Chapter 3 Federal Laws Regulations Chapter 3

Chapter 3: Federal Laws & Regulations Chapter 3 A Year of Impact: Federal Laws & Regulations SAFE Comprehensive: ● 02/27/15 1

Chapter 3: Federal Laws & Regulations Disclaimer • Disclaimer: Names of all persons, companies, and entities in any documented example have been changed. Therefore, if further research is desired, names will differ in the actual case law from that presented within the course. • If further research is desired in regards to specific case law, research is best performed by visiting each specific state’s department of financial institutions website. Each state may use varying versions of this department name. Some case law may be easily researched and other states are extremely protective of case law and extended research may be required. As an example, to research Florida case law, first visit the Florida Office of Financial Regulation website and proceed to the Final Administrative Actions page where a search engine will be presented. For California, the Consumer Affairs agency must be selected from their state website (www. ca. gov). Researchers must then move through the following pages, Licenses, Press Release, and Board of Real Estate to arrive at the Disciplinary Actions page to research the case law. SAFE Comprehensive: ● 02/27/15 2

Chapter 3: Federal Laws & Regulations Key Terms • • Defined Benefit Plan Defined Contribution Plan Federal Housing Finance Agency (FHFA) Flip Successors in Interest Term of a Transaction Total Interest Percentage (TIP) SAFE Comprehensive: ● 02/27/15 Refer to page 57 3

Chapter 3: Federal Laws & Regulations TILA-Integrate Disclosure • Know Before You Owe forms • Effective October 3, 2015 • Consumer-friendly design; outlines best deals; more transparent borrowing process • Rate Checker: a tool devised to educate the consumer about applicable interest rates. Provides interest rates based on: – Loan terms – Loan type – Borrower’s credit score – State of the subject property SAFE Comprehensive: ● 02/27/15 Refer to page 58 4

Chapter 3: Federal Laws & Regulations The Loan Estimate • Dodd-Frank Act • Integrate GFE and Truth in Lending Statement = New Loan Estimate • No fee (with the exception of a bona fide and reasonable credit report fee) may be received by the MLO or creditor until the borrower has received the: Loan Estimate, Mortgage Servicing Disclosure Statement, Special Information Booklet. • Must be delivered to the borrower within 3 business days of receipt of a complete application or placed in the mail within 3 business days of receipt of a complete application SAFE Comprehensive: ● 02/27/15 Refer to page 59 5

Chapter 3: Federal Laws & Regulations The Loan Estimate - Differences • Disclosure of: interest rate lock, Cash to Close, TIP • Compares payment during and after the years that mortgage insurance is in place • Provides comparisons of payments made and the principal reduction of the loan in the first 5 years • Estimated Cash to Close is disclosed; provision for Lender Credits to be deducted from the Estimated Closing Costs • Provides information on servicing and delivery of appraisal disclosure about the likelihood of future refinance transactions of the subject loan is made • Designated place for borrowers to sign and confirm they have received the Loan Estimate is a new Additions to Disclosure Forms section SAFE Comprehensive: ● 02/27/15 Refer to page 59 6

Chapter 3: Federal Laws & Regulations Complete Application • The definition of a complete application has changed to the initial six items of information that a MLO receives and no more: – Name(s) of borrower – Social Security number for each borrower – Gross monthly income of borrower(s) – Loan amount sought – Address of subject property – Estimate of property value • Lenders are required to adhere to the six items above and add nothing further. See Regulation Z, 12 CFR § 1024. 2(b) ] SAFE Comprehensive: ● 02/27/15 Refer to page 59 & 60 7

Chapter 3: Federal Laws & Regulations Loan Estimate - Disclosure If a consumer receives a written estimate of loan terms or an itemized closing cost statement, the top of the first page must contain the statement: “Your actual rate, payment, and costs could be higher. Get an official Loan Estimate before choosing a loan. ” See Regulation Z, 12 CFR § 1026. 19(e)(2)(ii) SAFE Comprehensive: ● 02/27/15 Refer to page 60 8

Chapter 3: Federal Laws & Regulations Loan Estimate – Does Not Apply to: • Home equity lines of credit • Reverse mortgages • Loans to secure a fractional interest in real estate (timeshares) • Loans for mobile homes or dwellings not affixed to real property • Loans made by a person or entity that makes five or fewer mortgages in a calendar year. • Loans made to a non-natural person (business entity) See Regulation Z, 12 CFR § 1026. 2(a)(17) SAFE Comprehensive: ● 02/27/15 Refer to page 60 9

Chapter 3: Federal Laws & Regulations Loan Estimate – Responsibility The creditor has the ultimate responsibility for correct and timely delivery of disclosures to the consumer. If a mortgage broker: • Receives a complete loan application, either the lender or the mortgage broker may make the initial disclosures. • Completes the Loan Estimate, the wholesale lender’s name (if known) must be used. SAFE Comprehensive: ● 02/27/15 Refer to page 60 10

Chapter 3: Federal Laws & Regulations Knowledge Check 1. The Integrated Disclosure was implemented to A. help consumers become better and more informed shoppers for mortgage loans. B. provide a new format for refinancing. C. provide new forms that educate the MLO. D. save the MLO document preparation time. SAFE Comprehensive: ● 02/27/15 Refer to page 61 11

