2021 Lending Compliance School Building for the Future

(1)

1

2021 Lending Compliance School

Building for the Future

April 26 – 29, 2021

Virtual Seminar

(2)

2

What You Will Learn

Day 1

• Regulation B (ECOA)

• Coverage

• Key definitions

• Prohibition on

discrimination

• Joint intent

• Adverse action

• ECOA & FCRA

• Government monitoring

information

• Appraisals

• Fair Credit Reporting Act

(FCRA)

• Fair Housing Act (FHAct)

Day 2

Day 3

• Regulation Z - TRID

• Consumer Mortgage

Loan Process

• Coverage

• Key definitions

• Overview of forms

• Disclosure timing

• Fee Placement

• Tolerances

• Changed circumstances

• Regulation Z (TILA)

• Open-end credit

Day 4

• Flood insurance

• RESPA

• UDAP/UDAAP

• eSIGN

• Pre-recording

• Lending to

servicemembers

• Private mortgage

insurance (PMI)

• Regulation Z (TILA)

• Coverage

• Exemptions

• Record Retention

• Key Definitions

• Closed-end

• Closed-end Disclosures

• Right of rescission

• Prohibited acts &

practices

• Valuation independence

• Ability to Repay (ATR)

• Qualified Mortgages

(3)

3

➢ SCRA

➢ MLA

Lending to Servicemembers

Modules 10 & 11

(4)

4

Click t

o

edit Mas

ter

title s

tyle

4

Credit card information is excluded from this

guide

Military Lending Act (MLA)

12 CFR Part 232

Servicemembers Civil Relief Act (SCRA)

50 USC Section 501 – 597b

Or 50 USC 3901

Effective Date Loans/Lines originated on or after October 3, 2016 Originally enacted October 17, 1940, periodically amended

Covered Loans Open- or closed-end consumer-purpose obligations or liability incurred by covered borrowers at the time of (open-end and closed-end) and during (open-end) Active Duty that are subject to a finance charge or [if not subjectto a finance charge] payable in more than four installments.

Includes:

• Single pay & installment loans

• Unsecured credit

• Credit secured by bare land (e.g., lot loans) or non-dwellingstructures (e.g., garage or shed)

• Open-credit such as personal lines or overdraft protection lines ofcredit

Open- or closed-end obligations or liabilities incurred by the servicemember or theservice member’s spouse jointly, before servicemember enters military service.

• Applies to consumer and business credit

Excluded Loans • Residential mortgage (credit secured by interest in 1-4 family

dwelling)

• Purchase money motor vehicle loans if secured by motor vehicle beingpurchased

• Personal property loans secured by the personal property beingpurchased

• Credit exempt from Reg. Z

• Credit to borrower not covered by this regulation

• Credit to a consumer who is no longer a covered borrower

Obligations incurred during or after military service

(5)

5

Click t

o

edit Mas

ter

title s

tyle

5

guide

Military Lending Act (MLA)

12 CFR Part 232

Servicemembers Civil Relief Act (SCRA)

50 USC Section 501 – 597b

Or 50 USC 3901

Covered Member Member of the Armed Forces serving on:

• Active duty under a call or order that does not specify a period of 30days or less

• Active Guard and Reserve Duty

Servicemembers are members of the Uniformed Services: Army, Navy, Air Force, Marines, Coast Guard, National Guard, commissioned officers of Public Health Serviceand National Oceanic and Atmospheric

Administration in active service serving on Active Duty (Title 10)

Also includes Reserve and National Guard personnel if called to duty for period of more than 30 consecutive days (responding to national

emergencies)

Covered

Borrower Covered member or dependent2of covered member who

becomes obligatedon a consumer credit transaction or establishes an account for consumer

Covered servicemember, servicemember’s spouse, child1_,_dependent,

other personssubject to the obligations of servicemembers

Dependent2

Service members spouse, child under the age of 21, child who is a full-time student and under age of 23; child incapable of self-support due to incapacity;parents or parents-in-law if certain conditions are met; and other unmarried

individuals if certain conditions are met.

Servicemember’s spouse Servicemember’schild1

Individual for whom servicemember provided more than one-half of their support for

180 days immediately preceding an application for relief

(6)

6

Click t

o

edit Mas

ter

title s

tyle

6

guide

Military Lending Act (MLA)

12 CFR Part 232

Servicemembers Civil Relief Act (SCRA)

50 USC Section 501 – 597b

Or 50 USC 3901

General Requirement

• Three required disclosures

• Maximum MAPR of 36% - calculation includes all fees unless specificallyexcluded

o MAPR calculated at origination for closed-end credits

o MAPR calculated with each billing cycle for open-end credits

• Contract contains no prohibited terms

Credit will not bear interest rate in excess of 6% including fees for debt incurred prior to entering military service; Interest rate limit applies during period of service and oneyear thereafter.

Accrued interest and fees in excess of 6% is forgiven. Payments are recalculated to the interest rate cap

Protection from legal action during military service and for mortgages up to one year

When Rule Applies

When creditor receives an application from a Covered Borrower for a CoveredLoan and throughout line term for open-end credit as long as borrower continues to meet definition of Covered Borrower.

