1
Mortgage Lending
Compliance
Presented on behalf of CUNA by
Mary-Lou Heighes
Compliance Plus, Inc.
mheighes@cuaskme.com
Mortgage Compliance Self
Study
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Regulation B
4Penalties
100-1000 individual
500,000 class action
or 1% of net worth
Other damages under state
law
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• Overt
• Disparate Treatment
• Disparate Impact
• Effects Test
Protected Classes
•
ECOA
– Race or color
– Religion
– National Origin
– Sex
– Marital status
– Age
– Receipt of public
• FHA
– Race or color
– Religion
– National Origin
– Sex
– Familial status
– Handicap
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Applications
• Acceptance
– Cannot make oral or written statement discouraging applications
– Only real estate applications are required to be in writing
• Different rates for different borrowers not
prohibited as long as it is not higher for
protected classes
• Sex- applications must be neutral
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Applications
• Marital Status
– Cannot obtain info on applicants requesting individual unsecured credit in noncommunity property state
• OK to gather spousal info if:
• Spouse will be contractually liable or a user of the account, • The member is relying on spousal income for repayment • Member is relying on alimony or child support
• Community property states or relying on property located in a community property state for repayment
– Spousal info can be requested in community property state
• Alimony, Child Support, Dependents
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Applications
• National Origin
– Residency, immigration status ok
• Age
• Credit History – all available info on credit
of the type the credit union considers
• Collection of HMDA info ok too
Applications
• Income – amount and duration
– Protected:
• part-time,
• alimony, child support separate maintenance (written agreement or court order, regularly received, how long, can court compel payment, creditworthinessetc.), - cannot request it
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• Creditworthy Applicants • Joint Applicants
• Collateral Owners • Cosigners/Guarantors
• Cannot require the signature of a spouse or other person if the individual qualifies
– Spousal signature ok on security instrument for jointly held property securing the loan, or if relying on spousal income for repayment
– If requesting guarantor, do not request spouse
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Adverse Action Notice
• Written
• Within 30 days of completed application
• Statement of action taken, name and
address of CU, non-discrimination
statement, NCUA address, reasons
• Principal Applicant
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Credit Decisions
• Completed Application
• Approval, notify within 30 days
• Counteroffers - 30 days/90 days
• Incomplete Applications - 30 days to send
notice of incomplete, must send adverse
action if no response in 30 days
• Withdrawn Applications– includes
approved but no inquiries, document in file
• Can be provided electronically, comply
with E-SIGN
Self Tests
• Any program, practice or study that is
designed and used specifically to
determine the extent or effectiveness of a
credit union’s compliance with ECOA and
Reg B and
• Creates data or factual info that cannot be
derived from loan files or other records
• Voluntary - caution
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Home
Mortgage Disclosure Act
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Completing the Loan
Application Register (LAR)
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Application or Loan Information
• Identification Number – a unique identifier
for the loan that will allow it to be retrieved
later – member name and SSN are not
recommended
• Date application received – consistently
use the date received or the date on the
application
– For purchases use N/A
Application or Loan Information
• Type of loan – conventional, FHA, VA,
Farm or Rural housing service
• Housing Type – 1-4 family (inc. condos
and co-ops) manufactured housing,
multi-family (5 or more)
• Purpose – home purchase, home
improvement or refinancing
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What if the loan is
multi-purpose?
If any part of the loan is for purchase, use home purchase;
If it is for home improvement and refinancing, use home improvement
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Application or Loan Information
• Occupancy – indicate whether it will be the
borrowers primary residence
– For multi-family dwellings and loans outside
an MSA, you may either use the code for not
applicable or use provide the information
– For loans purchased use owner-occupied
unless otherwise indicated
– Use non-owner occupied for vacation homes
and rentals
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Loan Amount
• Report the amount in thousands:
– $150,000 is 150 (rounding up for amounts of $500 or more -$150,500 is 151)
• Automated filing, add leading zeros 00151
• Home purchases – amount of the loan • Purchased loans – unpaid principal balance • Home improvement – amount of the loan
– even if some is not for home improvement
• Refinance – total amount including new and old money • Denied or withdrawn – amount applied for
• HELOC – only amount for home purchase or improvement
Preapproval
• A preapproval is a full review of the applicant’s creditworthiness resulting in a written commitment to lend
– Property may be identified later, and verification that no material change has occurred with borrower’s qualifications may be done later
– No written commitment to lend is not a preapproval, it is a prequalification and is not reportable.
