Segment 5 - Federal Laws Governing Mortgage Practice

CFPB

Consumer Financial Protection Bureau

What disclosures are required before settlement?

- AfBA Disclosure Statement - Closing Disclosure

What disclosures are required after settlement?

- Annual Escrow Statement - Servicing Transfer Statement

When was TILA enacted?

1968

Mortgage Broker

A person, other than an employee of the lender, that renders origination services and serves as an intermediary between a borrower and lender.

CFR

Code of Federal Regulations

Are Prime Loans covered by CFPB's ATP rule?

No

RESPA

Real Estate Settlement Procedures Act

TILA

Truth in Lending Act

Changed Circumstances

- Acts of God, war, disaster, or other emergency - Information particular to the borrower or transaction relied on in providing the Loan Estimate is found to be inaccurate or changed after it was provided - New information regarding the borrower or transaction that was not relied upon for issuing the Loan Estimate - Other circumstances, including boundary disputes, the need for flood insurance, or environmental problems.

General QM loans meet the following characteristics:

- No negative amortization, interest-only payments, or balloon payments - No loan terms in excess of 30 years - Limitations on points and fees - generally capped at 3% of the loan balance but larger amounts are allowed for loans under $100,000 - Underwriting is based on a fully-amortizing schedule using the maximum rate permitted during the first five years after the date of the first periodic payment - Lender must consider and verify the consumer's income or assets, current debt obligations, alimony, and child support obligations - Lender must determine that the consumer's total monthly debt-to-income ratio is no more than 43%

What are the features of a QM?

- No toxic loan features like interest-only periods or negative amortization - A cap on how much income can go to debt - No excess up-front points or fees - Legal protection for lenders

TILA does not apply to credit extended:

- Primarily for business, commerical, or agricultural purposes - To one who isn't a natural person - In excess of the applicable threshold unless it is secured by real or personal property

What issues does RESPA address?

- Provides more effective advance disclosure to buyers and sellers of closing costs - Eliminates kickback and referral fees that tend to increase the costs of certain settlement services - Reduces amounts buyers are required to place in escrow accounts established to ensure the payment of real estate taxes and insurance

What disclosures are due at the time of loan application?

- Servicing disclosure statement - Special information booklet/ Settlement costs booklet - Loan estimate - What you should know about HELOCS (only if applying for HELOC)

When was RESPA enacted?

1974

How many days does a loan originator have to deliver the Loan Estimate Disclosure after accepting a loan application? - 3 calendar days - 3 business days - 4 calendar days - 2 business days

3 business days

Under RESPA, how long can a borrower continue to make loan payments, without penalty, to the old servicer if the borrower's loan has been transferred to a new loan servicer? - 15 days - 60 days - 4 weeks - 45 days

60 days

Of the following statements, which one most accurately states why a Qualified Mortgage is important to a lender? - A Qualified Mortgage provides a Safe Harbor for the lender. - A Qualified Mortgage provides for "fast track" loan processing. - Qualified Mortgage rules are easy to apply to a borrower's loan application processing. - A Qualified Mortgage will result in a higher rate of compensation to the lender.

A Qualified Mortgage provides a Safe Harbor for the lender.

Business Day

A day on which the offices of the business entity are open to the public and able to provide all of their services.

A criminal violation of RESPA Section 8's anti-kickback, referral fees, and unearned fees provisions can result in: - the illegally earned fee being awarded to the borrower. - a prison sentence of 10 years. - a fine of up to $10,000 and imprisonment of up to one year. - a warning for the first violation, and then a $1,000 fine for each additional violations.

A fine of up to $10,000 and imprisonment of up to one year

Closing Disclosure

A five page disclosure that explains the costs of closing. Must be provided at least three days prior to closing.

Which one of the following types of loan transactions is applicable to the disclosure rules of TILA? - A loan to purchase a business franchise - A loan to purchase 20 acres of agricultural land - A loan to purchase a commerical fleet of vehicles for deliveries - A loan to purchase a primary residence

A loan to purchase a primary residence

Which one of the following types of loan transactions is applicable to the disclosure rules of the Truth in Lending Act? - A loan to purchase a business franchise - A loan to purchase a primary residence - A loan to purchase a commercial fleet of vehicles for deliveries - A loan to purchase 20 acres of agriculture land

A loan to purchase a primary residence

What is a Closing Disclosure?

