Real Estate Law & Regs - Section 5

dd. FinCEN

(Financial Crimes Enforcement Network) - The mission of the Financial Crimes Enforcement Network is to safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities.

ii. Purpose/Objective of The Act

(This is per HUD. I cherry picked some of the more relevant objectives listed; there are a few more written in Section 1501 Notes of 12 USC 5101, 122 Stat 2811) 1. Aggregates and improves the flow of information to and between regulators 2. Provides comprehensive licensing and supervisory database 3. Enhances Consumer Protections and supports anti fraud measures 4. Provides consumers with access (at no charge) to a database of originators, their employment history, and any adjudicated disciplinary actions placed against them 5. Facilitates the collection and disbursement of consumer complaints on behalf of State and Federal Mortgage Regulators

iv. SAFE ACT AMENDMENT - a current relevant issue

1. (quoting MBA ISSUES: SAFE Act Amendment) Currently, a bank-employed MLO seeking to move to a non-bank lender must cease all sales activity in order to complete pre-licensing education, take the test, undergo a bacround check and achieve licensure. This requires the MLO to forego weeks or months of income and to cease contacts with prospective borrowers and referral sources. To make a more competitive market for quality MLOs, MBA supports the adoption of a transitional authority to originate loans, wherein experienced bank MLOs moving from a depository institution to a non-bank, or non-bank MLOs moving to a different state, can continue to originate in the new jurisdiction for a temporary period of time while simultaneously working toward their new state license. 2. The SAFE Transitional Licensing Act provides for such a transitional authority period for bank MLOs moving to a non-bank lender, or MLOs already working for a non-bank lender seeking licensure in another state. The language of the bill was developed in consultation with the Conference of State Bank Supervisors to incorporate important consumer protections. ● Last Congress, the SAFE Transitional Licensing Act passed the House unanimously as standalone legislation-H.R. 2121. Language supporting transitional authority was included in other legislative vehicles, including S. 1484 that was approved by the Senate Banking Committee. ● This year, similar bipartisan legislation has been introduced in both the House (H.R. 2984) and the Senate (S. 1753), which would provide at least 120 days to transition from one state to another or from a federally-insured depository to a state-regulated non-depository.

iv. There are unique procedural requirements in False Claims Act cases. For example:

1. A complaint under the False Claims Act must be filed under seal; 2. The complaint must be served on the government but must not be served on the defendant; 3. The complaint must be buttressed by a comprehensive memorandum, not filed in court, but served on the government detailing the factual underpinnings of the complaint.

ii. The False Claim Act establishes liability when any person or entity improperly receives from or avoids payment to the Federal government (tax fraud is excepted). The Act prohibits, what?

1. Knowingly presenting, or causing to be presented a false claim for payment or approval; 2. Knowingly making, using, or causing to be made or used, a false record or statement material to a false or fraudulent claim; 3. Conspiring to commit any violation of the False Claims Act; 4. Falsely certifying the type or amount of property to be used by the Government; 5. Certifying receipt of property on a document without completely knowing that the information is true; 6. Knowingly buying Government property from an unauthorized officer of the Government, and; 7. Knowingly making, using, or causing to be made or used a false record to avoid, or decrease an obligation to pay or transmit property to the Government.

Bankruptcy Chapters, who qualifies for each, what does each one do? a. Chapter 7 - Meaning

1. Liquidation of assets with proceeds distributed to creditors in order of priority. 2. In most consumer cases, all assets are exempt therefore there are no assets to liquidate and there is no payout to creditors.

iii. Licensing vs. Registering

1. Mortgage Originators not employed by exempt, federally regulated financial institutions (i.e., Non Bank originators) are required to satisfactorily pass licensing exam and annual continuing education 2. Mortgage Originators that ARE employed by exempt, Federally Regulated financial institutions are required to be REGISTERED without being required to pass a licensing exam, or participate in continuing education AT THIS TIME.

Bankruptcy Chapters, who qualifies for each, what does each one do? c. Chapter 12 - Meaning

1. Reorganization plan similar to a Chapter 13 2. Allows finances to be restructured to avoid liquidation or foreclosure 3. Must have regular annual income to qualify 4. In tailoring bankruptcy law to meet the economic realities of family farming and the family fisherman, Chapter 12 eliminates many of the barriers such debtors would face if seeking to reorganize under either chapter 11 or 13 of the Bankruptcy Code. a. For example, chapter 12 is more streamlined, less complicated, and less expensive than chapter 11, which is better suited to large corporate farming and fishing reorganizations. b. In addition, few family farmers or fishermen find chapter 13 to be advantageous because it is designed for wage earners who have smaller debts than those facing family farmers. c. In chapter 12, Congress sought to combine the features of the Bankruptcy Code which can provide a framework for successful family farmer and fisherman reorganizations

Traditional Forms of Ownership and Limitations on Use - Limitations - Easements - Utility

1. Utility-gives local utility companies the right to use the portion of a piece of land. a. This allows utility companies the ability to run utility lines straight through pieces of property in order to be more efficient b. Utility easements may already be in place at the time of purchase c. Utility companies don't have free rein; they do have the ability to do what's in the best interest of the community.

iii. Ref. the False Claim Act, Certain claims are not actionable, including, which?

1. certain actions against armed forces members, members of the United States Congress, members of the judiciary, or senior executive branch officials; 2. claims, records, or statements made under the Internal Revenue Code of 1986 which would include tax fraud

ii. TRID has:

1. its own definition of an application (which does not match Reg B; TRID defines an application as the receipt of 6 pieces of information & once the creditor has these, the creditor is on the hook to deliver disclosures within 3 days: borrower name, borrower SSN, borrower income, subject property address, loan amount sought & estimate of subject property values); 2. new timing requirements for disclosures (deliver early disclosures within 3 days of application with receipt at least 10 days before signing; delivery of an 'initial' closing disclosure that must be received by the consumer at least 3 business days before closing, etc.) 3. new tolerance levels for disclosed estimates (0 tolerance bucket (i.e. fees paid to originator that cannot increase without a valid changed circumstance); 10% tolerance (fees that the consumer can shop for but didn't); no tolerance bucket (consumer can shop for a service and did shop for that service), and 4. new pre-disclosure requirements (if give a Loan Estimate prior to receiving application, lender must honor those terms unless 10 days have lapsed. Fee quotes required to contain language indicating that the quote is not a Loan Estimate and that the customer should get one). 5. NOTE: not all transactions are subject to TRID. Two exemptions are reverse mortgages and HELOC's.

