Mortgage Loan Origination Activities

Safe harbor provisions and scenarios

A QM loan that is not higher-priced has a safe harbor. If the loan has a safe harbor, then they are conclusively presumed to comply with the ATR requirements. Under a safe harbor, if a court finds that a mortgage a lender originated was a QM, then that finding conclusively establishes that the lender complied with the ATR requirements when they originated the mortgage.

Down payment assistance

A city, county, or state agency that will help the first time homeowner with down payment money

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.

FICO Scores

FICO scores weight the following factors in determining your overall score: 1. Payment history = 35% 2. Credit utilization (the ratio of how you are using available credit) = 30% 3. Credit history (how long you have been using your credit accounts) = 15% 4. Credit mix = 10% 5. New credit = 10%

Scenarios and which allowable tolerance

Fees that are considered zero-tolerance 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: - 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

Suitability of products and programs

It is part of the MLO's job to provide options and guidance to a borrower when they are looking for a new home or to refinance their current one. Understanding the borrower's needs and long- term goals help when presenting options to a borrower. Having an in-depth conversation with the borrower and understanding their goals and what they wish to accomplish with their mortgage is part of an MLOs job. Most of the time, an MLO is going to present three (3) options to the borrower that they think will be suitable.

Types of classifications of assets (e.g., 401(k))

Liquid (can be rapidly converted into cash while keeping its market value) or long term Examples of assets are: - Houses (long-term) - Bank Account (liquid) - Savings Accounts (liquid) - Cars (long-term) - Life insurance (liquid) - Stocks and bonds (liquid) - 401K accounts (liquid)

Information on Form 1003

Section 1: Borrower Information: This section asks about the borrower's personal information and their income from employment and other sources, such as retirement, that you want considered to qualify for this loan. (birthdate, ages of children, marital status, etc.) - Current, Additional, and Previous Employment/Self-Employment and Income: Must provide at least 2 years of current and previous employment and income. - Income from Other Sources: alimony, child support, disability, public assistance, unemployment, etc. Section 2: Financial Information — Assets and Liabilities: This section asks about things the borrower owns that are worth money and that they want considered to qualify for this loan. It then asks about their liabilities (or debts) that they pay each month, such as credit cards, alimony, or other expenses. - Assets - Bank Accounts, Retirement, and Other Accounts You Have: checking, savings, retirement 401K, stocks, etc. - Other Assets and Credits You Have: Assets = Proceeds from Real Estate Property to be sold on or before closing, Proceeds from Sale of Non-Real Estate Asset , Secured Borrowed Funds/ Credits = Earnest Money, Employer Assistance, Lot Equity, Relocation Funds, Rent Credit, Sweat Equity - Liabilities - Credit Cards, Other Debts, and Leases that You Owe: Revolving (e.g., credit cards), Installment (e.g., car, student, personal loans), not real estate - Other Liabilities and Expenses: Alimony, Child Support, Separate Maintenance, Job Related Expenses Section 3: Financial Information — Real Estate: This section asks them to list all properties they currently own and what they owe on them. - Property You Own: mortgage loans, rental income, Monthly Insurance,Taxes, Association Dues, etc. - Any Additional Properties You Own Section 4: Loan and Property Information: This section asks about the loan's purpose and the property they want to purchase or refinance. - Loan and Property Information: loan amount, loan purpose (purchase, refinance, etc.), address, occupancy - Other New Mortgage Loans on the Property You are Buying or Refinancing: Lien Type, Monthly Payment, Loan Amount/ Amount to be Drawn - Rental Income on the Property You Want to Purchase: Expected Monthly Rental Income - Gifts or Grants You Have Been Given or Will Receive for this Loan: Community Nonprofit, Employer, Federal Agency, Local Agency, Relative, Religious Nonprofit, State Agency, Unmarried Partner Section 5: Declarations. This section asks them specific questions about the property, their funding, and their past financial history. - About this Property and Your Money for this Loan: occupy the property as your primary residence, borrowing any money for this real estate transaction, new mortgage or credit applications - About Your Finances: outstanding judgments, co-signer or guarantor on any debt or loan that is not disclosed, delinquent or in default on a Federal debt, property foreclosed upon in the last 7 years, declared bankruptcy within the past 7 years Section 6: Acknowledgments and Agreements: This section tells them about their legal obligations when they sign this application. - (1) The Complete Information for this Application - (2) The Property's Security - (3) The Property's Appraisal, Value, and Condition - (4) Electronic Records and Signatures - (5) Delinquency - (6) Authorization for Use and Sharing of Information Section 7: Military Service: This section asks questions about their (or their deceased spouse's) military service. Section 8: Demographic Information: This section asks about their ethnicity, sex, and race. - Demographic Information of Borrower (HMDA) Section 9: Loan Originator Information: To be completed by the Loan Originator - Loan Originator Information: Address, NMLS #, State License ID #

