Truth-in-Lending Act

The rate-change disclosure must include the following information:

- The rate-change disclosure must include the following information: - remider of when rated adjustments will occur - A description of other changes to the loan that will occur on the date that the interest rate changes, such as the expiration of interest-only or payment-option feature -current and new rates, paymens - how much will be allocated for interest , taxes and insurance

what changes is a creditor allowed to make on a HEP?

- any changes that consumer agrees to in writing changes that will benefit the consumer -insignificant changes - additional extension of credit or reduce credit during times where the martial status changes, the value of home decrease belwo the appraised value, consumer is in default government reasons - unsafe or unsound practices

what are the consequences of a cosnumer decisoon to rescind?

- creditors no longer has security interest in the dwelling - has 20 days to return and money/property paid by consumer includes closing cost, and interest that the borrower has paid on the loan -the consumer must return any funds received to the lender

what are the primary goals of TILA?

- protection by disclosing cost and terms of credit - create standards for stating the cost and allowing consumers o compare loans offered through different creditors - advertisement is truthful and not misleading - the right to cancel ceartin types of transcactions

when a consumer applys for ARMs they must receive ...

- statement regarding changes in interest, payment or loan term - index formula used to make adjustments - how interest rate and payment will be determined - recommendation about current margin value and interest rate -discounts frequent and rules related to interest rate and payment -how to calculate payments other variable rate loan programs

if HEP has a adjustable rate what must be incluced ?

-APR can change and how its determined -APR does not include cost other than interest - index insed and infromation pertaining to index - consumer should ask about index, margin and APR - how long ininital rate will be avabailne

he "trigger terms" for closed-end loans are:

-Amount or percentage of any down payment -Number of payments or the period of repayment Payment amounts, and The finance charge

Trigger terms for open-end mortgages, such as home equity plans include references to any of the following:

-Finance charge -Other charges, such as late payment charges, title, appraisal, and credit report fees Taxes imposed on the credit transaction, and Payment terms of the home equity plan

what determines APR and finincace charge?

-Private mortgage insurance (PMI) or mortgage insurance premium (MIP) - discount points and mortgage broker fees -Origination fees -Processing fees, and -Underwriting fees

what does a creditor do?

-Regularly extend consumer credit - finnace chareg or agree to four payments - Receive the initial payments on the debt that the borrower assumes in the lending transaction

tax implicantion avertisment must state that

-That the interest on the portion of the credit extension greater than the market value of the property is not deductible, and -The consumer should consult a tax adviser regarding the amounts that may be deductible

Closed end transactions for APR

-The finance charge, amount financed, and total payments are all factors that go into the computation of the APR for a closed-end loan. -a measure of the cost of credit, expressed as a yearly rate, that relates to the amount and timing of value received by the consumer to the amount and timing of payments made"

A consumer may exercise the right to rescind after foreclosure proceedings have been brought against his/her principal dwelling if:

-The loan was originated through a mortgage broker and the creditor failed to include the mortgage broker fee in the finance charge, - The creditor failed to use the appropriate model form under Regulation Z or a substantially similar notice

accuracy tolerances provide that the disclosed finance charge is regarded as accurate if it is

-Understated by no more than 1/2 of 1% of the face amount of the note or $100, whichever is greater, or - greater than the amount required to be disclosed

Advertising a minimum periodic payment triggers the requirement to include a statement

-a statement that a balloon payment may result when borrowers make only the minimum periodic payments required -f a balloon payment will occur when the borrower makes only the minimal and non-amortizing payments under the plan, ballon payment will result an the amount that the borrow will have to pay

open-end loan

-both the borrower and the lender anticipate repeat transactions. -lender gives the borrower a limit on the amount of funds that he/she can withdraw, -borrower can request a cash advance in any amount. -borrower may have the option of requesting an increase in the credit amount -Payments depend on the interest due on the amount withdrawn.

what loans are covered by TILA?