Applies to loans originated AFTER covered borrower enters active duty.

Upon notice by servicemember of active duty status. If notice is not

provided at thattime, servicemember has up to 180 days after release from military duty to request relief. Creditor must retroactively adjust interest calculation and payments.

Does NOT apply to loans originated AFTER covered borrower enters active duty.

Disclosures Timing and Content

Timing: Three disclosures must be provided to the borrower, orally and in writing, before or at the time borrower becomes obligated on the transaction(for closed-end credit) or initiates first transaction (for open-end credit).

Content:

• Statement of the MAPR – Model Notice may be used

• All disclosures required by Reg. Z

• Clear description of the payment obligation (payment schedule)

Timing: HUD SCRA Notice must be send to all homeowners who are in default on a residential mortgage loan within 45 days from the date a missed payment was due. The notice is not required if the overdue payment is made within the 45-day period.

Content:

Model Notice must be used: HUD SCRA Notice

(7)

7

Click t

o

edit Mas

ter

title s

tyle

7

guide

Military Lending Act (MLA)

12 CFR Part 232

Servicemembers Civil Relief Act (SCRA)

50 USC Section 501 – 597b

Or 50 USC 3901

Coverage Determination

Applicant is not responsible for notifying creditor of covered borrower statusCreditor is not required to verify military status

• Safe Harbor Protections Available

Covered borrower must submit a written request to creditor and include a copy of their military orders for interest rate and other protections for interest rate and feereduction.

Foreclosure: No notice is required in connection with a foreclosure or other debt enforcement action against real estate. Creditor must inquire about military status using DMDC database prior to initiating legal action

Protections Granted

• MAPR limited to 36%

• Cannot require borrower to waive right to legal recourse

• Cannot require borrower to submit to arbitration or impose otheronerous legal notice provisions

• Demand unreasonable notice as condition for legal action

• Cannot require an allotment to repay

• Cannot prohibit prepayment or charge prepayment penalty

• Prohibits use of a check or other method for repayment unless certainconditions are met

• Maximum APR of 6% for debt incurred by Servicemember and or spouse prior toentering military service

• Loan payment adjusted based on rate reduction during the period of military service and for mortgages one year thereafter. Fees may also need to be waivedduring this period. Interest related to payment reduction cannot be deferred – must be forgiven

• Protection from legal action to enforce a debt against real estate or personal property (repossessions, foreclosures and evictions) that is filed during, or withinone year after the Servicemember’s military service

o A court may stop the proceedings for a period of time, or

adjust thedebt.

o In addition, the sale, foreclosure, or seizure of real estate shall not bevalid if it occurs during or within one year after the servicemember’s military service unless the creditor has obtained a valid court order

approving the sale, foreclosure, or seizure of the real estate

Website for

status https://mla.dmdc.osd.mil https://scra.dmdc.osd.mil/ Safe Harbor _{Must check MLA status of all borrowers at application or no more}

than 30days prior to application using one of two methods below:

• Use MLA website

• Order report from national credit report agency

SCRA has no Safe Harbor provision

(8)

8

Click t

o

edit Mas

ter

title s

tyle

8

guide

Military Lending Act (MLA)

12 CFR Part 232

Servicemembers Civil Relief Act (SCRA)

50 USC Section 501 – 597b

Or 50 USC 3901

Penalties and Remedies

• Possible fine and/or imprisonment for creditor

• Void contract from inception if it contains one or more prohibitedprovisions

• Agreement to arbitrate is not enforceable

• Civil Liability:

o Actual damages sustained, but not less than $500

o Appropriate punitive damages

Appropriate equitable or declaratory relief and any other relief provided by law

o Costs of the action and reasonable attorney fees Action may be brought in any appropriate US district court regardless of the amount in controversy not later than the earlier of two years after discovery of the violation by plaintiff

o or five years after the date on which the violation

occurred.

• Possible fine and/or imprisonment for creditor

• Private right of action by servicemember against creditor including equitable anddeclaratory relief including monetary damages

• Civil penalties not exceeding $55,000 for first violation and $110,000 forsubsequent violation

• Enforcement action from US Attorney, Civil Rights Division, and federal regulators

1_{Child: Unmarried, and meets one of the following; is under 18 years of age, became permanently incapable of self-support before reaching 18 years of age, is between 18 and 23 years old and has not completed their education or training at an}

approved educational institution

2_{MLA Dependent is defined as a Servicemember’s spouse, child or an individual for whom the servicemember provided more than one-half of the individuals support for 180 days immediately preceding an application for relief.}