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

Methods of verifying income/assets

The eight (8) underwriting factors must also be verified using reasonably reliable third-party records. Examples of these records include W-2's, 1099's, tax returns or payroll statements)

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.

Verification of Deposit scenarios

The lender can use the following type of documentation to verify that a borrower has sufficient funds for closing, down payment, and/or financial reserves: Request for Verification of Deposit (Form 1006 or Form 1006(S)). The information must be requested directly from the depository institution, and the complete, signed, and dated document must be sent directly from the depository institution.

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. 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.

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

Things that are not considered acceptable sources of reserves are:

- Funds are not vested. - Funds that cannot be withdrawn under any circumstances other than the account owner's retirement, employment termination or death. - Stock held in an unlisted corporation. - Non-vested stock options and non-vested restricted stock. - Personal unsecured loans. - Interest party contributions; and - Cash proceeds from a cash-out refinance transaction on the subject property.

Liabilities listed on a loan application

- Mortgage loan debt, - Automobile loans or leases, - Student Loans - Credit cards with balances outstanding, - Commercial loans, - Bank loans - Amounts owed to alimony, child support, or separate maintenance payments. - IRS tax Liens - Judgements

Types of applicable incomes for loan qualification

- Salaries, wages, etc. - Self-employment income - Commission, bonuses, overtime 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. Examples of those types of income include: - Alimony or child support - Distributions from a retirement amount. - Mortgage differential payments. - Notes receivable. - Public assistance. - Royalty payment income. - Social Security (not including retirement or long-term disability). - Trust income; and - VA benefits (not including retirement or long-term disability). - Rental Income - Non-taxable income

Types of liabilities

- The housing expense on the borrower's principal residence (mortgage payment, taxes and insurance on their home); and - All revolving charge accounts (credit cards). - Installment loan debts with a remaining payment term greater than ten (10) months (For example, if the borrower's car loan has less than ten (10) months left on it then the underwriter does not have to consider it in the borrower's debt-to-income ratio); - Lease payments (must be counted no matter the number of payments left). - Real estate loans (other properties mortgages). - HELOCs. - Alimony and child support (the payment of these things, not receiving them). - Maintenance payments. - All other debts of a recurring nature.

Liabilities do not include:

- Utilities. - Cell phone payments. - Insurance payments (except homeowners' insurance). - Tax payments. - Union dues; and - Voluntary deductions on the paystub (like 401K contributions). If any of them have less than 10 payments left, they don't have to be included in the payment to income ratios. The exception is car leases, you must count the lease payment no matter the number of payments.

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

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 and credit report, 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

Methods of verifying income and assets

All income for Fannie, Freddie, FHA, USDA, and VA loans must be verified with at least two month's W-2's, 1099's, the 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.

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.

Purpose of appraisals

Almost all loan products require the use of an appraisal, as it is the basis for the amount the borrower can borrow under the program they are using. The appraised value of the property is used in most situations to determine the borrower's loan to value. The appraisal assists the underwriter in establishing a value of security for a mortgage loan. It is used to document that the property has sufficient value to support the mortgage debt.

Liabilities

Any debt including banks loans, credit cards, student loans, car loans, car leases, mortgage loans, judgements, tax liens, alimony/child support, etc. Liabilities are what the borrowers OWE, which means there is a loan against these items. Financial obligations in a specified amount. As part of the analysis, the underwriter will need to determine the unpaid balance, the terms of repayment and the borrower's payment history, and verify any other liability that is not shown on a credit report by obtaining documentation from the borrower or the creditor. The borrower must disclose all debts, even if they do not appear on the borrower's credit report. If the borrower opens any new accounts during the origination process, then the borrower must disclose that information and their debt-to-income ratio must be re-calculated. (Please note, credit reports are often pulled again prior to closing to ensure there are no new debts.)