-credit that is offered to consumers -offer or extension of credit is made regualry - credit includes finance charge or wirtten agreement that loan will be repaid in four installments - redit is primarily for personal, family, or household purposes

what changes is a creditors not allowed to make during HEP?

-creditors can not : cannot change or control APR - terminate a plan/ demand payment unless the consumer has committed fraud, deafulted loan, any action that could impact loan - change any terms change the index or margin unlees its no longer available

the finance charge includes

-fees paid to third parties if the creditor requires the use of a particular third party or retains a portion of the third-party charge -Interest, points, loan fees, assumption fees, finders fees, Broker fees, premiums, third party services(only if the lender requires it or keeps a portion of the charge). Insurance premiums.f

closed-end loan

-lender disburses all of the funds at closing and demands repayment within a specified period of time -

limitations to the right of rescind ( no rights if)

-only available for loans that are secured by the consumer's principal dwelling -residential mortgage transactions - if the residental already hace a refinaince/consolidation of credit -lending with a state agency - an advance -renewal

after all disclosures are made , they must also receive?

-payment terms - apr - fees associated with said plan -fees from third party negative amortization - transaction requiremtns and tax implications

A person "regularly extends consumer credit" if:

-secured by a dwelling and was extended more than five times in the preceding calendar year -in any 12-month period, the creditor originates more than one credit extension that is a high-cost mortgage regulated under HOEPA, or -any 12-month period, the creditor originates one or more high-cost mortgages regulated under HOEPA through a mortgage broker

Disclousure of arms provide consumers with ?

-summary of cost and lending terms - warning about risk of adjustable rates - advance notice of rate changes that impact future payments

advertising proibitions for a closed end credit

1. Misleading advertising of "fixed" rates and payments 2. Misleading comparisons in advertisements 3.Misrepresentations about government endorsement: 4.Misleading use of the current lender's name 5.Misleading claims of debt elimination 6.Misleading use of the term counselor: 7.Misleading foreign-language advertisements:

Notice of Right to Rescind must disclouse

1. Retention or acquisition of a security interest in the consumer's principal dwelling 2. Consumers Right to Rescind 3. How to exercise the right of rescission, with a form to use that designates the address of the creditors place of business 4. Effects of Rescission 5. Date on which the rescission period ends

post consumation discloures for ARMs must include

1. how the interest rate is determined 2. any limits on the interest rate increase 3. how the new payment is determined: 4. nformation on negative amortization and prepayment penalties

mortgages that are included on the home equity plan have 2 features:

1. mortgage in a open end loan 2. mortgage is a dwellling but doesn't have to be there main home 3. APR corresponds to the periodic rate

Creditors must retain for at least ____years, the Escrow Closing Notice and Post-Consummation Partial Payment Policy.

2

-Creditors are required to show evidence of compliance with Loan Estimate requirements for at least ___years after consummation

3

Finally, records related to compliance with ability to repay requirements must be kept for at least ___years after consummation

3

Records related to loan originator compensation must be retained for at least ___ years after each receipt of payment.

3

Creditors must also retain copies of the Closing Disclosure and all related documents for at least years after consummation.

5

example of advertising discounted and premium rates

7.5% APR FOR THE FIRST SIX MONTHS! After first six months, APR is 10.5% (as of November 1), subject to increase based on market conditions.

Advertising rules for open-end credit requirement to clearly and conspicuously include the following additional information:

Any loan fee that is a percentage of the credit limit An estimate, stated as a dollar amount, of any fee to open the plan Any periodic rate used to compute the finance charge, and The maximum annual percentage rate that may be imposed under a variable-rate plan

Rate Change Disclosure

At least 60, but no more than 120, days before a change in the interest rate results in a new payment amount,

advertising tax deductables , specifically prohibits the use of advertisements that include any misleading statements regarding the tax benefits of a home equity plan. These advertisements must "clearly and conspicuously" state that:

If home equity loans exceed the value of the home used to secure the loan, the interest on the portion of the credit extension that is greater than the market value of the property is not deductible, and The consumer should consult a tax adviser regarding the amounts that may be deductible

