Definitions

Mortgage Loan Servicing

*Reg X defines "Servicing" as the receipt of mortgage payments from a borrower, including payments for taxes and insurance that are deposited in an escrow account and forwarding these payments to the owner of the loan and 3rd parties.

Servicer

*Reg X defines "servicer" as an entity that is responsible for servicing a federally regulated mortgage loan. Servicers may include lending institutions that make and service their own loans or those that have purchased the servicing rights for mortgage loans. Subpart C of Reg X introduces the term "Master Servicer" to refer to the owner of the rights to form servicing. This section of the regulation also defines a "subservicer" as a servicer that does not own the servicing rights for a mortgage but performs servicing for the master servicer.

Right of Recision under TILA

-3 days -3 years if borrower did not receive notice of right to rescind or accurate TILA disclosures when entering into agreement. -Right of Recision applies to both open and closed ended loans on the primary residence. No Right of Recision is required if: -Construction loan -Refinancing current HELOC -Transaction with state agency -Renewal of optional insurance products It it is a closed end loan, any party with an ownership interest can execute right to rescind until midnight of 3rd day. If right of rescision is used, the creditor has 20 calendar days to return any money or property. Waiver of a right to rescision requires a bone fide emergency. It must be in writing and include: -Description of emergency -Signature of all parties who have the Right to Rescind.

Originators can request from appraiser:

-Ask to consider additional information about dwelling or comps -Request they provide additional information about the basis for a valuation -Request they correct errors in a valuation -Obtain multiple appraisals to select the most reliable -Withhold compensation for breach of contract or substandard services -Taking action permitted or required by appropriate federal or state statue, regulation or agency guidance.

Mortgage Origination Exam Proceedings

-Assess the quality of compliance of management system -Identify acts or practices that increase risk of violating federal laws -Gather facts that may determine if a mortgage originator engages in acts or practices likely to result in the violation of federal land laws -Determine if violations of the law have occurred and if further supervision or enforcement action is necessary.

Retention

-Creditors are required to show evidence of compliance with loan estimate requirements for a minimum of 3 years of closing. -Must retain copies of closing disclosures and all regulated docs for minimum of 5 years after closing. -Escrow closing notice and past communication partial payment policy minimum of 2 years. -Records related to originator comp must be retained for minimum of 3 years after receipt of payment. -Records related to completion with ability to repay must be kept minimum of 3 years after closing.

Escrow Accounts

-Escrow accounts cover taxes and insurance and requires a mandatory disclosure under Reg X. This must include the initial escrow account statement and the annual statement. -The initial statement is normally given at settlement, but lender has 45 days from closing to deliver it. This must include; -A breakdown of the mortgage payment and escrow amount. -Itemized estimated taxes, insurance and other payments to be made from escrow during the computation year. -The cushion amount. -A "trial running balance" (the accounting process used to reach target balance in a computation year). -The annual statement is due within 30 days of computation of escrow account year and provide: -Account history and projection of payments for next year. -Statement showing both last year and current year mortgage payment and the amount deposited into escrow. -Total amount into and out of escrow for past computation year. -Escrow balance at the end of the period and explanation of how any surplus is being handled. -Explanation of how the borrower is to pay any deficiency. -If there is a transfer to a new servicer they must provide an initial escrow statement within 60 days of the transfer.

Sham Affiliated Business Arrangement

-In 1996 HUD was responsible for imposing and enforcing RESPA and it reported numerous complaints about the creation of sham affiliated business agreements caused HUD to publish the "Policy Statement on Sham Affiliated Business Arrangements". -A partnership created between settlement service providers for the illegal purpose of splitting fees under the guise of a bona fide affiliated business arrangement.

Lending Prohibited by ECOA

-Over discrimination; blatent refusal to offer credit due to ethnicity or religion. Redlining - refusal to lend to individuals from certain neighborhoods due to these reasons. -Disparate treatment; when a loan applicant is treated differently due to a protected class than someone else "similarly suited". Example man/woman. Disparate Impact; when a policy is adopted with no discriminatory intent, but has disciplinary impact. Example; Lender who has a policy of limiting transactions for $250k or more that may limit the access of a protected class to have credit.

Other prohibited practices

-Refuse to consider public assistance as income -assume a woman of hccld bearing age will stop working to raise children -refuse to consider regular alimony or child support. In 2014 CFPB issued a bulletion to warn creditors that it is a violation of ECOA to ask for excessive documentation related to SS income (no medical opinions, etc)

Dwelling

1-4 housing units including a condo coop and mobile home trailer

Elderly

62 or older

E-Sign Act

A Federal law enacted in June of 2000. The goal is to address the validity of focuments, recordds and signature in hte electronic form. E-sign applies to interstate and foreign communication. In essence the Act states an electronic record or signature cannot be declared invalid simply because it is given electronically. Before obtaining a consumer's consent, financial institutions must provide clear statement informating the consumer of the following: -An option to have the record provided or made availble on paper, how to request and if there are any fees -Right to withdraw concent including conditions, consequences and fees -Discription of procedures for the customer to update information necessary to be contacted electronically -Hardware and software required for access to and retention of electronic records.

Air Loans

A fictitious borrower obtains a mortgage loan and seccures it with fictitious property.

Adjustable Rate Mortgage (ARM)

A mortgage with an interest rate that increases or decreases during the life of the loan. They are risky products because they can become unaffordable as payments increase due to rate changes. Calculation of Interest Rate Increases for ARMs; Index and Margin: All lending agreements for ARMs include an Adjustment Frequency that usually occurs annually but may occur monthly or once every few years. The starting point is the Index (a common way of measuring the cost of borrowing money). This must be disclosed on the Loan Estimate and on the Note. Common indices include the Treasury Bill Index, the 11th District Cost of Funds Indexes (COFI) or the London Interbank Offered Rate (LIBOR) though the latter is set to be phased out in the coming years. An index with a long term offers more protection from short term fluctuation. The other number that is required to be disclosed to customers in a lending agreement is the margin. It is a fixed number that is not subject to change during the term of a loan. It is a number, expressed in percentage points determined by the lender. Margins may vary from 2.5% to 3%. After the initial fixed period of an ARM expires, the calculation of an increase is made by adding the index to the margin. There are 4 caps in common use: -Initial rate cap; a limit on the amount the interest rate can increase or decrease at the first adjustment rate -Periodic rate cap; a limit on the amount that the interest can change up or down on any adjustment date -Lifetime rate cap; a limit on the amount an interest rate can change over the life of the loan, functioning as a rate ceiling. -Payment cap; a limit on the amount that the payment can change on any adjustment date from the current or previous amount. Payment caps do not limit the amount the interest rate can adjust, but rather the payment amount. This can lead to negative Amortization. This is prohibited for high cost mortgages regulated by HOEPA and QM, including qualified ARMs. Protecting Consumers from the Risks of Adjustable Rates: TILA incldes a number of special requirements for ARMs intended to reduce risks. These include the following disclosure requirements: -CHARM Booklet; no later than 3 business days after receipt of application on a property to be the PR. -Loan program disclosures: are required for each variable rate product in which the consumer states an interest. This includes, but is not limited to: -----A statement that the interest rate and payments may change. -----The formula used to make rate adjustments -----An explanation of how rate changes are calculated -----The frequency of rate changes -----A notice that the consumer will receive future rate change disclosures and a description of the timing of these disclosures. -Rate Change Disclosures; creditors or services must make these post closing disclosures no later than 60 days and no more than 120 days prior to the effective date of a rate change. It must include a table that shows the current and new interest rate and payments. *Since 2014 TILA has added to protection of the borrower by tightening the standards for eligability. Qualifying Borrowers for ARMs: Since they became availabe in the 1980s ARMs have appealed to consumers primarily because of the low introductory rate. Because of the lower up front payments it was easier to get approved over fixed rate loans. Today applicants for ARMs must qualify for these loans based on: -The fully indexed rate; the rate calculated by adding the margin and the index. -The ability to make monthly, fully amortizibring payments. *ARMs are good products for some borrowers, especially if they do not intent on remaining in a home more than a few years. There is little opportunity to build equity but the borrower can benefit from the lower payment. Types of ARMs: -Hybrid ARMs; a mortgage loan with a rate that does not adjust during the first 3-5 years. -Interest Only ARMs and Payment Option ARMs; popular during the lending boom and are no longer available due to the risks. These loans are examples of risk layering that is now prohibited. -FHA ARMs; Section 251 of the National Housing Act authorizes FHA to insure ARMs. Amendments added in 2013 allowed HUD to also begin insuring hybrid ARMsthat offer fixed rates for 1,3,5 or 10 years before the annual adjustment begins. -----1 and 3 year ARMs allow for caps of 1% and lifetime caps of 5%. -----5 year ARMs allow for annual caps of 1% and lifetime caps of 5%, or annual caps of 2% and lifetime caps of 6% -----7 and 10 year ARMs allow for annual caps of 2% and 6% -VA ARMs; the veterans benefits improvement act of 2004 reinstated a program from the early 1990s that allowed VA to guarantee traditional ARMs. It also allows them to guarantee hybrid ARMs. Traditional ARMs with the VA typically limit annual adjustments to 1% and a cap of 5%. They guarantee a hybrid product that sets a fixed interest rate for the first 3-5 years and then adjust annually.

Occupancy Fraud

A type of mortgage fraud, whereby the borrower lies about whether or not the home will be owner occupied. Occupancy fraud happens when the borrower says that a home will be owner occupied, when in reality it will not be. Mortgage lenders typically offer lower rates to mortgages on owner-occupied homes, rather than investment properties. When occupancy fraud occurs, banks take on too much risk because they are receiving a lower interest rate than they should be for the delinquency risk that exists. I: Lenders typically charge higher rates on mortgages for non-owner occupied homes, because of higher delinquency rates. Delinquency rates are often lower for the owner-occupied home because people do not want to lose their private residence and become homeless. There is a lot less attached to losing an investment property.

