Mortgage Loan Origination Activities - SECTION A

Permissible questions on an application

- ethnicity, sex, and race - can ask about alimony or child support that they pay because that is part of their debts - cannot ask about alimony or child support that they receive unless they offer that information or it is part of their income that they are using to qualify

Offering and negotiating the terms of a loan

--Presenting a loan offer to a consumer for acceptance which may include:-further verification of information -the offer having conditional statement -Work by other individuals to complete the loan process --Responding to the consumer if they are requesting different terms such as a lower rate or less points on the loan --Presenting to the consumer a revised loan offer

acceptable gift donors

-a relative, defined as the borrower's spouse, child, or other dependent, or by any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship; or -a fiancé, fiancée, or domestic partner. The donor may not be, or have any affiliation with, the builder, the developer, the real estate agent, or any other interested party to the transaction. -For a conventional loan with 20% down the gift can cover all of the funds VA and FHA loans the gift may cover all costs regardless of down payment amount as long as credit score is 620 or greater. If the credit score is less. the borrower is responsible for 3.5% of down payment

Time frame for the consideration for settlement charge before the expiration

10 business days from when the loan originator last provided it

Expiration of charges and terms in a Loan Estimate

10 days

Lender Loan Info Component of 1003

5 sections Section L1 - requests a description of property and whether involves construction loan, refi, or energy improvement loan Section L2 - Title info/names of homeowners and how they hold title (JTWROS/TIC/TBE/Life estate) Section L3 - Conventional/Nonconventional/Fixed/ARM/ Non-traditional features/loan length/proposed int rate/monthly payment Section L4 - Closing costs/discount points/credits and loan amounts to compute the min amt will pay at closing. Section L5 - Loan applicant participating in HUD approved loan counseling or eduction.

Timeframe of providing an updated Closing Disclosure

A lender can make corrections to the CD in certain situations. There are three categories of changes that require a corrected CD containing all changed terms:- Changes that occur before consummation that require new 3-business-day waiting period. - Changes that occur before consummation and do not require a new 3-business-day waiting period; and - Changes that occur after consummation. Creditors must provide a corrected Closing Disclosure if an event in connection with the settlement occurs during the 30 calendar day period after consummation that causes the Closing Disclosure to become inaccurate and results in a change to an amount paid by the consumer from what was previously disclosed. Creditors also must provide a revised Closing Disclosure to correct non- numerical clerical errors and document refunds for tolerance violations no later than 60 calendar days after consummation.

Required information on an application

ALIENS Name, Social Security number, address of property to be financed, estimated property value, income, loan amount

Shopping

According to TRID, a consumer is permitted to shop for a service if the creditor permits the consumer to select the third-party service provider. "Permission to shop" is based on all the relevant facts and circumstances. The creditor is allowed to impose a reasonable requirement on a third-party service provider's qualification (like the service provider has to be appropriately licensed or insured). What a creditor cannot do is limit the third-party service provider choice to a list selected by the creditor - this would not be allowing the borrower to shop. Not all are the borrower's options, such as appraisal, credit report, an attorney (ACA) -that is the lender's choice.

Definition of a business day for delivery purposes

All calendar days except Sundays and legal public holidays are Business Days in the case of the Closing Disclosure

Percentage of bank account assets attributable toward a loan application

All of the borrower's assets must be verified if they are required to close the loan transaction. The underwriter is likely going to require a Request for a Verification of Deposit (VOD) this is a form filled out by the borrower's depository institution that will verify the borrower has those funds available to them. The underwriter might also require the borrower's bank statements; the statements must cover the most recent full two-month period of account activity (60 days). For a reserve to be considered seasoned and acceptable, the funds must be on deposit in a financial institution in the borrower's name for at least sixty (60) days.

