Mortgage Lending - Principles & Practices
Federal Housing Finance Agency
(FHFA) Government agency that merged the powers and regulatory authority of the Federal Housing Finance Board (FHFB) and the Office of Federal Housing Enterprise Oversight (OFHEO), as well as the GSE mission office at the Department of Housing and Urban Development (HUD); the conservator of Fannie Mae and Freddie Mac.
Federal National Mortgage Association
(Fannie Mae) The nation's largest, privately owned, investor in residential mortgages.
Annual percentage rate (APR)
A measure of the cost of credit, expressed as a nominal yearly rate. It relates the amount and timing of value received by the consumer to the amount and timing of payments made. The APR is often considered to be the finance charge expressed as a percentage. However, two loans could require the same finance charge and still have different APRs because of differing values of the amount financed or of payment schedules.
Fraud Alert
A notification that appears in a consumer's credit file instructing lenders to take extra steps to verify the consumer's identity before processing loan applications. The purpose of a fraud alert is to prevent identity thieves and other criminals from securing loans or opening credit accounts.
Established Business Relationship
An established business relationship (EBR) is a relationship that may allow a telemarketer or seller to call a consumer for up to 18 months after the consumer's last purchase, delivery, or payment (even if the consumer's number is on the National Do Not Call Registry).
Adverse Action
As defined by Regulation B, which implements ECOA, (i) A refusal to grant credit in substantially the amount or on substantially the terms requested in an application unless the creditor makes a counteroffer (to grant credit in a different amount or on other terms) and the applicant uses or expressly accepts the credit offered; (ii) A termination of an account or an unfavorable change in the terms of an account that does not affect all or substantially all of a class of the creditor's accounts; or (iii) A refusal to increase the amount of credit available to an applicant who has made an application for an increase.
Settlement
As defined by Regulation X, which implements RESPA, settlement means the process of executing legally binding documents regarding a lien on property that is subject to a federally related mortgage loan. This process may also be called "closing" or "escrow" in different jurisdictions.
Dwelling
As defined by Regulation Z, which implements TILA, dwelling means a residential structure that contains one to four units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.
Residential Mortgage Transaction
As defined by Regulation Z, which implements TILA, residential mortgage transaction means a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained in the consumer's principal dwelling to finance the acquisition or initial construction of that dwelling.
Electronic Record
As defined by the E-Sign Act, electronic record means a contract or other record created, generated, sent, communicated, received, or stored by electronic means.
Electronic Signature
As defined by the E-Sign Act, electronic signature means an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.
Elderly
ECOA, as implemented by Regulation B, defines elderly as 62 years of age or older.
Federal Home Loan Bank System
Federal Home Loan Bank System (FHLB) is a government-sponsored enterprise, created by Congress, but privately funded, that supports mortgage lending and related community investment for its member banks and financial institutions.
Federal Home Loan Mortgage Corporation
Freddie Mac is a government-owned corporation that buys mortgages and packages them into mortgage-backed securities. Its official title is the Federal Home Loan Mortgage Corporporation, or FHLMC. Banks use the funds received from Freddie to make new loans to homebuyers.
Government-Sponsored Enterprise
GSE's are private corporations chartered and managed by the federal government. Secondary market agencies Fannie Mae and Freddie Mac are the most important GSEs in the real estate industry.
Consummation
In Regulation Z, which implements TILA, consummation is not the same thing as closing or settlement. Consummation occurs when the consumer becomes contractually obligated to the creditor on the loan, not, for example, when the consumer becomes contractually obligated to a seller on a real estate transaction.
Red Flags Rule
On January 1, 2011, the Federal Trade Commission (FTC) began enforcing the Fair and Accurate Credit Transactions Act (FACTA or FACT Act). Section 114 of the FACT Act is known as the Red Flags Rule. The Rule requires that financial institutions and creditors implement a written identity theft prevention program.
Mortgage Broker
Party who, for a fee, originates loans on behalf of lenders but does not service such loans.
Regulation B
Regulation B (12 CFR Part 1002) implements the Equal Credit Opportunity Act. The purpose of Regulation B is to protect applicants from discrimination in any aspect of a credit transaction.