ARM Disclosures

ARM Disclosures much include: -Statement that the interest rate, payment or loan term can change. -Identification of the index or formula used to make adjustments. -An explanation of how the interest rate and payment will be determined. -Recommendation the borrower ask about how current margin values and interest rate. -Notation that the interest rate will be disclosed and recommendation the applicant ask about amount of disclosure. -The frequency of interest rate and pay changes. -The rules relating to index, interest rate and payment amount, such as the use of rate and payment caps. -Statement warning applicant of the fact that negative amortization can occur. -Explanation of how to calculate payments for the loan amount. -Reminder that the loan contains a demand feature. -Statement of type of information that will be provided on notice of interest rate adjustment and indication of when these policies will arrive. -Indication that disclosure forms are available for other variable rate loan programs. -At the option of the creditor, an example based on a $10k loan showing how payments and loan balance are impacted by interest rates based on most recent 15 years of index value, maximum interest rate and payment for $10k loan and initial rate, based on the index and volume and disclosure assuming maximum rates and payments. Reg Z includes a model disclosure in Appendix H-14. Post closing disclosure requirements apply to ARMs that are closed end and secured by Primary Residence. These requirement apply to assignees and servicers of ARMs. Originators need to advised borrowers to watch for notices after 60 days but no more than 120 days before a change in the interest rate changes the payment and borrowers can expect a rate change disclosure. This time frame applies to most rate changes. Rate change disclosures must include: -Date the rate and payments will change. -Reminder of when future interest rate adjustments are scheduled to occur. -Description of other changes to the loan that will occur on the date the interest rate changes such as explanation of interest only payments in payment option features. -A table that shows current and new interest rate as well as current and new payments and date due. -How much of the payment for interest only and negative amortization loans will be allocated for principal, interest, taxes and insurance. -Explanation of how interest rate is determined. -Disclosure of any limits on the interest rate increases. -Explanation of the new payment penalties.

Telemarketing Activities

All telemarketing activities should be maintained for 24 months from production: -Advertisements, brochures, telemarketing scripts and promotional materials -Name and last known address of each customer, goods/services purchased and money paid. -Name, last known home address and phone of current and former employees -Any authorization or infomraiton consent agreements from consumers who agree to calls. Penalties are $43,280 each, each day is considered a seperate violation.

Second Mortgages

Also known as a 2nd lien, ranks in priority after the 1st lien. A subordinate line can also refer to other debt related to the property such as income tax debt. Other examples are piggyback loans and 80-10-10 transactions.

Straw Buyers

An individual who accepts a fee, ranging from $500 to several thousand dollars to provide their name, SSN and other personal information for use on a mortgage application. They do not intent to own or possess the property. Sometimes they are unaware that they are liable for fraud and making falst statements

"Your Home Loan Toolkit: A Step-by-Step Guide"

An information booklet provided by the lender that provides information on the settlement process. Explains consumer rights under RESPA and warns against the use of false information on the loan application. Due within three business days of application.

Markups

An upcharge in the costs of a settlement service and retention of file. Supreme Court holds that an upcharge split between two parties, a violation is RESPA has not occurred.

Prohibited Basis

Any of the following: -Race -Color -Religion -National origin -Sex -Marital Status -Age (other than being of age to enter a contract) -Receipt of income from public assistance -Exercise of Rights under the Consumer Credit Protection Act, including Truth in Lending.

Thing of Value

Any payment, advance, loan, or service given. "Thing of Value" can include money as well as non-monetary items, such as discounts, special rates, special services, meals, tickets to events or entertainment, office equipment, expense reimbursements, or similar.

Requiring a Cosigner

Cannot require a cosigner if applicant qualifies on their own.

Open Ended APR

Computed by multiplying each periodic rate by the number of periods in a year.

CHARM booklet

Consumer handbook on adjustable rate mortgages, must be given to an applicant no more than 3 business days after receipt of application on a primary residence.

Rescision rules for Foreclosure

Consumer may executive R of R after foreclosure procedures have been brought to dwelling if: -Was originated through broker and creditor failed to include the broker fee in the financial charges or -Creditor failed to use application model form under Reg Z or substitute similar notices. When foreclosure has been initiated special rules apply for determine accuracy of tolerances -Understated by no more than $35 or -Greater than the amount required to be disclosed. In relation to sub prime loans, if they review their loan documents and the finance charge was understaed by $36, they may rescind: -An understatement of financial charges by only $1 -Are borrowers required to provide a notice of R of R to the loan servicer as well as the creditor

Presumptions of Compliance

Creditors are presumed to have complied with requirement to determine a borrower's prepayment ability so they gain protection from alleged violations of the ATR Rule, when they make loans that meet the product feature and underwriting requirements for a qualified mortgage. There are 2 presumption of compliance: -A Conslusive Presumption of Compliance applies to transactions for Qualified Mortgages that do not involve higher-priced covered transactions. -A Rebuttle Presumption of Compliance applies to transaction that do involve higher-priced covered transactions (higher priced mortgage loans) -----To rebut or challenge the creditor' compliance, the borrower must prove that the creditor failed to make a reasonable and good faith determination of repayment ability by showing that the consumer's income, debt obligation, alimoney, child support and monthly payment on the covered transaction would leav ethe consumer with insufficient residual assets.

Adverse Action

Creditors refusal to offer credit in the amount of terms required, renewal or increase.

Reg Z Tolerances in closed end loans

Disclosure of Financial Charges is accurate if: -Understated by no more than 1/2 of 1% of the face of the note or $100, whichever is greater. -Greater than the amount required to be disclosed. As long as the transaction does not involve a HOEPA high cost mortgage the disclosure are accurate if: -Understated by no more than 1% of face amount of note or $100, whichever is greater. -Greater than the amount required to be disclosed. There are no tolerances for open ended transactions.

Bona fide discount point

Discount points paid by the borrower to reduce the interest rate. Typically one point is equal to 1% of the principal.

Privacy Rules

Do not call Implimentation Act in 2003. In 2007 pone numbers added to request became permanent.

Self-Testing

ECOA encourages creditors to conduct self tests. This information is protect as priviledged when creditors: -Maintain the confidentiality by not sharing with the public or using it to defend ECOA violations. -Take corrective action to address discriminatory acts and practices. Testers post as loan applicants. In addition to self testing programs, regulators use testers to identify institutions that engage in discriminatory practices.

Discouragement

ECOA prohibited written or verbal statements that would discourage applicants.

Money Laundering

Engaging in financial transactions to conceal the identity, source, or destination of illegally gained funds. Penalties are severe and can include a fine of $500,000 or twice the value of the property involved in the transaction, whichever is greater; imprisonment for up to 20 years, or both. Additionally simply depositing more than $10k of fraudulently obtained money in a bank account can constitute money laundering. Penalties for violations of this provision can include fines and imprisonment for terms of up to 10 years.

Conspiracy

Federal law contains a general conspiracy state that protects the government from fraud and other offenses. The law specifically addresses conspiracies "to defraud the US or any agency thereof.." Therefore the law applies to fradulent action against government agencies, such as HUD and the Federal Houseing Administrtion.

Foreclosure Process

Foreclosure frequently occurs when a borrower becomes unable to make payments on a mortgage loan. After the borrower goes into default, a property is foreclosed and the proceeds are used to satisfy the unpaid loan debt or breach of the loan contract. It is conducted via either judicial or non-judicial means. The exact type of foreclosure will depend on the state it is located in and whether the mortgage includes a Power of Sale Clause. If the mortgage does not include the clause, a lender must proceed with foreclosure by filing a lawsuit. This is judicial foreclosure. If the mortgage does include the clause, no legal action is required. This is non-judicial foreclosure. The steps for this is as follows: -At least 120 days before the foreclosure sale date, lender must serve the borrower with a notice of default and record a notice of default in the located county. -The lender must publish a notice of default once a week for 4 consecutive weeks with the last notice appearing at least 20 days prior to the sale of the property. -Sale of the property takes place by public auction and the property must be sold to the highest bidder by cash. -Prior to the sale, the borrower can cure the default by paying all past due amounts.

Cursory Inspection

Fraudulent real estate brokers or investors may try to unload property with an inflated and questionable title history on an unsuspecting buyer. When the buyers ask to inspect the property, the seller may discourage an inspection or rush the potential buyer through the home.

Disclosure Regarding Monitoring Programs

HMDA was enacted with a goal of discovering redlining by monitoring the mortgage lending practices of deposit and non-deposit institutions. This is why creditors are required to request information on application regarding ethnicity, race, sex, racial status and age. Lenders are to explain that the federal government is requiring this in order to monitor the compliance with anti-discrimination laws. If an application is made electronically or by mail the creditor does not have to request, unless the electronic medium has has video capabilities.

Good Faith

Honesty in transaction.

TRID - The TILA-RESPA Integrated Disclosure Rule

In 2015 a new disclosure became a requirement for almost all mortgage loans transaction were significantly altered with the TRID. This established the requirement to use the Loan Estimate & Closing Disclosure for any mortgage transactions. -Prior to TRID the GFE (Good Faith Estimate) and the HUD-1 Settlement Statement were required and they outlined the estimated and actual settlement costs for a given transaction. These disclosures are still used for: -Reverse Mortgages -HELOCS -Mortgages secured by mobile home or other dwelling not attached to the land.

Straw Sellers

Individual who accepts a fee to falsely claim ownership to a property. Falsified or fabricated title documents, including sham warranty deeds are created to support the claim of ownership.

Referral

Influences the selection of a provider.

Sale or Assignment of a Sales Contract

Instead of flipping a property by reselling it, some fraudulent investors may obtain a contract on a property with an inflated value and offer to sell the sales contract or assign it to an unwitting buyer for a fee. The "investor" walks away from the trransaction with several thousand dollars and the new buyer closes on a property that has an inflated price and only a fraction of the value the buyer anticipated.

Industry Insider Fraud

Involves a conspiratorial actions of members of the mortgage industry who use lending transactions as a means of securing funds from lenders. With their knowledge of the mortgage lending business, unscrupulous mortgage bankers, brokers, officers, underwriters, processors, real estate agents, appraisers and lawyers have worked together to close frulent loans and pocket the loan funds.