Chapter 3: Federal Laws & Regulations Knowledge Check 2. The new Integrated Disclosure combines the _____ and _____ to create the Loan Estimate. A. GFE / HUD 1 B. GFE / TIL C. TIL / contact list of HUD approved counselors D. TIL / MSDS SAFE Comprehensive: ● 02/27/15 Refer to page 61 12

Chapter 3: Federal Laws & Regulations Knowledge Check 3. A complete application contains all of the following items EXCEPT the A. borrower’s name. B. estimate of value for the subject property. C. loan amount. D. residence address of the borrower. SAFE Comprehensive: ● 02/27/15 Refer to page 61 13

Chapter 3: Federal Laws & Regulations Loan Estimate Requirements • Must deliver/place in the mail the revised Loan Estimate to the consumer no later than 3 business days after receiving the information sufficient to obtain a credit decision • If a new Loan Estimate is required because of a changed circumstance, it must be disclosed and received by the borrower 4 days prior to consummation of the loan • Two definitions of Business Day • Revised disclosures may not be delivered at the same time as the Closing Disclosure See Regulation Z, 12 CFR § 1026. 19(e)(1)(iii-iv) and§ 1026. 19(e)(4)(ii) SAFE Comprehensive: ● 02/27/15 Refer to page 61 & 62 14

Chapter 3: Federal Laws & Regulations Loan Estimate - Changed Circumstances A changed circumstance, for purposes of a Loan Estimate, can be any of the following: • An event that is beyond the control of creditor or borrower that occurs, such as a natural disaster in the property’s community, which results in increased settlement costs. • Information that was known or provided at the time of the application changed subsequent to the application and caused a change in the initial loan terms, interest rates, or settlement service provider charges. • New information regarding the borrower or the loan that the creditor did not rely on when supplying the Loan Estimate, as in a borrower becoming unemployed prior to closing during the course of the loan. See Regulation Z, 12 CFR § 1026. 19(e)(3)(iv)(A) SAFE Comprehensive: ● 02/27/15 Refer to page 62 15

Chapter 3: Federal Laws & Regulations Loan Estimate – Tolerance Guidelines • Tolerance guidelines: closing costs greater than Loan Estimate = not made in good faith • Valid changed circumstances - An event that is beyond the control of the creditor or the borrower that occurs - Information that was known or provided at the time of the application changed subsequent to the application and caused a change in the initial loan terms, interest rates, or settlement service provider charges - New information regarding the borrower or the loan that the creditor did not rely on when supplying the Loan Estimate • No intent to proceed See Regulation Z, 12 CFR (§ 1026. 19(e)(3)(iv)(A, C-F)) SAFE Comprehensive: ● 02/27/15 Refer to page 62 16

Chapter 3: Federal Laws & Regulations Loan Estimate – Tolerance Cures • Charges that can change by any amount • Charges for third-party services & recording fees paid by or imposed on consumer are grouped together & subject to 10% cumulative tolerance • Charges that may not change on the Closing Disclosure by any amount from the amounts disclosed on the Loan Estimate Beyond applicable tolerance threshold, the creditor must refund the excess no later than 60 calendar days after consummation. See Regulation Z, 12 CFR § 1026. 19(e)(3 -5) SAFE Comprehensive: ● 02/27/15 Refer to page 62 17

Chapter 3: Federal Laws & Regulations Loan Estimate – Changed Circumstances • If the borrower has received the first Closing Disclosure (within the 3 business day waiting period), the creditor may issue revised changes on the Closing Disclosure prior to loan consummation. The consumer may then compare the amounts charged for the purposes of determining good faith and tolerance. * • For loans that require a Loan Estimate and proceed to closing, creditors must provide a new final disclosure reflecting the actual terms of the transaction called the Closing Disclosure. ** *See Regulation Z, 12 CFR § 1026. 19(e)(4)(ii) and § 1026. 19(f)(1)(i) **See Regulation Z, 12 CFR § 1026. 19(f)(1)(ii) SAFE Comprehensive: ● 02/27/15 Refer to page 64 18

Chapter 3: Federal Laws & Regulations Knowledge Check 1. If a revised Loan Estimate is emailed to the borrower (with his permission), it is considered received A. the day the email is sent. B. the next business day after the disclosure is emailed. C. three business days after the email is sent if not informed of receipt by the borrower sooner. D. the seventh business day after the email is sent. SAFE Comprehensive: ● 02/27/15 Refer to page 65 19

Chapter 3: Federal Laws & Regulations Knowledge Check 2. When a Loan Estimate is provided to a borrower, it is considered to be provided in good faith when the actual closing costs are lower as shown on the A. Closing Addendum. B. Closing Disclosure. C. Good Faith Estimate. D. HUD 1 Settlement Statement. SAFE Comprehensive: ● 02/27/15 Refer to page 65 20

Chapter 3: Federal Laws & Regulations Knowledge Check 3. With a revised Loan Estimate, a valid changed circumstance must exist. A valid change circumstance is considered to be all of the following EXCEPT A. a borrower requested change. B. an event that is beyond the control of the borrower. C. information know at the time of application but subsequently changed. D. MLO neglected to charge an origination fee initially. SAFE Comprehensive: ● 02/27/15 Refer to page 65 21