• If the CU has a covered preapproval program, indicate if preapproval was requested or not
– If no covered program, enter the code for Not applicable. – Also use the code for not applicable for home improvements,
23 Code 8 Code 7 Code 6 Code 5 Code 4 Code 3 Code 2 Code 1
Preapproval request approved but not accepted (optional reporting)
Preapproval request denied Loan purchased by your institution File closed for incompleteness
No response after written request for additional information (incomplete preapprovals are not reported)
Application withdrawn
Express withdrawal before a credit decision is made (withdrawn preapprovals are not reported)
Application denied
includes unaccepted counteroffers
Application approved but not accepted
Includes no response
Do not use for preapprovals (see below)
Loan originated
Includes accepted counteroffers
Includes ones resulting from a preapproval
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Date Action Taken
date of express withdrawal Withdrawal
date action taken or date notice is sent to applicant Denials, unaccepted
approvals and
incomplete applications
date of purchase Purchased
settlement or closing date, include preapprovals
Originated
paper 01/02/2009 electronic 2009/01/02 Format
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Property Location
• Metropolitan Area• State and County • Census Tract
• Census Tract Number
• Property outside an MSA – can use NA • Can also use NA for
– All fields on any property located in an MSA where you have no home or branch office (credit union, not CUSO).
– Preapprovals that were denied or not accepted
• http://www.ffiec.gov/Geocode/default.aspx • http://www.ffiec.gov/hmda/default.htm
• Must also be reported on purchased loans even if not provided by seller
GMI
• Not required to report GMI for loans purchased
by the credit union
• For loan applications by telephone, mail or
internet, the credit union must still attempt to get
the information. If it is not provided by the
applicant use the code for not provided on
applications by mail, phone or internet.
– Do not use “not applicable”
• Not required to report GMI on non-natural
person applicants (businesses, trusts etc.)
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What if an applicant selects more
than one race or ethnicity?
Submit all the selections of the
applicant if possible.
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What if there is more than one
co-applicant?
Provide the information for the first
co-applicant listed.
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GMI
• Sex
– Only use not applicable for non-natural
persons or purchases
– For internet, telephone and mail applications,
if not provided by applicant(s) use the code
for “not provided in a mail….”
Income
• Use the gross annual income that was relied
upon in making the decision
– Round to the nearest thousand (e.g. $35,500 is 36)
• Use NA - not applicable
– If no income was requested or relied upon, – For employee loans
– For multifamily dwellings – loan purchases and
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Type of Purchaser
• Code 0- loan was not originated, loan was not
sold in the calendar year covered by the report
– Includes loans denied, withdrawn, approved but not accepted, and incomplete
– Originated or purchased loans that were not sold
• Loans sold later are not reported
• Other purchasers: Fannie, Ginnie, Freddie,
Farmer, Private investor, other bank or savings
assoc.,
• Code 7 sale to another credit union or mortgage
co.
• Code 8 to an affiliate
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Denial Reasons
Insufficient number of credit references provided; Unacceptable type of credit references provided; No credit file; Limited credit experience; Poor credit performance with us; Delinquent past or present credit obligations with others;
Garnishment, attachment, foreclosure,
repossession, collection action, or judgment; and Bankruptcy.
Code 3—Credit history
Temporary or irregular employment, and Length of employment.
Code 2—Employment history
Income insufficient for amount of credit requested, and Excessive obligations in relation to income. Code 1—Debt-to-income
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Denial Reasons
Value or type of collateral not sufficient. Code 4—Collateral
Length of residence; Temporary residence; and Other reasons specified on notice.