CFPB (Consumer Financial Protection Bureau)

July 21, 2011 Consumer Financial Protection Bureaus function: -Authorized to write rules, initiate rulemaking, issue orders or guidelines persuant to federal finance laws. -Examination Authority Board of Governors cannot: -Interview in any examination or any enforcement action before the CFPB directs -Appoint, remove or direct any CPB officer or employee -Merge or consolidate any function or responsibility of CFPB -Subject any rule or order of the CFPB to the review and approval of the Federal Reserve Board. A Single director heads hte CFPB appointed by President and subject to Senate confirmation. It is a 5 year term. -Conduct Financial Education -Collect and respond to consumer complaints -Research and monitor the markets for consumer financial products and services. -Supervised covered persons for compliance with federal consumer financial laws -Take enforcement actions for violation of federal consumer financial laws. Protects the enumerated consumer laws: -The Alternative Mortgage Transaction Purity Act (AMTPA) -Section 626 of the Ommibu App Act -The Interstate Land

Terms Used In the Operation of the Mortgage Market

Loan Terms: *Amortization; periodic payments on a loan requiring paymet PI to repay by the end of the loan term. *Closing Costs; Fees due at closing normally include: -Origination fee -Property tax -Charles for title insurance and escrow costs -Appraisal fees, etc. Closing costs will vary according to the area of the country and the lenders used. The borrower does not always cover all of the closing costs. The parties in a transaction can negotiate the paymnet. -DTI; relationship between monthly debt payments versus monthly income expressed in a percentage. -Discount Point: A fee paid in exchange for a reduction in the interest. -Earnest Money: Money given at the time of offer on a contract to demonstrate intent and ability -Equity; the difference between the value of a property and the debt owed on it -Escrow Account: Used for taxes and/or insurance Fees; any kind of money paid in conjunction with a loan, other than the actual loan. This might include 3rd party fees, credit report fees, appraisal fees, etc. -Finance Charge: The cost of credit, expressed as a dollar amount -Negative amortization: when minimum monthly payments are not enough to pay all the accrued interest on the loan and the borrower is losing equity. -PFC: Prepaid finance charge -POC: Paid outside of closing -Prepayment penalty: fees charged for an early payoff. Hard penalties apply to both the sale of a home and refinance. Soft penalties that apply only to refinancing transactions -Sales Contract: agreement between a buyer and seller detailing the terms and condition of the sale of real estate -Seller carry-back: purchase transaction in which the party selling provides all or part of the financing -Service release premiums (SRPs): fees which lenders or servicers may receive for selling or transferring their right to service a mortgage loan. -Servicer: individual or entity that services a loan by performing responsibilities such as statements to borrowers, accepting payments, issuing late payment notices and managing escrow accounts. Disclosure Terms: -Adverse Action; term used not to extend credit to a consumer on the terms that the consumer requested. It may also be taken if it is determined the potential annargement inborrower is not creditworthy or does not meet the requirements for a particular loan program. -Affiliated Business Arrangement: An arrangement in which a person who is in a position to refer a consumer to a settlement service provider has either an affiliate relationship with or a direct or beneficial ownership interest of more then 1% in the provider settlement services. It is legal if the individual or entity making the referral discloses the arrangement to the consumer at the time of referral -Annual Percentage Rate (APR); a uniform meansurement of the cost of a loan, including interest and financed costs of closing, expressed at a percentage. -Closing Disclosure: Effective 10/3/2015 this disclosure replaced the HUD-1 Settlement Statement and the final Truth In Lending Disclosure. -Finance Charge: a uniform measurement of the cost of a loan expressed as a dollar amount. The total of all fees and charges paid to lender or broker for their benefit required the bring the loan to closing. -Lender Credit: Financing made available to borrowers by lender in order to pay certain closing costs. Lender credits are typically made up by the lender by an increased interest rate. They are also disclosed on the Loan Estimate. -Loan Estimate: Effective 10/3/2015 this disclosure replaced the Good Faith Estimate (GFE) and the Early Truth in Lending Disclosure -Lock in agreement: agreement made between a borrower and lender to hold an interest rate and specific number of point while the loan is being processed. -Note Rate: Stated interest rate on a loan agreement -Recission: The 3 day period after closing on a home equity loan for the consumer to reconsider if they want to back out. -Servicing Transfer; Right to service a mortgage loan are transferred from one financial institution to another. -Yield spread premium: Known as a borrwers credit, a yield spread premium (YSP) is a fee collected by a broker or lender which the borrower uses as a credit towards closing costs in exchange for paying a higher interest rate. Financial Terms: -Accrued Interest: The amount of interest that has been earned on a loan but has not yet been paid. -Daily simple interest: interest accruing on a daily basis calculated by counting the number of days between the last payment received and the date on which the current payment is received. -Deed; A written instrument properly signed and delivered that conveys title to real property. -Deed of Trust: a form of security agreement used to pledge the borrower's real property as security for the payment of a loan. It is a 3 party instrument in which the borrower assigns interest to a trustee who may sell the property and apply the proceeds to outstanding debt. -Discount points: a tool that borrowers can use to reduce the minimum payments required. Points or discount points are fees that borrowers can pay to a lender to lower the interest rate on a mortgage. Each point costs 1% of the loan. The use of discount points to lower the rate for the full term is known as a permanent buy down. Foreclosure: a sale of property after a borrowers default on the loan. If there was a power of sale clause in the loan documents the lender can begin the proceedings (non judicial closure). If there was no power of sale clause the lender must file a lawsuit there fore making it a judicial closure. -Fully indexed rate: interest rate calculated for an ARM by adding the index and the margin -Index: published benchmark interest rate that, when combined with hte margin, is used as the basis for adjusting the interest rate for an ARM Interest: Money that a lender earns from a loan. The most common payment program is a mortgage amortization. Other payment programs include: -----Negative Amortization -----Partial amortization; does not result in loss of equity but will not allow the loan to be paid off by end of term. -----Interest only loan -LTV ratio -Mortgage: 2 party instrument which assigns the borrowers ownership interest to the lender who may sell the property for non payment of the debt -Premium pricing; a credit from the lender for the interest rate that is chosen on a mortgage. It may be used to pay closing costs or prepaid items. -Promissory Note; neither a mortgage nor a deed contains a borrower's contractual promise to repay a loan. The note is the borrowers promise to repay and includes: -----Identification of the borrower and the lender -----The borrower's promise to repay the loan and at what intervals -----Amount of payments to be made -----Amount of the loan -----Interest rate charged on the unpaid principal (if an ARM, rate change adjustments scheduled and accomponing details -----Period of the term for repayment of the loan -----Reference to the real estate used to secure the loan -----Provisions for the imposition of late charges for overdue payments -----Signature of borrower(s). The note is the most important document in the lending transaction and determines the rights of the parties if a dispute arises. The other is the security agreement or mortgage/deed of trust. -Securitization: pooling similar types of loans to create mortgage back securites for sale in the financial market -Settlement: meeting between the borrower, lender and seller where the property and funds are legally transferred. It is also used interchangably with the terms consumation and closing. It should be noted that consummation does not also occur at the same time as settlement. -2-1 buy down: a type of loan product in which hte monthly payments are reduced for a period of time because someone has prepaid the interest for one or two years. The lender charges a fee, based on a percentage of the loan amount to "make up" for the reduced payments. General Terms: -Assigned loan: means the debt and all of the rights and obligations that accompany it, are transferred to a 3rd party -Assumable loan: type of financing arrangement that allows for the oustanding mortgage loan and its terms to be transferred from the current owner to a buyer. -Conforming loan: loan that meets the lending limits and other criter established by Fannie or Freddie -Consumer Credit: offered or extended to a consumer primarily for personal, family or household purposes -Conventional loan: Credit offered or extended that is not made under any federal program - Conveyance: Transfer of ownership interest in real property from one person to another -Delinquent: borrower is late or past due on a payment. Default is when the borrower fails to repay the loan according to the contract. -Early payment default: loan that becomes seriously delinquent or goes into default within the first year. -Mortgage Investor: individual who purchases mortgage loans or packages of mortgage loans and set guildlines for how the loans that are purchased should be underwritten -Mortgage lender: Person that lends its own funds to borrowers for the purpose of purchasing a home. -Payment shock: when a loan's scheduled future periodic payments increase significantly, often presenting risk or difficulty to the consumer -PITI: principal, interest, taxes and insurance. -Prepaids: amounts that the consumer pays in advance of the initial schedule payments -Purchase money mortgage: loan obtained by a borrower for the purchase of a residential property secured by the property. -Qualifying ratios: specific calculations determined if a borrower can qualify for a mortgage; a housing expense ratio and DTI ratio -Reconveyance: clause in a mortgage that conveys title to a borrower once the loan is paid in full. Also applies to reconveyance contracts where homeowners have the options to repurchase their homes pursuant to foreclosure assistance. -Refinance: obtaining a new mortgage on a property already owned -Revolving debt: type of credit arrangement where borrower is pre-approved for a line of credit such as credit cards. -Subordinate lien: a lien on a property that is not the primary. Comes into play with forclosure. -Subprime: below the qualification for prine borrowers. Loans for borrowers who have poor credit, unstable income history or high DTI -Table Funding: mortgage bankers and brokers may close loans in their own name so that the note and security agreement show them as the lender, but immediate (within 24 hours) assign the loan to the creditor that actually funded the loan. -Underwriting: Process of evaluating a loan applicant's financial information and facts about the reas estate used to determine whether a potential loan is an acceptable risk for a lender.

Disclosures required by RESPA

Loan estimate, closing disclosure, special information booklet, disclosure related to mortgage servicing, escrow accounts, the Good Faith Estimate & HUD-1 settlement statement

Fixed Rate Loans

Loans financed at a fixed rate for which the interest rate does not change (up or down) over the life of the loan, payment may change only due to escrow, 10-30 year term, can be conventional and nonconventional. November 2014 Fannie and Freddie announced they would purchase conventional loans made to a borrower putting down as little as 3% if the loan meets the following requirements: -Interest rate is fixed -Loan term does not exceed 30 years -The loan is made: -----To a first time homebuyer -----To finance the purchase of a PR *These mortgages are known as 97% LTV loans. *Fixed rate nonconventional loans include: -FHA fixed rate loans; 15-30 year fixed rate mortgages for 1-4 unit homes -VA fixed rate loans: Made for 15, 20, 25 or 30 year periods -USDA (RHS) fixed rate loans: Direct RHS loans offer terms of 33 or 38 years and Guaranteed typically have 30 year terms. Prepayment of Fixed Rate Mortgages: They rarely include prepayment penalties. Because of ammendments due to Dodd-Frank Act, prepayment penalties are prohibited to: -Closed end loans that are not fixed rate QM -Adjustable rate mortgages -High cost mortgages regulated under HOEPA, and -Higher priced mortgages *Today prepayment penalties are only allowed in QM that have a fixed rate for the term of the loan and cannot be higher priced mortgage loans. Even a fixed rate QM, prepayment penalties are limited to: -2% of the outstanding loan balance; if the prepayment is made within the first 2 years of the loan -1% of the outstanding loan balance if prepayment is made within the first 3 years of the loan -No prepayment penalty if the prepayment is made 3 or more years after. Reducing the Loan Balance: Monthly payments consist of 4 basic elements: principal, interest, taxes and insurance (PITI). At first payments apply mostly to interest.

Management of Escrow Accounts

Many lenders require borrowers to include payments for taxes and insurance with their mortgage payments and loan servicers are responsible for depositing the amounts into escrow accounts. Loan servicers are also responsible for making payments from escrow accounts on or before the date on which these payments are due. Finally, after a loan is paid in full, servicers have 20 days to return funds left in escrow account to the borrower.

Closed Ended APR

Measure of the cost of credit, expressed as a yearly rate that relates to the amount and timing of value received by the consumer to the amount and timing of payments made. Tolerances defined by Reg Z; it cannot be /.8 of a percent above or below when calculated using the acturial method. For an irregular loan it cannot be greater than 1/4 percent above or below using acturial method.