Chapter 3: Federal Laws & Regulations Knowledge Check 4. Third party fees, shown on the Loan Estimate, include all of the following EXCEPT A. a credit report fee. B. a flood cert fee. C. hazard insurance premiums. D. a lock in fee. SAFE Comprehensive: ● 02/27/15 Refer to page 64 22

Chapter 3: Federal Laws & Regulations Closing Disclosure • Replaces the existing HUD-1 form and the final Truth In Lending Statement* • Must contain the actual terms and costs; at or before consummation* • New disclosure required if cost vary from original prior to consummation; borrower gets a new 3 business day waiting period** * See Regulation Z, 12 CFR § 1026. 19(f)(1) ** See Regulation Z, 12 CFR § 1026. 2(a)(13) SAFE Comprehensive: ● 02/27/15 Refer to page 65 & 66 23

Chapter 3: Federal Laws & Regulations Closing Disclosure • Provides: – Final statement of closing cost the borrower will incur – Final Truth in Lending Statement, disclosing APR • Considered received: – If provided in person, as of third day. – If mailed or delivered by electronic methods, three (3) business days after it is delivered or placed in the mail. – If a creditor has documented evidence of earlier receipt of the disclosures by the borrower, as of that date. • Creditor vs settlement agent responsibilities See Regulation Z, 12 CFR § 1026. 19(f) SAFE Comprehensive: ● 02/27/15 Refer to page 66 & 67 24

Chapter 3: Federal Laws & Regulations Closing Disclosure - Changes • Creditor must deliver or place in the mail the revised Loan Estimate to the consumer no later than 3 business days after receiving the information sufficient to establish that one of the reasons for the revision has occurred. • After the creditor provides the Closing Disclosure, a revised Loan Estimate may not be issued. • Creditor must make sure that the revised Loan Estimate is received at least 4 business days prior to the consummation of the mortgage loan. See Regulation Z, 12 CFR § 1026. 19(e)(4) SAFE Comprehensive: ● 02/27/15 Refer to page 68 & 69 25

Chapter 3: Federal Laws & Regulations Closing Disclosure - Changes • The 3 -business-day waiting period requirement applies to a corrected Closing Disclosure that is provided when there are: – Changes to the loan’s APR; – Changes to the loan product; or – The addition of a prepayment penalty. • If other types of changes occur, creditors must ensure that the consumer receives a corrected Closing Disclosure at or before consummation. See Regulation Z, 12 CFR § 1026. 19(f)(2)(i-ii) SAFE Comprehensive: ● 02/27/15 Refer to page 69 & 70 26

Chapter 3: Federal Laws & Regulations Closing Estimate - Revisions 30 days Closing Disclosure becomes 60 days Non-numerical clerical inaccurate and results in a change to errors & refunds for the amount paid by the consumer tolerance violations that was originally disclosed Closing Disclosure becomes If a creditor cures a inaccurate and results in a change to tolerance violation and the amount paid by the seller that provides a refund to the was originally disclosed. consumer See Regulation Z, 12 CFR § 1026. 19(f) SAFE Comprehensive: ● 02/27/15 Refer to page 70 27

Chapter 3: Federal Laws & Regulations Your Home Loan Toolkit • After October 3, 2015, the Your Home Loan Toolkit will replace the Special Information Booklet due to the TILA-RESPA Integrated Disclosure rule. • The toolkit must be provided to the primary borrower three (3) business days after receipt of a completed application. See “CFPB Announces New ‘Know Before You Owe’ Mortgage Shopping Toolkit, ” Consumer Financial Protection Bureau, March 31, 2015 http: //www. consumerfinance. gov/newsroom/cfpbannounces-new-know-before-you-owe-mortgage-shopping-toolkit/ SAFE Comprehensive: ● 02/27/15 Refer to page 70 & 71 28

Chapter 3: Federal Laws & Regulations Required Disclosures Three other disclosures exist that may be provided to the borrower after loan consummation: • Escrow Closing Notice • Partial Payment Policy Disclosure • Servicing Transfer Disclosure Statement See Regulation Z, 12 CFR § 1026. 20(e)(5), § 1026. 39(d) SAFE Comprehensive: ● 02/27/15 Refer to page 71 & 72 29

Chapter 3: Federal Laws & Regulations Knowledge Check 1. When a changed circumstance has occurred to the loan product and the Closing Disclosure has been delivered to the borrower, the creditor must A. call the borrower and inform them of the fee change. B. complete a valid changed circumstance form and have the borrower sign it. C. deliver a revised Closing Disclosure and apply a new three (3) day waiting period before consummation. D. make redisclosure. SAFE Comprehensive: ● 02/27/15 Refer to page 72 30

Chapter 3: Federal Laws & Regulations Knowledge Check 2. When a numerical error has occurred to Closing Disclosure and the initial Closing Disclosure has been delivered to the borrower, the creditor must A. call the borrower and inform them of the fee change. B. complete a valid changed circumstance form and have the borrower sign it. C. deliver a revised Closing Disclosure and apply a new three (3) day waiting period before consummation. D. make redisclosure. SAFE Comprehensive: ● 02/27/15 Refer to page 72 31