Code 9—Other
Mortgage insurance denied Code 8
Credit application incomplete Code 7
Unable to verify credit references; Unable to verify employment; Unable to verify income; and Unable to verify residence.
Code 6—Unverifiable information
Insufficient cash (downpayment, closing costs) Code 5
Rate Spread – old way
• The rate spread will be calculated on loans that have an APR 3% (firsts) or 5% (subordinate lien) above the rate of a Treasury Constant Maturity issue with a comparable term.
– The CU obtains these rates from the FRB’s H15 Statistical Release“Treasury Securities of Comparable Maturity under Regulation C”
– Use 15thof the month before the rate was locked
• April 31 – use April 15
• April 13th– use March 15
• Use NA for home improvement loans, applications that do not result in origination, unsecured home
improvement loans, and purchased loans
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If the APR is 9.45% on a first lien
(20 years) and the yield on a 20
year Treasury Constant Maturity
security is 5.21%, the difference
is 4.24 and will be reported on
the HMDA report.
su
pe
rc
ed
ed
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Higher Priced Mortgatges/
Rate Spread
for applications received on 10/1/09 or after
• For a home purchase loan, a refinancing, or a
dwelling-secured home improvement loan that
you originated, report the spread (difference)
between the annual percentage rate (APR) and
the applicable average prime offer rate if the
spread is equal to or greater than 1.5
percentage points for first-lien loans or 3.5
percentage points for subordinate-lien loans.
Otherwise, report the code for “not applicable.”
• http://www.ffiec.gov/ratespread/newcalc.aspx
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Spread
• A calculator to aid you in determining what
number, if any, to report in this field can be
found at
www. ffiec.gov/hmda
.
• If you create your own calculator, you may use
the average prime offer rates in the tables
“Average Prime Offer Rates—FIXED” and
“Average Prime Offer Rates— ADJUSTABLE,”
or you may determine the applicable average
prime offer rate using the Board's published
Methodology Statement, all available at the
same web address.
Rate Setting
• If the loan is subject to a rate lock, the
date to use is the date of the lock
• If the loan rate adjusts after the lock, then
the date of the last re-adjustment is used
• If there is no rate lock, then the date the
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HOEPA Status
• First liens that are 8% above the rate of a
comparable Treasury Security
• Subordinate liens 10% above the rate of a
comparable Treasury Security
– Based on the H 15 statistical release
• Or have more than 8 points or fees of
$583, whichever is greater
• Originations and purchased loans, not
home-purchase loans
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Lien Status
• For loans that the credit union originates,
and applications that do not result in
origination (approved but not accepted,
denied, withdrawn or incomplete)
– Report the lien status, first, subordinate or not
secured
• Use Not Applicable only for loans the
credit union purchases
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More info….
• Checklist for completing the LAR
• Checklist for certifying officer
• Data should be edited before transmission
using the FFIEC edit feature or the edit
feature in the software you are using
Data Transmission
• Use Separate LARs for the credit union and a
CUSO
• 25 or fewer entries may be reported on paper
• Data entry software is available online:
– www.ffiec.gov/ hmda/softinfo.htm
– Use the “export to regulatory agency via internet e-mail” option to submit data
• If correcting data already submitted, you must
resubmit the entire file, clearly marked as
“Complete Resubmission of 2009 file”
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Truth in Lending for
Mortgages
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Subsequent Disclosures
• Periodic Statements every billing cycle on
which there is a finance charge imposed
• Notice of change – typically required 15
days prior to change, however, for
changes previously agreed to such as
changes in rates and payments under a
HELOC, no notice is required
HELOC Freezes or Reductions
• Collateral declines significantly below appraised
value
– 50% decrease in equity at time of granting – Based on individual properties, not area
• Creditor reasonably believes that consumer
cannot make payments
– Both a material change in borrower’s financial situation and belief that payments cannot be made
• Default on a material provision
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HELOC Reductions
• OK to reduce limit or suspend further advances
– Fraud or material misrepresentation, – Failure to meet payment terms