Documentation required for a self-employed applicant

Any individual who has a twenty-five percent (25%) or greater ownership interest in a business is self- employed. The underwriter is going to look for the borrower to have at least two (2) years' history of the self-employment history. The underwriter is going to verify the self-employed borrower's employment and income by obtaining from the borrower federal tax returns (both individual and in some cases business returns) for the past two (2) years. The underwriter must prepare a written evaluation of its analysis of a self-employed borrower's income, including the business income or loss, reported on the borrower's individual income tax returns. The purpose of this written analysis is to determine the amount of stable and continuous income that will be available to the borrower. The forms that underwriters use most commonly are either the Fannie Mae 1084 or FHLMC 91.

Documentation of work history and income when there has been a gap in employment

As long as borrowers can show six months of the full time of continuous employment history and can get a verification of employment from the employer that the likelihood of continuous full-time employment is promising, borrowers will qualify for a mortgage loan We do need to document two years of employment history, but the employment history does not have to be continuous

Assets

Assets are divided into two types, liquid assets used for down payment and closing costs and long-term assets that can be used to cover the two months payments required for reserves. Must be verified and used for down payment and closing costs. To verify the assets the borrower has, you can use bank statements, investment statements, Verification of Deposits. 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). Also, if the borrower is using a retirement fund, the underwriter will require that account statement as well.

Application Process

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

Forms used to authorize the release of information

Borrowers Signature Authorization

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

LTV ratios

Conventional -97 percent (3 percent down payment) FHA- 96.5 percent (3.5 percent down payment) VA- 100 percent (0 down payment required) USDA-100 percent (0 down payment required) The loan to value or LTV is taking the loan amount and dividing it by the borrower's purchase price or the properties appraised value (whichever is lower). Ex. A borrower is purchasing a condo for $100,000. The appraised value is $125,000, and the loan amount will be $90,000 (the borrower is putting $10,000 down). To calculate the LTV, take the loan amount and divide it by the purchase price. The total LTV is 90 percent.

Factors used in determining a credit score

Credit scores calculations consider: Payment history. Amounts owed/credit utilization (how much credit do you have access to and how much are you using of it). Credit mix: (how many different types of accounts do you have) New credit: (the age of your credit, have you recently opened new credit, etc.) Credit inquiries. Derogatory marks (Bankruptcy, foreclosures, repossessions, collections, & judgments).

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 business days prior to consummation.

Factors when calculating the expense-to-income ratio

Debt to Income is a calculation made to determine whether the borrower can repay the loan they are attempting to receive.

Borrower Analysis

During the underwriting and processing portion of the loan process, the mortgage underwriter and the processor are going to work together to get the borrower approved for their chosen mortgage. The underwriter is going to analyze the borrower's profile while the processor collects verifications and documentation to help the underwriter do a thorough analysis of the borrower.

Information included on a credit report

Each credit report will have a high, middle, and low score. You will always use the middle score for underwriting. -Previous Rental Mortgage Payment History -Installment and Revolving Credit -Collections, Repossessions, Foreclosures and Bankruptcies -Recent and/or Undisclosed debts

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% variance then you must re-disclose (Closing Disclosure)

Stable Income

Examples of Stable Income are: Base Salary. Consistent hourly wages. Social Security; and Payments for retirement or long-term disability. These types of income are stable, the income doesn't fluctuate, and it stays the same month after month.

Variable Income

Examples of Variable income are: Commission. Bonuses. Overtime. Self-Employed income. Fluctuating hourly wages; and Second job income. Underwriters treat variable types of income more carefully because they can fluctuate from month to month, and the underwriter will need to make sure that the income is consistent on average over a two-year history. The underwriter is going to calculate the income. If it is an amount that is stable or increasing year over year, the underwriter will average the income over the two years, and it will be a viable source of income to qualify for the loan. If the variable income is declining but has stabilized, then the underwriter is going to use the lower amount of variable income to be safe.

Non-taxable Income

Examples of non-taxable income include: Child support payments, Social Security benefits, Workers' compensation benefits and Certain types of public assistance.

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.