Chapter 3: Federal Laws & Regulations Apply TILA Regs to MLO Practices • Are the disclosures that are provided to the consumers on the correct form? • Are disclosures provided to the consumers within the timeframes required by new TILA regulations? • Are the allowable tolerances on the Loan Estimate and Closing Disclosure complied with on the form or is there a potential for redisclosure and lender tolerance fees? For failure to properly provide certain disclosures in an accurate manner, statutory penalties may be imposed – up to $25, 000 per day for violations. SAFE Comprehensive: ● 02/27/15 Refer to page 73 32

Chapter 3: Federal Laws & Regulations The Loan Officer Compensation Rules • Address the qualifications for licensed and registered mortgage loan originators • Set forth the requirements for MLOs hired by a federal depository institution • Compensation rules - not allowed to receive compensation based on type or terms of loan • Applies to: – First mortgage financing – Subordinate financing – All closed end transactions when the loan is secured by a dwelling of one to four units – Primary, secondary, and investment properties. See Regulation Z, 12 CFR § 1026. 36 (d)(1)(ii) SAFE Comprehensive: ● 02/27/15 Refer to page 73 & 74 33

Chapter 3: Federal Laws & Regulations The Loan Officer Compensation Rules • • Compensation defined as income Compensation not defined as income Prohibited compensation Loan steering prohibitions See Regulation Z, 12 CFR § 1026. 36 (d)(1)(ii) & (e) SAFE Comprehensive: ● 02/27/15 Refer to page 74 & 75 34

Chapter 3: Federal Laws & Regulations The Loan Officer Compensation Rules • Duel compensation • Reduction of compensation • Changes to compensation agreement for MLO’s • Bonus compensation and non-deferred compensation plans • Tax-advantaged deferred compensation • Compensation direct payment See Regulation Z, 12 CFR § 1026. 36 (d) SAFE Comprehensive: ● 02/27/15 Refer to page 76 -78 35

Chapter 3: Federal Laws & Regulations Registered vs Licensed Qualifications Licensed Loan Originators Registered Loan Originators Obtain unique identifier # from NMLS Obtain unique identifier# from NMLS Complete 20 hours of education Pass 125 -question test with a score of 75% or more Provide personal history and experience No experience required Pass criminal background check Credit report check No administrative, civil, or criminal findings by any government entity No felony conviction in previous 7 years *See Regulation Z, 12 CFR § 1026. 36(f) SAFE Comprehensive: ● 02/27/15 Refer to page 78 36

Chapter 3: Federal Laws & Regulations Registered vs Licensed Qualifications Licensed Loan Originators Registered Loan Originators No felony conviction of financial crimes at any time Demonstrate financial responsibility in their personal financial Make application for license with the Ability to originate and close mortgage individual state regulatory agency loans in all 50 states Pay into a state recovery fund, provide a surety bond or demonstrate net worth Take eight (8) hours of NMLS approved Take required depository instruction continuing education annually *See Regulation Z, 12 CFR § 1026. 36(f) SAFE Comprehensive: ● 02/27/15 Refer to page 78 37

Chapter 3: Federal Laws & Regulations The Loan Officer Compensation Rules Questions Q 1: A loan originator makes an error on the Loan Estimate, resulting in a lender tolerance cure, or fails to collect the required fees at closing or prior to closing. Is the employing mortgage broker/banker allowed, by regulation, to deduct the cost of the loss from the loan originator’s compensation? Does the rule permit a loan originator to reduce its compensation to cover unexpected costs? Q 2: Can an originator receive different compensation for different product types? Q 3: Can a loan originator be paid a non-deferred bonus by his employer? See Regulation Z, 12 CFR § 1026. 36 (d) SAFE Comprehensive: ● 02/27/15 Refer to page 70 & 80 38

Chapter 3: Federal Laws & Regulations Ability-to-Repay Rule • Requires creditors, for residential mortgages, to make a reasonable and good faith determination, based on verified and documented information, that the consumer has a reasonable ability to repay the loan according to its terms • Aimed at tightening the lax underwriting that is believed to have fueled the housing bubble • Put in place to protect consumers from the mortgages they cannot afford by requiring lenders to verify income and assets of the borrower with an independent source SAFE Comprehensive: ● 02/27/15 Refer to page 80 39

Chapter 3: Federal Laws & Regulations Ability-to-Repay Rule At a minimum, creditors generally must consider eight (8) underwriting factors: • Current or reasonably expected income or assets • Current employment status • Monthly payment on the covered transaction • Monthly payment on any simultaneous loan • Monthly payment for mortgage-related obligations • Current debt obligations, alimony, and child support • Monthly debt-to-income ratio or residual income • Credit history See Regulation Z, 12 CFR § 1026. 43 (c) SAFE Comprehensive: ● 02/27/15 Refer to page 80 40

Chapter 3: Federal Laws & Regulations Debt-to-Income Ratio Calculation • Calculate the housing and the total debt-to-income ratios • Determine repayment ability using the largest payment of principal and interest scheduled in the first 7 years following consummation • Consider the current obligations, taking into account: – The ratio of total debt obligations to income – The income the consumer will have after paying debt obligations • Evaluate and conclude the borrower can repay the loan using qualifying ratios See Regulation Z, 12 CFR § 1026. 43 (c) SAFE Comprehensive: ● 02/27/15 Refer to page 81 41