– Actions affecting the property pledged as security
• Must implement timely reinstatement once
situation that caused reduction ceases to exist
– May require borrowers to request reinstatement – May require fee to make determination
• Reductions below outstanding balance cannot
require borrower to make higher payment
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Open End Loan Advertising
• Trigger Terms:
– Circumstance for imposing a finance charge – How the finance charge is determined
• Grace period
• Periodic Rate and APR
• Balance on which finance charge is calculated
– Any finance charge other than interest
» A finance charge is the cost of consumer credit expressed as a dollar amount – including transaction fees points, cash discounts
• Triggered Terms: minimum, fixed, transaction or other charges; APR; membership or participation fee
Home Equity LOC Advertising
• Trigger Terms: All open end requirements
(whether positive or negative) plus:
– Payment terms – Draw period – Repayment period – Length of plan
– How minimum payments are determined • You must disclose: fees that are a % of limit;
Estimate of other fees as a single $ or range; APR; Maximum APR; Discounted or premium rates (not
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HELOC Advertising
•
Balloon Payments
– Making the specified payments results in a payment more than two times the regular payment that must be paid in a lump sum at the end of the loan
– If a minimum payment is stated, and the minimum payment amount may result in a balloon payment (even if such a payment is uncertain or unlikely)
– Must state the amount and timing of the balloon payment with equal prominence and in close proximity (NO footnotes) to the stated payment
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HELOC & CE Advertising
•
Tax Implications
– Written or Internet ads secured by the consumer’s principal dwelling promoting a product where the loan amount (combined LTV) may exceed the fair market value of the property
– If you make a statement that the credit may exceed the fair market value
• Must state that the interest on the portion above the FMV is not tax deductible for Federal Income Tax purposes AND
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HELOC & CE Advertising
• Promotional Rates and Payments
– Rate is not derived using the current index and margin
– Variable rate - Payment is not derived using the current index and margin and is less than other payments using reasonably current index and margin
– Fixed rate –payment is less than other payments under the plan for a specified period of time.
– If promotional rate or payment is stated:
• Must state what the fully indexed rate would have been without the promotional rate; Amounts and time periods of fully indexed payments
• Excludes envelopes, banner ads and pop-ups
HELOC & CE Advertising
• TV and Radio ads must include a toll-free or reverse charges number with a code that allows caller to identify program to access the disclosures required for HELOC advertisements
– Multi-purpose telephone number. When an advertised
telephone number provides a recording, disclosures should be provided early in the sequence to ensure that the consumer receives the required disclosures.
• For example, in providing several options--such as providing directions to the advertiser's place of business--the option allowing the consumer to request disclosures should be provided early in the telephone message to ensure that the option to request disclosures is not obscured by other information.
– Statement accompanying telephone number. Language must accompany a telephone number indicating that disclosures are
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HELOC & CE Advertising
•
Clear and conspicuous
–
promotional rate or
payment
– Same type size as rate or payment
– Located directly above or immediately next to the specified rate or payment
– For Internet –no competing or interfering graphics or text
– No fine print, no footnotes
– Consumers must be able to see (TV, Internet), hear (radio) and comprehend disclosures
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HELOC & CE Advertising
• Reasonably current index and margin- an index and margin is considered reasonably current if:
• For direct mail advertisements, it was in effect within 60 days before mailing;
• For advertisements in electronic form it was in effect within 30 days before the advertisement is sent to a consumer's e-mail address, or in the case of an advertisement made on an Internet Web site, when viewed by the public; or
• For printed advertisements made available to the general public, including ones contained in a catalog, magazine, or other generally available publication, it was in effect within 30 days before printing.