Regulation C
Regulation C (12 CFR Part 1003) implements the Home Mortgage Disclosure and requires many financial institutions to collect, report, and disclose certain information about their mortgage lending activity.
Regulation P
Regulation P (12 CFR Part 1016) implements the Privacy of Consumer Financial Information. It requires financial institutions to provide certain privacy notices and to comply with certain limitations on the disclosure of nonpublic personal information to nonaffiliated third parties.
Regulation V
Regulation V (12 CFR Part 1022) implements the Fair Credit Reporting covering topics such as identity theft; duties of furnishers of information; duties of users of consumer reports; duties of consumer reporting agencies; file disclosures to consumers; affiliate marketing; and use of medical information.
Regulation X
Regulation X (12 CFR Part 1024) implements the Real Estate Settlement Procedures Act to protect consumers when they apply for and have mortgage loans. Regulation X covers topics such as prohibitions on kickbacks and unearned fees, mortgage origination and servicing disclosures, affiliated business arrangements, title insurance, escrow accounts, list of homeownership counseling organizations, mortgage loan servicing requirements, force-placed insurance, mortgage loan servicing error resolution and borrower information requests, and loss mitigation.
Settlement Service
Regulation X defines settlement service as any service provided in connection with a prospective or actual settlement, including origination of a federally related mortgage loan (including, but not limited to, the taking of loan applications, loan processing, and the underwriting and funding of such loans) or rendering of credit reports and appraisals.
Regulation Z
Regulation Z (12 CFR Part 1026) implements the Truth in Lending Act to protect people when they use consumer credit. Regulation Z covers topics such as annual percentage rates, credit card disclosures, periodic statements, mortgage loan disclosures, mortgage loan servicing requirements, and mortgage loan appraisal requirements.
Finance Charge
Regulation Z defines finance charge as the cost of consumer credit as a dollar amount. It includes any charge payable by the consumer that is imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit.
Mutual Savings Banks
State-chartered banks, located mostly in the northeastern U.S., owned by depositors and operated for their benefit. Usually, a large portion of their assets are mortgages.
Rescind
Take back or withdraw an offer or contract.
Annunzio-Wylie Anti-Money Laundering Act
The Annunzio-Wylie Anti-Money Laundering Act of 1992 (AML Act), which was part of the Housing and Community Development Act of 1992, created a shift in money laundering policy by focusing less on the investigative power of federal agencies and placing more compliance responsibility on financial institutions. The Act established the Bank Secrecy Act Advisory Group (BSAAG) to advise the Secretary of Treasury on matters related to the administration of the Bank Secrecy Act. Due to the scope of the AML Act and its complementary relationship to the BSA, the AML Act is generally referred to jointly as BSA/AML.
Consumer Financial Protection Bureau (CFPB)
The Consumer Financial Protection Bureau (CFPB) is an independent government agency within the Federal Reserve System with rulemaking and enforcement authority over many consumer financial laws. The Bureau was established under Title X of the Dodd-Frank Act.
Bank Secrecy Act
The Currency and Foreign Transactions Reporting Act of 1970 (which legislative framework is commonly referred to as the "Bank Secrecy Act" or "BSA") requires U.S. financial institutions to assist U.S. government agencies to detect and prevent money laundering. Specifically, the BSA requires financial institutions to keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. Several anti-money laundering acts have been enacted up to the present to amend the BSA leading to the act now being commonly referred to as the BSA/AML Act.
Electronic Signatures in Global and National Commerce Act
The Electronic Signatures in Global and National Commerce Act (E-Sign Act), signed into law on June 30, 2000, provides a general rule of validity for electronic records and signatures for transactions in or affecting interstate or foreign commerce. The E-Sign Act allows the use of electronic records to satisfy any statute, regulation, or rule of law requiring that such information be provided in writing if the consumer has affirmatively consented to such use and has not withdrawn such consent.