Application Process

Borrower application (1003 or URLA) --> Disclosures --> Verification and documentation

Valid reasons for a change in circumstance

Changed Circumstances: they are the only way that if a fee exceeds a tolerance an LE can be revised. - An extraordinary event out of anyone's control (An act of God i.e. hurricane) - Changed circumstances that affect the consumer's eligibility for the loan or affect the value of the property securing the loan (i.e. the appraisal) - Information regarding the consumer's qualification for the loan on which the originator relied in providing the LE that changes or is later found to be inaccurate (i.e. unknown tax lien on the property) - Consumer-requested changes - Expiration of the original Loan Estimate - Interest Rate not locked

Handling credit report discrepancies

Credit reporting agencies have 30 days to respond to any errors reported Loan Originators should discuss any discrepancies with the applicant. If the report includes liens, debts, or judgments that the loan applicant believes to be paid off, the loan originator may need to solicit the help of a title agent and/or a court clerk to resolve inaccuracies. If a Lender decides not to make a loan based on information found on a credit report, the FCRA requires the lender to advise the loan applicant that: The CRA did not make the decision to deny the loan applicant; The consumer has a right to a free copy of their credit report; The consumer may contact CRA to dispute the accuracy and completeness of the report.

Initial Closing Disclosure

Creditors are required to provide a Closing Disclosure (CD) at least three (3) business days before consummation.

Timing of disclosures

Creditors are required to provide a Closing Disclosure at least three (3) business days prior to consummation.

Mortgage Disclosure Improvement Act (MDIA) 2008

Enacted to ensure that consumers receive good faith estimates of Truth-In-Lending-Act (TILA) disclosures at the beginning of the application process and to provide sufficient time for consumers to review the disclosures before consummation can take place. On the 7th business day after initial disclosures is earliest the borrower can close. Appraisal must be given 3 business days prior to closing APR variance: if there is a .125% (1/8%) variance then you must re-disclose (Closing Disclosure)

How MLOs accept loan applications

Face-to-Face, Over the phone, or Online

Scenarios and which allowable tolerance

Fees that are considered zero-tolerance (CANNOT CHANGE) include: - Fees paid to the lender, mortgage broker or an affiliate of either. - Fees paid to an unaffiliated third party if the lender did not permit the consumer to shop for the third-party provider for a settlement service; or - Transfer taxes Fees that are considered no tolerance fees include (CAN CHANGE): - Prepaid interest. - Property insurance premiums. - Amounts placed in escrow, impound or reserve or similar account; or - For services required by the lender, if the lender permits the consumer to shop and the consumer selects a third-party service provider, NOT on the lender's written list of service providers. Fees that are considered a 10 percent tolerance fee include: - Recording fees. - Charges for third-party services where: o The charge is not paid to the lender or the lender's affiliate. o The consumer is permitted by the lender to shop for a third-party service; o The consumer selects a service provider on the lender's written list of service providers

Changes that occur before consummation and do not require a new 3-business-day waiting period

For any other changes that happen before consummation the creditor is still required to provide a corrected CD with any terms or costs that have changed and ensure that the consumer receives it but the creditor is not required to wait another three business days to consummate the loan.

Business day on a Loan Estimate

For the LE, a business day is a day on which the creditor's offices are open to the public for carrying out substantially all its business functions. For example, if the lender is open on Saturday, then that would count as a business day for providing the LE to the consumer.

Timing of the reissuing Loan Estimates

Generally, a lender can revise a Loan Estimate at any time before it provides the Closing Disclosure. However, the lender must ensure that the consumer receives the final revised LE no later than four (4) business days before closing (or consummation). Revised LE must be provided if a rate was not locked at the time the original LE was issued. When the rate is subsequently locked, the creditor must provide a revised LE listing the locked rate. This is due no later than 3 business days after rate is locked.