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Closed End Ads
–
Prohibited
Acts
•
Dwelling secured loans
– Using the word “fixed”in conjunction with variable rate loans unless:
• The words “adjustable rate mortgage”, “variable rate mortgage”, or “ARM”appear first, and
• Each use of the word “fixed”is in close proximity to and equally prominent to the time period the rate and or payment is fixed and
• The fact that the rate may increase after that period
Prohibited Acts
•
Dwelling secured loans
–
Using the word
“
fixed
”
in conjunction with
non- variable rate loans unless:
• Such as stepped-rate transactions
• Each use of the word “fixed”is in close proximity to and equally prominent to the time period the rate and or payment is fixed and
• The fact that the rate may increase after that period
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Closed End Ads
–
Prohibited
Acts
•
For advertisements for variable rate and
non-variable rate transactions
– The phrase ``Adjustable-Rate Mortgage,'' ``Variable-Rate Mortgage,''or ``ARM'' appears in the advertisement with equal prominence as any use of the term ``fixed,'' ``Fixed-Rate Mortgage,'' or similar terms; and
– Each use of the word ``fixed'' to refer to a rate, payment, or the credit transaction either refers solely to the transactions for which rates are fixed
– Or for variable rates: is accompanied by an equally prominent and closely proximate statement of the time period for which the rate or payment is fixed, and the fact that the rate may vary or the payment may increase after that period.
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Closed End Ads
–
Prohibited
Acts
•
Misleading Comparisons
– Making any comparison in an advertisement between actual or hypothetical credit payments or rates and any payment or simple annual rate that will be available under the advertised product for a period less than the full term of the loan, unless:
• The advertisement includes the required disclosures and
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Closed End Ads
–
Prohibited
Acts
•
Government Endorsements (excluding FHA, VA
or similar government endorsed program)
– Any misleading statement that the loan or lender is endorsed by any federal, state or other government entity
•
Using the current lenders name in an
advertisement not sent by the current lender,
unless
– It includes the name of person or creditor making the advertisement along with a statement that it is not being made on the current lender’s behalf
Closed End Ads
–
Prohibited
Acts
•
No misleading ads referring to
– Debt-elimination–that the new loan will eliminate debt or result in forgiveness of existing loans
– “Counselor”cannot be used by a for-proift mortgage broker, creditor or its employees
•
Foreign language
–
if used to promote terms
that trigger other disclosures, must provide the
required triggered disclosures in that language
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End
• General ROR rules are the same as for HELOCs
• Tolerances for Accuracy
– Disclosures are accurate if the disclosed finance charge are overstated, or understated by no more than ½ of 1% of the face amount of the note, or $100, whichever is greater.
– If it is a refinance by a new creditor with no cash out and no consolidation of existing loans, it is 1% or $100, whichever is greater.
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Special ROR Rules for
Foreclosures – Closed End
• If the CU has initiated foreclosure proceedings
and has failed to comply with the disclosure
requirements, the transaction is rescindable if:
– A mortgage broker fee was not properly included in the finance charge
– The wrong right of rescission notice was given – The right of rescission notice was not properly
completed
– The finance charge was understated by more than $35 (overstated is OK)
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Really Really High Rate High
Fee Mortgages
HOEPA Loans
• Section 32 mortgages
• Does not apply to purchase money loans
or HElOCs
•
Rates 8% above the rate of a comparable
treasury security for 1
stliens 10% for
subordinate (or fees of $583 (1/1/09) or 8
points)
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HOEPA Disclosures
• “You are not required to complete this
agreement…”
• APR
• Regular and balloon payments
• Variable Rate
• Amount Borrowed
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HOEPA Limitations
• No balloon if loan less than 5 years• No negative amortization
• No payment of more than two advance payments from loan proceeds
• No default interest rate • Refund calculation restriction
• May only charge a prepayment penalty if:
– Not applicable after first 2 years
– Not applicable for refi by same creditor or affiliate
– Consumer’s monthly debt/gross income ratio is 50% or less at consummation and
– The payment cannot change during the first 4 years
• Limited Due on Demand clause
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Real Estate Settlement
Procedures Act
New GFE Required
• Must document why new GFE is provided and
retain for 3 years after settlement
• Changed circumstances affecting settlement
costs exceeds tolerances:
– Within 3 business days of learning of increased cost
• Changed circumstance affecting loan
– Changes due to borrower eligibility – 3 business days
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New GFE Required