Traditional Forms of Ownership and Limitations on Use - Limitations - Easements - Access

2. Access (Ingress/Egress)- An ability to get in or out of a property through another property

Explain REMA

3. Although CRA applies to depository institutions, the CFPB in recent years has attempted to apply CRA principles to non-depositories. The term REMA was born: reasonably expected market area, where the CFPB would analyze the # of applications in a geography, and if over a certain #, that area became the non-bank's market area. This occurred in Cordray's administration; will be interesting to see what happens under the Mulvaney administration.

Traditional Forms of Ownership and Limitations on Use - Limitations - Easements - Appurtenant

3. Appurtenant-an easement that benefits one parcel of land, known as the dominant tenement, to the detriment of another parcel of land, known as the servient tenement. Easements Appurtenant are attached to the land and are transferred when the dominant or servient tenements are sold to a new owner.

Traditional Forms of Ownership and Limitations on Use - Easements - Perscriptive

4. Prescriptive - Easements of Prescription are created if an individual has used an easement in a certain way for a number of years; most states have the following requirements for a prescriptive easement to be created: a) The use is open and notorious (obvious and not secretive) b) The individual actually USES the property c) The use is continuous for the statutory period (5-30 years) d) The use is adverse to the true owner (i.e., without the owner's permission)

p. FIRREA -

An act to reform, recapitalize, and consolidate the Federal deposit insurance system, to enhance the regulatory and enforcement powers of Federal financial institutions regulatory agencies, and for other purposes. i. It established the Resolution Trust Corporation to close hundreds of insolvent thrifts and provided funds to pay out insurance to their depositors. It transferred thrift regulatory authority from the Federal Home Loan Bank Board to the Office of Thrift Supervision. It dramatically changed the savings and loan industry and its federal regulation, encouraging loan origination.

x. AML -

Anti-Money Laundering - is a set of procedures, laws or regulations designed to stop the practice of generating income through illegal actions. It has four pillars: i. Incorporate internal policies, procedure & controls based upon a risk assessment ii. Designate a Compliance Officer responsible for ensuring that AML program is implemented effectively, updated as necessary, & appropriate people are educated iii. Provide on-going training for employees iv. Independent testing to monitor & maintain the program

w. BSA

Bank Secrecy Act of 1970 (otherwise known as the Currency and Foreign Transactions Reporting Act) requires that financial institutions in the US assist the government agencies to detect and prevent money laundering. Requires the reporting of every transaction over $10,000 & the establishment of Suspicious Activity Reporting (SAR) for financial institutions. The Bank Secrecy Act (BSA) is the primary U.S. anti-money laundering (AML) law and has been amended to include certain provisions of Title III of the USA PATRIOT Act to detect, deter and disrupt terrorist financing networks.

d. Bargain and Sale Deed

Bargain & Sale Deed - Much like a quitclaim, but the difference is the property is sold rather than relinquished. No guarantee is given that the property was owned free and clear. Most often used when the property is court-seized.

t. BASEL III -

Basel III is an internationally agreed set of measures developed by the Basel Committee on Banking Supervision in response to the financial crisis of 2007-09. The measures aim to strengthen the regulation, supervision and risk management of banks. Like all Basel Committee standards, Basel III standards are minimum requirements which apply to internationally active banks. Members are committed to implementing and applying standards in their jurisdictions within the time frame established by the Committee.

Bankruptcy Chapters, who qualifies for each, what does each one do? b. Chapter 11 business or self-employed with high net worth

Chapter 11 concerns the payment of debts to creditors through the reorganization of a company. Under this chapter, the company is reorganized under supervision of the United States government. Next, all profits are sent to creditors. With these cases, the company is required to have their reorganization deemed appropriate and beneficial to the creditors. This requires the participation of the United States bankruptcy courts and bankruptcy lawyers.

Bankruptcy Chapters, who qualifies for each, what does each one do? c. Chapter 12

Chapter 12 Bankruptcy is reserved for farmers, ranchers, and those in the area of agriculture. This is very similar to the proceedings in Chapter 13, but gives additional benefits to farmers, including but not limited to restrictions of non-purchase by creditors.

Bankruptcy Chapters, who qualifies for each, what does each one do? d. Chapter 13

Chapter 13 Bankruptcy is a version of Chapter 11, reserved for individuals. This provides for the reorganization of the individual under the supervision of the United States government. Any nonessential profits are given to creditors. This also requires presentation of a Plan to the United States Bankruptcy Courts. i. A chapter 13 bankruptcy is also called a wage earner's plan. It enables individuals with regular income to develop a "plan" to repay debts. Debtors propose repayment plan to make installments to creditors over 3 to 5 years.

8. Bankruptcy Chapters, who qualifies for each, what does each one do? a. Chapter 7

Chapter 7 of the BKY code provides for the complete liquidation of a company or individual. In Chapter 7, the Govt sells, through a trustee, all of unnecessary goods for survival of the individual, overseeing that all available money goes to creditors.

y. Federal Regulators -

Consumer Financial Protection Bureau (CFPB, oversees banks, non-banks and other institutions), Office of the Comptroller of the Currency (OCC, bank regulator), Federal Reserve Board (FRB, bank regulator), Federal Depository Insurance Corporation (FDIC, bank regulator)

Title - Why are each important - Mechanics Liens

Dependent on state law, but mechanics liens can be given priority over the mortgage.

i. Fair Lending -

Fair Lending is an umbrella term that encompasses various laws that affect fair lending: Reg B (ECOA), Reg C (HMDA), Fair Housing Act and CRA (community reinvestment act)

Title - Why are each important - Judgment Liens

Fall in line based on the date of recording. No preference given to judgment liens.