Equal Credit Opportunity Act
The Equal Credit Opportunity Act (ECOA)(15 USC §1691 et seq.) is a federal law passed in 1974 that ensures that all consumers are given an equal chance to obtain and maintain credit. ECOA is implemented through Regulation B (12 CFR § 1002) and enforced by the Consumer Financial Protection Bureau.
Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA)(15 U.S.C. §1681 et seq.) was originally passed in 1970. This federal law promotes the accuracy, fairness, and privacy of consumer information contained in the files of consumer reporting agencies. The FCRA is implemented through Regulation V (12 CFR §1022) and enforced by the Federal Trade Commission, the Consumer Financial Protection Bureau, and through civil proceedings by private litigants.
Fair and Accurate Credit Transaction Act
The Fair and Accurate Credit Transactions Act of 2003, sometimes referred to as either the FACT Act or simply FACTA, amended the federal Fair Credit Reporting Act and is intended primarily to help consumers fight the growing crime of identity theft. The FACTA contains seven major titles: Identity Theft Prevention and Credit History Restoration; Improvements in Use of and Consumer Access to Credit Information; Enhancing the Accuracy of Consumer Report Information; Limiting the Use and Sharing of Medical Information in the Financial System; Financial Literacy and Education Improvement; Protecting Employee Misconduct Investigations, and Relation to State Laws.
Federal Housing Administration
The Federal Housing Administration (FHA) is a federal agency established in 1943 to increase home ownership by providing an insurance program to safeguard the lender against the risk of non-payment. The FHA is currently part of the Department of Housing and Urban Development (HUD).
Federal Reserve System
The Federal Reserve System (FRS) is a federal agency that oversees and regulates monetary policy, which in turn affects interest rates and the availability of credit. All federally chartered commercial banks must be members.
Government National Mortgage Association
The Government National Mortgage Association (GNMA) is commonly known as Ginnie Mae. This agency of the Department of Housing and Urban Development (HUD) operates in the secondary mortgage market. It is involved with special government financing programs, e.g., FHA-insured and VA-guaranteed loans.
Homeowners Protection Act
The Homeowners Protection Act of 1998 (HPA or PMI Cancellation Act) was signed into law on July 29, 1998, became effective on July 29, 1999, and was later amended on Dec. 27, 2000. This act establishes provisions for canceling and terminating PMI, sets disclosure and notification requirements, and requires the return of unearned premiums. The Dodd-Frank Act granted authority to the Consumer Financial Protection Bureau (CFPB) to supervise for and enforce compliance with the Homeowners Protection Act with respect to entities within its jurisdiction.
The Loan Originator Compensation Rule
The Loan Originator Compensation Rule, as implemented by Regulation Z (Section 36), sets forth that an MLO cannot be compensated for loan origination activities based on any other loan term other than the loan amount. Any compensation that is based on loan terms or conditions such as interest rate, annual percentage rate (APR), loan-to-value (LTV), etc., is prohibited by the Rule.
TILA-RESPA Integrated Disclosure Rule
The TILA-RESPA Rule consolidates four disclosure forms that were formally required under TILA and RESPA for closed-end credit transactions secured by real property or cooperative unit into two forms: a Loan Estimate that must be delivered or placed in the mail no later than the third business day after receiving the consumer's application, and a Closing Disclosure that must be provided to the consumer at least three business days prior to consummation.
Complete Application
The TILA-RESPA Rule defines a complete application as the receipt of a borrower's name, Social Security number(s), gross monthly income, the subject property address, the loan amount, and an estimate of the value of the subject property. The obligation to provide the Loan Estimate and other application disclosures is not triggered until the consumer submits the six pieces of information required for a complete application under the TILA-RESPA Rule.
Telemarketing Sales Rule
The Telemarketing Sales Rule (16 CFR 310) requires telemarketers to make specific disclosures of material information; prohibits misrepresentations; sets limits on the times telemarketers may call consumers; prohibits calls to a consumer who has asked not to be called again; and sets payment restrictions for the sale of certain goods and services.
Commissions
The compensation paid to someone in lieu of, or in addition to, regular salary. Commissions may be a flat rate or percentage of sale price, but can only be counted as income if they are consistent with an established 2-year history.