Ability to repay scenarios

For example, a consumer could claim that in originating the mortgage, a lender did not make a reasonable and good faith determination of repayment ability and that you, therefore, violated the ATR Rule. If a court finds that the loan met the QM requirements and was not higher-priced, the consumer will lose the claim. A rebuttable presumption occurs when a QM loan is a higher-priced mortgage. Under a rebuttable presumption, if a court finds that a mortgage a lender originated was a higher-priced QM, a consumer can argue that the lender violated the ATR Rule. For the consumer to win that argument, they must show that based on the information available to the lender at the time, that the consumer did not have enough residual income left to meet living expenses after paying their mortgage and other debts.

Bonus, Overtime, and Commission income

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. If the borrower receives commission income, the underwriter is going to need to see a minimum of two (2) years of commission. If the commission income represents less than twenty-five percent (25%) of the borrower's total annual employment income, then the underwriter can use the VOE or the borrower's most recent pay stub and IRS W-2 form for the last two (2) years. If the commission income represents more than 25% of the borrower's annual income, then the underwriter is going to need to see copies of the borrower's signed federal tax returns for the past two (2) years as well as a VOE or paystub and W-2 combination. Bonus: two year history and the employer has to indicate if it will continue. Bonus was $10,000 two years ago and $4,000 last year. You use $4,000. Bonus was $4,000 two years ago and $10,000 last year. You use $7,000 (average of the two) The underwriter needs to prove the continuity of the income. The underwriter proves the continuity of income by determining that the income will continue for the foreseeable future. The underwriter can conclude that the income is stable, predictable, and likely to continue if the income does not have a defined expiration date, and there is an applicable history of receiving the income.

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).

Tangible net benefit

Generally, when we are talking about tangible net benefit, we are talking about refinance transactions specifically. As part of the underwriting process the underwriter is going to determine whether there is net tangible benefit to the borrower, that means they want to see that the benefit to the borrower outweighs any possible negatives or costs associated with the loan. When analyzing a borrower if they should get the loan is to determine the Ability to Repay and is a Tangible Net Benefit. Things that are considered tangible net benefit to the borrower include: - Lower interest rates - A reduction of monthly principal and interest payments - Shortening of the loan term - Converting an adjustable rate mortgage to a fixed rate mortgage - Removing mortgage insurance by lowering the loan to value of the loan - Consolidating a first and second mortgage - Eliminating any negative amortization feature - Avoiding short sale or foreclosure - Debt consolidation (within reason) - Home improvement (within reason) - Cash out (within reason) There must be some benefit to the borrower for the underwriter to be able to approve the loan. Most lenders use a worksheet to show net tangible benefit and it is part of the loan file.

Loan Inquiry and Application Process Requirements

Getting pre-qualified is often the first step of someone looking to purchase a new home. It is where the borrower supplies the lender with their overall financial picture, including debt, income, and assets. The lender evaluates the information and lets the borrower know for how much they would likely qualify. An initial evaluation of the credit worthiness of a potential borrower that is used to determine the estimated amount that the person can afford to borrow. Credit is looked at and income and asset information is not verified, information is based on borrower's information, not a commitment. Preapproval is sometimes the second step; it is a conditional commitment to grant you the mortgage. An evaluation of a potential borrower by a lender that determines whether the borrower qualifies for a loan from the lender, or the maximum amount that the lender would be willing to lend. Credit, income and assets are verified. Not a loan commitment. The backbone of the origination process is the loan application. This document is known as the Uniform Residential Loan Application or the 1003. The Federal Housing Finance Agency (FHFA) created the 1003. Fannie Mae numbers their form 1003 - which is where the term 1003 originated. Freddie Mac has Form 65 - which is the exact same form. This form is where all the information regarding the borrower appears. It is part of the MLOs job to make sure that the 1003 is as complete and accurate as possible.

Calculating the debt-to-income ratio

Gross monthly debt payments / by gross verified income = DTI

Definition of "capacity"

Gross verified income x the Debt to Income (DTI) ratio = the maximum mortgage and debt payments, the borrower can afford. Ex. if you are doing a QM mortgage, using a 43% payment to income ratio. Gross verified income x 43% = total payment including mortgage payment

Second Job or Seasonal Income

If a borrower has a second job, that income can be used to qualify for a mortgage, but again, there must be at least two (2) years of history of that income. A borrower can have a history that includes different employers if the income has been consistently received. To verify this income, the underwriter must have a completed VOE or the borrower's most recent pay stubs and W-2s for the past two (2) years. An underwriter can use seasonal employment income to qualify a borrower. The underwriter must verify that the borrower has worked in the same job (or the same line of seasonal work) for the past two (2) years and confirm the borrower's employer that there is a reasonable expectation that they will rehire the borrower for the next season. For seasonal unemployment compensation (for example, the borrower receives unemployment on the off-season), the underwriter must verify this income by viewing the borrower's federal tax returns and document a pattern and show that the income will continue.