Service charges subject to a 10% tolerance

If a borrower selects someone off the lender's service provider list, then that fee now falls into the 10 percent cumulative fee tolerance .If any amount paid by the consumer at closing exceeds the amount disclosed by more than the applicable tolerance threshold, the lender is responsible for refunding the excess to the consumer no later than sixty (60) calendar days after consummation .i.e. title insurance and recording fees

Timing of tolerance corrections

If a changed circumstance occurred, then it is possible that it may cause one or more third-party charges subject to the 10 percent cumulative tolerance to increase, then the creditor can issue a revised LE and reset the tolerances. A creditor may also provide and use a revised LE and reset tolerances if the changed circumstance affected the borrower's creditworthiness or the value of the property and resulted in the consumer being ineligible for an estimated loan term previously disclosed. Further, if a consumer requests revisions to the terms of the mortgage then the creditor may use a revised LE to reset tolerances if the consumer requested revisions to the credit terms or settlement that affect items disclosed on the LE and cause an estimated charge to increase. Changed circumstances: the only way that if a fee exceeds a tolerance an LE can be revised. The new revised LE must be provided no later than 3 business days after the date of the changed circumstances. For discussing the rule for re-disclose, the definition of a business day changes to mean all calendar days except Sundays and legal public holidays.

Written List of Service Providers

If a lender allows a borrower to shop for a service, they will provide a list of service providers that they recommend that the borrower use for those services (under Regulation H). Shows all preferred third-party providers such as title, inspection companies, appraisal, or credit reporting agencies. If the borrower does not choose from one of those recommended providers and instead chooses another provider, then it is not the lender's responsibility if the fee increases (no tolerance fees). If the borrower does select a service provider on the lender's written list of service providers, then it is a 10% cumulative tolerance fee. The written list of service providers must be separate from the LE. The lender must provide it in the same time frame as the LE. The list must identify at least one (1) available settlement service provider for each service and state that the consumer can choose a different provider for that service. The lender can also identify a written list of providers that the consumer is not permitted to shop, as long as those services are clearly and conspicuously distinguished from the services that the consumer is permitted to shop. Further, the CFPB indicates in the new rule (TRID 2.0) that the Written List of Providers can exclude a list of fee estimates not required by the lender, such as title search, notary, and fees for other administrative services. A lender can update and re-disclose the written list of service providers to reflect a new service that is added as a result of a changed circumstance or borrower requested change .If, based on all the relevant facts and circumstances, the creditor allowed the consumer to shop for the additional service but fails to provide an updated or revised written list of service providers, the additional service is subject to 10% cumulative tolerance, so long as the service is not provided by the creditor or its affiliate.

Changes that occur before consummation that require new 3-business-day waiting period.

If any of the following occur before consummation, they require a new waiting period: - The disclosed APR becomes inaccurate (more than 1/8 of 1 percent--increases by 1/8th or more (0.125 percent) for a fixed-rate loan or 1⁄4 of 1 percent for an adjustable rate loan), - The loan product changes, or - A prepayment penalty is added. All three of those things require the creditor to re-disclose the CD with the changes and then they must wait three business days before consummating the loan.

Exceptions to providing the Loan Estimate

If the application is withdrawn within the first 3 days, or the lender denied the application within the first 3 days, the LE (initial disclosures) are NOT required.

Homeownership Counseling Disclosure

Informs the borrower that they have the option to go to counseling voluntarily and at the cost. 10 counseling agencies are to be listed. HOEPA's home counseling rule does not only apply to high-cost mortgages, but also applies to negative amortization loans made to the first-time borrower. It also requires that ALL federally related loan applicants receive a list of housing counselors. Per HOEPA, on ALL federally related loan applications, the lender must provide a list of at least ten (10) housing counselors. The list of housing counselors must be sent at application or within three (3) business days after receiving the application. - Optional counseling to all buyers at their own cost. - Must provide the disclosure on all transactions - Mandatory for Reverse Mortgages or High Cost loans.

Required disclosures that must be provided to a borrower in response to a loan inquiry

Initial Loan Estimate, Intent to Proceed, Loan Tool Kit (Special Information Booklet), Preferred Provider's List, AFBA, Mortgage Servicing Disclosure Statement and Homeownership Counseling Disclosure are to be delivered within three business days from signed application

Verification and documentation

Most of the time the borrower is going to have to show two (2) years of income, most underwriters want to see that income be from the same employer or at least in the same line of work. There can be exceptions to that rule (FHA loans, for one), but the general rule of thumb is two years of income. There are some types of income that do have a defined expiration date and will require proof of at least a three (3)-year continuance from the time the loan is originated (i.e. Alimony or child support, public assistance, Social Security)

Time period for the delivery of the special information booklet (Know Before You Owe)

Must be disclosed no later than 3 business days after receiving the consumer's loan application.

information provided to a borrower in response to loan inquiry

Must be licensed to specifically answer questions about loan products, rates, etc.