Regulation Z applies to:

TILA

Creditors may face a penalty of an amount equal to the sum of all finance charges and fees paid by the consumer for violations of:

The Home Ownership and Equity Protection Act Prohibitions against incentives for loan originators to steer consumers towards particular loan products, and The prohibition against making a residential mortgage loan without determining the borrower's ability to repay the loan

advertising a discounted or premium rate triggers the requirement to include the following additional information:

The period of time that the discount or premium rate will be in effect A reasonably current APR for the loan, if it is fully indexed, and the presentation of this information with equal prominence to the discount rate, and The fully indexed rate in close proximity to the discount rate

Availability of disclosed terms

The disclosure must explain that the lending terms described are subject to change and that a loan applicant must submit an application to obtain specific terms disclosed. The disclosure should also note the terms that are subject to change and that if a disclosed term changes (other than changes related to the fluctuating index for an ARM), the consumer may elect not to open the plan and receive a refund of fees paid for the loan application.

Retention of disclosure

The disclosure must include a statement advising the consumer to retain a copy of the disclosure.

Risk of losing the home

The disclosure must state that the creditor will have a security interest in the borrower's home and that payment defaults could result in the loss of the home.

rescission

inaccurate disclosures of the finance charge or the annual percentage rate give consumers a basis for exercising the right to rescind a loan up to three years after consummation.

discloure deadlines

Disclosures for home equity plans, as well as the informational brochure "What You Should Know about Home Equity Lines of Credit," are due at the time an application is provided to a consumer if in person due on the same day and if over the phone its due within 3 biz days

disclosure on interest rates and payments advertisement

Each simple interest rate that will apply. For ARMs, the advertisement must state the rate as determined by adding a current index and a margin. The period of time that each simple annual rate of interest will apply, and The APR for the loan

T/F: APR is the same for open and closed end credit

False

Closing Agent Charges

Fees charged by the closing agent are included in the finance charges if the lender requires these services, requires a charge for these services, or retains a portion of the charge.

Home Equity Plan

Form of revolving credit that is secured by a mortgage on the borrower's home

buissness day

means any day on which the creditor's offices are open to the public for carrying out substantially all business functions -calendar days except Sundays and legal public holidays.

An explanation of how the interest rate is determined:

must reference the index used and reference information that the consumer can access regarding the index used for the loan. It must also identify the margin and explain how the margin is used to calculate the new rate.

During the three-day rescission period,

no money shall be disbursed other than in escrow, no services shall be performed and no materials delivered until the rescission period has expired and the creditor is reasonably satisfied that the consumer has not rescinded"

what are the 2 set of rules if a loan is covered by TILA?

open end and closed end loans

Accuracy Tolerances for APR ( closed)

provide that an APR is accurate if it is not more than 1/8 of one percentage point above or below the APR when the APR is calculated

Misleading use of the current lender's name

some lenders and mortgage brokers have made direct solicitations that lead consumers to the incorrect assumption that their own lender is contacting them with information on mortgage products.

Open-End Mortgage

such as home equity plans, "...shall be computed by multiplying each periodic rate by the number of periods in a year

Periodic Rate

the APR for a charge account divided by the number of billing cycles per year (usually 12) refers to a rate of finance charge that is or may be imposed by a creditor on a balance for a day, week, month, or other subdivision of a year

if the loan is an irregular loan then

the APR is regarded as accurate if it is not more than 1/4 of one percentage point above or below the APR when the APR is calculated

open end 3 biz day right to rescind

the deadline for the right to rescind is three business days after the last of the following events occurs: - credit plan is opened security interest is added or increased to an existing plan -credit limit increase - delivery of notice material disclosure A creditor in an open-end transaction may prepare the cash advance check and accrue finance charges.

Possibility of unfavorable actions by the creditor:

the disclosure must advise consumers that in certain conditions, the creditor can take adverse actions, such as demanding payment of the outstanding balance in a single payment, reducing the credit limit, or prohibiting additional extensions of credit.

