Section 22
CFPB Penalties
$5,000 for failure to follow the law $25,000 for gross negligence $1,000,000 for intentional violations
What does TILA do?
1. provides consumers with loan cost information so consumers can comparison shop for certain types of loans. 2. protects consumers against inaccurate and unfair credit billing and credit card practices 3. Provides consumers with rescission rights 4. Provides for rate caps on certain dwelling-secured loans 5. Imposes limitations on home equity lines of credit and certain closed-end home mortgages 6. Provides minimum standards for most dwelling-secured loans 7. Delineates and prohibits unfair or deceptive mortgage lending practices
What is a buyer rebate?
A buyer rebate is when a buyer receives money during a closing without the lender's knowledge.
Which of these can a lender NOT ask a potential borrower about?
A lender can't ask a person without a co-borrower about their marital status, unless they're in a community property state. They CAN ask about race and ethnicity, but they can't use that information to disqualify the loan or change the loan terms.
Which of these advertisements violates the Truth in Lending Act?
A lender may not advertise terms that are not actually available to the consumer. A mortgage payment varies depending on many factors, such as down payment and interest rate.
TILA disclosure
Cash price Required down payment Number, amount, and due date of all payments Total of all payments to be made, unless the loan is for buying a home APR
What is the official name of the RESPA/TILA form that serves as the closing statement?
Closing Disclosure
encourages banks to make loans in the low- and middle-income communities they operate in an institution's performance in helping their community is taken into account when approving new banks
Community Reinvestment Act
created the CFPB
Dodd Frank
created the CFPB tightened regulations on banks and lenders in response to the 2008 subprime mortgage crisis
Dodd Frank
tightened regulations on banks and lenders in response to the 2008 subprime mortgage crisis
Dodd Frank
Which of these was one of the provisions of the Dodd-Frank Act?
Dodd-Frank created the CFPB.
prohibits lenders from discriminating against protected categories prohibits lenders from asking certain questions when evaluating a credit application
EOCA
Lavinia took out a subprime loan with an adjustable interest rate and a possible balloon payment. Before taking out the loan, she reviewed all the loan documents and understood the terms, but it was the only loan she was approved for. Is the lender practicing predatory lending?
If the borrower fully knows and understands the parameters of the loan and still willingly accepts the loan, that is not predatory.
Dodd-Frank FDIC Regulations
Increased the insured deposit amount from $100,000 to $250,000. set real estate lending standards: the set standards that banks use to determine their lending criteria. Banks need to have a policy in place to establish appropriate limits and standards for all extensions of credit.
Packing
Packing involves charging the borrower for services or fees they don't actually need. A common one is unnecessary credit insurance.
combines the requirements of TILA and RESPA administered by the CFPB replaced the GFE and HUD-1 forms with the Loan Estimate (LE) and Closing Disclosure (CD) forms
RESPA
prohibits kickbacks and referral fees from lenders
RESPA
replaced the GFE and HUD-1 forms with the Loan Estimate (LE) and Closing Disclosure (CD) forms
TRID
Loan Flipping
This flip is when a lender refinances a loan with a new long-term high-cost loan. The borrower pays a bunch of points and fees every time the loan is flipped.
A loan applicant has the right to have a cosigner other than a spouse.
True
A low credit score is the most common reason for being disqualified from a prime loan. True or False
True
Which of the following things can be an indication that a transaction may have involved loan fraud?
anything in a transaction that causes money to go back to the buyer without lender approval false financial statements from the buyer when a property is purchased and then quickly resells at a value that is artificially inflated by false appraisals
What Does Regulation Z Regulate? (for TILA)
applies to credit transactions where credit is: extended to customers offered on a regular basis subject to a finance charge or is to be paid in four or more installments to be used for personal, family or household purposes (no business) a close-ended transaction
The Community Reinvestment Act (CRA)
enacted by Congress in 1977 goal of encouraging depository institutions to help improve the communities in which they operate requires banks to make loans in the neighborhoods they operate in.