A standard form that clearly shows all charges imposed on borrowers and sellers in connection with the settlement of a purchase transaction

What is a Servicing Transfer Statement?

A statement notifying the borrower that the loan will be transferred to a new service provider. Must be provided at least 15 days before the loan is transferred.

What is an Initial Escrow Statement?

A statement that itemizes the estimated taxes, insurance premiums, and other charges anticipated within the first 12 months of the loan.

Loan Estimate

A three page disclosure that combines the Truth in Lending Act (TILA) and RESPA Good Faith Estimate (GFE). Provides the consumer with key terms of the loan. Must be provided within three days of the loan application.

ATR/QM Rules

Ability-to-Repay & Qualified Mortgage Rules

AfBA Disclosure Statement

Affiliated Business Arrangement Disclosure Statement

Which one of the following disclosures is NOT required to be given to a borrower within three days of loan application? - Affiliated Business Arrangement Disclosure Statement - Special Information Booklet - Loan Estimate - Servicing Disclosure Statement

Affiliated Business Arrangement Disclosure Statement

Which one of the following is NOT one of the reasons why the CFPB replaced the old disclosures with the new TILA-RESPA Integrated forms? - Improve consumer understanding of mortgage loan terms - Allows for hidden fees to be disclosed after loan closing - Aid the consumer to do comparison shopping between lenders - The forms are easier to use for both consumers and loan originators

Allows for hidden fees to be disclosed after loan closing

AMTPA

Alternative Mortgage Transaction Parity Act

Under RESPA, loan servicers are required to give a borrower: - a list of providers who can lower the borrower's settlement costs. - an annual escrow statement summarizing all escrow account deposits and payments. - a discount on additional mortgages that are also serviced by the loan servicer. - a servicing statement when the loan payments, insurance premiums, or taxes increase.

An annual escrow statement summarizing all escrow account deposits and payments.

What is an Annual Escrow Statement?

An annual statement that summarizes all escrow account deposits and payments during the service's previous year. Notifies borrower of any surpluses or shortages and what course of action to take.

What is an AfBA?

An arrangement in which a person who is in a position to refer business incident to or a part of a real estate settlement service involving a federally related mortgage loan, or an associate of such person, has either an affiliate relationship with or a direct or beneficial ownership interest of more than one percent in a provider of settlement services and either of such persons directly or indirectly refers such business to that provider or affirmatively influences the selection of that provider

Loan Originator

An individual representing a borrower in originating a loan transaction.

Which of the following transactions would be covered by the Real Estate Settlement Procedures Act (RESPA)? - A construction loan - The purchase of an office building - An initial mortgage on a one-to-four family dwelling - 50 acres of land purchased for a proposed subdivision

An initial mortgage on a one-to-four family dwelling

Who does TILA apply to?

Any individual or business that offers or extends credit through a mortgage broker when: - the credit is being offered or extended to a consumer - the offering or extending of the credit is done regularly - the credit is subject to a finance charge or is payable by written agreement in more than 4 installments - the credit is primarily for family, household, or personal purposes - if used for family, household, or personal uses, must be secured by a real interest like a dwelling, or exceed $25,000

Who must receive homeownership counseling services?

Applicants for high-price mortgages or negative-amortization loans

How often is the Special Information Booklet updated?

At least once every 5 years through the CFPB

APOR

Average Prime Offer Rate

The underwriting factor of "mortgage related obligations" for calculating a borrower's ability to repay includes all of the following EXCEPT: - average monthly utilities. - property taxes. - ground rent. - HOA dues.

Average monthly utilities.

Which one of the following is a right that a consumer has with regard to a non-HP Qualified Mortgage? - Can sue the lender to force the lender to not comply with the Ability-to-Repay rules. - Can legally challenge the loan only if they believe the loan did not meet the definition of a QM. - Cannot challenge the loan under any legal theory as the loan enjoys Safe Harbor protection. - Can legally challenge the loan under any logical legal theory.

Can legally challenge the loan only if they believe the loan did not meet the definition of a QM.