2 uniform standards created by TILA

the finance charge and the annual percentage rate

Consummation

the time that a consumer becomes contractually obligated on a credit transaction . one should assume that consummation will take place at the time of closing.

the finance charge

the total dollar amount you pay to use credit

t/f : The consumer may not be required to pay any nonrefundable fees in connection with an application for a home equity plan unless he/she has received the disclosures and the brochure on the risks of a home equity line of credit.

true

t/f: Actions to rescind that take place during foreclosure proceedings are subject to the three-year deadline for exercising the right to rescind 15

true

t/f: Comparing the APRs of open-end and closed-end loans would not be very helpful since the calculations are based on different factors.

true

t/f: Home equity lines of credit, refinances, and home improvement loans secured by the consumer's principal dwelling are examples of the types of loans that are subject to a right of rescission.

true

t/f: The APR is useful for borrowers shopping for an adjustable-rate mortgage (ARM) because the APR calculation for an ARM takes into account changes in the interest rate that will occur over the loan term.

true

t/f: When multiple parties have rescission rights in a particular transaction, any one of them may exercise the right to terminate the transaction.

true

t/f: closed-end transactions, creditors must use one of the model forms for rescission found in Appendix H of Regulation Z or a substantially similar notice

true

t/f: preparing for higher payments may mean applying for a refinance to secure a lower or fixed rate.

true

t/f; The rules provide that an error in the disclosure of the APR is not a violation of Regulation Z if:

true

how to calculate APR

using APR calculator - shows the loan costs that they pay in addition to the interest rate on a loan.

An explanation of how the new payment is determined:

will state the index and margin used, the loan balance expected on the date of the interest rate/payment adjustment, the length of the remaining loan term, and any change in the term of the loan caused by the adjustment.

the annual percentage

APR as a measure of the cost of credit, expressed as a yearly rate

waiver of rights to rescind

A consumer can waive the right to rescind in situations in which credit is needed to meet a bona fide financial emergency. The waiver must be in writing and include: discription of such emergency and signtures of all parties

Right of Recission

A provision in the federal Truth-in-Lending Act that allows borrowers to cancel certain kinds of loans within three days of signing. - for open-end and closed-end credit.

residential mortgage transaction

A transaction in which a consumer gives a security interest for their primary residence to finance construction

Post-consummation disclosure requirements apply to ARMs that are:

Closed-end loans, and Secured by the borrower's principal residence

civil liability for violation of TILA

Actual damages, which are the losses that a consumer can show that he/she actually suffered as a result of the violation(s) Twice the amount of any finance charge Monetary penalties, and The costs of bringing the action and attorney's fees

Truth in Lending Act

An act which requires lenders to inform borrowers of all direct, indirect and true costs of credit.

Misleading use of the term counselor

An advertisement cannot refer to a for-profit lender, mortgage broker, or its employees as a "counselor."

Misleading comparisons in advertisements:

An advertisement to "save $300 per month on a $300,000 loan" is an implied and prohibited comparison between the payment due on the advertised loan and a consumer's current loan payments.

CHARM Booklet

Consumer Handbook on Adjustable Rate Mortgages due no later than three business days after a consumer submits an application for a loan that will be secured by his/her principal dwelling

Notice of Right to Rescind

Creditors must inform consumers of their right to rescind by Providing: -2 Copies of a Notice of Right to Rescind document to each consumer entitled to rescind -Notice of Right to Rescind must be in a seperate document from the sale or credit document, and must identify the transaction or occurrence and conspicuously disclose the following:

When a creditor advertises rates and payments, it must:

Make the required disclosures "with equal prominence and in close proximity to the promotional rate or payment" that it advertises for in a open/closed end credit

For closed-end transactions, disclosure of the finance charge is regarded as accurate if:

The charge is not understated by more than $100, or The amount stated is greater than the amount required to be disclosed

Misleading foreign-language advertisements:

Some advertisements target immigrants who lack fluency in English by advertising favorable lending terms in their first language, while providing information on the additional and less favorable lending terms in English.

