Unit 10 getting A Loan

Adjustable Rate Loan Disclosure

A lender offering adjustable rate residential mortgage loans must provide prospective borrowers with a copy of the most recent CFPB publication, which provides information about adjustable rate loans.

TILA defines a dwelling

as a 1-4 residential structure , individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence. Real estate loans that are exempt from the TILA include credit extended primarily for business, commercial, or agricultural purposes, or credit extended to other than a natural person. Additionally, loans over $25,000 that are not real estate loans are exempt.

Mortgage Servicing Disclosure Statement

states whether the lender intends to sell the real estate loan servicing immediately or in the future

Loan Estimate

summarizes key loan terms and gives an estimate of loan and closing costs. The lender is generally required to provide the Loan Estimate within 3 business days of the receipt of the borrower's loan application.

Maximum Commissions for Sheltered Loans

1.First or senior loans: a.5% of the principal of a loan of less than 3 years; b.10% of the principal of a loan of 3 years or more; 2.Second or other junior loans: a.5% of the principal of a loan of less than 2 years;b.10% of the principal of a loan of at least 2 years but less than 3 years; and, c.15% of the principal of a loan of 3 years or more. For example, the maximum commission that the broker can charge for a $7,500 second trust deed with a 5-year term is 15%

creditor

A creditor must furnish certain disclosures to the consumer before a contract for a loan is made. A creditor includes a lender (person or company) who regularly makes real estate loans; who extends credit for loans secured by a dwelling; and the credit extended is subject to a finance charge or is payable in more than four installments, excluding the down payment

Mortgage Loan Disclosure Statement (MLDS

A real estate broker who negotiates loans on behalf of borrowers or lenders, to be secured by liens on real property, must deliver a written disclosure to the borrower. It must be delivered within 3 business days of receipt of the borrower's written loan application, or before the borrower becomes obligated to complete the loan, whichever is earlier. If the loan is negotiated in Spanish, Chinese, Tagalog, Vietnamese, or Korean, the MLDS must be provided in that language

sheltered loan

Article 7 applies to 1 to 4 residential properties that are secured directly or collaterally by sheltered loans. is a first trust deed of LESS THAN $30,000 or a junior loan of LESS THAN $20,000. Article 7 limits the amount of commissions and costs that may be charged for arranging or making a sheltered loan

Lender Compensation Disclosure

Commissioner's Regulation 2904 requires that all real estate licensees must disclose to their principals all compensation, or expected compensation, regard-less of the form, time, or source of payment. The disclosure is required even if the broker does not handle the financing aspect of the transaction and it must be given to each party to the transaction before the transaction closes escrow

Financial Disclosures Required by California Law

It is federal policy to ensure fair housing by prohibiting discrimination based on race, color, religion, sex, national origin, marital status, age, or physical disabilities in connection with the sale, rental, construction, or financing of housing. Many state laws are passed to supplement federal legislation.

7-business day waiting period

Lenders must allow applicants to have a 7-business day waiting period after mailing or delivering the Loan Estimate prior to closing the loan.

3 business days before consummation

Lenders must ensure that borrowers receive the Closing Disclosure at least 3 business days before consummation (the day the loan closes). The seller's Closing Disclosure must be provided to the seller at or before consummation. After closing, the loan servicer must deliver an Annual Escrow Loan Statement to the borrower. Violators of this law can be penalized by up to one year in jail and/or a $10,000 fine.

material disclosures

Regulation Z requires that the following material disclosures must be displayed to allow consumers ease of comparison. •Amount financed - The amount of credit provided to you or on your behalf. •Finance charge - The dollar amount the credit will cost you .•Annual Percentage Rate - The cost of your credit expressed as a yearly rate .•Total of payments - The amount you will have paid when you have made all the scheduled payments .•Payment schedule - The number, amount, and timing of payments. •Name of the lender/creditor making the disclosure.

Advertising

The Truth in Lending Act also establishes disclosure standards for advertisements that refer to certain credit terms. If the annual percentage rate (APR) is disclosed, no more disclosures are required. If the APR is not stated, then all the specifics of all credit terms must be disclosed

Seller Financing Disclosure Statement

The arranger of credit must deliver a Seller Financing Disclosure Statement as soon as possible before the execution of any note or security document. The statement must be signed by the arranger of credit, the buyer, and the seller, who are each to receive a copy. The disclosure statement must include comprehensive information about the financing cautions applicable to certain types of financing, and suggestions of procedures that will protect the parties during the terms of the financing.

equity.