What You Should Know about Home Equity Lines of Credit

Must be given to home equity line applicants within three days of application.

Identity Theft

Occurs when a fraudster uses another individual's name, SSN, DL and other personal infomraiton to secure credit or make purchases.

Valuation Disclosure

Only applies to 1st lien; applicant receive notice of the right to receive a copy of all written appraisals within the transaction. This is due within 3 days of receipt of application. A copy of all appraisals are due promptly when they are completed or up to 3 days prior to closing. Borrowers can waive the time requirement as long as they receive appraisal copy at closing. The following are not considered to be valuations under ECOA: -Internal documents that restate an estimated value. -Publicly available government agency statements of appraised value. -Publicly available lists of valuation. -Manufacturers invoice for modular homes. -Reports reflecting property inspections that are not used to determine property value. -Appraisal reviews that do not include a property value. -Appraisal review that does not state an estimate different from the appraisal. Exceptions to providing Appraisal Report: -For the timing requirement to be waived, the borrower must submit an oral or written request to credit 3 days prior to closing. -If the creditor denies application or borrower withdraws, the creditor still has to provide a copy of appraisal but the deadline is 30 days after the decisioning.

Application

Oral or written request for extension of credit.

Business Day

Per CFPB this means any day they are open to the public. This applies to deadlines for providing the Loan Estimate. They also define business day to include all calendar days except weekends and legal holidays. This applies to: -Deadline for providing a Closing Disclosure -Period of time that is assumed to elapse between the mailing of a loan estimate or closing disclosure and the consumers receipt of it. -The waiting period that must elapse: between providing a loan estimate and closings and between providing a close disclosure and closings.

Delinquencies and Foreclosure Prevention Efforts

RESPA included rules to include request for early intervention, to assist borrowers who are delinquent or in jeopardy of default. These only apply to mortgage loans secured by a borrowers Primary Residence. The rules require live contact with a delinquent borrower by the 36th day of the delinquency as well as written notice no later than the 45th day of delinquency. Written notice must include the following: -Statement urging the borrower to contact servicer. -Telephone number to reach personal assigned to work with the borrower and the servicers mailing address. -A description of loss mitigation options that may be available. -Info on obtaining access to a list of CFPB or HUD approved home ownership counselors. Reg X includes additional procedures and time limitations to which servicers must adhere when receiving a loss mitigation application. Providing options for loss mitigation and ensuring that struggling home owners can contact an individual servicer who is able to help with the resolution of a default are important goals of RESPA's servicing rules. The adoption of these rules were mandated by the Dodd-Frank Act in response to the foreclosure crisis that began in 2007. Reg Z also spelled out additional rules including requirements for transfer service notices, periodic statement, interest rate adjustment notices and the prompt crediting of mortgage payments. Penalties for violations of RESPA, including Reg X and Z allow consumers to file individual or class actions against servicers for violations. -For individual actions, the loan servicer may be liable for damages. If a pattern of non compliance exists the loan servicer can be liable for additional penalties up to and including $2k . -For class actions damages may not exceed $2k for each member of the class and total damages may not exceed $1 million or 1% of the net worth of the servicer. Federal law also imposes civil penalties for violations related to servicers under RESPA; the amount of the penalties are adjusted annually in accordance with the Federal Civil Penalties Inflation Adjustment Act of 1990 and the Federal Civil Penalties Inflation Act of 2015Civil penalties are as follows: -$96 per failure to issue an escrow statement to a borrower as required. -$193 per intentional failure to issue an escrow statement to the borrowers as required. -These penalties are capped at $192,678. This is adjusted annually for inflation. This figure is for penalties assessed as of 1/51/20.

Record Retention

Records kept at least 25 months after action taken include: -any applications Information taken concerning applicant characteristics for ECOA compliance monitoring -Any other written or recorded information used in evaluation. -Copies of: - Notice of action taken - Statement of specific reasons for adverse action taken - Any written statement submitted by applicant alleging a violation of ECOA or Reg B.

Advertising

Reg Z created 2 rules for advertising. When a creditor advertises rate and payments it must: -Make the required disclosures "with equal prominence and in. close proximity to the promotional rate or payment". Radio advertising request they be made at a speed and volume that consumers can follow. Trigger terms for opened ended loans include: -Finance Charge -Other charges such as late payment -Taxes imposed on the credit transaction. -Payment terms of the Home Equity plan The use in an advertisement of any of these terms trigger the C&C requirement. -Any loan fee that is % of the credit limit. -An estimate, stated as a dollar amount of any fee to open the plan. -Any periodic rate used to compare the finance charge. -The max APR that may be imposed under a variable rate plan. Advertising a discount or premium rate triggers the requirement to involve: -The period of time the discount or premium rate will be in effect. -A reasonably current APR for the loan if it is fully indexed and the presentation with equal prominence to the discounted rate. -The fully indexed rate in proximity to the discounted rate. Advertising minimum periodic payment triggers the requirement to include a statement, if applicable, that a balloon payment may result. Trigger terms for closed end loans are: -Dollar amount of % of any down payment. -Number of payments or period of repayment. -Payment quotes -Financial charges. the use of an ad of any of these triggers the requirement to C&C include the following information: -Total dollar amount or % of the down payment. -Term of repayment over full term of loan. -The APR and if it can increase after closing. Discount of interest rates and payments for a simple rate of interest: -Each simple interest rate that will apply. For ARMs the ad must state the rate is determined by adding a current index & margin. -Period of time that each simple rate of interesst will apply. -The APR for the loan. If the ad states any amount of payment it must disclose: -The amount of any payment that will apply during the loan term and payments for ARMs must be based on a current index & margin. -The period of time each payment will apply. -The face that payments do not include taxes and insurance (1st liens only). Reg Z includes a list of 7 prohibited practices when advertising a closed end loan. They were adopted when the Federal Reserve revised Reg Z in 2008: -Misleading advrtisement of "fixed" rates and payments. -Misleading comparrison in ads. -Misleading use of the current lenders name. -Misleading claims of debt elimination. -Misleading use of the word counselor. -Misleading foreign languate ads.

Mortgage Broker

Renders origination services as an intermediary between a borrower and lender that involves a federally related mortgage. This includes persons that close loans in their own name in table funded transactions.

Disclosures and Notifications

Required by ECOA; Notice of Action Taken; required within 30 days of credit appliciton. If it is an adverse action it must provide a statement of reason and include a statement that ECOA prohibits discrimination. Notice must include: -Name and address of creditor -name of the agency that enforces the lenders compliance -A description of credit and if adverse action was based on credit report the information on the credit reporting agency. When more than one application only one individual is required to be given the notice. If there is a primary applicant, notice must be given to the primary. Acceptable Reasons for Denial: -Applicant not of legal age -Applicant fails to demonstrate credit worthiness (income and history) Applicant fails to submit required information. Notice of Incomplete Application -Creditor must provide notice within 30 days of an application that lacks information the applicant can supply. This must include the information needed, set a reasonable time for submission and advise that failure to provide required information by deadline with result in no further consider of the application.

Originator License

Requires: -Unique identifier -authorize credit check -background check -Sufficient financial responsibility -Subject to personal and background information via Individual Form -Education -Licensing exam with score greater than 75%

Loan Servicing Issues

Servicers of federal related mortgage loans have obligations to resolve errors related to the management of escrow accounts, the receipt and application of period payments and the use of force placed insurance. Common errors related to loan servicing include a servicer's failure to credit period payments to a borrowers account or failure to provide an accurate payoff balance. Servicers have legal obligation to respond to a quality written request which is a request that includes the name of borrower, , information allowing the servicer to identify the borrowers loan and a description of the error. Servicers must meet strict deadlines in response to these requests including a 5 day deadline (exlcluding weekends and holidays) for acknowledgement receipt of a qualified written request. Servicers must also meet deadlines for investigating and responding to alleged errors.

Settlement Services

Settlement services include any service provided in connection with a real estate settlement. title searches, title examinations, the provision of title certificates, title insurance, services rendered by an attorney, the preparation of documents, property surveys, the rendering of credit reports or appraisals,services rendered by a real estate agent or broker, the origination of a federally related mortgage loan, and the handling of the processing, and closing or settlement.

Marital Status

State of being unmarried, married or separated.

Higher Priced Mortgage Loans (HPML)