Which one of the following modifications can a lender do to the RESPA Special Information Booklet? - Remove Appendix E, F, and G in order to conserve paper when printing - Combine the booklet with the Servicing Disclosure Statement and Loan Estimate - Change the cover image to include the lender's corporate logo - Add the lender's preferred title insurance company contact information to page 29

Change the cover image to include the lender's corporate logo

The Dodd-Frank Act granted rulemaking authority under TILA to the: - Consumer Financial Protection Bureau (CFPB) - Department of Housing and Urban Development (HUD) - Conference of Bank State Supervisors - Federal Reserve Board

Consumer Financial Protection Bureau (CFPB)

The RESPA-required Special Information Booklet, Your Home Loan Toolkit, is published by the: - Local state banking regulatory agency. - Department of Veterans Affairs. - Consumer Financial Protection Bureau. - Department of Housing and Urban Development.

Consumer Financial Protection Bureau (CFPB)

The Closing Disclosure must be given to borrowers at least three business days before loan _________. - Application - Shopping - Underwriting - Consummation

Consummation

Which of the following is one of the eight required underwriting factors under ATR rules? - Marital status - Credit history - Loan-to-value ratio - Status of the property of the subject loan

Credit history

The final rules relating to ability-to-repay encourage: - creditors to refinance non-standard mortgages and convert them to standard mortgages. - the use of both non-standard and standard mortgages. - creditors to refinance standard mortgages and convert them to non-standard mortgages. - the use of non-standard mortgages.

Creditors to refinance non-standard mortgages and convert them to standard mortgages

The Truth in Lending Act (TILA) requires lenders to: - Disclose APR, finance charges, and credit terms to the consumer - Compare their rates with other lenders' loan terms and conditions - Restrict kick-backs and other compensation for loan services - Use a simplified form to disclose loan terms to borrowers

Disclose APR, finance chargers, and credit terms to the consumer

What does an AfBA Disclosure Statement do?

Discloses all relationships, describe the business arrangement that exists between the two providers, give the borrower an estimate of the second provider's charges, and inform the borrower that they are generally not required to use the affiliate and are free to shop for other providers

What is the Servicing Discloure Statement?

Document that discloses whether the borower's loan may be assigned, sold, or transferred to any other person at any time while the loan is outstanding.

GFE

Good Faith Estimate

If a loan application is taken in-person by a loan originator, the RESPA Servicing Disclosure Statement must be: - hand-delivered to the applicant at the time of loan application. - filled out and then given to the applicant at the time of loan settlement. - read aloud to the applicant, and then confirmed again at the time of loan servicing. - mailed to the loan applicant within three business days.

Hand-delivered to the applicant at the time of loan application.

HPQML

Higher-priced Qualified Mortgage Loan

HELOCs

Home Equity Lines of Credit

HOEPA

Home Ownership and Equity Protection Act

HERA

Housing and Economy Recovery Act

When does the Servicing Disclosure Statement need to be sent to the borrower?

If applying in person, it is to be delivered immediately upon application. If applying electronically or through other means, it must be sent within three business days of application.

Which one the following is NOT regulated by TILA? - Interest rate limits - Appraisal requirements for higher-priced mortgage loans (HPMLs) - Loan originator compensation - Disclosure of credit terms to consumers

Interest rate limits

Regarding the RESPA-required disclosures, if a lender denies a borrower's loan application within three business days of receiving it, the lender: - Can report the application denial to HUD for government monitoring purposes. - Is not required to provide the disclosure documents. - Only has to deliver the Special Information Booklet to the borrower. - Must mail the disclosures to the address listed on the application.

Is not required to provide the disclosure documents.

Which one of the following disclosures are to be used after October 3, 2015? - Truth in Lending Disclosure - Good Faith Estimate - HUD-1 Settlement Statement - Loan Estimate

Loan Estimate

All of the following are characteristics of a Qualified Mortgage (QM) EXCEPT: - regular periodic payments must be substantially equal in amount. - total points cannot exceed 3%. - loan term must be at least 45 years. - current debt obligations for alimony and child support are considered.

Loan term must be at least 45 years

Which of the following is NOT one of the eight required underwriting factor under ATR rules? - Current employment status - The monthly debt-to-income ratio or residual income - Loan to value - The monthly payment on any simultaneous loan

Loan to value

What is a Prime Loan?

Loans with an APR that does not exceed the APOR by 1.5% for first liens or 3.5% for second liens.

MDIA

Mortgage Disclosure Improvement Act

Non-standard Mortgage

Mortgages that in the past were given to consumers which lead to payment shock and foreclosure. Typically interest-only loans that convert to amortized loans after a specified period of time.