Chapter 3: Federal Laws & Regulations Qualified Mortgage (QM) • No excess upfront points and fees • No toxic loan features • Cap on how much income can go toward debt • No-doc loans not eligible • Prepayment penalties prohibited SAFE Comprehensive: ● 02/27/15 Refer to page 81 42

Chapter 3: Federal Laws & Regulations QM: Second Category • The GSEs (Government-Sponsored Enterprises) • The U. S. Department of Housing and Urban Development (HUD) • Department of Veterans Affairs (VA) • Department of Agriculture or Rural Housing Service. SAFE Comprehensive: ● 02/27/15 Refer to page 82 43

Chapter 3: Federal Laws & Regulations QM Presumption • Consumers may show a violation with regard to a subprime qualified mortgage by showing that, at the time the loan was originated, the consumer’s income and debt obligations left insufficient residual income or assets to meet living expenses. • The longer the period of time the consumer has demonstrated actual ability to repay the loan, the less likely the consumer will be able to rebut the presumption based on insufficient residual income. SAFE Comprehensive: ● 02/27/15 Refer to page 82 44

Chapter 3: Federal Laws & Regulations QM 3% Up-Front Points and Fees • Points and fees charged cannot exceed 3 percent of the loan principal at the time the loan is made • If a lender discovers after the loan has closed that it has exceeded the three (3) percent cap, there are limited circumstances where lenders can pay a refund of the excess amount with interest to the consumer, to have the loan still meet the legal requirements of a Qualified Mortgage. – The refund must occur within 210 days after the loan is made. – The creditor must maintain and follow policies and procedures for reviewing points and fees and providing refunds to consumers. SAFE Comprehensive: ● 02/27/15 Refer to page 84 45

Chapter 3: Federal Laws & Regulations QM Balloon Payment Restrictions Small community lenders can continue to provide loans for their community, where loans with a prepayment penalty are typical. • The eligible loans must have a term of five (5) years or more, be a fixed rate loan, and other underwriting criteria. • These loans are not subject to the Qualified Mortgage rule capping the debt-to-income ratio at 43%. • These loans must be originated by small creditors and held in the community lender’s loan portfolio. • These loans are not eligible for sale on the secondary markets. SAFE Comprehensive: ● 02/27/15 Refer to page 84 46

Chapter 3: Federal Laws & Regulations QM Balloon Payment Restrictions To qualify as a small creditor in an underserved community and be able to offer a mortgage loan with a prepayment penalty, lenders must meet the following guidelines: • Originate at least 50% of their first mortgages in counties that are considered rural or underserve • Have less than $2 billion in assets • Originate no more than 500 first lien loans per year • Hold the loan with a prepayment penalty in their portfolio for a minimum of three (3) years to maintain their “qualified mortgage” status. SAFE Comprehensive: ● 02/27/15 Refer to page 84 47

Chapter 3: Federal Laws & Regulations Knowledge Check 1. An MLO must have meet all of the following requirements for prelicensing EXCEPT A. background check. B. demonstration of financial responsibility. C. eight hours of approved education. D. no financial felony crime conviction. SAFE Comprehensive: ● 02/27/15 Refer to page 85 48

Chapter 3: Federal Laws & Regulations Knowledge Check 2. An MLO may reduce his compensation A. at any time, with management approval. B. in the event of unforeseen increases in settlement costs. C. for REALTOR®- referred clients. D. to match a competitor’s cost quote on a GFE. SAFE Comprehensive: ● 02/27/15 Refer to page 85 49

Chapter 3: Federal Laws & Regulations Knowledge Check 3. A mortgage originator and his employer may periodically review and revise the compensation agreement for all of the following factors EXCEPT A. current market conditions. B. high number of closed loans with prepayment penalties. C. loan performance. D. transaction volume. SAFE Comprehensive: ● 02/27/15 Refer to page 85 50

Chapter 3: Federal Laws & Regulations Appraisal Requirements • The Home Valuation of Conduct • Home Flipping Requirements – A second appraisal may be required at no cost to the consumer who uses conventional financing. – If consumer applies for a higher-priced mortgage that is covered by the rule, an additional appraisal is required. SAFE Comprehensive: ● 02/27/15 Refer to page 85 & 86 51

Chapter 3: Federal Laws & Regulations Appraisal Requirements The rule does not apply when the consumer applies for a higher-priced mortgage that is: • A reverse mortgage. • A “Qualified mortgage” under the Bureau’s rules. • Intended for a new manufactured home. • Intended for a boat, trailer, or mobile home that is not a manufactured home. • Intended for the construction of a new home. • Intended for a temporary bridge loan for 12 months or less. SAFE Comprehensive: ● 02/27/15 Refer to page 86 52

Chapter 3: Federal Laws & Regulations HUD/FHA Property Flipping • Mortgagee Letter 06 -14 rule regarding property flipping became effective for mortgages endorsed for insurance on or after July 7, 2006. • This amendment required the seller to own the property he previously purchased for a minimum of 90 days before executing a contract with a buyer who used FHA-insured financing. • The FHA deems a sales contract to be executed when all parties to the contract have signed the contract, and the contract is enforceable under the law of the state where the property is located. See 24 CFR 203. 37(a) Sale of Property SAFE Comprehensive: ● 02/27/15 Refer to page 86 53