Rental Income

If a borrower has rental properties, the income from those properties is an acceptable source of stable income as long as it is likely to continue. If a rental income is derived from the subject property, the property must be one of the following: - A 2-4-unit principal residence in which the borrower occupies one of the units; or - A 1-4-unit investment property. If the income is derived from another property, then there is no restriction on the property type, meaning if the borrower has the commercial property that is acceptable income if it meets all other requirements. The rental income can be verified in two ways, through the borrower's tax returns as it should appear as income there or by using a fully executed current lease agreement. If the subject property is the income property, then the underwriter will require an additional addendum to the appraisal. The addendum is called the "Single-Family Comparable Rent Schedule." The addendum compares the rent generated by the subject property in comparison to other rental properties in the area.

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.

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

Calculating monthly income

If the underwriter is trying to determine monthly income, they need to know how often that borrower is being paid because that will change the calculation made. If the borrower is paid annually: annual gross income/12 months. If the borrower is paid monthly: there is no calculation, use the annual gross payment amount divided by 12 months. If the borrower is paid twice monthly: the amount of each paycheck x 2 pay periods (i.e. Paid on the 15th and the 30th) If the borrower is paid bi-weekly: biweekly gross pay x 26 pay periods in a year/12 months. (i.e. every other Friday) If the borrower is paid weekly: weekly gross pay x 52 pay periods/12 months If the borrower is paid hourly: hourly gross pay x average # of hours worked per week x 52 weeks/12 months [Overtime with two years history is the same calculation using time and a half]

Acceptable gift donors

Immediate blood relative and no evidence of any repayment required Some lenders permit gifts from a non-relative such as a godparent, a close family friend, an employer or a government agency. Before approving these funds, the bank verifies the relationship between borrowers and their donors to ensure the donor doesn't have any interest in the property being purchased.

Acceptable assets that may be used for a down payment

In a purchase transaction, the borrower is going to have to provide a down payment (the amount varies depending on the program), but the borrower must source funds for that down payment. That down payment is going to come from the borrower's assets, and that income must be seasoned in a financial institution for at least sixty (60) days. The borrower can use their checking and savings accounts, stocks, bonds, mutual funds, 401K and other retirement accounts as sources for that down payment. Cash cannot be used unless it is deposited into an account and has at least 60-day seasoning. The borrower also, in some situations, can use gift funds for a down payment. These are funds gifted to the borrower to buy a home. These funds must be what they say they are, a gift; there can be no repayment of these funds expected by the person gifting the funds. Gift funds generally have to come from a blood relative, significant other or an employer. The underwriter will often require a letter from the person giving the gift, indicating that they will not require repayment. This letter is called a gift letter. Borrowers can also get down payment assistance from the state, county or city program. Often times those options are only available to first-time homebuyers, but it depends upon the program.

How MLOs accept loan applications

In person, computer application, written application, and phone application

Assets permissible to be used toward reserve funds

In some situations, for a borrower to obtain a mortgage, they are going to have to provide assets or liquid financial reserves (reserves for short). Liquid financial reserves are those liquid or near liquid assets that are available to the borrower after the mortgage closes, including: - Money in a checking or savings account. - Investments in stocks, bonds, mutual funds, certificates of deposit, money market funds, and trust accounts. - Amounts vested in a retirement savings account; and - The cash value of a vested life insurance policy. 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. Long term: used for two months reserves, does not have to be converted to liquid, the underwriter has to see that it is available. Liquid financial reserves are liquid or near liquid assets that are available to a borrower after the mortgage loss. Liquid financial reserves include cash and other assets that are easily converted to cash by the borrowers

Utilizing capital gains income on an application

Income received from capital gains is generally a one-time transaction; therefore, it should not be considered as part of the borrower's stable monthly income. However, if the borrower needs to rely on income from capital gains to qualify, the income must be verified in accordance with the following requirements. Document a two-year history of capital gains income by obtaining copies of the borrower's signed federal income tax returns for the most recent two years, including IRS Form 1040, Schedule D. Develop an average income from the last two years (according to the Variable Income section of B3-3.1-01, General Income Information), and use the averaged amount as part of the borrower's qualifying income as long as the borrower provides current evidence that he or she owns additional property or assets that can be sold if extra income is needed to make future mortgage loan payments.