Fair Housing Act
The federal Fair Housing Act (42 U.S.C. 3600 et seq.) is the common name for Title VIII of the Civil Rights Act of 1968 and its amendments. The Act prohibits discrimination in the sale or lease of residential property based on the protected classes of race, color, religion, sex (gender), handicap or disability, familial status, and national origin.
Gramm-Leach-Bliley Act
The federal Financial Services Modernization Act of 1999, also known as the Gramm-Leach-Bliley Act (GLB Act), includes provisions in Title V to protect and regulate the disclosure of consumers' personal financial information. There are three principal parts to the Title V privacy requirements: Safeguards Rule, Pretexting Provisions, and Financial Privacy Rule.
Home Mortgage Disclosure Act
The federal Home Mortgage Disclosure Act (HMDA) of 1975(12 U.S.C. 2801 et seq.) requires many depository and non-depository lenders to collect and publicly disclose information about housing-related loans and applications for such loans, including several applicant/borrower demographic characteristics. The HMDA is implemented by the Consumer Financial Protection Bureau's Regulation C (12 CFR Part 1003).
Real Estate Settlement Procedures Act
The federal Real Estate Settlement Procedures Act of 1974 (RESPA)(12 U.S.C. §2601 et seq.) became effective June 20, 1975. The U.S. Department of Housing and Urban Development (HUD) promulgated Regulation X (12 CFR Part 1024), which is now enforced and interpreted by the Consumer Financial Protection Bureau. The purpose of RESPA is to help consumers become better shoppers for settlement services and to eliminate unnecessary increases in the costs of certain settlement services due to kickbacks and referral fees. RESPA also promotes transparency in the servicing of mortgage loans.
Truth in Lending Act
The federal Truth in Lending Act (TILA) of 1968 was designed to promote the informed use of consumer credit through proper disclosure and allow for the rescission of certain transactions secured by a borrower's principal dwelling. It is administered by the Consumer Financial Protection Bureau. The most relevant provisions of TILA are contained in Title I of the Consumer Credit Protection Act (15 U.S.C. § 1601 et seq.) and are implemented by Regulation Z (12 CFR § 1026).
Office of Thrift Supervision
The government entity that regulates Savings and Loans in the same manner the Federal Reserve regulates commercial banks.
USA Patriot Act
The official title of the USA PATRIOT Act is "Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001." The purpose of the USA PATRIOT Act is to deter and punish terrorist acts in the United States and around the world to enhance law enforcement investigatory tools for anti-terrorist purposes.
Rescission
The termination of a contract with each party giving anything acquired under the contract back to the other party (verb form is to rescind).
Dodd-Frank Wall Street Reform and Consumer Protection Act
This Act, also known as the Dodd-Frank Act, was implemented to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ''too big to fail'', to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes. Title X of this Act creates a new Bureau of Consumer Financial Protection within the Federal Reserve Board as a new supervisor for certain financial firms and as a rule-maker and enforcer against unfair, deceptive, abusive, or otherwise prohibited practices relating to most consumer financial products or services. Title XIV of the Act amends the Truth in Lending Act, the Equal Credit Opportunity Act, and other consumer financial laws to prevent mortgage-related abuses and to improve availability of responsible, affordable mortgage credit.
Home Ownership and Equity Protection Act
This Act, amending the Truth in Lending Act, establishes disclosure requirements and prohibits equity stripping and other abusive practices in connection with high-cost mortgages. The Dodd-Frank Act made substantial amendments to this Act. HOEPA is implemented by Regulation Z (12 CFR Part 1026.32).
Uniform Commercial Code
This is a body of law that governs transactions involving personal property and sets requirements for negotiable instruments.
Housing and Economic Recovery Act of 2008
This is a major federal law designed to assist with the revitalization of the U.S. housing market that includes provisions related to foreclosure prevention and consumer protections, as well as establishing minimum standards for licensing and registration of mortgage loan originators.
National Do Not Call Registry
This is a national registry managed by the Federal Trade Commission that limits commercial telemarketers from phoning consumers who place their telephone numbers on a list.