The Higher Priced Mortgage Loan Rule (HPMLR) establishes thresholds for identyfing higher priced mortgage transactions. The rule also imposes requirements and prohibitions for these mortgage loans. *Defining Higher Priced Mortgage Loans: Similar to high cost mortgage loans, HPMLs are identified using a threshold. They are closed end loans secured by a PR and exceed the average prime offer rate for a comparible transaction by: -1st lien -----1.5%, when the principal does not exceed the conforming loan limit of $510,400, or up to $765,600 in high cost areas. -----2.5% when the princiapl amount exceeds the conforming loan limit (jumbo loans) -2nd liens; 3.5% or more *The average prime offer rate that is used for determining whether a transaction triggers the thresholds is the rate for a comparable transaction as of the date the interest rate is set. The Federal Financial Institutions Examination Council (FFIEC) pushes average prime offer rates on the internet. They represent the average of interest rates, indexes, margins, points and other information relevant to loan pricing for prime loan rate loans. Requirements for Higher Priced Mortgage Loans: There are 2 sets of requirements that specifically apply to HPMLs. The first requires the establishment of an escrow account for real estate taxes and homeowners insurance. The second establishes special appraisal requirements for HPMLs. In addition to these requirements, originators of HPMLs must also comply with: -Provisions under the Ability to Repay Rule -Provisions under the Qualified Mortgage Rule preventing prepayment penalties -Affirmative requirements, prohobitions and disclosure rules established until TILA Establishment for an Escrow Account for Taxes and Insurance: any account established or controlled by a servicer on behalf of a borrower to pay taxes, insurance premiums or other charges related to a mortgage loan, including charges to which the borrower and servicer have voluntarily agreed. Creditors may not extend a higher priced mortgage loan secured by a 1st on the PR without establishing, prior to closing, an escrow account. These accounts must be established and maintained for a minimum of 5 years. After the 5 year period has expired, the consumer pay request cancellation of the escrow account, however, this may only occur if the loan's unpaid principal balance is less than 80% of the original value of the property. In addition, the consumer may not be delinquent or in default on the loan. An escrow account is not required for: -Subordinate lien HPMLs -Transaction secured by shares in a cooperative -A transaction to finance the initial construction of a dwelling -A temporary or bridge loan with a term of 12 months or less -A reverse mortgage -Open end credit (such as HELOCs) -Insurance premiums purchased by the consumer and not required by the creditor. Insurance premiums do not need to be included with escrow accts for loans securing condominimums, planned unit developments, or other common interest communities in which there is a required participation or membership in a governing association, where that association has an obligation to the dwelling ownerrs to maintain a master policy insuring all homes. An exemption from escrow also exists for small creditors Small Creditor Exemption: The reason behind this is that when small creditors hold the home loans that they make in their portfolios, they have the incentive to evaluate the ability of borrowers to make regular and tmely payments of PITI. The small creditor exemption is applicable to creditors in rural and underserved areas which are identified based on USDA data and the identification of underserved areas is based on data collected through the Home Mortgage Disclosure Act (HMDA). In order to determine if their loans are secured by properties in rural or underserved areas, small creditors can refer to the CFPBs Rural and Underserved Counties list found on their website. The creditor may rely as safe harbor on this list. The status of small creditor also depends on the number of "covered transactions" originated during the preceding calendar year. Covered transactions are consumer credit transactions secured by a dwelling other than an open end HELOC, a mortgage related to a timeshare plan, a reverse mortgage or a bridge loan of 12 months or less. A creditor is able to qualify for the small creditor exemption if: -During the preceeding calendar year, the creaditor extended at least 1 closed end loan in a rural or underserved area during the preceeding calendar year or during either of the 2 preceding calendar years if the creditor receives an application priot to April 1 of the current calendar year. They must use the CFPB list determine eligability for rural or underserved which is updated annually. -The combined 1st lien originations of the creditor and its affiliates did not exceed 2,000 loans during the preceding calendar yest -At the end of the preceding calendar year, the creditor had assets work less than $2 billion (this amount will be adjusted annually), and -Neither the creditor nor its affiliates maintain an escrow account for any extension of consumer credit secured by real property or a dwelling that the creditor or its affiliate currently services. The exemption from the requirement to establish an escrow account does not apply if a 1st lien HPML will be purchased by an investor that does not qualify as a small creditor. In cases in which a 1st lien HPML is subject to a commitment as closing to be acquired by a creditor that is not a small creditor, an escrow account must be established. Appraiser Requirement for HPMLs: The Dodd-Frank Act address numerous issues that lead to the mortgage crisis. One of these was the wide spread use ofunethical appraisal practices. Section 35 of Reg Z is the creation of special appraisal requirements for HPMLs. The general rule created is that a creditor may not offer a HPML to a consumer without obtaining, before closing, a written appraisal of the property. Appraisers of HPMLs must: -Be certified or licensed in the state where the property is located, and must conduct the appraisal in conformity with the Uniform Standards of Professional Appraisal Practice and requirements applicable under the Financial Institutions Reform, Recovery and Enforcement Act. -Make a physical visit to the interior of the property *These regulations create a safe harbor to reduct the cridtors' exposure to liability by providing that an appraisal is deemed t meet the required standards if the creditor: -Orders the appraiser to perform the appraisal in compliance with ESPAP and FIRREA -Uses the National Registry to verify that the appraiser is certified or licensed in the state in which the property is located. -Confirms the written appraisal meets each of the following requirements found in Appendix N of Reg Z: -----Identifies the creditor ordering the appraisal -----Indicates whether the price agreed to was analyzed -----Addresses the condition of the home and neighborhood -----States the valuation approaches used -----Provides an opinion regarding the market value of the home -----Verifies that a physical visit of the home's interior took place -----Includes a certification signed by the appraiser that the appraisal was prepared as required by the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) -Has no knowledge contrary to the facts or certifications contained in the appraisal No later than the 3rd business day after a creditor receives a consumer's application for an HPML, the creditor must provide the loan applicant with a written disclosure that states: *We may order an appraisal to determine the property's value and charge you for this appraisal. We will give you a copy of any appraisal, even if your loan does not close. You can pay for an additional copy in electronic form, if the consumer has consented to electronic communications. Additionally creditors must provide consumers with a copy of each written appraisal no later than promptly upon completion or 3 business days prior to closing. In the case that a loan is not closed, the appraisal must be provided no later than 30 days after the decline. Creditors may not charge fees for photocopying appraisals or postage for providing copies of appraisals. In addition, creditors may not raise the interest rate or mark up any other fee as a means of covering these costs. Exemptions from Appraisal Requirements: The appraisal requirements for HPMLs do not apply to: -QM -Manufactured home -mobile home, boat or trailer -Construction of a dwelling -Bridge loans with terms of 12 months or less, used by a consumer to purchase a new home while selling the current PR, or -Reverse mortgages The regulations include examples for manufactured homes. A new manufactured home and land is exempt from the requirement for an appraiser to visit the interior of the home. A manufactured home "and not land" is exempt from the appraisal requirements if the creditor obtains one of the following and provides to the consumer 3 days prior to closing: -Manufacturers Invoice (home cannot be more than 18 months old at the time of credit application) -A cost estimate for the value of the home from an independent cost service provider, or -Valuation provided by a 3rd party with no interest in the property *Appraisal requirements for HPMLs also do not apply to transactions to refi an existing mortgage in the following circumstances: -The mortgage subject to refinancing is a 1st lien -The bank that holds the existing loan in its portfolio of the GSE that purchased the existing loan will continue to retain the credit risk after the refinance occurs -The refi will not include a payment plan that allows a growing principal balance, deferment of payments or a balloon payment to occur -Proceeds from the refi are used only for the purpose of paying off the existing loan and costs of refinancing (no cash out permitted) These provisions are intended to discourage transactions for refis that are not beneficial to the borrower and that may place the investment of the bank of GSE holding the loan at risk. Special Requirements for Two Appraisals: Sometimes the creditor is required to obtain 2 appraisals for the purchase of an HPML. These circumstances include those in which: -The seller acquired the home 90 or fewer days prior to the consumer's agreement to purchase it, and the price at which the consumer has agreed to purchase the home is 10% more than the price paid by the seller -The seller acquired the home 91 to 180 days prior to the consumer's agreement to purchase it, and the price the consumer has agreed to purchase the home is 20% more than the price paid by the seller. This is intended to curb the practice of property flipping. *When 2 appraisals are required, they must meet the following requirements: -The same appraiser may not do both -Both appraisals must include a physical visit of the interior of the dwelling -One of the two appraisals must provide an analysis of: -----The difference between the price the sell paid and the price the consumer agreed to pay -----Changes in market conditions occurring between the time the seller purchase and the consumer agreed to buy it -----Any improvement made to the property after the seller purchased it and before the consumer agreed to buys it -The creditor may not charge the consumer for the second appraisal. A creditor is not required to order 2 appraisals if it can demonstrate through reasonable diligence that the requirement does not apply. A creditor exercises reasonable diligence if it is based on information found in documents such as those listed in Appendix O. This appendix states that a creditor has acted with reasonable diligence if a determination was made based on information contained in written source documents such as: -Copy of the recorded deed from the seller's purchase of the property -copy of a property tax bill -Copy of any owner's title insurance policy obtained by the seller -Copy of the RESPA Settlement Statement from the seller's acquisition -Property sales history report or title report from a 3rd party service -Sales price data recorded in multiple listing services -Tax assessment records or transfer tax records obtained from local governments -A written appraisal performed in compliance with 12CFR for the same transaction -A copy of the title committment report detailing the seller's ownership of the property, the date of acquisition, or the price at which the seller acquired the property, or -A property abstract Oral statements are not enough and does not contitute resonable diligence. Exemptions from the Requirement of Two Appraisals: CFPB determined that a second appraisal may be unnecessary because the facts surrounding the transaction would not be conducive to property flipping or other types of fraud so they added a list of 8 exemptions to the Rule. If a transaction for a HPML falls within one of the exemptions listed, a second appraisal is not needed: -Property sold by a local, state, or federal government agency; created because CFPB determined properties sold by HUD and other government agencies do no present risks of fraud or flipping that the appraisal rules were intended to address. Noting that sales by government agencies often involve foreclosed properties that are sold quickly to promote homeownership and neighborhood revitalization, the requirement to obtain a 2nd appraisal could interfere with these programs. -Purchases from a person that acquired the property through foreclosure: applies when the seller acquired the property by exercising the right to foreclose on a defaulted mortgage loan. This includes depository and non-depository lenders and servicers. -Purchase from non profit entities: applies to non profit entities that are allowed to acquire properties for resale from sellers that purchased the properties through a foreclosure -Purchases from sellers that acquired the property: applies to properties the seller acquired by inheritance or as a result of a court order of dissolution of marriage, civil union, domestic partnerships or partition of joint assets. -Purchases from employers or relocation agencies: applies when an employer or relocation company acquires a property as a result of relocating a property. -Purchases from a servicemember: applies if the servicemember received deployment or a permanent change of stations order after purchasing the property -Purchases of property in federal disaster areas: If the property purchased is located in an area that the President designates as a federal disaster area, a second appraisal is not needed. -Purchase of property in rural areas: Multiple reasons for this exemption including the difficulty of finding more than one licensed and certified appraiser in some rural areas, as well as the fact that rural areas have not historically been sources of fraudulent real estate flipping activity.

Qualified Mortgage Rule

The QM Rule applies to covered transaction, which are defined as closed-end consumer credit transactions secured by a dwelling including second homes or investment property. Covered transactions do not include those for open-end home equity lines of credit, mortgages related to timeshare plans, reverse mortgages or bridge loans of 12 months or less. QM may be fixed rate mortgages or adjustable rate mortgages and in limited circumstances they may include balloon mortgages. They must adhere to sound underwriting and the absence of risky lending terms.

Mail Fraud

The knowing use of the mail system to carry out a fraudulent scheme. Penalties can include fines, imprisonment of not more than 20 years or both. If the violation affects a financial institution, a person can be fined not more than $1 million, imprisoned not more than 30 years or both.

Homeownership Counseling

The list must be no more than 30 days old and given within 3 days of receipt of application Counseling is required for: -High cost home loans -Accepting negative amortization -FHA HECMs

Fee-Splitting and Kickbacks

The sharing of fees among settlement service providers. No person shall give or accept any split, or percentage of any charge other than for services actually performed.