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.

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.

Required information on an application

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

Offering and negotiating the terms of a loan

Only licensed individuals can negotiate terms with the borrower (i.e. MLO, NOT loan processor)

Occupancy types

Owner occupied, primary residence, 2nd home, and non-owner occupied Right of Rescission is required ONLY on the owner- occupied refinance transactions

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?

Application accuracy

Section 6 Acknowledgments and Agreements states in the section (1) The Complete Information for this Application that "The information I have provided in this application is true, accurate, and complete as of the date I signed this application. • If the information I submitted changes or I have new information before closing of the Loan, I must change and supplement this application, including providing any updated/supplemented real estate sales contract." "The terms and conditions of any real estate sales contract signed by me in connection with this application are true, accurate, and complete to the best of my knowledge and belief." "The Lender and Other Loan Participants may rely on the information contained in the application before and after closing of the Loan." AND "Any intentional or negligent misrepresentation of information may result in the imposition of: (a) civil liability on me, including monetary damages, if a person suffers any loss because the person relied on any misrepresentation that I have made on this application, and/or (b) criminal penalties on me including, but not limited to, fine or imprisonment or both under the provisions of Federal law (18 U.S.C. §§ 1001 et seq.)."

Social Security and/or disability income that may be applied toward a loan analysis or as qualifying income

Social Security income: you can gross it up by 25% if it was taxed before the borrower received it Social Security income for retirement or long-term disability that the borrower is drawing from his or her own account/work record will not have a defined expiration date and must be expected to continue. However, if Social Security benefits are being paid as a benefit for a family member of the benefit owner, that income may be used in qualifying if the lender obtains documentation that confirms the remaining term is at least three years from the date of the mortgage application. Document regular receipt of payments, as verified by the following, depending on the type of benefit and the relationship of the beneficiary (self or other)

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%. 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

Income approach

Someone buying an investment property, or a multi-unit property would use the income approach to appraise it. This approach is going to use the earning potential of the property to determine the value of the property. The appraiser will determine the value of a property from the potential income that the property could bring the borrower over time. For example, if someone is going to buy a 4-unit property that they could rent out for $1,000 per unit, over five (5) years, they would make $240,000 on that property. The appraiser will also take into consideration maintenance costs and specifics regarding keeping the rental units rented. The appraiser also might compare it to other rental units nearby to determine a fair rental value for each unit in that property.

Factors taken into consideration when reviewing an applicant's ability to repay a loan

The ATR Rule has eight (8) underwriting factors that lenders must consider and verify. Those eight underwriting factors are: 1. Current or reasonably expected income or assets (other than the value of the property that secures the loan) that the consumer will rely on to repay the loan. 2. Current employment status (if you rely on employment income when assessing the consumer's ability to repay). 3. The monthly mortgage payment for this loan. 4. The monthly payment on any simultaneous loan secured by the same property. 5. The monthly payment for property taxes and insurance that you require the consumer to buy, and certain other costs related to the property such as homeowner's association fees or ground rent. 6. The borrower's debts, alimony, and child-support obligations. 7. The monthly debt-to-income ratio or residual income. 8. Credit history. The rule requires that lenders consider at least these eight (8) factors.

Ability to repay

The Ability to Repay Rule (ATR) is a section of TILA that went into effect in 2014. The Dodd- Frank Act mandated it, and the CFPB enforces it. The ATR Rule works with the QM rule. The rule that requires lenders to determine whether a borrower has the ability to repay their loan and requires verification of the information provided to prove the ability to repay. The responsibility of the MLO and company is to show that the borrower has the ability to repay in the future, not just at application or closing.

