Truth-in-Lending Act
misleading terms in advertisements for home equity loans
"Free Money!" is an example that the regulations provide of a misleading and, therefore, prohibited term. Another prohibition related to home equity credit loans is the use of misleading statements regarding tax deductions for interest paid on home equity loans
Piggy Back Loans
80/10/10 a borrower takes a simultaneous second mortgage. the first lein is 80% LTV, the second is 10% and the borrower makes a 10% downpayment
Waiver of Right to Rescind
A borrower can waive the right to rescind in situations in which credit is needed "...to meet a bona fide financial emergency." The waiver must be in writing and include: A description of the emergency Signatures of all parties that have a right to rescind a particular transaction
Annual Percentage Rate (APR)
A measure of the cost of credit, expressed as a yearly rate, that relates the amount and timing of value received by the consumer to the amount and timing of payments made
Mortgage Broker Fees
A mortgage broker's fees are always included in the finance charge even if the lender does not require the use of the broker's services and does not retain a portion of the charge.
Federal Truth in Lending Disclosure Statement
APR Finance Charge Amount Financed Total payments
Misleading use of the term counselor
An advertisement cannot refer to a for-profit lender, mortgage broker, or its employees as a "counselor."
Misleading comparisons in advertisements
An advertisement to "save $300 per month on a $300,000 loan" is an implied and prohibited comparison between the payment due on the advertised loan and a consumer's current loan payments.
Creditor
An individual or entity, such as a lender, that extends closed-end or open-end credit
Rescind closed-end credit
Borrowers have right to rescind the transaction until midnight on the third business day after the last of the following events occurs: The signing of the loan agreement The date of the receipt of Truth-in-Lending disclosures The date of the receipt of the notice of the right to rescind for exercising the right to rescind, note that business days include Saturdays
TILA violation Finance Charge Penalties
Borrowers may receive damages equal to 2x's the amount of the finance charge or and amount of not less than $400 or more than $4000
Credit not covered by TILA (check)
Business or agriculture Credit in excess of 25K unless it is secured by a dwelling/real property Student loans Home fule Budget
TILA's Purpose
Congress enacted the Truth-in-Lending Act in 1968 To Protect consumers by disclosing the costs and terms of credit Create uniform standards for stating the cost of credit, thereby encouraging consumers to compare the costs of loans offered by different creditors Ensure that advertising for credit is truthful and not misleading Provide borrowers with the right to rescind certain types of mortgage transactions
Closed-end Credit
Credit that is extended in a lump sum at one time, such as a traditional mortgage loan
Open-end Credit
Credit that may be accessed in a revolving manner such as a credit card. Home Equity Lines of Credit (HELOCs) are a common example in the mortgage industry.
Under TILA business days are
Everyday except Sunday and Federal Holidays
who is responsible for implementing and enforcing TILA and Regulation Z
FTC and the Consumer Financial Protection Bureau (CFPB).
Closing Agent Charges
Fees charged by the closing agent are included in the finance charges if the lender requires these services, requires a charge for these services, or retains a portion of the charge.
Three-Year Extended Right to Rescind for All Loans
For both closed-end and open-end credit, a three-year right to rescind exists for the following violations by the creditor: Failure to provide a rescission notice that meets the TILA requirements for notification. Failure to disclose all the terms of the lending transaction as required by TILA
Tolerance for Finance Charge Inaccuracies
For closed-end transactions, disclosure of the finance charge must not understate the charge by more than $100.
HELOC
Home Equity Lines of Credit generally a second mortgage or piggyback loan based on the equity a borrower has in his or her home.
MDIA
Mortgage Disclosure Improvment Act 2008 primarily added to the responcibility of originators by changing the timing the re-disclosure rules for TILA
Final TIL Disclosure Statement
Must be disclosed to the loan applicant no less than seven business days prior to settlement Finance Charge and APR must appear on it
Rescind open-end-credit
Open-end loans also include the right to rescind for three business days after any of the following: The date the credit plan is open The date there is an increase on the credit limit The date a security interest is added or increased to secure an existing credit plan for exercising the right to rescind, note that business days include Saturdays
Penalties for violations HELOC
Penalties are a minimum of $100 and a maximum of $1,000
Penalties for violations closed end loans
Penalties are a minimum of $400 and a maximum of $4,000
Misleading claims of debt elimination
Prohibits the practice of suggesting, in an advertisement, that a borrower can obtain the elimination, forgiveness, or waiver of their obligations to another creditor. Examples of these types of misleading statements include, "Refinance today and wipe your debt clean!" and "Pre-payment penalty waiver."
Overvaluation (appraisal)
Provision of TILA regarding property valuation
Trigger Terms
Regulation Z TILA In 2008, the Federal Reserve tightened the advertising provisions of Regulation Z by creating additional trigger terms, new advertising requirements, and a list of prohibited practices such as terms used in advertising that trigger specific information. These practices/terms require the need to disclose additional information. TILA. requires the clear and conspicuous presentation of other relevant terms and the presentation of that information with equal prominence so that consumers will not have to read the fine print to gain an accurate description of the loan that the advertisement is promoting.