bb. FDIC -

Federal Depository Insurance Corporation - The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by the Congress to maintain stability and public confidence in the nation's financial system by: i. Insuring deposits. ii. Examining and supervising financial institutions for safety and soundness and consumer protection. iii. Making large and complex financial institutions resolvable. And iv. Managing receiverships.

cc. FHFA-

Federal Housing Financing Administration - A U.S. government agency created by the Housing and Economic Recovery Act of 2008 that regulates the secondary mortgage market by overseeing the activities of Fannie Mae, Freddie Mac and the 12 federal home loan banks. This new agency was established to act like a bank-regulator in order to strengthen and improve oversight of the U.S. housing finance system because of the secondary mortgage market's major role in the overall economy. i. The role of the FHFA was previously handled by two other organizations, the Federal Housing Finance Board and the Office of Federal Housing Enterprise Oversight, with input from the government-sponsored enterprise office of the U.S. Department of Housing and Urban Development. The new organization's goals include increasing affordable housing, conserving the assets and property of Fannie Mae and Freddie Mac, ii. The Federal Housing Finance Agency (FHFA) issued an advisory bulletin to communicate supervisory expectations for risk management practices in conjunction with the sale and transfer of mortgage servicing rights (MSRs) or the transfer of the operational responsibilities of servicing mortgage loans owned or guaranteed by Fannie Mae and Freddie Mac (collectively, the Enterprises).

e. Grant Deed

Grant Deed- transfers interest from seller to buyer for an agreed-upon price. Guarantees that the seller owns the property, but does not guarantee that the title is free of defects. Most commonly used for estate sales.

h. HMDA Regulation C (Home Mortgage Disclosure Act)

HMDA Regulation C (Home Mortgage Disclosure Act) i. Reg C was enacted as an effort to combat inner city redlining, which is the practice of excluding certain neighborhoods from mortgage lending. ii. The CFPB overhauled Reg C and changes were effective January 2018. 1)For applications taken on/after 1/1/2018, creditors are now required to collect Disaggregated Information (formerly Government Monitoring Information) about all applicant's ethnicity, race and sex-- a. An example of a DI category: If I selected that I am Asian, there are several subcategories that I can also self-identify with: Indian, Japanese, etc.) 2)For all applications dispositioned in 2018, there are additional data fields that are required to be reported to the government on the company's 2018 LAR (loan application register) that it files in 2019. 3)Requires that every loan be assigned a ULI (uniform loan identifier) which is essentially like a VIN number for HMDA purposes. No matter who owns the loan, the ULI never changes. The LEI (legal entity identifier) is part of the ULI and is a unique number assigned to an institution. a. There are specific rules around which company generates the ULI in a correspondent relationship, and depends on who performed the underwriting and what the final loan status is.

m. HERA

Housing & Economic Reform Act of 2009. This act was created to address the subprime mortgage crisis of 2008. The Housing and Economic Recovery Act (HERA) allowed the Federal Housing Administration (FHA) to guarantee up to $300 billion in new 30-year fixed rate mortgages for subprime borrowers. In order to participate, lenders were required to write down the balances on principal loans up to 90% of their current appraised value. The HERA was ultimately intended to renew public faith in Fannie Mae and Freddie Mac. It allowed states to refinance subprime loans with mortgage revenue bonds, and created the Federal Housing Finance Agency (FHFA). This new agency had used its newfound authority to put Fannie Mae and Freddie Mac under conservatorship in 2008.

g. Rate Lock Regulations - State & local requirements

I had nothing to put here

aa. Federal Reserve

Is the gatekeeper of the US economy. It is the bank of the US government and regulates the financial institutions. The Fed watches over the world's largest economy & is therefore, the most powerful.

Traditional Forms of Ownership and Limitations on Use - Forms of Ownership - Joint Tenancy

Joint Tenancy - Joint tenancy is when two or more persons share equal, undivided interests in property. Joint tenancy is not limited to spouses - anyone can share joint interests, but there is a tax benefit when this arrangement is shared only between husband and wife (qualified joint tenancy). When an asset is owned by spouses, the value of the deceased spouse's property passes to the surviving spouse with no probate and no tax consequences. This is similar to the process of joint tenancy with rights of survivorship (WROS).

14. Types of Deeds

Property deeds are legal documents that transfer the ownership of the property from one person to the other.

b. Quit Claim

Quit Claim - Transfers ownership from one party to another, most often without money exchanging hands. Grantee is not provided with any kind of guarantee. Most often used during transactions involving family members, divorcing spouses, and people well-acquainted.

r. QRM -

Relates to the proposed risk retention rule under the Securities Exchange Act of 1934 and its purpose is to require securitizers to retain no less than five percent of the credit risk when they create, sell, or transfer asset-backed securities to third parties except for securities wholly comprised of "Qualified Residential Mortgage(s)" ("QRM").

l. SAFE - i. Definition of the acronym SAFE:

Secure And Fair Enforcement for Mortgage Licensing act.

c. Special Warranty Deed

Special Warranty Deed - Transfers ownership from one party to another, most often without money exchanging hands. Grantee is not provided with any kind of guarantee. Most often used during transactions involving family members, divorcing spouses, and people well-acquainted.

u. SARs

Suspicious Activity Report that is filed with the government by a financial institution when suspicious activity is detected. The institution cana batch upload reports (common practice with large banks) or file individual reports.

v. TARP

The Troubled Asset Relief Program (TARP) was set up by the US Government in 2008 as a result of the subprime mortgage crisis to purchase toxic assets and equities from financial institutions to strengthen the financial sector. It permitted the Department of Treasury to purchase or insure up to $700 billion in troubled assets. Dodd-Frank regulation reduced this amount to $475 billion.

5. Why is it an issue if the seller's name on the appraisal is different than the owner's name in title commitment?

This may be a red flag or an indication of a clouded title. The seller's name on the appraisal, should match the current owner's name on title.

4. What does a Closing Protection Letter do?

a. A closing protection letter is an Agreement between the Title Insurance underwriter and the Lender that basically indemnifies a lender of any errors/omissions or other misconduct caused by the settlement agent that closes/settles the transaction. Also called an Insured Closing Letter.