An Affiliated Business Arrangement (ABA) exists when - a borrower is charged for an appraisal as a condition for receiving a Loan Estimate. - a company provides a borrower with a recommended service providers list. - one company controls, is controlled by, or is under common control of another company. - the Special Information Booklet is modified to include company-specific information.

One company controls, is controlled by, or is under common control of another company.

RESPA Prohibited Settlement Pratices

RESPA prohibits anyone from giving or accepting a fee, kickback, or anything of value in exchange for referrals of settlement service business involving a federally related mortgage loan. In addition, RESPA prohibits fee splitting and receiving unearned fees for services not actually performed.

A lender, mortgage loan originator, or mortgage broker must issue a Loan Estimate disclosure after receiving a loan application or after: - Pulling an applicant's credit report to determine risk to the lender. - The application has been approved by the loan processor. - Receiving enough information to complete an application. - An applicant withdraws his/her loan application.

Receving enough information to complete an application.

Who is RESPA implemented by?

Regulation X

TILA is implemented by: - Regulation Z - Congress - HUD - The Federal Home Loan Bank System

Regulation Z

Record Retention

Requires loan originators to retain evidence of compliance with ATR/QM rules for a minimum of three years after loan consummation

Section 9 of RESPA prohibits a seller from: - accepting a fee from the lender for locating a willing buyer for the property. - having the property appraised to ensure the loan amount is accurate. - requiring a buyer to use a specific title insurance company as a condition of sale. - paying more than 4% towards the buyer's closing costs.

Requiring a buyer to use a specific title insurance company as a condition of sale.

Which type of loans are banned by ATR/QM rules?

Stated income loans

What replaced the TILA disclosure and GFE?

TILA-RESPA integrated disclosure forms as of October 2015

Who publishes the RESPA-required disclosure, What You Should Know About Home Equity Lines of Credit? - The Consumer Financial Protection Bureau - The Department of Housing and Urban Development - The Board of Governors of the Federal Reserve System - The local state banking regulation agency

The Board of Governors of the Federal Reserve System

Which one of the following elements is NOT required to be on an Affiliated Business Arrangement disclosure? - An estimate of the affiliated provider's charges - The amount of money the affiliate will receive as compensation for the referral - A description of the business arrangement that exists between the two providers - A statement that the borrower is free to shop for alternative settlement service providers

The amount of money the affiliate will receive as compensation for the referral

When determining the ability to repay with respect to ARMS, monthly payments for underwriting purposes must be calculated by using: - the average rate over the life of the loan. - the fully indexed rate or an introductory rate, whichever is less. - the fully indexed rate or introductory rate, whichever is higher. - the introductory rate only.

The fully indexed rate or introductory rate, whichever is higher.

Lender

The secured creditor named in the debt obligation note and the security instrument creating a lien.

Application

The submission of a borrower's financial nformation in anticipation of a credit decision relating to a federally related mortgage loan.

Creditors are to retain records that evidence compliance with the Ability-to-Repay rules for: - one year. - three years. - seven years. - five years.

Three years

What is the purpose of TILA?

To provide consumers with accurate and truthful information to easily compare loan products and rates.

USC

United States Code

What information does an application need?

- Borrower's name - Borrower's SSN - Borrower's monthly income - A property address - An estimated value of the property - Mortgage loan amount sought

The follow types of loan are NOT covered by RESPA

- Construction loans unless they meet certain criteria - All cash sales - Bona fide transfers of a loan obligation in the secondary market - Conversions of a federally related mortgage loan - Sales where an individual home seller takes back the mortgage

What eight underwriting factors must creditors consider?

- Current or reasonably expected income or assets - Current employment status - The monthly payment on the covered transaction - The monthly payment on any simultaneous loan - The monthly payment for mortgage-related obligations - Current debt obligations, alimony, and child support - The monthly debt-to-income ratio or residual income - Credit history

What information does the What You Should Know About HELOCS brochure cover?

- Explains what a HELOC is - Covers costs of establishing and maintaining a HELOC - How to repay a HELOC - Differences between a HELOC and traditional second mortgage - What to do if your line of credit is frozen

The following types of loans are covered by RESPA

- FHA, VA, or other government-sponsored loans - Most conventional loans - Assumptions, refinances, and reverse mortgages - Subordinate lien loans

What information does the Special Information Booklet/ Settlement Costs Booklet cover?