A Marketing Services Agreement (MSA)
framed as payments for advertising or promotional services, but in some cases the payments are actually disguised compensation for referrals — which is what Section 8 is attempting to regulate against.
Predatory lending
includes the unfair, deceptive, or fraudulent practices of some lenders during the loan origination process. "imposing unfair and abusive loan terms on borrowers."
Usury Laws
limit the maximum interest rate a lender can legally charge (usury is the illegal act of lending money at unreasonably high interest rates).
"Subprime"
means lending money to a borrower that has a lower credit score than optimal.
The SAFE Act regulates the licensure of which type of real estate professionals?
mortgage loan originators (MLO)
Which Loans Does RESPA Cover?
must be a federally related mortgage loan- this loan is directly or indirectly supported by federal regulation, insurance, guarantees, supplements, or assistance
Which of these features indicate a potentially bad subprime loan?
no cap rate hidden rate adjustment prepayment penalty
What does the Community Reinvestment Act require?
that banks create loans in the communities in which they operate
Which two disclosure forms would a borrower getting a loan today receive?
the Loan Estimate and the Closing Disclosure
federal funds rate
the interest rate that banks charge other banks for overnight loans, so adding three percent to that gives you the prime rate.
In Georgia, the legal rate of interest is:
the legal rate of interest for agreements with no written contract is 7% a year, simple interest. For loans under $3,000, 16% is the maximum allowable interest. For other amounts the interest rate must be spelled out in writing, with a maximum annual interest rate of 60% (!), or 5% per month.
mortgage fraud
usually involves tricking a lender into loaning money for a property worth less than the loan amount, or that doesn't exist at all. Borrower deceives the lender
Equity stripping
when a lender makes a loan on a borrower's home equity that they may not be able to pay back. If not, they repossess the home.
allows certain borrowers a three-day right of rescission
TILA
created advertising rules for loans
TILA
requires disclosures, including APR, for all loans
TILA
TRID combined disclosures from which two previous laws?
TILA and RESPA
Which of these does TILA NOT do?
TILA doesn't impose limits on how much interest a lender can charge
What is the relationship between TILA and Regulation Z?
TILA is the law, regulation Z are the rules for how the law is carried out both are concerned with protecting consumers in the mortgage market from unfair practices and wrongdoings.
administered by the CFPB
TRID
combines TILA and RESPA rules for loans
TRID
combines the requirements of TILA and RESPA
TRID
combines the requirements of TILA and RESPA administered by the CFPB replaced the GFE and HUD-1 forms with the Loan Estimate (LE) and Closing Disclosure (CD) forms
TRID
provides guidelines for updated loan disclosures, including the Loan Estimate and the Closing Disclosure combines TILA and RESPA rules for loans
TRID
The main takeaways for you regarding TRID
The TILA-RESPA Integrated Disclosure (TRID) initiative combined the efforts of the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA). The two integrated closing forms created to help the consumer control costs and understand the closing process are the Loan Estimate and Closing Disclosure forms. Loans subject to TRID include most closed-end consumer mortgages. Loans exempt from TRID include home equity lines of credit, reverse mortgages, or mortgages secured by a mobile home or by a dwelling that is not attached to real property — as well as loans made by persons who are not considered "creditors."