• Borrower requested changes
– Affecting settlement services or loan
– Within 3 business days of request
• Interest rate dependent charges and terms
– If rate has not been locked or lock has expired
– If borrower later locks rate, new GFE for the
charge or credit for the interest rate chose,
the adjusted origination charges, per diem
interest and loan terms related to the rate
• All other terms remain the same
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New GFE Required
• Expiration of original GFE
– If borrower does not express intent to continue within 10 business days of the GFE or longer time provided, the GFE costs are no longer binding
• New Home Purchases
– If settlement will occur more than 60 days after the GFE, state that any time up until 60 calendar days prior to closing, that a new GFE may be issued
• Failure to provide notice limits (as stated above) ability to provide revised GFE
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New GFE Form
Page 1
• Top of form: property address, applicant
name and contact information and loan
originator’s contact information
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Important Dates
#2 – must be good for at least 10 business days
#3 does NOT mean that the rate is locked, just what will happen after they do lock it and how long it would be good for
#4 is listed as N/A if the rate has already been locked If there is no rate lock available then 1, 3 and 4 are N/A
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Escrow Accounts
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Trade off table
Each lender must complete the first column of the tradeoff table. The second and third columns are optional and you may complete them if you have additional products to offer
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GFE – Seller paid items
Q: If at the time a GFE is issued it is known that the seller will paysettlement charges typically paid by the borrower, how are the charges disclosed on the GFE?
– A: All charges typically paid by the borrower must be disclosed on the GFE regardless of whether the charges will be paid for by the borrower, the seller, or other party.
Q: Are charges to the seller listed on the GFE?
– A: RESPA requires that only the borrower receive a GFE. The GFE is defined as an estimate of settlement charges a borrower is likely to incur in connection with the settlement. Charges that typically would not be charged to the borrower, but would be charged to another party— such as the seller—do not have to be included on the GFE. If the borrower typically would incur charges for title services and lender's and owner's title insurance, the GFE instructions make it clear that those charges are required to be listed regardless of whether, for example, the contract requires the seller to pay for the service. If there is a question about whether the borrower or seller is to pay for a particular settlement service, the charge for that service should be disclosed on the GFE.
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Affiliated business arrangement
• Affiliated business arrangement means 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 1 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;
Affiliated Business Arrangements
• Describe the business arrangement that exists
between the two providers and give the
borrower an estimate of the second provider's
charges.
• The referring party cannot require the consumer
to use the particular provider being referred
– except where a lender refers a borrower to an attorney, credit reporting agency or real estate appraiser to represent the lender's interest in the transaction
83 Property:
Date:
This is to give you notice that [referring party] has a business relationship with [settlement services providers(s)]. [Describe the nature of the relationship between the referring party and the providers(s), including percentage of ownership interest, if applicable.] Because of this relationship, this referral may provide [referring party] a financial or other benefit.
[A.] Set forth below is the estimated charge or range of charges for the settlement services listed. You are NOTrequired to use the listed provider(s) as a condition for [settlement of your loan on] [or] [purchase, sale, or refinance of] the subject property. THERE ARE FREQUENTLY OTHER
SETTLEMENT SERVICE PROVIDERS AVAILABLE WITH SIMILAR SERVICES. YOU ARE FREE TO SHOP AROUND TO DETERMINE THAT YOU ARE RECEIVING THE BEST SERVICES AND THE BEST RATE FOR THESE SERVICES.
[provider and settlement service] [charge or range of charges] ____________________________________________________ ____________________________________________________
[B.] Set forth below is the estimated charge or range of charges for the settlement services of an attorney, credit reporting agency, or real estate appraiser that we, as your lender, will require you to use, as a condition of your loan on this property, to represent our interests in the transaction.
[provider and settlement service][charge or range of charges] _____________________________________________________ _____________________________________________________ ACKNOWLEDGMENT
I/we have read this disclosure form, and understand that [referring party] is referring me/us to purchase the above-described settlement service(s) and may receive a financial or other benefit as the result of this referral.