Title - Why are each important - Know Lien Priorities and what each of them represent

a. A lien is a claim or charge on property for payment of a debt/obligation. Liens generally follow the first in time, first in right rule, meaning the lien filed and recorded first in the county records office is given first priority. There are, however, some exceptions to this rule.

3. Acceleration Clause

a. Aka Acceleration Covenant - in the law of contracts, is a term that fully matures the performance due from a party upon a breach of contract.

6. Special Forms of Real Property Ownership - Condos

a. Condos- Condominiums could look like an apartment building or a townhome project. The ownership of the property by the borrowers is the "walls-in". There is no land owned by the individual but there are common interest areas owned and shared by all members of the Condominium project. There's typically a CIC (common interest community) Number in the legal description for the specific unit that the borrower owns. They also typically have a shared water meter with the whole building.

11. Major Federal Laws, Regulations, and Regulators - Explain ECOA

a. ECOA - Reg B - Equal Credit Opportunity Act i. Protects applicants from discrimination: 1. On the basis of race, color, religion, national origin, sex, marital status, or age provided the applicant has the capacity to contract; 2. Because all or part of the applicant's income is derived from any public assistance; or, 3. Because the applicant has in good faith exercised any of their rights under the Consumer Credit Protection Act.

1. Types of Estate Ownership: Fee Simple absolute

a. Fee Simple absolute - An estate of indefinite duration, that can be freely transferred. The most common and perhaps most absolute type of estate, under which the tenant enjoys the greatest discretion over the disposal of the property.

2. There is a 3-prong test that examiners use to determine if the bank is meeting the needs of the areas it serves, name and describe them, a. Investment test

a. Investment test - The investment test evaluates a bank's record of helping to meet the credit needs of its assessment area(s) through qualified investments that benefit its assessment area(s) or a broader statewide or regional area that includes the bank's assessment area(s). i. Think about this in terms of the investment the bank is making in its communities.For example: Donating, selling on favorable terms, or making available on a rent-free basis a branch of the bank that is located in a predominantly minority neighborhood to a minority depository institution or women's depository institution will be considered as a qualified investment.

10. For Each of the Laws (or Regulations) see details in section 11

a. Name of Law b. What Regulation Implements It c. Where Does Law Apply d. When Does Law Apply e. To Whom Does Law Apply f. Purpose of Law g. Major Provisions of Law h. Required Actions i. Prohibited Actions j. Calculating Tolerances k. Ability to Cure l. Examples of Violations and Related Penalties (Civil and/or Criminal) m. Any Related Disclosures

1. Title - Why are each important - Searches

a. Searches - Are important and essential to determine past and current facts surrounding ownership in the subject property. Also uncovers any liens, encumbrances or other interests in the property. Determines who owns property to ensure proper person(s) execute the documents. All of this is done to provide mortgagee assurance that seller actually owns the property being sold, so that mortgagee s interests can be protected.

12. Methods of conveyance

a. Transfer of Real Property By Deed: Deeds are the legal documents that transfer ownership of real property interests from one party to another. Upon consummation of the real property transaction, the deed is recorded at the local county courthouse or recorder's office where the property is physically located. In a deed, generally the party conveying the property is called the "grantor," while the party receiving the property is called the "grantee." i. See Types of Deeds

13. Mortgage Transaction

a. What defines an application? Reg B (ECOA) & TRID (Reg Z) both define applications but for different purposes. Under Reg B, a creditor can define an application most any way it wishes, and once the creditor has a complete application, it is on the hook to render a credit decision within 30 days. TRID defines application as the receipt of 6 pieces of information (consumer name, SSN, income, subject property address, loan amount sought, and estimated value of property), and once received, the creditor is on the hook to deliver the LE and other early disclosures within 3 business days. b. Documents Required at Each Stage - For ECOA, it depends on how the creditor defines a complete application. For TRID, a creditor cannot require the consumer to provide any "underwriting type documents" as a condition of delivering the LE. Therefore, as soon as the lender has the 6 pieces, it has an app and needs to disclose.

Special Forms of Real Property Ownership - Co-Ops

b. Co -Ops - these properties have at least two units and their title is held by a corporation that qualifies as a co-operative corporation under section 216 of the IRS code. In order to be eligible for sale to FNMA, the project must be owned in Fee Simple; the individual units are not owned by the individual borrowers.

Types of Estate Ownership: Defeasible Fee

b. Defeasible Fee - A fee simple defeasible is a conveyance of property that has conditions placed on it. The holder of a fee simple defeasible possesses the property as a fee simple subject to that condition. If the condition is violated or not met, then the property will either go back to the original grantor or a specified third party. There are 3 different types: i. A fee simple determinable automatically ends the interest in the property when a condition is violated or not met. The person granting the property interest retains a "possibility of reverter," meaning that if the condition is violated, the property will automatically shift back to the grantor without having to take any further action. ii. A fee simple subject to a condition subsequent is very similar to the fee simple determinable except that the violation of the condition would give the original owner the option to take back the property. Thus, the property does not automatically shift to the original owner. Instead, upon violation of the condition, the original owner has the option to reassert a right to the property. This option is called a "right of reentry." iii. A fee simple subject to executory limitation is basically the same as a fee simple defeasible, except that it confers a future property interest in a third party, and not the original owner.

Title - Why are each important - Insurance

b. Insurance - Title Insurance is backwards facing, to protect mortgagee against any/all imperfections in title from the present time to the indefinite past. If anything is wrong, title company indemnifies mortgagee.

Bankruptcy Chapters, who qualifies for each, what does each one do? 9. Real Estate Transfers: a. Involuntary

b. Involuntary - Transfer is involuntary when it occurs contrary to the owner's intention. The most common forms of involuntary conveyance include the following: i. Intestate Succession - When an individual dies without a will, his or her property passes according to the statues of the jurisdiction in which the deceased was last domiciled or the place in which the real property is located. ii. Foreclosure - A mortgaged property is sold in a legal process to pay an outstanding debt resulting from default on the mortgage, failure to pay real estate taxes, or an other encumbrance such as defaulted HOA dues in a Super Lien State. iii. Eminent Domain - The government exercises its power to condemn private property for public good (to build a road, etc.), provided that fair compensation is provided to the owner. iv. Adverse Possession - A principal of law by which one claims ownership in real property that belongs to someone else by using the person's property openly as if it were their own. Statutory requirements such as possession and a required time period could make it possible to shift ownership rights to the user of the property. This is commonly referred to as "squatters rights."