Dodd-Frank Reforms created these reforms:
The Volcker Rule Regulation of derivatives Creation of the Consumer Financial Protection Bureau Creation of the Office of Credit Ratings
Real Estate Settlement Procedures Act (RESPA)
enacted in 1974 in response to abuses in the real estate settlement process including kickbacks, referral fees or fee splitting Help consumers become better shoppers for settlement (loan closing) services by requiring disclosures that spell out the costs associated with closing Eliminate kickbacks and unearned referral fees that unnecessarily increase the costs of closing a transaction
Common Predatory Lending Practices
equity stripping bait and switch loan flipping packing hidden balloon payments
Loan Estimate
estimate of the terms of the loan and cost must be in good faith in mail no later than the 3rd business day after receiving consumer application must be delivered or placed in the mail no later than the 7th business day before consummation of the transaction
An affiliated business arrangement (ABA) —
exists when a real estate brokerage provides services related to closing transactions via subsidiary companies that operate under the corporate umbrella of that brokerage. For example, a real estate firm, title insurance company, mortgage broker, home inspection company, and even a moving company may agree to offer a package of services to consumers.
Regulation Z for TILA
explains how the provisions in the law will be carried out in practical terms.- often interchangeable with TILA
TILA-RESPA Integrated Disclosure (TRID)
ingratiation of the RESPA disclosure with the TILA disclosure to create the Know before You Owe (KBYO) mortgage initiative
Truth in Lending Act (TILA) (Title 1)
intended to ensure that credit terms are disclosed in a meaningful way so consumers can compare credit terms more readily and knowledgeably.
Why is the APR an important tool for borrowers shopping for loans?
it lets them compare the true cost of each loan
According to RESPA rules, what is the maximum number of months of payments a lender can keep in escrow for a borrower?
14 months
Which of the statements below is TRUE?
A seller CANNOT require a buyer to purchase title insurance from a specific title company UNLESS they pay for all costs for themselves & the buyer.
RESPA Repayment Rules
If the amount owed to the borrower is in excess of $50, the lender has 30 days to return the funds to the borrower. if the borrower owes the lender less than one month's escrow payment, the lender may request that the funds be paid within 30 days. Otherwise, the lender must spread the repayment over a 12-month period, thereby increasing the monthly escrow payment.
SAFE Mortgage Licensing Act 2008 (SAFE Act)
In 2011, Title X of the Dodd-Frank Act gave the CFPB the job of administering the SAFE Act. This law requires mortgage loan originators, or MLOs, to be licensed according to national standards. It also created the Nationwide Mortgage Licensing System and Registry (NMLS), a nationwide database of licensed MLOs, and required every state to participate in the registry. The primary purpose of the SAFE Act is to protect consumers and reduce fraud.
Other RESPA Rules: Title Companies
It is a violation of RESPA for a seller to require a buyer to purchase title insurance from a specific title company in order to purchase the property offered for sale.
Which of these is a CFPB program designed to simplify forms for borrowers?
Know before you owe (KBYO)
TRID requires that lenders give borrowers what two disclosures?
Loan Estimate and the Closing Disclosure
The four big Reg Z rules to know are:
Loan originator compensation rules Disclosure of loan terms Right of rescission for loans using an already-owned house as collateral Rules for advertising loan rates
RESPA does not apply to the following types of loans:
Loans on a property of 25 acres or more Loans for business, commercial, or agricultural purposes Temporary construction loans Loans on vacant land Assumption without lender approval Conversion of a federally-related mortgage loan to different terms, if a new note is not required Transfer of a loan in the secondary market
created requirements that lenders disclose the cost of closing using specific disclosure forms (originally the GFE and HUD-1)
RESPA
Which of these loans would NOT be covered by RESPA?
RESPA doesn't apply to properties larger than 25 acres.
Do RESPA requirements apply when a purchase is financed by a loan insured by the FHA?
RESPA requirements apply when a purchase is financed by a federally related mortgage loan. Federally related loans include loans made by banks, savings associations, FHA loans, VA loans, and others.
What loans are covered by TILA?
Real estate loans Loans for personal, family, or household purposes Consumer loans for $25,000 or less Business loans are not covered under TILA.
requires mortgage loan originators to register with the NMLS database requires mortgage loan originators to take pre-licensing and continuing education courses
SAFE ACT
Tammy (a lender) deceives Leslie (a woman who looking for a loan so she can buy a home in Florida) during the loan process. As a result, Leslie has a lot of trouble meeting her monthly loan payments. Analyze if this is mortgage fraud or predatory lending, and explain why.