Chapter 3: Federal Laws & Regulations Truth In Lending Act (TILA) • The most important concept to remember about the Federal Truth in Lending Act is the requirement of disclosures to provide a uniform method of finance charge disclosure. • This method expresses the true cost of credit over the term of the loan as a percentage, not a dollar amount (as is the requirement of RESPA). SAFE Comprehensive: ● 02/27/15 Refer to page 86 & 87 54

Chapter 3: Federal Laws & Regulations TILA Amendments – Reg Z • Prohibits coercion and other similar actions designed to cause appraisers to base the appraised value of properties on factors other than their independent judgment. • Prohibits appraisers and appraisal management companies hired by lenders from having financial or other interests in the properties or the credit transactions. • Prohibits creditors from extending credit based on appraisals if they know beforehand of violations involving appraiser coercion or conflicts of interest, unless creditors determine that the values of the properties are not materially misstated. • Prohibits a person who prepares a valuation from materially misrepresenting the value of the consumer’s principal dwelling, and prohibits a covered person other than the person who prepares valuations from materially altering a valuation. See Regulation Z, 12 CFR § 1026. 42 SAFE Comprehensive: ● 02/27/15 Refer to page 87 55

Chapter 3: Federal Laws & Regulations TILA Amendments – Reg Z • Prohibits any covered person from falsifying a valuation or inducing a misrepresentation, falsification, or alteration of value. • Requires that creditors or settlement service providers that have information about appraiser misconduct file reports with the appropriate state licensing authorities if the misconduct is material (i. e. , likely to significantly affect the value assigned to the consumer’s principal dwelling). • Requires the payment of reasonable and customary compensation to appraisers who are not employees of the creditors or of the appraisal management companies hired by the creditors. See Regulation Z, 12 CFR § 1026. 42 SAFE Comprehensive: ● 02/27/15 Refer to page 87 56

Chapter 3: Federal Laws & Regulations TILA Amendments – Reg Z • Requires disclosure in 2 general areas: – When creditors offer credit, but before the transaction is consummated. – When credit terms are advertised to potential customers. • Disclosures required: – Truth in Lending Statement (TIL) and a guide on how to read the TIL – Consumer Handbook on Adjustable Rate Mortgages (CHARM booklet) – When Your Home is on the Line Disclosure SAFE Comprehensive: ● 02/27/15 Refer to page 88 57

Chapter 3: Federal Laws & Regulations Deceased Borrower Successors • Upon the death of the primary obligor, the mortgage servicer may request documentation that evidences the death of the borrower as well as the identity and the legal interest of the successor in interest. • The Garn-St Germain Depository Institutions Act of 1982 prohibits the creditor from exercising a due-on-sale clause based upon certain types of transfers, including the common situation of transfer upon death of a relative. See 12 U. S. Code § 1701(j)(3) SAFE Comprehensive: ● 02/27/15 Refer to page 88 & 89 58

Chapter 3: Federal Laws & Regulations Deceased Borrower Successors • Servicers are required to try to establish telephone or personal communication with a delinquent borrower within 36 days of a missed mortgage payment. • The CFPB expects mortgage servicers who become aware of a potential successor in interest to make the same good faith attempts at “live contact” that is expected in loss mitigation. SAFE Comprehensive: ● 02/27/15 Refer to page 88 & 89 59

Chapter 3: Federal Laws & Regulations Deceased Borrower Successors Is this transaction an assumption and if so, does the Ability to Repay regulation apply because the successors now have a new mortgage? • The Ability to Repay Rule does not apply to a transaction in which a successor seeks to take on the debt secured by property where the successor previously acquired title. • Ability to Repay Rule does apply when a consumer, without an existing interest, takes on the obligation of the existing borrower in order to finance the acquisition of the consumer’s principal dwelling. See Regulation Z, 12 CFR § 1026 Truth in Lending, 12 CFR § 1026. 20(b); 12 CFR § 1026. 43) SAFE Comprehensive: ● 02/27/15 Refer to page 88 & 89 60

Chapter 3: Federal Laws & Regulations Knowledge Check 1. Individuals who inherit or receive property from a relative with a mortgage that is subject to an existing mortgage are known as A. mortgagors in trust. B. obligors in succession. C. successors in interest. D. trustors in auction. SAFE Comprehensive: ● 02/27/15 Refer to page 90 61

Chapter 3: Federal Laws & Regulations Knowledge Check 2. Finance charges include any charges of fees payable directly or indirectly by the consumer or imposed directly or indirectly by the financial institution to obtain the loan and can include all of the following EXCEPT A. appraisal fee. B. flood insurance. C. hazard insurance. D. private mortgage insurance. SAFE Comprehensive: ● 02/27/15 Refer to page 90 62

Chapter 3: Federal Laws & Regulations Summary 1. The Dodd-Frank Act integrated two separate consumer disclosures, the Good Faith Estimate required by RESPA, and the Truth In Lending Statement, required by the Truth In Lending Act, into one easy-to-read disclosure. 2. Lenders must adhere to only the six (6) items required to have a complete application. Creditors are prohibited from adding additional required items. 3. The new Closing Disclosure form combines the HUD 1 Settlement Statement and the Truth In Lending Statement. This combination led to many differences within the forms. SAFE Comprehensive: ● 02/27/15 Refer to page 90 63