Misrepresentations about government endorsement

Statements that lead consumers to the incorrect assumption that a mortgage product is endorsed or sponsored by the government are illegal.

TILA states that factors that courts must consider in awarding damages to consumers in class action lawsuits include

The amount of actual damages awarded The frequency and persistence of the creditor's compliance failures The creditor's resources The number of consumers affected, and The extent to which the compliance failures were intentional

Material disclosures

The term "material disclosures" is defined as the required disclosures of the APR, the finance charge, the amount financed, the total of payments, the payment schedule, and the disclosures and limitations referred to in section

the additional information required by the advertisement of promotional rates and payments includes:

The time period that the promotional rate or payment will apply Any APR that will apply under the home equity plan, and Amounts and time periods of any payments that will apply under the home equity plan

Misleading advertising of "fixed" rates and payments:

The use of the word "fixed" in advertisements for these types of loans is prohibited unless there is conspicuous and equally prominent information about variable rates and increasing payments.

what gets excluded from APR and finance charge ?

Title fees Escrow fees Notary fees Appraisal and credit report fees, and Document preparation fees

TILA

Truth in Lending Act

When a foreclosure proceeding against the consumer's principal dwelling has been initiated, special rules apply and are regarded as accurate if

Understated by no more than $35, or Greater than the amount required to be disclosed

advertising for an open/closed end loan rule

if an advertisement for credit states specific credit terms, it shall state only those terms that actually are or will be arranged or offered by the creditor

The rules provide that an error in the disclosure of the APR is not a violation of Regulation Z if:

if error occured in good faith and upon discovery the crediorts does not continue to use that tool and alos reports said tool

A description of any limits on the interest rate increase

if the ARM has interest rate caps, the disclosure must describe the periodic rate adjustment caps or lifetime caps and show how they may limit increases in the interest rate and payments.

Mortgage Broker fee

a mortgage broker's fees are always included in the finance charge, even if the lender does not require the use of the broker's services and does not retain a portion of the charge

dwelling

a place where people live individual condominium unit, cooperative unit, mobile home, or trailer, if used as a residence

the most important role that loan originators play with regard to post-consummation disclosures is to....

advise consumers to watch for notices that will alert them to upcoming rate changes.

the finance charge does not include

any fees of the type that are payable in a comparable cash transaction, such as taxes.

closed loan 3 biz day to rescind

any party with an ownership interest in the property can exercise his/her right to rescind the transaction until midnight on the third business day after the last of the following events occurs: - conssummantion of loan delivery of notice to rescine -delivery of material disclousres creditors may prepare the loan check, prepare to assign the loan to a third party, and may accrue finance charges.

three-year rescission period

available to a borrower who did not receive a notice of the right to rescind or accurate Truth-in-Lending disclosures at the time that he/she entered an agreement for a mortgage loan

Misleading claims of debt elimination

claiming debt elimination when one debt merely replaces another debt.

what is the special rule withing the fininace charge ?

closing agent chargees and mortage broker charges

disclosures of ARMs are due ?

during the loan application process, at closing, and throughout the loan term.

Information on negative amortization and prepayment penalties:

f the new payment will not be allocated to pay the principal, will not reduce the loan balance, or may increase the loan balance, these facts must be noted. If the loan is one of the few in which prepayment penalties are allowed, the disclosure must state the circumstances that may trigger a prepayment penalty, such as a refinancing, or selling the home securing the loan.

t/f : If the disclosures are not accurate within the tolerances that the regulations establish, and the APR is based on an inaccurate finance charge, the creditor does NOT need to re-disclose these amounts.

false , they do

Three-business-day rescission period:

give a borrower the opportunity to reconsider whether he/she wants the loan, and the ability to cancel the loan by simply providing the lender with timely notice of the cancellation