Reverse Mortgages

These are for older homeowners (62+) who have equity in their homes and little or no income. They can be used to meet the expenses of living or pay for home improvements. There is no repayment as long as they continue to live in the home. In 2008 FHA announced a purchase program for HECMs which permits qualifying borrowers to purchase a PR using referse mortgage proceeds. There are 3 types and the following are common features to all 3: -Loans are available to only 62 and older -Must live in home -Payable in full when the home is sold or the last surviving homeowner dies. -Interest is charged on the outstanding balance and added to the debt -Debt increases with each advancement of credit and accrued interest *The 3 types of reverse mortgages are: -Single purpose; low cost loans offered to low income borrowers by state and local agencies or non profits. The proceeds can only be used for the purpose specified by the lender such as payment for home improvements or property taxes -Home equity conversion mortgages (HECM) which are regulated and insured by HUD and allow borrowers to receive fixed monthly payments, a line of credit or a combination. These are for homeowners that owe little to nothing on their home and complete counseling with a HUD certified homeownership counselor. -Proprietary mortgages: private loans. They are more expensive but often allow homeowners to borrow more money than they can with a HECM. *Reasons why reverse mortgages might become due and payable: -Homeowner dies -Homeowner moves out of the home (for one consecutive year) -Homeowner sells the home -Homeowner fails to pay property taxes or keep the home insured -Homeowner failes to maintain or repair the home -Homeowner declares bankruptcy -Homeowner abandons property -Perpretation of fraud or misrepresentation -Eminent domain or condemnation proceedings *Default clauses may be added, which make the reverse mortgage due and payable upon the homeowner: -Renting all or a portion of the home out -Adding a new owner to the title -Taking out any new debt on the home -Zoning classification changes Disclosure Requirements for Reverse Mortgages: In addition to the disclosures required for regular mortgages, TILA also requires a Loan Cost Disclosure Form to be provided to reverse mortgage borrowers. This provides the actual costs, including: -Upfront costs; the origination fee, 3rd party fee and any upfront MIP -Interest -Ongoing charges; monthly service fee and any annual MIP Home Equity Conversion Mortgages: This covers the majority of reverse mortgages these days. Borrowers with HECM must pay MIP, including a premium charged at closing and an annual premium which may be financed. HECMs are subject to the following requirements and limitations: -Must be 62 or older -Must be secured by PR -Any existing mortgage must be paid off. -May not be default on any federal debt -Must complete a consumer information session on reverse mortgage loans An HECM actually involves 2 loans. 1st lien is bbetween the reverse mortgage lender and the borrower and the 2nd is held by HUD ensuring that if a borrower should become unable to make the payments, they are still made. This ensures both the lender and HUD are protected in case of default. This is important to understand when it comes to the charges of the closing costs. Failure to maintain payments on taxes and insurance constitutes a breach of contract, giving the lender basis for accelerating and potentiallly foreclosing. During the mortgage crisis a popular product was the Standard HECM allowing borrowers to take large upfront withdrawals of up to 80% of the cash value. During this time the default rates on obligations to be insurances and taxes were high causing Congress to respond with the anactment of the Reverse Mortgage Stabilization Act of 2013. This revised the National Housing Act by giving the Secretary of HUD authority to make changes to the FHA reverse mortgage plan through the issuance of Mortgagee Letters, rather than typical rulemaking proceedings. Immediate action was taken by HUD to make reverse mortgages safer including: -Elimination of the Standard HECM program -Reduction of the amount of the initial draw that borrowers can take by consolidating the Standard HCEM and the HECM Saver Program -Evaluating the ability of borrowers to pay for taxes and insurance -Requiring borrowers with a greater credit risk to agree to withholding loan advances to cover the costs of taxes and insurance HUD conslidated it's policies and came up with the Mortgagee Letter 2014-21 which was then followed by the Mortgagee Letter 2014-22, which introduced standards of analysis of a borrower's financial ability to take on a reverse mortgage loan obligation. Counseling Requirements: Counseling must be attended by all interested persons, including those who have not been in contact with a lender. The following must be discussed: -The financial implications of entering a HECM -A disclosure that this type of loan may have consequences for the borrower's taxes, estate and eligability for assistance under federal and state programs -The other home owner conversion option that are, or may become, available such as sale-leaseback financing, deferred payment loans and property tax deferral -The other options other than a HECM that are available for the borrower, including other housing, social service, health and financial options. -Any other information the HUD may require -Counselors should also explain the difference between HECM loans and proprietary reverse mortgages, the impace of a reverse mortgage on eligibility for state and federal assistance programs and the impact on the estate and heirs. This counseling should be provided on a face to face basis if at all possible as this allows for greater participation and allows the counselor to more accurately determine the homeowner's understanding of the program. Telephone should be an alternative only when face to face is not feasible and should never be mentioned as an alternative to the homebuyer unless face to face is entirely ruled out. The decision to apply for a reverse mortgage is the borrowers and the decision regarding eligibility is the lender's and HUD's. HECM Interest Rates: A unique feature is the borrowers do not make regular interest payments. Instead, interest is calculated and added to the loan balance. A borrower can select and adjustable or fixed rate. This is something best discussed between the borrower and originator and the house counselor. *Fixed Interest Rates; the calcuation of interest on a fixed rate HECM begins when a lender disburses loan funds as a lump sum and interest continues to accrue until the end of the term. Typically fixed rate loans are appealing but the fixed rate HECMs may not offer that same appeal as some of these rates can exceed 15%. *Adjustable Interest Rates: These offer numerous options for withdrawing cash including receipt of monthly payment, use of equaity as a line of credit, access to lump sum payment or a combination of these options. One advantage to adjustable rate is that no interest is charged on funds not used. As interest is charged it is added to the loan balance. Interest rate caps and floors for HECMs protecting bowwers from rising rates and lenders from falling rates. HECM lenders must offer interest rates that are subject to change annually. Currently adjustable rate HECMs are all adjustable monthly and nearly all are based on the LIBOR index which is more volatile than the 10 year Treasury rate that was historically used as the basis. HECM lenders may offer a monthly adjustable rate that will change as any HUD-approved interest rate. Though HUD does not require caps, some lenders may provide them. The index rate indicies approved by HUD are the one month and one year US Constant Maturity Treasury (CMT) rate and the one month and one year LIBOR, an international index widely used for adjustable rates in the US. Percentage of Equity Allowed for Withdrawal: This is defined as the Principal Limit which depends on a number of factors such as: -Age of the borrower (older borrowers can typically access more equity) -Appraised value -Interest rate -Existing debt -Current FHA loan limits, including the maximum claim amount The maximum claim amount is the cap on the home value that may be used to calculate the principal limit; this is the maximum amount HUD will pay on a claim for reverse mortgage insurance. It means that the amount of the home's value may be limited to conform to the claim amount. This claim amount is adjusted each year and announced by HUD through Mortagee Letters. January 1, 2020 through December 31, 2020 the maximum claim amount for HECMs is $765,500, which is 150% of the national conforming loan limit of $510,400. This is the same national wide as well as special exception areas of Alaska, Hawaii, Guam and US Virgin Islands. The maximum claim acts as a value cap and is factored into principal limit determinations. Principal limits for HECMs are the lesser of the appraised value or the FHA loan limit where it is located. In some transactins, the borrower's primary motive is to pay off an existing mortgage or other debt. The use of loan funds to pay debts has an impact on the percentage of total equity that borrower can access with the initial disbursement. These limits are important for borrowers to understand when choosing between fixed rate and adjustable. A lender is prohibited from releasing more than 60%of the principal limit with the initial disbursement from a HECM. This limit applies to both fixed and adjustable rate transactions. However, the 60% limit does not apply when a borrower is using HCEM funds to pay debt. Appraisal Standards: In 2019, the FHA issued new rules requirin FHA lenders to submit reverse mortgage property appraisals to the FHA for a risk collateral assessment prior to commencing with origination of the loan. In Mortgagee Letter 2018-06 HUD announced new assessment standards for HECM originations with FHA case number assigned on or after October 1, 2018. Initially these requirements were published with a sunset date of September 30,2019 but HUD repealed the end date and announced the tightened requirements would remain in place indefinitely. This came about as a means of ensuring the continued financial soundness of the HCEM program by securing and verifying accurate determinations of property values. On November 30,2018 the FHAs risk assessment process became a fully automated procedure. Since then all appraisals logged through FHA Connection undergo an automated assessment in accordance with the agency's full automated protocols. A mortgagee will not be able to proceed with origination until the collateral risk assessment has been completed. If the system determines that a second appraisal is required, the mortgagee will be notified via the FHA Connection. The mortgagee will schedule another appraisal with an appraiser not affiliated with the appraiser of the first appraisal. If the second appraisal reports a lower value, the lower value is the one that must be used. The cost for the second appraisal may be financed into the closing costs. Closing Costs: These vary with the value of the home from one state to another, however all HECM lenders in a specific area are likely to charge about the same closing costs. They generally range from $2-3k, though may be substantially higher in some areas. *Third party appriasal fees can include: -Appraisal Fee and Inspection Fee; borrower may pay the lesser of the HUD's established maximum fee or the actual cost of service -----As previously mentioned, if a second appraisal is required the cost of the 2nd appraisal may be financed in. -Credit Report Fee; Borrower may pay the actual cost for a merged credit report from all 3 agencies -Deposit Verification Change: Borrower may pay the actual charge imposed by the depository institution -Document Prep Fee: Borrower may be a doc prep fee if a 3rd party not controlled by the mortgagee performs the service; a fee may not be chanrged if the mortagee performs the service itself. -Property Survey: may pay for a property survey if it is requred by the lender, although a survey is not required through HUD -Title Examination and title insurance policy: a title insurance policy equal to the maximum claim amount must be submitted in the closing package and the borrower may pay these charges. -Attorney's fees: borrower may pay only if the attoney is not an empoyee or routiney receives referrals and issues the title insurance. the attorney receives regular referrals from mortgagee only a notary fee may be charged -Settlement fees: Borrower may only pay if hte closing agent is not an employee of the mortgagee. A fee that may be charged if the settlement agent is an independenct company or subsidirary of the mortgagee that regularly closes loans for several different mortgagees -Mortgage broker's fees: May pay only if the broker is engaged independently by the mortgagor. A brokers fee is prohibited if there is any financial interest and the broker agreement must be submitted with the mortgage insurance application -Tax Service Fee: Borrower may not be charged a tax service fee in order for the mortgage loan servicer to check the tax rolls in each county where loans are recorded -Recording fees and taxes: May pay recording fees on the first and second mortgages that are customer or required. The 2nd is a mortgage is not subject to any state or local recording taxes, or stamp taxes, because the second is a mortgage to the federal government. -Tests or Treatments: May pay for tests and treatments required by HUD such as test of water supplies, soil percolation tests for individual septic systems or testing or treating insect infection -Courier fee: may pay a courier fee for delivery of a mortgage payoff to a lien holder and for closing documents to and from the settlement agent. If this arrangement will take place, a written agreement between the borrower and lender must be executed before closing. -