...[signature]
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[Sample language; use business stationery or similar heading] [Date]
SERVICING DISCLOSURE STATEMENT NOTICE TO FIRST LIEN MORTGAGE LOAN APPLICANTS: THE RIGHT TO COLLECT YOUR MORTGAGE LOAN PAYMENTS MAY BE TRANSFERRED
You are applying for a mortgage loan covered by the Real Estate Settlement Procedures Act (RESPA) (12 U.S.C. 2601 et seq. ). RESPA gives you certain rights under Federal law. This statement describes whether the servicing for this loan may be transferred to a different loan servicer. “Servicing” refers to
collecting your principal, interest, and escrow payments, if any, as well as sending any monthly or annual statements, tracking account balances, and handling other aspects of your loan. You will be given advance notice before a transfer occurs.
Servicing Transfer Information
[We may assign, sell, or transfer the servicing of your loan while the loan is outstanding.]
[or]
[We do not service mortgage loans of the type for which you applied. We intend to assign, sell, or transfer the servicing of your mortgage loan before the first payment is due.]
[or]
[The loan for which you have applied will be serviced at this financial institution and we do not intend to sell, transfer, or assign the servicing of the loan.]
Transfer of Servicing Disclsoure
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Escrow Calculation
• Aggregate analysis
– The account at some point during the year will be at zero plus no more than the “cushion” (two months escrow payments)
– Take all the premiums owed during the year and the months that they are owed. Add them all up and divide by 12. If a large premium is due before
sufficient $$ is in the account, this can be collected at the first month’s payment (or disbursal).
• Example:
– Taxes $1,200 ($550 7/25; $700 12/10) – Hazard insurance $360 on 9/20
– $1,560/12 months = $130 per month
650 -130 0 130 May 520 -260 0 130 Apr 390 -390 0 130 Mar 260 -520 0 130 Feb 130 -650 0 130 Jan * 0 * -780 700 130 Dec 570 -210 0 130 Nov 440 -340 0 130 Oct 310 -470 360 130 Sep 540 -240 0 130 Aug 410 -370 500 130 Jul 780 0 -Jun 4) bal 3) bal dis pmt
87
• A cushion of $260
was added to the
initial amount. The
lowest point of this
account should be no
more or less than the
required cushion.
1040 0 130 Jun 910 0 130 May 780 300 130 APR 650 0 130 Mar 520 0 130 Feb 390 0 130 Jan * 260 700 130 DEC 830 0 130 Nov 700 0 130 Oct 570 360 130 Sep 800 0 130 Aug 670 500 130 Jul 1040 -Jun bal dis pmt 88Annual Analysis
• If the analysis uncovers a surplus (over $50),
within 30 days must refund the surplus to the
borrower. If less than $50, may refund or just
apply to next year.
• If short/deficient (less than one month’s escrow
payment) CU can
– Allow the shortage
– Repay the shortage within 30 days
• If more than one month’s payment
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Annual Statement
• Provided within 30 days of the completion of the escrow account computation year.
• Also include previous year’s projection or initial escrow account statement
• Amount of the current mortgage payment and amount going to escrow
• Amount of past year’s monthly mortgage payment and portion in the escrow account
• Total amount paid into the escrow account during the last year • Total amount paid out (separately identified)
• Balance in the escrow account
• Explanation of how surplus/shortage is being handled
• No annual statements are required on loans in default, foreclosure or bankruptcy
Transfer of Servicing
Special Transfers
• No change in place where payment sent
with regard to transfers between affiliates,
mergers or master servicers with no
change in sub-servicer– no notice
• FHA loans are not required to have a
notice
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Special Transfers
• 30 days after the effective date
– Termination of the contract for cause
– Commencement of BK proceeding for the
servicer
– Commencement of proceedings by FDIC for
conservatorship
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At application
• Special Information Booklet – purchase
money only
• Good Faith Estimate, including information
about required providers
• Mortgage Servicing Disclosure Statement
– whether the lender intends to service the loan
or transfer it to another lender,
– information about complaint resolution
Before Settlement
• Affiliated business arrangement statement
– at time of referral
• Settlement statement – available to
borrowers upon request 1 day prior to
closing, may be an estimate
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At Closing
• Settlement statement
– If both borrower and seller are not present at the same time, should be mailed as soon as possible after closing
• Initial Escrow Statement
– itemizes estimated taxes, insurance premiums and other charges to be paid from the Escrow Account during the first 12 months of the loan
– it lists the Escrow payment amount and any required cushion.