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)

Calculating the total debt ratio

The Back-End Debt to Income Ratio/ Total Expense Ratio is all of the borrower's liabilities compared to their income. The back end is calculated by taking the total amount of monthly debts that the borrower has, including the housing expense and dividing it by the gross income of the borrower. Examples of debts: shown on the credit report, credit cards, car loans, student loans, judgment payments, IRS payments, alimony and child support, or other non- utility debt obligation. Not included = cell phone bills, utilities, daily living, insurance, and other household or personal expenses Ex. The borrower's monthly qualifying income is $6200. The proposed loan PITI payment is $1800. He has a car payment of $400 and total credit card payments of $500. What is the borrower's front-end DTI and back end DTI? $1800 + $400 + $500 = $2700 total debts $2700/$6200 = .4354 x 100 = 43.54% back end DTI

Qualifying ratios

The Debt to Income ratio or Qualifying Ratio vary from program to program. A loan program and Truth-in-Lending Act (TILA) have maximum DTI ratios allowed for the loan program and mortgage rules. Conventional- 28 percent/36 percent FHA-31 percent/43 percent VA- Back end DTI of 41 percent with residual income calculation USDA - 29 percent/41 percent

Calculating the housing-to-income ratio

The Front-End Debt to Income Ratio/Housing Expense Ratio is only the borrower's housing expense compared to their income. This ratio simply takes the amount that the borrower will be paying for their mortgage (PITI) and divides it by their gross monthly income Ex. The borrower's monthly qualifying income is $5200. The proposed loan PITI payment is $1400. What is the borrower's front-end DTI? $1400/$5200 = .2692 x 100 = 26.92% Housing expense ratio

Market approach

The Market/Sales Comparison approach is the most common and uses comparable properties to determine a value of the subject property. Three comparables that are less than a mile away from the subject property and have sold in the past 6 months. Through this process, the appraiser will compare the borrower's property with these comparable properties. The appraiser will add and subtract value (called adjustments) based upon the differences between the two properties to come up with the ultimate value of the property. Ex. if there are five similar properties in the same geographical area sold between $550,000 and $600,000 in the last six (6) months. The borrower could likely sell their home for somewhere between $550,000 and $600,000 based on those comparable sales. The appraiser is going to pinpoint based on the similarities and differences of the different properties on a number in that range.

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.

Actions not permitted with respect to Verification of Deposits

The lender must send the request directly to the depositories. The borrower is not permitted to hand-carry the verification form. The lender must receive the completed verification form directly from the depositories. The completed form should not be passed through the applicant or any other parties.

Gross up

The underwriter is required to verify the income is nontaxable, examples of verification documents include awards letters, policy agreements, or account statements. Once the underwriter has determined that the income is non-taxable, the underwriter can do what we call gross-up the income by adding twenty-five percent (25%) of nontaxable income to the borrower's income. For a short cut in doing the math, many people multiple the income by 125%.

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.

Income

There are many different types of income that a borrower can use to qualify for a mortgage. Income falls into two types: stable income and variable income. No matter what type of income a borrower has, stable or variable, the underwriter is going to need to determine the monthly income that the borrower receives, see a history of that income, verify the income and see continuity in the income.

Credit report

Three Credit Agencies: Experian, TransUnion, Equifax Tri-Merge: a three agency credit report needed for underwriting FICO (The Fair Isaac Corporation) is not a credit company, but rather a data analytics company that provides financial scoring to lenders to assist them in pricing loans, including mortgages, to consumers

Allowable debt to income ratio at loan consummation

To be considered a General QM, the lender must determine that the consumer's TOTAL monthly debt-to-income is no more than 43 percent. ATR rule requires the creditor to make a reasonable and good faith determination at or before consummation that the consumer will have a reasonable ability to repay.

Determining a borrower's ability to repay

To determine whether someone does have the ability to repay, each lender is responsible for developing and applying its underwriting standards and making changes to those standards over time in response to information and changing economic and other conditions. It is the responsibility of the lender to make a reasonable and in good faith determination that the borrower has the ability to repay the loan. Considerations of repayment ability - income and assets - employment status Ex. A borrower with a 1% increase yearly in income and you are putting them into an ARM loan, may not meet the ATR requirement. A good rule of thumb: would you be able to fend yourself in court if the borrower sues

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.

Cost approach

When using the cost approach, the appraiser determines the value of the property by adding the estimated value of the land to the current cost of constructing a reproduction or replacement and then subtracting any amount of depreciation. The cost approach is a way to discover the value by determining the value of the land plus how much it would cost to build this house again. If there is any deprecation that has come over the years, that will decrease the value in the cost approach.

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.

Handling credit report discrepancies

You are not a credit repair professional, you can counsel the borrower as to what should be done, but you can't do it for the borrower.

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.

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.