ATR (Ability to Repay) and QM (Qualified Mortgage) Acts

These went into effect January of 2014. Creditors must maintain records to show compensation for 3 years after closing. ATR Rule applies to: -1st and 2nd liens - Primary Residence -2nd home/investment property -Refinances -Closed end HE Loans HELOCS, reverse mortgages and bridge loans with terms of 12 months of less are not subjec to ATR. They are non-qualified mortgages. Ability to Repay: -Current or reasonable expected income/assets other than dwelling -Employment status -Monthly loan payment -Amount of consumer payments or a simultaneous loan know to creditor -Monthly payments for mortgage, taxes and insurance -Debt obligations such as alimoney or child support -Monthly DTI -Credit history Fully indexed should be greater than index + margin. Look back period is commonly 45 days. QM Rule requires 43% DTI. Qualified Mortgages may not include: -A term greater than 30 years or points & fees that exceed a specific percentage of the total loan -Cap is generally 3% -Negative Amortization -Balloon Payments -Ability to defer payment of principal. Conclusive presumption of compliance is extended to qualified mortgages that are prime loans NOT higher priced in subprime. Presumption of compliance is extended to higher priced mortgage loans. In order to successfully rebut the presumtion of compliance a consumer must prove that the creditor failed to make a reasonable and good faith determination of repay ability Calculating Points & Fees and Error Resolution: -Compensation paid by a consumer or creditor to a loan originator (this is generally compensation paid by a creditor to a broker). -Items in the finance charge including: --Charges by Creditors (loan origination fees) --3rd Part Fees --Real estate related fees if the creditor recieves indirect compensation for the fee and it is paid to creditor's affiliate or the charge is unreasonable --Closing agent fees, if the creditor requires the use of a particular agent or retains a portion of the fee. --Mortgage broker fees Certain items in finance charges are excluded for purpoes of calculating the points and fees such as: -Insurance -Upfront and annual mortgage insurance premiums (FHA) -PMI if due after closing (premium before closing are included in the finance charge). -3rd party charges not retained by creditor -Bone fide discount points (paid by borrower to reduce interest rate) If a QM is originated and the credsitor subsequently discovers that the points and fees exceed apps, caps, the loan may retain it's QM status if: -Loan meets product feature prequestities for a QM -The creditor pays the consumers the sume of the dollar amount it exceeds the limit and interest on the dollar amount paid to the consumer calculated under the contract interest rate for the period between closing date and date payment is made to consumer. The payment to consumer is made within 210 days after closing and before: -The consumer files an action -Sends a written notice to creditor -Consumer becomes 60 days past due Effective date for cure provision was 11/3/14 with a sunset date of 1/10/21. Because of these there are TQM available until that date: -Loan has all product features of a QM -Term does not exceed 30 years -Points and fees do not exceed cap -Eligible for: --Purchase or guarantee by FM/FM --Insured by FHA --Guarantee by VA or USDA --Insured by Rural Hosing Services D not have to meet the 43% DTI

MAP Rule

This applies to misrepresentation in advertising (Reg N): Does not apply to banks. 1984 Deception policy statement, action or practice is deceptive if: -There is a rep, omission or practice that is likely to mislead a consumer acting reasonably -That rep, omission or practice is material to customer MAP Rule prohibits a person from obtaining or attmepting to obtain a waiver from any consumer which causes them to waive any of the protection extended by the Rule. Must keep copies of communications about mortgage credit products for 24 months.

GFE Good Faith Estimate

This form is required on the following loan types: HELOC's, Reverse, Chattel (secured by mobile home not attached to land) -GFE must be provided no later than 3 business days of receiving an application for a reverse mortgage, HELOC or dwelling not attached to land. This is the lender's responsibility. *For the purpose of GFE, Reg X defines an application as the submission of the following info: -Name -Monthly income -SSN -Address of home securing the loan. -Estimated value of said home. -loan amount -Other information deemed necessary by the originator. *Changes between estimated and actual charges are prohibited for: -Origination Charges -Changes for locking in a rate. -Transfer taxes. *There is a 10% tolerance for difference for: -Lender required settlement services performed by a provider chosen by the lender. -Lender required services, title and insurance services if the loan applicant uses a provider recommended by the lender. -Recording Fees. -Estimates for other settlement services are not subject to a tolerance limit and may change. * Revisions are permitted if: -There are changed circumstances affecting settlement charges such as acts of God, war & other emergencies, if there are changes to or inaccuracies in the information the lender relied on when preparing the GFE or other is new information about the borrower or transaction. -Changed circumstances affecting the loan such as events that impact a consumer's eligibility for mortgage such as loss of employment. -Revisions to the GFE are permitted when borrowers requested changes actually result in an increase in estimated costs. -GFE have a 10 day expiration period unless the parties agree to a longer period for the applicant to express an intent to proceed. -If an applicant has not locked the interest rate or if a lock expires, a revised GFE showing terms related to the interest rate is permitted. *A separate GFE is required for each loan. *Reg X states that blocks 3,6,and 11 of the GFE may be adapted based on the loan situation.

High Cost Mortgage Loans

This is a category of loans covered by HOEPA. A high cost mortgage is a mortgage loan, other than a reverse mortgage, that: -Is secured by PR -Meets at least one of the following theshholds: -----APR threshhold -----A points and fees threshold, or -----Prepayment penalty threshold *The APR thresholds for first lien and 2nd line high cost mortgages are: -6.5% percentage points above average prime offer rate for a comparable transaction for a 1st lien mortgage -8.5% percentage points above the average prime offer rate for a comparable transaction for 2nd line *The points and threshold varies based on the amount of the loan. Effective January 1, 2020 the threshold is triggered if points and fees exceed: -For loans of $21,980 or more; 5% of the total loan amount -For loans of less than $21,980; the lesser of 8% of the total loan amount or $1,099 *A home loan may also be a high cost mortgage if it includes: -A prepayment penalty provision that is in force more than 36 months after closing, or -Prepayment penalties that exceed more than 2% of the amount prepaid *The Dodd-Frank Act amendment to HOEPA were not limited to lowering the thresholds, but also to include: -Loans for home purchases or home construction -Open end and closed end home equity loans *Refinances are also subject to HOEPA. The only transactions exempt are: -Reverse mortgages -Bridge loans -Loans originated by a housing finance agency and for which the agency is the creditor -Loans originated by USDA Disclosures and Notifications required by HOEPA; In addition to the other disclosures that TILA requires, HOEPA loans are subject to further disclosure requirements. The recipients of HOEPA disclosures include: -Any consumer who is primarily liable on the obligation -Those with a right to rescind the transaction (each person with an ownership interest) *The disclosures for HOEPA loans are due at least 3 business days (not including Sundays and federal holidays) prior to closing a mortgage. The applicant must have at least a 3 business day waiting period to consider. HOEPA allows for the waiver of this 3 day period if the funds to be obtained by a loan are needed to meet a "bona fide personal emergency" In order to waive, the borrower must: -Give the lender a dated and written statement that describes the emergency (the use of printed forms is not allowed) -Obtain signatures from all parties *Reg Z requires the presentation of each of the required disclosures in "conspicuous type size". The additional disclosures for HOEPA loans include the following: -Special HOEPA disclosure: HOEPA loans must include a disclosure that states: You are not required to complete this agreement merely because you have received these disclosures or have signed a loan application. If you obtain this loan, the lender will have a mortgage on your home. You could lost your home, and any money you have put into it, if you do not meet your obligations under the loan. This is particularly intended for first time buyers who may not be familiar with the lending process and who may not understand risks associated with high cost mortgages. Notice of Balloon Payment: The lending agreement must state the existence of a balloon payment. Amount Borrowed: There must be a statement of the total amount borrowed, as shown on the face amount on the Note. This disclosure is accurate if it is not more then $100 above or below the amount that must be disclosed. For open end loans the amount borrowed is the credit limit. Notice of the Inclusion of Insurance Premiums: If the amount borrowed includes premiums for optional insurance products or debt cancellation coverage, a statement that these premiums are included must accompany the disclosure of the amount borrowed. This is to deter the covert packing of unnecessary insurance products into a loan. Variable-Rate Disclosure: If the mortgage has an adjustable rate, the disclosure must include a statement that the monthly payment may increase, showing the maximum monthly payment amount based on the information on rate increases provided in the Loan Estimate. The disclosure of the maximum monthly payment is intended to alert borrowers to the payment shock they will face when interest rates reset. Affirmative Requirements for HOEPA Transactions: 3 specific requirements that HOEPA has for high cost mortgages include: -Evaluation of ability to repay -Ensuring they receive homeownership counseling -Notifying assignees when a loan they are assuming is a high cost mortgage *Evaluation of Ability to Repay: HOEPA applies to both open and close end transactions and the rules regarding the evaluation of repayment ability vary depending on the type of transaction. -For closed end high cost mortgages, creditors are required to comply with the repayment ability requirements from the ATR Rule which is basing lending decisions are a reasonable, good faith determination, at or prior to closing, that the customer has reasonable ability to repay the loan according to it's terms. This must be based on an evaluation of reasonably reliable 3rd party records such as tax returns, payroll statements and financial institution records. The ATR Rule does not apply to open end mortgage loans. Reg Z addresses this. These results require creators to determine a consumers ability to repay and open end loan based on: -Current and reasonably expected income -Employment -Assets (other than the home used to secure the loan -Current mortgage-related obligations, including other loans secured by the same dwelling that will secure the loan. Creditors must verify income and assets including other obligations. *The HOEPA creates a "presumption of compliance" for open end transactions. It is presumed the creditor has complied with requirements to assess borrower's ability to repay and open end loan if the creditor: -Evaluates a customer's repayment verifying income and assets using required documentation and verifies current obligations, including obligations to pay other mortgages. -Determines repayment ability using the largest required minimum period payment, which is based on the following assumptions: -----The consumer borrows the full credit line with no additional extension of credit. -----The consumer makes only the minimum periodic payments during the draw period and any repayment period -----The maximum APR that the contract provides for applies to the plan at the time the account is opened and will apply during the draw period and any repayment period -Evaluates repayment ability after taking at least one of the following factors into account: -----DTI -----Income left after obligations The only open end transactions that are exempt from the ability to repay analysis are temporary or bridge loans with a term of 12 months or less. Counseling Requirements: Before close a high cost mortgage, creditors must make sure the borrow has completed counseling with a HUD approved homeownership counselor by reviewing the certificate of counseling. This must include: -Names of the consumers who completed -Dates of the counseling -Statement that the consumer received counseling that addressed the advisability of a high cost mortgage and was based on the terms presented in the disclosures required for home equity loans. -Verification the consumers received the disclosures required under HOEPA and RESPA *Regulations allow creditors to pay counseling fees, but prohibit from: -Allowing consumers to receiving counseling from a counselor that is employed by or afilliated with the creditor -Conditioning the payment of counseling fees on closing the loan or opening a credit plan -Steering a consumer to select a particular counselor or counseling organization. Required Notice to Assignees and Purchasers: Assignments occur when a non-depository mortgage banker closes a loan in its name using a line of credit and immediately assigns the loan to the creditor that provided the loan funds. Many lenders sell home loans in the secondary mortgage market instead of holding them in order to secure funds to make more loans. Because claims for violations of lending laws are more common in the subprime market, assignees and purchasers of high cost mortgages may have concerns about potential liability for violations to HOEPA. Provisions in Reg Z require originators of high cost mortgages to provide assignees and purchasers with notice of the fact that these loans are subject to HOEPA. This notice states: -Note: This is a mortgage subject to special rules under the federal Truth in Lending Act. Purchasers or assignees of this mortgage could be liable for all claims and defenses with respect to the mortgage that the consumer could assert against the creditor. HOEPA Prohibitions: There are many prohibitions, including terms which may not be included in lending agreements for high cost loans, as well as practices which may not be performed by mortgage professional in connection with high cost loans -Prohibited Lending Terms; HOEPA prohibits the use of these terms in high cost mortgages: -----Balloon payments; not allowed in high cost mortgages. There are exceptions for: -------Loans that use a payment schedule adjusted according to the consumer's season or irregular employment -------Loans with terms of 12 months or less, if the loan is a bridge loan related to the purchase or construction of a home that will be the PR -Negative Amortization; cannot have a payment schedule that causes this -Advanced Payments; HOEPA prohibits the consolidation of more than two periodic payments, and payment of this amount, in advance, from the proceeds of the loan, -Increased Interest Rate after Default; cannot include terms that allow interest rates to increase after the borrower defaults on a payment -Improperly calculated rebates; when calculating a rebate of interest that results from loan acceleration due to default, creditors are prohibited from using any method that is less favorable than the actuarial method. -Prepayment Penalties; not allowed under HOEPA lons under any circumstances. -Acceleration of debt; cannot include a term that allows the creditor or accelerate the debt and demand payment of balance, except under the following circumstances: -----Fraud or misrepresentation on the part of the borrower -----Consumer's failure to meet the repayment terms of the lending agreement, or -----Any action or inaction of the borrower than affects the creditors security for the loan or the creditors rights related to the security. Prohibited Lending Practices: HOEPA prohibits the use of the following lending practices when originating a high cost loan: -Direct payments to home improvement contractors; HOEPA prohibits direct payments to home improvement contractors, unless payment is a joint payment to the borrower and the contractor, or is made to a 3rd party escrow agent pursuant to a written agreement between the lender, borrower and contractor -Loan Flipping; is the repeated refinancing of a loan within a short period of time. No high cost mortgage can be refinanced within 12 months of the initial extension of credit unless the refinancing is in the borrower's best interest. This applies to the creditor, servicer and assignees. A pattern or practice of using affiliates or nonaffiliated lenders to refinance a high cost mortgage within the first year of the loan term is also prohibited -Financing points and fees; another provision that is intended to prevent loan flipping is the prohibition against financing charges that must be included in the calculation of points and fees. With lenders offering to finance the fees related to the transaction, many borrowers rushed into a refi taking on even more debt than they already owed. -Lending without regard to repayment ability -Lending without pre-loan counseling -Recommending default; HOEPA prohibits creditors and brokers from recommending or encouraging a customer's default on any debt in connection with a high cost mortgage (also to discourage house flipping) -Charging loan modification or deferral fees: HOEPA restricts creditors, assignees and agents of these parties from charging any fee to modify, renew, extend or amend a high cost loan and charging a fee for deferred payments. -Charging late fees; these may not be imposed unless the contract for the high cost mortgage permits them. Late charges may not exceed 4% of the amount of the payment past due and a charge may not be imposed more than once for the same late payment. A payment has to be late by at least 15 days. -Charging fees for payoff statements; while there are some exceptions, HOEPA generlaly prohibits a creditor or servicer from charging a fee for a statement of the amount due to pay off a high cost mortage. Creditors or servicers may charge a fee to fax a payoff statement or to send a statement by courier, if these fees are comparable to those charged in lending transaction that do not involve high cost mortgages. However, before providing a payoff statement via fax or courier, the creditor or servicer must advise the customer that the statement is available by other methods without any charge. If a payoff statement has already been provided 4 X within one calendar year, it may charge a "reasonable" fee for providing subsequent statements during that year. Payoff statements are due within 5 business days of receiept of a request. -Evading HOEPA; it is a violation of HOEPA to structure a loan to avoid application of the law, including by dividing any loan transaction into separate parts.