Chapter 3: Federal Laws & Regulations Summary 4. For a changed circumstance, a revised Loan Estimate must be issued four business days prior to loan consummation. A Loan Estimate may not be issued after the Closing Disclosure has been delivered to the consumer. 5. If the loan is subject to rescission as prescribed by TILA, all parties must receive a Closing Disclosure. If not, only the borrower with primary liability is required to receive the Closing Disclosure. 6. A Qualified Mortgage does not allow toxic loan features and caps the debt to income ratios at 43% of the gross income. 7. FHA did not extend the flipping waiver on “flipped” homes, therefore, a seller cannot sell a home to a FHA insured buyer within 90 days of the seller’s acquisition date. SAFE Comprehensive: ● 02/27/15 Refer to page 90 64

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 1. The TILA-RESPA Integrated Disclosures, implemented October 3, 2015, are designed to help consumers A. become better and more informed shoppers for consumer loans. B. know the methods available to file a consumer complaint. C. understand property appraisals. D. understand the right of rescission on a purchase. SAFE Comprehensive: ● 02/27/15 Refer to page 91 65

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 2. Borrowers looking to buy a single-family home can input their information and review what interest rates they will likely be offered by accessing the A. Know Before You Owe website. B. Rate Checker. C. Trulia website. D. Zillow. SAFE Comprehensive: ● 02/27/15 Refer to page 91 66

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 3. For purposes of initial disclosures, the day on which the offices of the business entity are open to the public for carrying on substantially all the entity’s business functions is known as a A. business day. B. legal holiday. C. rescission day. D. work day. SAFE Comprehensive: ● 02/27/15 Refer to page 91 67

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 4. The only fee that an MLO may collect prior to delivery of the Loan Estimate, Special Information Booklet, and the MSDS is the _______ fee. A. application B. appraisal C. credit report D. lock in SAFE Comprehensive: ● 02/27/15 Refer to page 91 68

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 5. The requirements for a complete application include all of the following EXCEPT A. the address of the subject property. B. gross monthly income. C. two months of recent bank statements. D. The name of the borrower. SAFE Comprehensive: ● 02/27/15 Refer to page 91 69

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 6. The new Loan Estimate does not apply to all real estate loans. All of the following loan types are exempt from the new disclosures EXCEPT A. home equity lines of credit. B. home equity loans. C. reverse mortgages. D. timeshare loans. SAFE Comprehensive: ● 02/27/15 Refer to page 91 70

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 7. A lender may not use _______ on the Loan Estimate. A. N/A B. POD C. TBD D. UNK SAFE Comprehensive: ● 02/27/15 Refer to page 91 71

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 8. The Closing Disclosure discloses the settlement service provider charges the borrower will pay and all of the following EXCEPT A. assumption of the mortgage loan. B. escrow account information. C. negative amortization features. D. rate lock in information. SAFE Comprehensive: ● 02/27/15 Refer to page 91 72

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 9. The total amount of interest a consumer will pay over the loan term as a percentage of the loan amount is referred to as the A. annual percentage rate. B. interest plus PMI charges. C. total finance charge. D. total interest percentage. SAFE Comprehensive: ● 02/27/15 Refer to page 91 73

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 10. If a revised Loan Estimate is mailed or delivered electronically (email, fax, etc. ), the consumer is considered to have received it A. the date the disclosure is emailed or faxed. B. the date it is received. C. three business days after the disclosure is mailed or sent. D. three business days after the disclosure has been prepared. SAFE Comprehensive: ● 02/27/15 Refer to page 91 74

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 11. When providing the Loan Estimate or a revised Loan Estimate, a business day is considered to be A. all calendar days except Sundays. B. all calendar days except Sundays and legal public holidays. C. the day a business entity is open for business to the public for the purpose of transacting substantially of the entity’s business. D. the day the Loan Estimate is prepared. SAFE Comprehensive: ● 02/27/15 Refer to page 91 75

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 12. When providing the revised Loan Estimate prior to the delivery of the Closing Disclosure, a business day is considered to be A. all calendar days except Sundays. B. all calendar days except Sundays and legal public holidays. C. the day a business entity is open for business to the public for the purpose of transacting substantially of the entity’s business. D. the day the Loan Estimate is prepared. SAFE Comprehensive: ● 02/27/15 Refer to page 92 76

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 13. If a changed circumstance exists prior to loan consummation, a creditor may NOT provide a revised Loan Estimate to a consumer within ___ business days of loan consummation. A. 1 B. 2 C. 3 D. 4 SAFE Comprehensive: ● 02/27/15 Refer to page 92 77

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 14. Delivering the Closing Disclosure to the borrower is the responsibility of the A. creditor. B. MLO. C. mortgage broker. D. settlement agent. SAFE Comprehensive: ● 02/27/15 Refer to page 92 78

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 15. Delivering the Closing Disclosure to the seller is the responsibility of the A. creditor. B. MLO. C. mortgage broker. D. settlement agent. SAFE Comprehensive: ● 02/27/15 Refer to page 92 79