- Information about the Loan Estimate and Closing Disclosures - General information about shopping for loans - Warns consumers about providing false information - Information about settlement services

What disclosures are required at settlement?

- Initial Escrow Statement

A Small Creditor QM will lose its QM status if sold or otherwise transferred in less than three years after loan consummation. A Small Creditor QM can retain its QM status if one of the follow is met:

- It is sold more than three years after loan consummation. - It is sold at any time to another creditor who meets the Small Creditor criteria relating to asset size and number of loan originations. - It is sold at any time pursuant to a supervisory action or agreement. - It is transferred as part of a merger or acquisition of or by the creditor at any time.

What do ATR rules require?

- Lenders consider borrowers monthly loan payments, other loan-related obligations, any simultaneous loans, and any recurring material living expenses - Provide guidance on borrowers actual ability to repay the loan based on recurring monthly income

What features disqualify a loan from being a QM?

- Negative amortization - Interest-only payments - Loan terms over 30 years - No-doc loans - Points and fees exceeding 3%

Balloon-Payment QM loans meet the following characteristics:

- No negative amortization or interest-only payment features - Limitations on points and fees - generally 3% of the loan balance, but larger amounts are allowed for loans under $100,000 - Must have a fixed interest rate and periodic payments (other than the balloon payment) that would fully amortize the loan over 30 years or less - Must have a term of five years or longer - Must not be subject to a forward commitment prior to consummation to sell the loan after consummation to a creditor other than a creditor who itself can make Balloon-Payment QMs - The lender must determine that the consumer is able to make the scheduled periodic payments (including mortgage related obligations) other than the balloon payment. The ATR determination does not include the balloon payment, even if the loan is a higher-priced mortgage loan. - The lender must consider and verify the consumer's income or assets, current debt obligations, alimony, and child support obligations. - The lender must determine the consumer's total monthly debt-to-income ratio or residual income. No threshold for DTI or residual income is required by the rule relating to this loan type

Temporary QM loans meet the following characteristics:

- No negative amortization, interest-only payments, or balloon payment features - No loan terms in excess of 30 years - Limitations on points and fees - generally 3% of the loan balance, but larger amounts are allowed for loans under $100,000 - The loan must meet at least one of the following additional requirements: -- Eligible for purchase or guarantee by Fannie Mae or Freddie Mac while operating under federal conservatorship or receivership -- Eligible for Federal Housing Administration (FHA) insurance -- Eligible to be guaranteed by the U.S. Department of Veterans Affairs (VA) -- Eligible to be guaranteed by the U.S. Department of Agriculture (USDA) -- Eligible to be insured by the Rural Housing Service - Underwriting is based on a fully-amortizing schedule using the maximum rate permitted during the first five years after the date of the first periodic payment. - The lender must consider and verify the consumer's income or assets, current debt obligations, alimony, and child support obligations.

Small Creditor QM loans meet the following characteristics:

- No negative amortization, interest-only payments, or balloon payment features (see note below regarding balloon payment feature) - No loan terms in excess of 30 years - Limitations on points and fees - generally 3% of the loan balance, but larger amounts are allowed for loans under $100,000 - Underwriting is based on a fully-amortizing schedule using the maximum rate permitted during the first five years after the date of the first periodic payment - The loan must not be subject to a forward commitment (an agreement to sell off the loan to a larger creditor). - The lender must consider and verify the consumer's income or assets, current debt obligations, alimony, and child support obligations. - The lender must determine the consumer's total monthly debt-to-income ratio (no DTI ratio or residual income amount is stated in the Small Creditor QM rules).

What types of loans are excluded from ATR/QM rules?

- Time share plans - Reverse mortgages - Open-end credit plans, including HELOCs - Temp or bridge loans with terms of 12 mo. or less - Construction loans with terms of 12 mo. or less - Consumer credit transactions secured by vacant land

What constitutes a HPQML?

- a first lien with an APR of 1.5% over the Average Prime Offer Rate (APOR) or - a subordinate lien with an APR of 3.5% over APOR.

A borrower can use the Closing Disclosure to compare it to the Loan Estimate in order to: - verify that the borrower is purchasing the correct property. - search for undocumented Affiliated Business Arrangements. - ensure that the settlement charges on the Loan Estimate are exactly the same as the Closing Disclosure. - look for settlement cost tolerance violations.

Look for settlement cost tolerance violations.