Notice of Right to Rescind
Required by TILA and due at the time of closing in transactions that are not related to a home purchase or to a refinance with the lender who made the loan being refinanced
Misleading foreign-language advertisement
Some advertisements target immigrants who lack fluency in English by advertising favorable lending terms, such as a low introductory rate, in their first language, while providing information on the additional and less favorable lending terms in English.
Misleading use of the current lender's name
Some lenders and mortgage brokers have made direct solicitations that lead consumers to the incorrect assumption that their own lender is contacting them with information on mortgage products.
Misrepresentations about government endorsement
Statements that lead consumers to the incorrect assumption that a mortgage product is endorsed or sponsored by the government are illegal.
Early ARM Disclosure (Adjustable-Rate Disclosure)
TIL Disclousure due within three business days of application this disclosure must include a clear notice that payment or loan terms can change, and details on calculation of rate changes and the impact of rate changes on payments and loan amortization.
CHARM Booklet
The Consumer Handbook on Adjustable-Rate Mortgages Required by TILA within three business days of application for all ARMs, this booklet alerts consumers to the risks of accepting an ARM
Section 32 of Reg Z
The Home Ownership and Equity Protection Act HOEPA creates certain protections under the Truth-in-Lending Act (TILA) for loans with high interest rates and high fees.
Loans Covered by TILA
The borrowers dwelling secures mortgage debt the homeowner uses the proceeds of the loan for personal, family or household purposes
Finance Charge
The cost of credit expressed as a dollar amount
TILA applies to all credit transactions which meet the following four conditions:
The credit is offered to consumers The offer or extension of credit is made regularly The credit includes a finance charge or a written agreement stating that the loan may be repaid in more than four installments The credit is primarily for personal, family, or household purposes
Consequences of Rescission
The lender no longer has a security interest in the property - public records must be corrected to show this. The lender has 20 calendar days to return any money or property paid by the borrower in connection with the transaction such as broker fees, application fees and third party settlement fees. After the lender has completed the requirements of terminating its security in the borrower's home and returning money or property to the borrower, the borrower must return to the lender any money or property that was delivered to him/her.
Prohibition Against Steering
The rule prohibits loan originators from steering consumers towards a mortgage product in order to increase the amount of compensation earned.
Right of Rescission Under TILA
The three-business-day rescission period creates a cooling-off interval after closing on a loan. This interval is intended to give a borrower the opportunity to reconsider whether he/she wants the loan, and the ability to cancel the loan by simply providing the lender with timely notice of the cancellation. for exercising the right to rescind, note that business days include Saturdays
Misleading advertising of "fixed" rates and payments
There are many mortgage products that combine fixed and variable rates, such as a stepped-rate mortgage with an initial lower rate that is subject to an increased fixed rate. The use of the word "fixed" in advertisements for these types of loans is prohibited unless there is conspicuous and equally prominent information about variable rates and increasing payments.
Regulation Z
Truth-in-Lending Act (TILA)
Counseling for ARMs
Use of the CHARM booklet is mandatory under TILA.
Equity stripping
a predatory practice in which borrowers are encouraged to repeatedly refinance without a tangible net benefit. In order to discourage lenders from "loan flipping," HOEPA prohibits refinancing within 12 months of the original extension of credit unless the refinancing is in the borrower's interest
When multi parties have recission rights...
any one of them can exercise the right to terminate the transaction. TILA/Regulation Z
Initial Truth-in-Lending Disclosure Statement
due within three business days after the receipt of a completed loan application, this is the critical disclosure that provides consumers with the cost of credit expressed as a dollar amount (the finance charge) and as an annual percentage rate.
What must occur within 20 days of recission
lender must return any money or property paid by the borrowers in connection w loan (brokerfees, app fees, third party fees).
Equity-based lending
occurs when a lending decision is not based on the creditworthiness of the borrower and repayment ability but instead on the equity available in their home.
TIL Disclosure Statement must be re-disclosed if
required to provide consumers with re-disclosure of the annual percentage rate anytime the APR varies by more than one-eighth of 1% (0.125%). This re-disclosure is required, at least three business days prior to the settlement, whether the variance increases or decreases the APR
ARM Disclosures for Closed-End Loans
the creditor must deliver the disclosures within three business days following receipt of the loan application. borrower obtains an adjustable-rate mortgage (ARM), creditors must provide additional disclosures at the time an application is completed or before the borrower pays a non-refundable fee, whichever is earlier. This requirement is specific to ARMs, which are secured by the borrower's principal dwelling and have a term of more than one year.
Notice that Completion of Loan Application and Receipt of Disclosure Does Not Obligate Borrower to Complete Transaction
this disclosure is required by TILA and due within three business days of application. It advises consumers of the risks of losing their home when signing a lending agreement for all loans