Application accuracy and required information on an application

Name Social Security Property address Income Loan amount Employment history Resident history Assets Debts Credit history including bankruptcy or foreclosures Section 6 of the URLA (Acknowledgments and Agreements) prompts borrowers to acknowledge their understanding that "any intentional or negligent misrepresentation of info may result in the imposition of civil liability on me and/or criminal penalties on me". MLO is also required to signed. It is a crime under Title 18, Section 1001 of US code to knowingly and willfully make any verbal or written statement to the govt b/c its used to secure a federally related mortgage. Violation may lead to 5 year jail term.

Reflecting the type of loan on a mortgage application

Section 4: Loan and Property Information. This section asks about the loan's purpose and the property they want to purchase or refinance. Loan Amount, Loan Purpose (purchase, refinance, other), Property Address, Property Value, Occupancy (primary, second home, investment property), Mixed-Use Property?, Manufactured Home?

Borrower Information on Form 1003.....cont

Section 5 Declarations Section 6 Acknowledgments/Agreements Section 7 Military Service Section 8 HDMA (Ethnicity/Race/Sex) Section 9 Loan Originator Info

Timing of early disclosures

Some federal laws mandate that at the time of application or within three (3) business days of that application, an MLO sends specific disclosures to the borrower. Loan Estimate: Due at time of application or within 3 business days (Validity is 10 days) Notice of Right to Receive Credit Score: Due at time of application or within 3 business days. The law is FCRA/FACTA. It notifies the customer of the right to receive a copy of their credit report Mortgage Servicing Disclosure Statement: Due at time of application or within 3 days. The law is RESPA Section 6 Servicing. It lets the borrower know of the likelihood that the loan may be sold. Right to Receive Appraisal: Due at time of application or within 3 business days. The law is ECOA Valuation Rule. It lets the borrower know that they have the right to request a copy of the appraisal Affiliate Business Arrangement Disclosure: The law is RESPA, section 8- Referrals. It advises the borrower of an affiliate ownership of more than 1%.. Due at time referral is made. Homeownership Counseling List: Due at time of application or within 3 business days. The law is RESPA/TILA. It Provides local organizations that offer counseling (HUD approved) Special Information Booklet (CFPB Home Loan Tool Kit for purchase loans): Due at time of application or within 3 business days. The law is RESPA. It educates client on whole loan process and how to shop. CHARM Booklet: AKA Consumer Handbook Adjusted Rate Mortgage. Due at time of application or within 3 business days for all ARM products, and must be provided prior to the payment of any non-refundable fees. The law is TILA and it discloses how an ARM works. Early ARM Disclosure: Due at time of application or within 3 business days, and must be provided prior to the payment of any non-refundable fees. The law is TILA. It discloses the specific arm you are receiving including the index, margin, caps, and adjustment period. Reverse Mortgage Disclosure: explains negative amortization, no escrows included in the payment, must be 62 years of age, counseling required before application and it is a non-recourse mortgage When Your Home is on the Line: What You Should Know about HELOC. Required by TILA; due at time an app is provided.

Time period for the delivery of the Affiliated Business Arrangement Disclosure

The AFBA disclosure must be delivered to the borrower at the time of the referral (immediately)

Forms used to authorize the release of information

The Certification and Authorization Form is used for 2 purposes 1. acknowledgement that all information is true and complete 2. authorization of the release of credit and employment history

When applicants are entitled to advance inspection of a Closing Disclosure

The borrower can request to see the closing disclosure one business day before consummation.

Final Closing Disclosure

The creditor is not required to provide the consumer with the revised/final Closing Disclosure until the day of consummation/closing. Occasionally changes occur after consummation. In those situations, the creditor is required to pro- vide a corrected CD no later than 30 calendar days after receiving the information that establishes that an event occurred to change the CD after consummation Further, creditors are required to provide a corrected CD to correct non-numerical clerical errors and document refunds for tolerance violations no later than 60 calendar days after consummation.