HUD-1 Settlement Statement

This statement includes the actual charges paid by the borrower and seller and must be provided to the borrower by the settlement agent at least one day prior to settlement. The amount stated on the statement for any service cannot exceed the amount actually received by the settlement service provider for the service unless it is an average charge. An average charge for settlement services may be no more than the average amount paid for the service by one provider to another on behalf of the borrower and seller for a particular class of transactions ahich is defined as all transactions involving federally regulated mortgage loan fora specific period time, geographic area and type of loan amount by the settlement service provider.

Cost of Credit

This was created by TILA: -Finance Charge Reg Z defines financial charge as a cost of credit $ amount involving the fees associated. -Annual Percentage Rate which Reg Z defines as the APR as a measure of the cost of credit expressed as a yearly rate. The financial charge includes fees paid to 3rd party, credit life, disability, homeowners insurance or other insurance products (unless it is a voluntary product). The finance charges do not include taxes. CFPB suggests comparing a credit transaction with a comparable cash transaction to determine if a fee is a finance charge. Reg Z also created 2 "Special Rules" -Closing agent charges -Mortgage Brokers fees are always included. The CFPB website contains a chart identifying charges that are included and excluded from the finance charge. For closed end loans disclosure of the finance charge is accurate if: -The charge is not understated by more then $100. -The amount stated is higher than the required amount. If the disclosures are not accurate within the tolerances the Reg's establish, the creditor will need to re-disclose the amounts. An INACCURATE rate disclosure of the finance charge or the APR give the consumer a basis for exercising the right to rescind the loan up to 3 years after closing. Reg Z defines APR as a measure of the cost of credit, expressed as a yearly rate. Fees included in calculation of APR includ: -PMI (or MIP) -Discount points and broker fees -Origination fees -Processing fees -Underwriting fees Excluded are: -Title fees -Escrow -Notary -Application and Credit Report -Document preparation The APR for an ARM takes into account changes in the interest rate that will occur over the term of the loan. The rules provide that an error of disclosure of APR is not a violation of Reg Z if -It resulted from a corresponding error in a calculation took used in good faith. -And upon that discovery, promptly discontinues use of that calculation took and notifies the Bureau in writing of the error of calculation took

Home Equity Loans

Tits and rate carry overs. -Minimum periodic payment required when Max APR is in effect for a $10k balance and a statement of the earliest date and time Max rate may be imposed. -Historical example of payments and loan balances are improved by index volume changes based on most recent 15 years. -Statement that rate information will be available on every periodic statement. Balance can only be called if: -Fraud -Default -Action or inaction that may impact security.

Clarification of Credit Worthiness

To assist in clarification of what may or may not be included to determine credit worthiness Reg X issued the following: -Age and receipt of public assistance -Except being of age to enter into a contract -Telephone listings -Income must be considered including alimony child support income. -Credit history; lender may consider the history of the accounts belonging to the applicant and spouse. -Marital status -State property laws; although in some states the application can be declined if the spouse refuses to sign the Security Agreement.

Residential Mortgage Transaction

Transaction including consumer's principal residence.

Balloon Mortgages

Typically requires a borrower to make one large payment at the end of the loan term, which is typically 5-7 years. The balance is usually paid by refinancing. In some loans there is the existance of an option to convert to a fixed rate loan at it's maturity date. This is referred to as a conditional refinance provision. There are also ARMs that offer a "conversion option". A conditional offer to refinance at maturity does not guarantee refinancing. The borrower must qualify for this by meeting conditions that show the risk of extending the loan does not adversely affect the lender. 5/25 means the balloon payment is fixed for 5 years and has a conditional refinance option for the remaining 25 years. Notations like 5/30 indicate there is a balloon feature without a condition refi provision. High cost mortgages that are regulated by HOEPA may not include a balloon payment. QM are not allowed to include a balloon payment unless the loan is a "balloon payment qualified mortgage" which is a fixed rate loan with a term of no less than 5 years that is made by a small creditor. Balloon Mortgage Suitability: Situation where they may be a viable option are: -Consumers who will be earning increased wages in the near future -Individual planning to move and sell their home in a few years -Borrowers planning to refinance their mortgage in a few years.

Temporary Definition of Qualified Mortgages

Until January 10, 2021 a mortgage is a QM if: -It has amortizing payments -It has a loan term of 30 years or less -It has points and fees that do not exceed 3% of the loan amount, and -The loan is eligible for purchase by Fannie Mae or Freddie Mac or is a USDA loan

Bank Fraud

Use of a fraudulent scheme to unlawfully obtain money or property from a federally-insured institution. Penalties include fines of not more than $1 million, imprisonment of not more then 30 years, or both.

Discriminate

Using factors such as ethnicity or sex as a bases for treating an application less favorably.

Negative Fact or Value

Utilizing a fact or value or weight that is less than favorable to elderly applicants.

Loan Originator Compensation Rule

Was issued by CFPB in 2013 and became final in January of 2014. It discourages harmful practices like: -Basing LO compensation on the terms of a mortgage loan. -Allowing LO to collect dual compensation. -Creating incentives for not steering consumers to more expensive products. This rule applies to anyone that performs the following action for gain: -Take an application -Assist consumer applying for a loan -Negotiates and/or obtains credit for a consumer -Offers or negotiates credit terms. -Advertises or communicates to the public an ability to intent to engage in any of the above activities. 7 Commission Methods -Loan originationor's overall $ volume -Long term performance of originated loans -Hourly rate that is based on time actually worked -Loans made to new versus existing customers. -Payment fixed in advance for each loan -Percentage of the originators applications that close -Quality of loan files

Consummation

When a consumer becomes contractually obligated on a credit transaction. This leaves room for interpretation. The safest is to assume it occurs at closing.

Predatory Lending

When real estate agents and mortgage loan originators encourage a consumer to purchase a home based on an inflated appraisal or steer them towards high cost moretgage products with unfavorable lending terms.

Borrower Credit

Yield spread premium (YSP) is a fee paid to borrower by lender when a loan is done at a higher rate than they qualify for. This is used to roll in closing costs if they are low on funds.

Liar Loans

category of mortgages known as low-documentation or no-documentation mortgages that have been abused to the point where the loans are sometimes referred to as liar loans. These loan programs open the door for unethical behavior by unscrupulous borrowers and lenders.

Prohibited Inquiries

for example; national origin Exceptions: -may ask about immigration status. -applicants characteristics such as race and ethnicity to determine eligibility for special purpose credit (non-profit, etc) -necessary questions to satisfy data collection fro ECOA & HMDA.