This is predatory lending because Tammy, the lender was deceptive
Reg Z: Rescission Rights
This right gives borrowers three days after the consummation of their loan to rescind (withdraw) the transaction. The three days ideally give the borrower time to reexamine the contract and ensure that they are comfortable using their home as security for the loan.
Volcker Rule (July 21, 2015)
a ban on proprietary trading by commercial banks Restricted United States banks from making certain speculative investments that did not benefit their customers Prohibited banks from conducting investment activities with their own accounts Limited banks ownership of hedge funds or private equity funds to 3% of total ownership interest
In loan fraud, flipping involves buying a property and then quickly reselling it for a lot more money with a loan, using:
a phony appraisal and a straw buyer
Consumer Financial Protection Bureau (CFPB)
after 2008 financial crisis, new legislation handed the job of administering TILA (Reg Z) and RESPA (admin by title X) over to this bureau. issued a new set of regulations called TRID
According to TILA, who must a loan disclosure be given to?
all borrowers seeking credit must be given a loan disclosure
Home Ownership and Equity Protection Act (HOEPA) 1994
an amendment to TILA goal was to end abusive and predatory practices by lenders. This act created a lot of restrictions for what it deemed to be "high-cost loans," or loans with an annual percentage rate exceeding the average rate for similar transactions by more than 6.5%.
Closing Disclosure (CD)
consolidated the HUD-1, Good Faith Estimate & TILA
Consumer Financial Protection Bureau (CFPB)
created an independent agency to develop and enforce clear and consistent rules for the financial marketplace and hold financial firms to higher standards. supervises banks, credit unions and other financial companies to enforce federal consumer financial laws enforces TILA and RESPA
Consumer Credit Protection Act
passed in 1968 that requires disclosure of the total cost of obtaining a loan
Equal Credit Opportunity Act (ECOA)
passed in 1974 prohibits lending discrimination on the basis of race, color, religion, national origin, sex, marital status, age, sexuality, gender presentation, or use of public assistance.
Dodd-Frank Wall Street Reform and Consumer Protection Act
passed in July 2010- to protect people from unfair and abusive financial practices, to help prevent another financial crisis The act was a huge Wall Street reform bill, and provided common-sense protections, creating a new consumer watchdog to prevent mortgage companies and pay-day lenders from exploiting consumers.
Loan Originator Compensation Rules
people who help consumers find loans can't get a kickback or steer borrowers toward loans where they get paid more. don't apply to revolving lines of credit, time shares, or real property without a dwelling
Mortgage Fraud Schemes- buyer frauds lender
property flipping straw buyers stolen id inflated appraisal foreclosure schemes equity skimming air loans silent second chunking
What are the primary goals of the CFPB?
protect borrowers from dishonest lending practices Create easier-to-use mortgage disclosure forms Improve consumer understanding Aid in comparison shopping for the borrower Prevent surprises at the closing table, a.k.a. "Know Before You Owe" Does not field complaints from minorities about lending companies
Reg Z: and Advertising Rules
required to provide accurate and balanced information, in a clear and conspicuous manner, about loan rates, monthly payments, and other loan features. The advertising rules ban several deceptive or misleading advertising practices, including representations that a rate or payment is "fixed" when, in fact, it can change.
Loans that are exempt from Consumer Finance Protection Bureau (CFPB)
reverse mortgages home equity lines of credit mobile home loans (when not attached to real property)
RESPA RULES: Escrow rules
sets limits on the amount of money a lender is allowed to keep in an escrow account: up to 14 months of payments (that is, one year of payments, plus a maximum cushion of one-sixth of that amount).
The loan's APR
shows the consumer the true cost of the loan, allowing them to easily compare one lender's offer to another APR gives non-expert consumers the ability to compare loans directly.