in a category of a loans for which he receives higher compensation
the amount financed is
the actual amount of credit the borrower will receive from the creditor. It should not be confused with the loan amount, it is the loan amount less any prepaid finance charges (eg LO fees and discount points)
LO compesation may be based on
the amount of credit extended
Under Regulation Z, loan originator compensation may be based on
the amount of credit extended, In order to protect consumers from unfair practices involving loan originator compensation, Regulation Z prohibits a lender or any other person from basing a loan originator's compensation on the terms or conditions of a mortgage transaction (e.g., interest rate, a prepayment penalty, origination of a set number of loans at a rate higher than a benchmark rate, collateral type, etc.). Loan originator compensation may, however, be based on the amount of credit extended.
the truth in lending act (TILA) law does not limit
the amount of interest or loan fees a lender may charge. Any limits on interest would be imposed by state usury laws.
finance charge is
the cost of consumer credit as a dollar amount. it includes any charge payable directly or indirectly by the consumer and required directly or indirectly by the lender for the extension of credit
if a LO compensation is based in a whole or in part on a factor that is not an actual loan term but acts as proxy for a term of transaction (e.g., the term and/or rate of the loan determining whether it is held in the lender's portfolio or sold),
the originator's compensation is based on a term of transaction and is prohibited
Annual percentage rate (APR) represents
the relationship of the total finance charge to the total amount financed, as a yearly rate. It is not the same as the nominal rate (i.e., the interest rate shown in the note), as it includes all finance charges, not just interest. As a result, it is usually higher than the nominal rate and enables the borrower to compare the percentage costs of different loans.
a creditor finances premiums or fees for credit insurance if it proves a consumer
the right to defer payment of the premium or fee owed beyond the monthly period in which it is due.
A creditor must maintain records pertaining to loan originator compensation for ____ years after the date of payment.
three.
if the loan is an ARM, the amount may be subject
to change if the annual percantage rate changes for total payments
the total of payments is
usually the total of the finance charge (prepaid and ongoing charges scheduled to be paid over the term of the loan and the amount financed.