Timeline of the initial Loan Estimate

The creditor is required to provide the Initial LE within 3 business days following the receipt of the consumer's loan application

Time from Loan Estimate to loan consummation

The final Loan Estimate is required to be received by the borrower no less than four (4) business days before closing. The LE must also be delivered or placed in the mail no later than the seventh (7th) business day before consummation of the transaction.

Timeline of when a Loan Estimate must be provided

The lender is required to provide the LE within three (3) business days following the receipt of the borrower's loan application and no later than seven (7) days prior to consummation. On the Initial LE if it is mailed, you must show proof that is was mailed within the three-business day requirement .The LE must contain a good faith estimate of credit costs and transaction terms and be in writing and contain the information required under TRID.

Methods of verifying employment

The underwriter must obtain a completed Request for Verification of Employment The processor will complete the Request for Verification of Employment (VOE). A VOE is a form filled out by the borrower's employer, stating that they employ the borrower and confirm the borrower's income.

Consummation

When the borrower is legally obligated. When the loan is funded. Consummation vs. Closing: Consummation is when the loan funds or the borrower receives their money. On purchase, the closing and consummation is the same. On refinance transactions where rescission applies consummation is after the right of rescission expires.

Timing of notification of action taken

Within 30 days of receipt of a loan or credit application, lenders must notify consumers in writing of action taken. i.e. Adverse Action

Accuracy (e.g., tolerances)

Zero tolerance: no change; if you quote a number and it is incorrect, you or the company will pay the shortage 10% tolerance: this group of fees cannot cumulatively go up more than ten percent (10%) from the disclosure on the LE and the final charge on the CD No tolerance: any fee selected by the borrower (you have no liability); If the borrower does not choose from one of those recommended providers and instead chooses another provider, then it is not the lender's responsibility if the fee increases.

Suitability of products and programs

a term that refers to the diligent matching of loan programs with financial circumstances of consumers. Dodd Frank encourages consumers to make safer borrowing choices by requiring homeownership counseling for riskier loan products.

Delivery Method

a) Electronic: Before a financial institution can use e-signatures and electronic records, they are required to obtain permission from the borrower, give them the option to go back to hard copy and must determine if the borrower can receive closures digitally. (E-Sign Act) b) Face-to-face c) Standard mail d) Overnight delivery The LE must also be delivered or placed in the mail no later than the seventh (7th) business day before consummation of the transaction. On the Initial LE if it is mailed, you must show proof that is was mailed within the three-business day requirement.

Borrower Information on Form 1003

it has 9 sections on the 1003 which include: Section 1 -Basic borrower info (name, ssn) -Current employment/Income (gross monthly/self-employed/own % -Other employment/income Section 2 -Financial Info (Assets/Liabilities) -Bank accts (checking/savings/mutual funds/cd) -Any other assets/credits (earnest/employer asst) -Revolving debts (student loans, credit card, mortgages, judgments, medical debt -Alimony payments/child support Section 3 -Properties currently own and what they owe -If refi, property being refi is listed first. -additional properties Section 4 -loan amt -Purpose of the loan (purchase/refi/other) -address -value -occ status -mixed-use (live and operate business) -manufactured loan - other loans (piggyback) -Gifts/grants

Methods of verifying income and assets

paystubs background checks contacting the employer Since a lender cannot verify employment of self employed, they need to see tax returns. he most recent pay stub and tax returns with a 4506T verifying the validity of the tax returns with what the IRS has. Income not claimed on a tax return cannot be used. Most of the time the borrower is going to have to show two (2) years of income, most underwriters want to see that income be from the same employer or at least in the same line of work. For some bonus or overtime income, the underwriter must get a completed Form 1005 or the borrower's most recent pay stub and IRS W-2 forms covering the most recent two-year period. Self employed - two years personal tax returns and if the borrower owns 25% or more of the company then business tax returns and a year to date operating statement Assets verified by two months bank statements and investment statements as well as Verification of Deposit.