There is a 3-prong test that examiners use to determine if the bank is meeting the needs of the areas it serves, name and describe them, b. Lending test

b. Lending test - The lending test evaluates a bank's record of helping to meet the credit needs of its assessment area(s) through its lending activities by considering a bank's home mortgage, small business, small farm, and community development lending. If consumer lending constitutes a substantial majority of a bank's business, the Board will evaluate the bank's consumer lending in one or more of the following categories: motor vehicle, credit card, home equity, other secured, and other unsecured loans. In addition, at a bank's option, the Board will evaluate one or more categories of consumer lending, if the bank has collected and maintained, as required in Sec. 228.42(c)(1), the data for each category that the bank elects to have the Board evaluate. i. In a nutshell, the regulators are testing the bank's lending activity to ensure the bank is meeting the needs to the low-to-moderate (LMI) communities within its assessment area (MSA where branches are located). They don't want to see a bank taking deposits from Cleveland, for example, and lending those funds in Boca Raton. (next card)

Types of Estate Ownership: Life Estate

c. Life Estate - An estate lasting for the natural life of the grantee, called a "life tenant." If a life estate can be sold, a sale does not change its duration, which is limited by the natural life of the original grantee.

Special Forms of Real Property Ownership - PUDS

c. PUDS - This is a planned unit development, sometimes thought of or referred to as a townhome. These could be attached or detached but the key is that the home and the land are owned by the borrower. They usually have a lot/block legal description and they typically have their own utilities metered.

There is a 3-prong test that examiners use to determine if the bank is meeting the needs of the areas it serves, name and describe them, c. Service test.

c. Service test - The service test evaluates a bank's record of helping to meet the credit needs of its assessment area(s) by analyzing both the availability and effectiveness of a bank's systems for delivering retail banking services and the extent and innovativeness of its community development services. i. Effectiveness of a bank's systems for delivering retail banking services, pursuant to the following criteria: (1) The current distribution of the bank's branches among low-, moderate-, middle-, and upper-income geographies; (2) In the context of its current distribution of the bank's branches, the bank's record of opening and closing branches, particularly branches located in low- or moderate-income geographies or primarily serving low- or moderate-income individuals; (3) The availability and effectiveness of alternative systems for delivering retail banking services (e.g., ATMs, ATMs not owned or operated by or exclusively for the bank, banking by telephone or computer, loan production offices, and bank-at-work or bank-by-mail programs) in low- and moderate-income geographies and to low- and moderate-income individuals; and (4) The range of services provided in low-, moderate-, middle-, and upper-income geographies and the degree to which the services are tailored to meet the needs of those geographies. ii. An example of meeting the service test is providing free ATM service in LMI areas, whereas the service isn't free in non LMI areas.

Types of Estate Ownership: Leasehold Estate

d. Leasehold Estate - An estate of limited term, as set out in a contract, called a lease, between the party granted the leasehold, called the lessee, and another party, called the lessor, having a longer estate in the property. For example, an apartment-dweller with a one-year lease has a leasehold estate in her apartment. Lessees typically agree to pay a stated rent to the lessor. Though a leasehold relates to real property, the leasehold interest is historically classified as personal property.

z. CFPB (Know Before You Owe) - aka TRID (TILA RESPA Integrated Disclosure Rule)

i. Effective October 2015. Created new disclosures including 1. The Loan Estimate (LE), which replaced the GFE and initial TIL, and 2. Closing Disclosure (CD) which replaced the HUD-1 Settlement Statement and the final TIL.

s. QM - Qualified Mortgage

i. Ensures that mortgage lenders extend credit based on a reasonable good faith determination of a consumer's ability to repay. If a mortgage is deemed a "qualified mortgage," the lender receives certain protection from liability. 1. "Qualified Mortgages" defined as a loan: a. Fully documented, 30 year fixed rate with no negative amortization or I/O features b. APR does not exceed average Fed prime rate by more than 1.5% (3.5% for sub. liens) c. Underwriting based on fully-indexed rate d. Income and other financial resources of borrower are verified e. Meets debt-to-income test prescribed by federal banking agencies

f. Fair Debt Collection Practices Act (FDCPA)

i. Generally applied to the loan administration process and sets forth guidelines governing when a debt collector can communicate with a debtor and other persons. For the purposes of this Act, the term debt collector excludes persons collecting debts originally made by them or that are not in default at the time the person obtained the debt.

Redlining continued

i. It is critical that a lender's HMDA LAR is accurate because the government and community organizations slice and dice this data and infer from it the lender's fair lending practices. ii. In the old days, someone would put a map on the wall and circle a geography in red pen to indicate the company wasn't going to lend there. Although that doesn't (or shouldn't) happen today, redlining can still occur. 1) A company should be proactive in managing its redlining risk by plotting its applications and denials on a map and look for 'donut holes' where it isn't lending-- a. Compare this data to other institutions lending in that area. b. Draw conclusions why your data looks differently than others lending in that area. c. Take corrective action as needed.

b. Fair Housing Act

i. Protects applicant from discrimination on the basis of: race, color, handicap, national origin, sex, religion, family status. ii. Fair Housing Act violations may exist in 3 different forms or types: 1. Overt discrimination: the mortgage lender blatantly discriminates on a prohibited basis. 2. Disparate treatment: the mortgage lender treats the applicants differently upon one of the prohibited factors. 3. Disparate impact: the mortgage lender applies a practice uniformly to all applicants but the practice has a discriminatory effect on a prohibited basis and the mortgage lenders use of such practice is not based upon a business necessity.