The difference between the appraised value and the loan is called

Red flags

The lender must create a list of warning signs—"red flags"—for possible identity theft. Red flags are suspicious patterns or practices or specific activities that indicate the possibility of identity theft. The law lists five categories of warning signs

Electronic Underwriting Credit Report and Evaluation

The mortgage industry uses electronic underwriting systems that predict multiple-risk factors in a loan application. The most widely used automated underwriting systems are Fannie Mae's Desktop Underwriter® and Freddie Mac's Loan Prospector ®.

Mortgage Disclosure Improvement Act (MDIA).

The purpose of the MDIA is to ensure that consumers receive cost disclosures early in the mortgage process

Your Home Loan Toolkit

The special information booklet, contains consumer information on various real estate settlement services.

Truth in Lending Act (TILA)

Title I of the Consumer Credit Protection Act, is aimed at promoting the informed use of consumer credit by requiring disclosures about its terms and costs. The TILA is intended to enable the customer to compare the cost of a cash transaction with the cost of a credit transaction and to see the difference in the cost of credit among different lenders. Its purpose is to assure a meaningful disclosure of credit terms.

arranger of credit

To prevent abuses involving some of these seller assisted financing plans the state requires the arranger of credit to give the borrower a written disclosure. An arranger of credit is a person who is not a party to the transaction, but will be compensated for arranging the credit, negotiating the credit terms, completing the credit documents, and facilitating the transaction

Loan Application

Usually the lender will ask for three monthly bank statements, the two most recent pay stubs, two year's previous tax returns, and proof of any investments. Once received the lender will verify the information and order an appraisal in order to qualify

right to rescind (cancel

a real estate loan applies to most consumer credit loans (hard money loans) or refinance loans. Loans used for the purchase or construction of the borrower's personal residence (purchase money loans) have no right of rescission. The lender must provide a written rescission disclosure to every borrower who is entitled to rescind. When the right of rescission applies, the borrower has a right to rescind the agreement until midnight of the third business day after the promissory note is signed

Closing Disclosure

contains the actual terms and costs of the transaction. The TRID rule applies to most closed-end residential mortgages, construction-only loans, and loans secured by vacant land or by 25 or more acres. Creditors are required to provide borrowers with a Loan Estimate at the time the borrower completes the application for a mortgage loan or within 3 business days after receiving an application. Neither the lender nor anyone else may charge a fee, other than a reasonable fee for obtaining the consumer's credit history, until after the borrower has received this disclosure.

TILA-RESPA Rule (TRID)

creating the Loan Estimate and the Closing Disclosure that are provided to borrowers for closed-end mortgage loan transactions. The Loan Estimate provides borrowers with good-faith estimates of credit costs and transaction terms

The Holden Act

encourages increased lending in neighborhoods where, in the past, financing has been unavailable. The major goal of the Holden Act is to ensure and increase the supply of safe and decent housing for creditworthy borrowers and to prevent neighborhood decay.

Equal Credit OpportunityAct (ECOA)

ensures that all consumers are given an equal chance to obtain credit. This does not mean all consumers who apply for credit get it because factors, such as income, expenses, debt, and credit history are considerations for creditworthiness.

FTC Red Flags Rules

financial institutions and creditors must develop a written "Identity Theft Prevention Program" to detect, prevent, and mitigate identity theft in covered accounts.

credit report

from one of the credit reporting agencies Experian®, Equifax®, or TransUnion™ indicates a credit score for the loan applicant. They do not consider income, savings, down payment amount, or demographic factors—like gender, nationality, or marital status.

Fair and Accurate Credit Transactions Act (FACTA) of 2003

gives borrowers the right to see what is in their credit file and to have any errors corrected. If a lender refuses credit to a borrower because of unfavorable information in his or her credit report, a borrower has a right to get the name and address of the agency that keeps the report. FACTA allows consumers to request and obtain a free credit report once every 12 months from each of the three nationwide consumer-credit reporting companies—Equifax®, Experian®, and TransUnion™.