– usually given at settlement, but the lender has 45 days from settlement to deliver it
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During the loan
• Annual Escrow Statement
– given annually
– summarizes escrow account deposits and payments during the twelve month computation year
– nofies the borrower of any shortages or surpluses in the account and advises the borrower about the course of action being taken.
• Servicing Transfer Statement
– required if the loan servicer sells or assigns the servicing rights to a borrower's loan to another loan servicer
• the existing loan servicer must notify the borrower 15 days before the effective date of the loan transfer
• must include the name and address of the new servicer, toll-free telephone numbers, and the date the new servicer will begin accepting payments
– as long the borrower makes a timely payment to the old servicer within 60 days of the loan transfer, the borrower cannot be penalized
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Penalties
• Borrowers can sue for 1 year for violations regarding kickbacks and unearned fees or involving title companies • Borrowers can sue for 3 years for violations involving
servicing of mortgage loans and escrow accounts • HUD, a state attorney general or insurance
commissioner may sue for the above violations for 3 years
• HUD can assess civil penalties for failure to provide initial and annual escrow statements
• Borrowers entitled to restitution if GFE tolerance limits are not met
• New RESPA FAQs updated 1/20/2010
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S.A.F.E. Act
• Mortgage loan originators must be registered with the Nationwide Mortgage Licensing System and Registry (Registry), a database established by the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators
• Establishes the registration requirements for mortgage loan originators employed by federally-regulated institutions, and also requires the adoption of policies and procedures to ensure compliance
• Requires mortgage loan originators to obtain a unique identifier through the Registry that will remain with that originator, regardless of changes in employment. • Proposed rules June 1, 2009 – 180 day delayed
implementation after the registry is up and running
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Homeowner’s Protection Act
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Private Mortgage Insurance
• PMI protects mortgage lenders against financial
loss if the borrower defaults.
• When borrowers put less downpayment on a
home, the risk of default is greater so PMI is
often required as a condition of obtaining a loan
with a higher LTV ratio (usually above 80%)
• HOPA applies to loans for the acquisition,
construction or refinancing of 1-4 family primary
residences
PMI requirements
• Initial disclosures – fixed rate
– Written initial amortization schedule
– Written notice statement that the member may cancel PMI, specifying the date it may be requested
– The member may cancel PMI based on actual payments
– PMI may terminate automatically on a specific date – Specifies whether the exemption for high risk loans
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PMI Requirements
• Initial Disclosures - Adjustable Rate
• The the member may cancel PMI and the
servicer will notify the member when the date is
reached
• PMI can terminate automatically on the
termination date and the member will be notified
of the termination (loan must be current)
• Exemption for high risk loans
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HOPA cancellation
• Cancellation Request
– Submit request in writing
– Good payment history
– Be current
– Property has not declined below its original
value and no subordinate lien
• Automatic cancellation at 78% of original
value
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Annual Notice
• Every year the service must provide notice
of borrower’s right to cancel
• Can be on RESPA annual escrow notice
or
• 1098 mortgage interest statement
Cancellation
• Within 30 days notify the borrower in
writing
• That PMI has terminated
• Borrower no longer responsible for PMI
payments
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CU Paid PMI
• When the credit union absorbs the cost of the PMI premiums, it usually charges more in interest. Therefore a disclosure is required:
– PMI cannot be cancelled by member
– Usually results in higher rate than if member paid for the insurance
– Can only be terminated with a refi, payoff or loan termination – Both coverages have advantages and disadvantages and an
analysis
– Lender paid insurance may be tax deductible.
• Also provide notice of other financing options on date when borrower-paid PMI would normally be cancelled.