Bankruptcy Chapters, who qualifies for each, what does each one do? b. Chapter 11 business or self-employed with high net worth - Qualifications

i. Qualifications 1. Chapter 11 is typically used to reorganize a business, which may be a corporation, sole proprietorship, or partnership 2. Chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals with high net worth can also seek relief in chapter 11.

Bankruptcy Chapters, who qualifies for each, what does each one do? a. Chapter 7 - qualifications

i. Qualifications 1. Eligibility is based on a "means test" for individual debtors..debtor may be an individual, a partnership, or a corporation. 2. A chapter 7 bankruptcy case does not involve the filing of a repayment Plan as in Chapter 13. Instead, the bankruptcy trustee sells debtor's nonexempt assets and uses proceeds to pay creditors in accordance with the provisions of the Bankruptcy Code.

Bankruptcy Chapters, who qualifies for each, what does each one do? c. Chapter 12 - Qualifications

i. Qualifications 1. Must be a "family farmer" or "family fisherman" and derive over 50% of their gross income from farming or commercial fishing operations 2. Under the Bankruptcy Code, "family farmers" and "family fishermen" fall into two categories: a. (1) an individual or individual/spouse b. (2) a corporation or partnership 3. Farmers* 50% of debts must be from farming; 4. Fisherman* must have 80% of debts from fishing operation 5. *both cases exclude home mortgage from total 6. Farmer cannot have more than $4,031,575 in debt 7. Fisherman cannot have more than $1,924,550 8. Must have regular annual income. a. The purpose of this requirement is to ensure that the debtor's annual income is sufficiently stable and regular to permit the debtor to make payments under a chapter 12 plan. b. Chapter 12 makes allowance for situations in which family farmers or fishermen have income that is seasonal in nature. 9. Relief under chapter 12 is voluntary, and only the debtor may file a petition under the chapter

d. RESPA (Real Estate Settlement Procedures Act) - Reg X - GFE ; HUD 1

i. RESPA promotes consumer awareness of the nature and costs of closing a loan; ii. protects consumers from unnecessarily high settlement costs caused by certain abusive practices; iii. Has a prohibition on kickbacks (Section 8 of RESPA); 1. Note: on 1/30/2018 the courts opined on the PHH case, which partly dealt with kickbacks. The courts ruled in PHH's favor on this topic, which essentially restores industry to the HUD days of enforcement on this topic. My personal opinion is that we'll the CFPB publish guidance on this topic in coming years. In the meantime, there's lots of industry chatter about returning to desk rentals and MSA's (marketing service agreements) and joint ventures. iv. Requires consumer disclosures (GFE/LE and Your Home Loan Toolkit/Special Information Booklet and HUD/CD), v. regulates escrow administration (Initial Escrow Statement/Analysis at closing or within 45 days of loan closing, and Annual Escrow Account Statement/Analysis), vi. Requires disclosure of business arrangements (Affiliated Business Arrangement Disclosure), vii. requires discloses of the mortgage lender's transferring practices (Initial Servicing Disclosure) (under TRID, this requirement is covered by Reg Z & incorporated on the LE), viii. sets timeline for notification of the borrower of a servicing transfer (Notice of Servicing Transfer commonly referred to in the industry as Hello and Goodbye letters) and ix. requires the borrowers in most mortgage transactions to receive a list of Housing Counseling Agencies.

e. Fair Credit Reporting Act (FCRA, Regulation V)

i. Requires that consumer reporting agencies (CRA's) use fair, confidential, and accurate reporting methods. ii. The Act specifically defines the permissible purposes for accessing a consumer's credit file, including: for credit and insurance analysis, for employment purposes, by court order, by written instruction of the consumer, for determination of eligibility for license or other benefit granted by a government agency, or for legitimate business information need in connection with a business transaction involving the consumer. 1. When taking a mortgage application, the creditor must obtain the consumer's permission to pull credit (i.e. permissible purpose). The regulation does not tell you how to retain proof, but proof must be retained for 5 years. 2. Use of CRA information without the consumer's consent will also require disclosure to the consumer. a. EX: pre-screened credit offers. This is when a creditor lists out criteria and buys a list of leads from a CRA. The creditor is bound to deliver a firm offer of credit letter to the consumer. b. EX: trigger leads, which is portfolio monitoring to identify consumers in your portfolio that are shopping for mortgages. A firm offer of credit letter is required.

Bankruptcy Chapters, who qualifies for each, what does each one do? 9. Real Estate Transfers: a. Voluntary

i. Sale - The owner of a property conveys the interest in the realty through sale or granting of a deed in lieu of foreclosure. 1. A deed in lieu is a deed instrument in which the mortgagor (borrower) conveys all interest in a real property to the mortgagee (lender). Like a deed in lieu of foreclosure, a short sale is also a negotiated remedy between the defaulting homeowner and the lender. The borrower sells the house for an amount less than the outstanding mortgage debt, and the lender agrees to accept this lesser amount and cancel the foreclosure. ii. Gift - The owner of the property voluntarily bestows the property to another without compensation. iii. Lottery-Real Estate transferred by an activity or even in which the outcome is controlled by chance or fate. iv. Inheritance - Property is transferred to a designated recipient through a bequest contained in a legally valid will.

2. Traditional Forms of Ownership and Limitations on Use - Forms of Ownership - Sole & Separate

i. Sole & Separate - Sole ownership occurs when a single person owns a complete interest in a property or asset. Ownership is conveyed from one person to another through transfer documents, or by the laws of intestate succession. If the owner passes away, his or her interest in the property or the asset is included in the estate.

15. Security Instruments - a) Title Theory

i. States: AL, AK, AZ, CA, CO, DC, GA, IDMA, MI, MN, MS, MO, MT, NE, NV, NH, NC, OR, SD, TN, TX, UT, VI, WA, WV, WY ii. the borrower does not actually keep title to the property during the loan term. The seller gives the buyer/borrower a deed to the property but when the borrower signs the mortgage for the loan the borrower gives the title back to the mortgage holder. The lender then holds title to the property, as security only, until all loan payments have been made. During that time the borrower has the right to possession of the property, and the lender delivers the deed back to the borrower only after the loan obligation has been satisfied.