Credit scoring

is an objective, statistical method that lenders use to quickly assess the borrower's credit risk. The score is a number that rates the likelihood that a borrower will repay a loan.

covered account

is any personal account, such as checking and savings accounts, credit card accounts, mortgage loans, automobile loans, margin accounts, and cell phone or utility accounts.

business day

is defined as all calendar days except Sundays and legal public holidays

The Fair Credit Reporting Act (FCRA)

is one of the most important laws that protects consumer identity and credit information. It is designed to promote the accuracy, fairness, and privacy of the information collected and maintained by credit reporting agencies.

finance charge

is the dollar amount the credit will cost, and, as a condition to obtaining credit, is composed of any direct or indirect charges. Those include interest, loan fees, finder fees, credit report fees, insurance fees, and mortgage insurance fees. In real estate loans, the finance charge does not include fees for appraisals or credit reports, title insurance, notary services, or for preparing loan-related documents, such as deeds or mortgages.

Loan-to-value

is the percentage of appraised value to the loan. An 80% loan would require the borrower to make a 20% down payment. Loans made with less than a 20% down payment will require mortgage insurance.

underwriting

is the process of evaluating a borrower's risk factors before the lender will make a loan. The first step in getting a loan is for the borrower to fill out a loan application. Once the lender has the borrower's completed application the underwriting process can begin.

The annual percentage rate (APR)

is the relative cost of credit expressed as a yearly rate. It is the relationship of the total finance charge to the total amount financed, expressed as a percentage.Regulation Z requires that the following material disclosures must be displayed to allow consumers ease of comparison. [§1026.18]. •Amount financed - The amount of credit provided to you or on your behalf.•Finance charge - The dollar amount the credit will cost you.•Annual Percentage Rate - The cost of your credit expressed as a yearly rate.•Total of payments - The amount you will have paid when you have made all the scheduled payments.•Payment schedule - The number, amount, and timing of payments.•Name of the lender/creditor making the disclosure.

Housing Financial Discrimination Act of 1977

prohibits the discriminatory practice known as redlining. Redlining is an illegal lending policy of denying real estate loans on properties in older, changing urban areas, usually with large minority populations, because of alleged higher lending risks, without due consideration being given by the lending institution to the creditworthiness of the individual loan applicant

equity funds

property is purchased with equity funds (down payment)

debt

property is purchased with equity funds (down payment) and debt ( loan funds).

Real Estate Settlement Procedures Act (RESPA)

protects consumers by mandating a series of disclosures that prevent unethical practices by mortgage lenders. The disclosures must take place at various times throughout the settlement process

Qualifying the Borrower

risk factors are taken into consideration when evaluating a borrower for a loan, such as the borrower's debt-to-income level, employment history, type of property, and assets. The lender will order a credit report, which will show the borrower's payment history, balance of outstanding debt, credit history, number of credit inquiries, and types of credit held. The most important being the payment and credit history.

Home Mortgage Disclosure Act of 1975 (HMDA)

requires most mortgage lenders to gather data from borrowers who apply for loans. Its purpose is to determine whether lenders are serving their communities and to identify discriminatory lending patterns. To do this, HMDA tracks the type and amount of the loan, type of property with its location, and the borrower's ethnicity, race, gender, and income.

FICO® scores

scores run from 350 to 620 for the applicants who are late in paying bills and between 700 to above 800 for those applicants who always pay bills on time

Real Property Loan Law, also referred to as the Mortgage Loan Brokers' Law,

was enacted to curb a variety of lending abuses perpetrated by real estate brokers who engaged in loan transactions. The abuses included exorbitant commissions, inflated costs and expenses, short term loans with large balloon payments, and misrepresentations or concealments of material facts.

Consumer Credit Protection Act of 1968

which launched Truth in Lending disclosures—was landmark legislation. For the first time, creditors had to state the cost of borrowing in a common language so that the consumer could figure out what the charges are, compare the costs of loans, and shop for the best credit deal

Categories of Red Flags

•Alerts, Notifications, & Warnings from a Credit Reporting Agency •Suspicious Documents •Suspicious Personal Identifying Information •Suspicious Account Activity •Notice from Other Sources

Maximum Costs and Expenses for Sheltered Loans

•Costs and expenses cannot exceed 5% of the original principal balance/amount of the loan or $390, whichever is greater, to a maximum of $700. •The amount charged cannot exceed the actual costs and expenses paid, incurred or reasonably earned. -- No balloon payment is allowed for loans on owner-occupied homes, in which a broker has been involved in the negotiation, if the term is 6 years or less. This requirement does not apply when a seller carries back a trust deed as part of the purchase price