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 16. With a mortgage loan that is rescindable under the Truth In Lending Act, the Closing Disclosure must be delivered to A. all borrowers who have the right to rescind. B. the borrower(s) with the primary responsibility for the mortgage loan. C. co-signers for the mortgage loan. D. the settlement agent for notarization. SAFE Comprehensive: ● 02/27/15 Refer to page 92 80

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 17. Adjustable rate disclosures that are required to be signed at closing need only be provided to the borrower who A. expresses an interest in receiving a copy. B. has primary responsibility for the mortgage loan. C. have the right to rescind. D. is a co-signer for the mortgage loan. SAFE Comprehensive: ● 02/27/15 Refer to page 92 81

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 18. Loan consummation is the day that the A. borrower becomes contractually obligated on the credit transaction. B. borrower becomes contractually obligated to the seller to perform on the sales contract. C. mortgage loan funds. D. refinance loan documents are fully executed. SAFE Comprehensive: ● 02/27/15 Refer to page 92 82

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 19. A Loan Estimate that is made in good faith is determined by the closing costs quoted on the Loan Estimate and on the Closing Disclosure. For a Loan Estimate to be made in good faith, the costs on the Loan Estimate should be A. disclosed on a changed circumstance form. B. higher than what is charged on the Closing Disclosure. C. lower than what is charged on the Closing Disclosure. D. re-disclosed on a revised Loan Estimate delivered to the borrower at least one business day before loan consummation. SAFE Comprehensive: ● 02/27/15 Refer to page 92 83

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 20. A changed circumstance for the purpose of the Loan Estimate can be any of the following EXCEPT A. an event that is beyond the control of the creditor or borrower. B. information that was known or provided at the time of application but changed after the application, altering the interest rate of the loan. C. the mortgage loan originator neglected to inform the borrower of the additional cost and necessity of a review appraisal when requested. D. new information regarding the borrower or the loan that the creditor did not rely on when providing the original Loan Estimate. SAFE Comprehensive: ● 02/27/15 Refer to page 92 84

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 21. When a borrower completes a loan application/disclosures but instead of locking the interest rate at the time of application, locks the rate at a later date, a lender has ____ business days to redisclose the terms of the locked loan. A. There is no requirement to disclose. B. 1 C. 2 D. 3 SAFE Comprehensive: ● 02/27/15 Refer to page 92 85

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 22. Items on the Loan Estimate that have no tolerance restrictions for change include all of the following EXCEPT A. hazard insurance. B. periodic interest. C. private mortgage insurance. D. property taxes. SAFE Comprehensive: ● 02/27/15 Refer to page 92 86

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 23. Charges for third-party services paid by or imposed on the consumer are grouped together and subject to a 10% cumulative tolerance. These fees can include all of the following EXCEPT the A. lender processing fee. B. location survey. C. owner’s title policy. D. recording fees. SAFE Comprehensive: ● 02/27/15 Refer to page 93 87

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 24. If a borrower is quoted $200 for a termite report and no termite report is required or performed, what must be done? A. The fee is charged and then credited to the borrower for payment of other settlement costs. B. The fee is deducted from the aggregate amount for the 10% tolerance calculation prior to analyzing the amount for a 10% variance. C. The fee remains as a part of the aggregate amount for the 10% tolerance calculation and is included in the analysis for a 10% variance. D. The fee reverts to the creditor issuing the Closing Disclosure. SAFE Comprehensive: ● 02/27/15 Refer to page 93 88

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 25. If the amounts paid by the consumer at closing exceed the prescribed tolerance thresholds, a credit must refund the excess to the consumer no later than A. at closing. B. within five (5) calendar days of loan closing. C. within 30 calendar days of closing. D. within 60 calendar days after consummation. SAFE Comprehensive: ● 02/27/15 Refer to page 93 89

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 26. A creditor must deliver to the consumer, or place in the mail, the revised Loan Estimate no later than business day(s) after receiving information regarding a fee that qualifies as a changed circumstance. A. 1 B. 3 C. 5 D. 30 SAFE Comprehensive: ● 02/27/15 Refer to page 93 90

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 27. A creditor is generally required to ensure that the consumer receives the Closing Disclosure no later than ___ business day(s) before loan consummation. A. 0 B. 1 C. 3 D. 5 SAFE Comprehensive: ● 02/27/15 Refer to page 93 91

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 28. The three business day waiting period requirement applies to a corrected Closing Disclosure when all of the following occur EXCEPT A. the addition of a pre-payment penalty to the loan. B. changes to the loan product. C. changes to the loan’s APR. D. clerical errors made to the Closing Disclosure. SAFE Comprehensive: ● 02/27/15 Refer to page 93 92

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 29. The Your Home Loan Toolkit must be distributed within ____ business days of the completed application. A. 1 B. 2 C. 3 D. 10 SAFE Comprehensive: ● 02/27/15 Refer to page 93 93

Chapter 3: Federal Laws & Regulations Chapter 3 Quiz 30. The partial payment disclosure, located in the Closing Disclosure, contains all the following disclosures EXCEPT A. the lender does not accept any partial payments. B. the lender may accept partial payments and apply them to the loan. C. the lender may hold partial payments in a separate account until a full payment is made. D. the lender will only accept partial payments after foreclosure proceedings have been initiated. SAFE Comprehensive: ● 02/27/15 Refer to page 93 94