15. Security Instruments - a) Lien Theory

i. States: AR, CT, DE, FL, HI, IL, IN, IA, KS, KY, LA, ME, MD, NM, NY, ND, OH, OK, NJ, PA, PR, RI, SC, VT, WI ii. buyer holds the deed to the property during the mortgage term. The buyer promises to make all payments to the lender and the mortgage becomes a lien on the property, but title remains with the buyer. The lender's lien is removed once the payment of all loan payments have been completed. Foreclosure proceedings in a lien theory state may be more difficult for the lender than in a title theory state, due to the fact that the buyer is holding title to the land and not the lender.

a. TILA -RegZ (Truth in Lending)

i. TRID (TILA RESPA Integrated Disclosure, aka Know Before You Owe, implemented October 2015) created new disclosures including 1. The Loan Estimate (LE), which replaced the GFE and initial TIL, and 2. Closing Disclosure (CD) which replaced the HUD-1 Settlement Statement and the final TIL.

Title - Why are each important - Tax Liens

i. Tax Liens - Property tax liens are given priority over other liens, so they would be paid before a mortgage. Federal tax liens are not given priority, so they would be paid in the order in which they were recorded, vis-à-vis any other liens.

k. False Claims Act, aka Lincoln Law

i. The False Claims Act, also called the "Lincoln Law") is an American federal law that imposes liability on persons and companies (typically federal contractors) who defraud governmental programs. It is the federal Government's primary litigation tool in combating fraud against the Government. The law includes a qui tam provision that allows people who are not affiliated with the government, called "relators" under the law, to file actions on behalf of the government (informally called "whistleblowing" especially when the relator is employed by the organization accused in the suit). Persons filing under the Act stand to receive a portion (usually about 15-25 percent) of any recovered damages. As of 2012, over 70 percent of all federal Government FCA actions were initiated by whistleblowers. Claims under the law have typically involved health care, military, or other government spending programs, and dominate the list of largest pharmaceutical settlements. The government recovered $38.9 billion under the False Claims Act between 1987 and 2013 and of this amount, $27.2 billion or 70% was from qui tam cases brought by relators. 1. The law dates back to US Civil War days and was amended under Reagan.

n. NMLS

i. The NMLS is a database which acts as a central repository for the gathering of information for the procurement of State mortgage licenses. ii. NMLS is the system of record for non-depository, financial services licensing or registration in certain States and territories the United States. In these jurisdictions, NMLS is the official system for companies and individuals seeking to apply for, amend, renew and surrender license authorities managed through NMLS by 61 state or territorial governmental agencies. NMLS itself does not grant or deny license authority.

q. Flood Disaster Protection Act

i. The National Flood Insurance Act of 1968 created the Federal Insurance Administration and made flood insurance available for the first time. The Flood Disaster Protection Act of 1973 made the purchase of flood insurance mandatory for the protection of property located in Special Flood Hazard Areas. ii. The Biggert-Watters Act revised flood requirements effective January 2016. Among other changes, if flood insurance is required, it must be escrowed. iii. For all loans, the creditor must obtain a flood zone determination to determine if the property is located in a SFHA (special flood hazard area). If it is, the creditor must promptly notify the borrower that flood insurance is required. Proof is required before closing (usually flood insurance application with copy of check covering 1 year premium). Flood insurance is required as long as the property is secured by a mortgage. If you own the home free & clear, you do not have to carry flood insurance. Insurance can be purchased from the NFIP or from a private company. FHA loans do not accept private insurance policies.

Traditional Forms of Ownership and Limitations on Use - Covenants

ii. Covenants - an agreement specific to a development or neighborhood regarding the limitations of a property: How it must look (design), how it can be used (parking RV's or boats inside of a garage vs outside), allowable home paint colors, etc.

Explain ECOA requirements for notifying applicant

ii. ECOA requires that an applicant be notified if their application is accepted or rejected within 30 days of submitting a completed application. Applicants must be given specific reasons on the Adverse Action Notice (aka Statement of Denial, Denial Notice) as to why the application was rejected. 1. NOTE: the definition of 'application' under ECOA is different than the TRID definition. ECOA allows the creditor to define 'application' for purposes of making a credit decision. For example, a creditor's definition may include: completed, signed 1003 application, credit report, all W'2's/bank statements/etc. Once the creditor has all of the info it needs to make a credit decision, the creditor is on the hook to make a decision within 30 days (either denied, conditional approval, or approved). 2. ECOA also covers the Notice of Incompleteness (NOI). This disclosure must be given to a consumer after the consumer submits application, if the package is incomplete and the creditor needs more information in order to render a credit decision. Provide before day 30.

Bankruptcy Chapters, who qualifies for each, what does each one do? b. Chapter 11 business or self-employed with high net worth - Meaning

ii. Meaning 1. A case filed under chapter 11 of the United States Bankruptcy Code is frequently referred to as a "reorganization" bankruptcy. Corporate reorganization of debtor pursuant to a plan 2. Can be voluntary (debtor files) or involuntary (filed by creditors) 3. The U.S. trustee plays a major role in monitoring the progress of a chapter 11 case and supervising its administration. 4. Creditors' committees can play a major role in chapter 11 cases. The committee is appointed by the U.S. trustee and ordinarily consists of unsecured creditors who hold the seven largest unsecured claims against the debtor

Bankruptcy Chapters, who qualifies for each, what does each one do? d. Chapter 13 - Qualifications

ii. Qualifications 1. Must be a "wage earner" - i.e. have regular annual income 2. Debts cannot exceed a threshold amount (amt is changed every 3 years). Any individual, even if self-employed or operating an unincorporated business, can only be eligible for chapter 13 relief as long as the individual's unsecured debts are less than $394,725 and secured debts are less than $1,184,200: a. $394,725 unsecured limit b. $1,184,200 secured limit 3. A mortgage on a primary residence cannot be restructured; the filing does offer to stop foreclosure proceedings but the borrower must cure delinquencies and make scheduled payments if retaining their residence: 4. Thus Individuals may use a chapter 13 proceeding to save their home from foreclosure. The automatic stay stops the foreclosure proceeding as soon as the individual files the chapter 13 petition. The individual may then bring the past-due payments current over a reasonable period of time. Nevertheless, the debtor may still lose the home if the mortgage company completes the foreclosure sale under state law before the debtor files the Ch 13 petition. 5. The debtor may also lose the home if he or she fails to make the regular mortgage payments that come due after the chapter 13 filing, "Post-petition payments." 6. Unilateral plan - creditors have no input on the repayment plan. 7. Repayment plan set by court-appointed trustee (or the BK Administrator in NC and AL) 8. Borrower continues to pay post-filing debts (debts incurred AFTER BK filing), including a mortgage lender's loan if applicable 9. A chapter 13 debtor is entitled to a discharge upon completion of all payments under the chapter 13 plan.

Title - Why are each important - Statutory Liens

ii. Statutory Liens - Dependent on state law. For example, in HOA super lien states, HOA liens take precedence over all other liens.

TRID's definition of a loan

ii. TRID has: 1. its own definition of an application (which does not match Reg B; TRID defines an application as the receipt of 6 pieces of information & once the creditor has these, the creditor is on the hook to deliver disclosures within 3 days: borrower name, borrower SSN, borrower income, subject property address, loan amount sought & estimate of subject property values); 2. new timing requirements for disclosures (deliver early disclosures within 3 days of application with receipt at least 10 days before signing; delivery of an 'initial' closing disclosure that must be received by the consumer at least 3 business days before closing, etc.) 3. new tolerance levels for disclosed estimates (0 tolerance bucket (i.e. fees paid to originator that cannot increase without a valid changed circumstance); 10% tolerance (fees that the consumer can shop for but didn't); no tolerance bucket (consumer can shop for a service and did shop for that service), and 4. new pre-disclosure requirements (if give a Loan Estimate prior to receiving application, lender must honor those terms unless 10 days have lapsed. Fee quotes required to contain language indicating that the quote is not a Loan Estimate and that the customer should get one). 5. NOTE: not all transactions are subject to TRID. Two exemptions are reverse mortgages and HELOC's.

Bankruptcy Chapters, who qualifies for each, what does each one do? a. Chapter 7 - Reaffirmation

iii. Borrower has no further obligation on debts after discharge with the exception of reaffirmed debts, as permitted by law. 1. A reaffirmation is an agreement between the debtor and the creditor that the debtor will remain liable and will pay all or a portion of the money owed, even though the debt would otherwise be discharged in the bankruptcy. In return, the creditor promises that it will not repossess or take back the automobile or other property so long as the debtor continues to pay the debt. 2. If the debtor decides to reaffirm a debt, he or she must do so before the discharge is entered. The debtor must sign a written reaffirmation agreement and file it with the court

Explain 2013 ECOA Valuations Rule

iii. ECOA also ensures access to appraisals and estimates of value through the 2013 ECOA Valuations Rule. This revision to ECOA requires lenders to provide applicants free copies of all appraisals and other written valuations developed in connection with an application for a loan to be secured by a first lien on a dwelling. This includes all opinions of value such as AVM's and Broker Price Opinions (BPOs). 1. The appraisal must be delivered upon completion or at least 3 business days before closing. a. An applicant may waive the timing requirement and agree to receive any copy at or before consummation or account opening, except where otherwise prohibited by law. Any such waiver must be obtained at least three business days prior to consummation or account opening, unless 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. b. If the applicant provides a waiver and the transaction is not consummated or the account is not opened, the creditor must provide these copies no later than 30 days after the creditor determines consummation will not occur or the account will not be opened.

Traditional Forms of Ownership and Limitations on Use - Other

iii. Other, i.e. building codes, safety regulations - local ordinances for required quality of materials, measurements, workmanship and other health and safety criteria.

Traditional Forms of Ownership and Limitations on Use - Forms of Ownership - Tenancy in Entirety

iii. Tenancy in Entirety - Tenancy by the entireties is a form of joint ownership that is unique to husband and wife. Each spouse has an undivided and equal interest in the property. Each also has a right of survivorship as to the other's interest such that the interest of deceased tenant automatically vests in the surviving spouse. The tenants by the entireties share a single title and neither may convey title without consent of the other.

Bankruptcy Chapters, who qualifies for each, what does each one do? a. Chapter 7 - Discharge

iv. A discharge releases individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against the debtor.

Traditional Forms of Ownership and Limitations on Use - Forms of Ownership - Tenancy in Common

iv. Tenancy in Common - Tenants in common own an undivided interest in property between two or more people. However, unlike other forms of joint ownership, these interests can be owned in different percentages. A tenant in common can pass his or her interest to others with traditional documents. However, the interest does not pass on to the other owners by law - meaning, if three people own a vacation home as tenants in common and one owner dies, that person's ownership interest does not automatically pass on to the other owners. In addition, the deceased's interests do go through probate, unlike WROS. This can cause problems if the other owners wish to put the property up for sale, as they will not be able to do so until the probate process is complete.

o. CRA

o. CRA (Community Reinvestment Act) i. In enacting the CRA, the Congress required each appropriate Federal financial supervisory agency to assess an institution's record of helping to meet the credit needs of the local communities in which the institution is chartered, consistent with the safe and sound operation of the institution, and to take this record into account in the agency's evaluation of an application for a deposit facility by the institution. 1. CRA applies to depository institutions

j. What is Redlining?

the term refers to not lending in a specific geography, for example LMI communities.

Title - Why are each important - Mortgage: 1st, 2nd, etc.

typically, the first mortgage has first lien priority, the second mortgage (or HELOC) has second priority and then any other liens would fall in line based on the date they were recorded.

Traditional Forms of Ownership and Limitations on Use - Forms of Ownership - Community Property

v. Community Property - Currently, 10 states have community property laws: Alaska, Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, and Wisconsin.In a community property state, any assets or income obtained during a marriage are not owned solely by either spouse. It is considered part of the "community" of the marriage, and thus each spouse owns an equal share. Each spouse can choose to leave his or her share of the assets to one or more designated heirs upon death. There are no restrictions on how each spouse can give away his or her half of the community property (upon death), and there is no law requiring one person to leave his or her half to the surviving spouse.