Specifically the term ‘‘dependent’’, with respect to a member or former member of a uniformed service, means— (A) the spouse;

a child who—

has not attained the age of 21;

has not attained the age of 23, is enrolled in a full-time course of study at an institution of higher learning approved by the administering Secretary and is, or was at the time of the member’s or former member’s death, in fact dependent on the member or former member for over one half of the child’s support; or

is incapable of self-support because of a mental or physical incapacity that occurs while a dependent of a member or former member under clause (i) or (ii) and is, or was at the time of the member’s or former member’s death, in fact dependent on the member or former member for over one-half of the child’s support;

a parent or parent-in-law who is, or was at the time of the member’s or former member’s death, in fact dependent on him for over one-half of his support and residing in his household; an unmarried person who—

is placed in the legal custody of the member or former member as a result of an order of a court of competent jurisdiction in the United States (or possession of the United States) for a period of at least 12 consecutive months; either—

has not attained the age of 21;

has not attained the age of 23 and is enrolled in a full time course of study at an institution of higher learning approved by the administering Secretary; or

is incapable of self-support because of a mental or physical incapacity that occurred while the person was considered a dependent of the member or former member under this subparagraph pursuant to subclause (I) or (II); is dependent on the member or former member for over one-half of the person’s support;

resides with the member or former member unless separated by the necessity of military service or to receive institutional care as a result of disability or incapacitation or under such other circumstances as the administering Secretary may by regulation prescribe; and

is not a dependent of a member or a former member under any other subparagraph

(9)

9

HUD Homeownership Counseling Notice

• Homeownership Counseling Notice

• Notice is required when

• Loan is secured by a one-family dwelling that is

• Borrower‘s principal dwelling, and

• Reason for the delinquency is a reduction in the

income of the borrower, or anyone who contributes

to the borrower‘s income, because of an

involuntary loss of or reduction in employment

• FHA Mortgagee Letter also provides that notice may be sent

beginning on the 32nd day, but no later than the 45th day from the

date payment was due, for each delinquency episode

• Do not always know if failure to pay is due to loss of

employment/income, so send to all

• Applies to consumer and commercial loans

• Notice may be provided on periodic statement

• Regulation Z, Appendix H, Model form H-30(D)

H-30(D) Sample Clause for Homeownership

Counselor Contact Information

Housing Counselor Information: If you would

like counseling or assistance, you can

contact the following:

• U.S. Department of Housing and Urban

Development (HUD): For a list of

homeownership counselors or counseling

organizations in your area, go to

http://www.hud.gov/offices/hsg/sfh/hcc/

hcs.cfm

or call 800-569-4287.

(10)

10

SCRA Delinquency Notice

• Servicemembers HUD delinquency

notice

• Applies to

• Servicemembers and dependents

• Residential mortgage transactions

• Must be sent within 45 days of missed due

date

• Because you never really know who your

servicemembers are (could have joined or

been discharged), best practice is to send

notice to all

(11)

11

➢ Private Mortgage Insurance (PMI)

(12)

12

Homeownership Protection Act (HOPA/PMI)

• Homeownership Protection Act (HOPA)

• Applies primarily to residential mortgage transactions (RMT), defined as mortgage loan transactions consummated on or

after July 29, 1999, the purpose of which is to finance the acquisition, initial construction, or refinancing (thereof) of a

single-family dwelling that serves as a borrower’s primary residence

• Notice

• At the time of consummation of a residential mortgage transaction, the lender must give the borrower certain

disclosures that describe the borrower’s rights with regard to PMI cancellation and termination

• Requirements for initial disclosures vary depending on whether the transaction is a fixed-rate mortgage, an adjustable-rate mortgage, or a

high-risk loan

• Borrower may not be charged for any disclosure required by the Act

• High-risk RMT Notice

• When PMI is required for high-risk residential mortgage transactions (as defined by the lender or Fannie Mae or Freddie

Mac), must provide written initial disclosures at consummation for all high-risk residential mortgage transactions, that in

no case will PMI be required beyond the midpoint of the amortization period of the loan, if the loan is current

(13)

13

PMI Definitions

• Residential mortgage

• Loan secured by single unit dwelling that is the principal residence of the mortgagor

• Includes mobile home and single condominium unit if principal residence

• Does not include duplexes or other multi-unit structure even if principal residence

• Does not include rentals or vacation homes

• Residential mortgage transaction

• Residential mortgage to finance the acquisition, initial construction, or refinancing of a

borrower’s principal dwelling

• More expansive than definition found in Regulation Z

• Regulation Z does not include refinances

• Regulation Z requires a consumer purpose

• Original value

• The lesser of

• The sales price of the property or

(14)

14

PMI Notices

• Initial disclosures for fixed-rate residential mortgage transactions

• When PMI is required for non-high-risk fixed-rate mortgages, must provide to

borrower at time of consummation

• A written initial amortization schedule and

• A written notice that discloses

• Borrower’s right to request cancellation of PMI and, based on initial amortization schedule, the date on

which loan balance is scheduled to reach 80 percent of original value of property;

• Borrower’s right to request cancellation on an earlier date, if actual payments bring loan balance to 80

percent of original value of property sooner than date based on initial amortization schedule;

• That PMI will automatically terminate when LTV ratio reaches 78 percent of original value of property, and

date on which that is projected to occur (based on initial amortization schedule); and

(15)

15

PMI Notices

• Initial disclosures for adjustable-rate RMTs

• Borrower may cancel required PMI on date principal balance, at borrower’s option,

either is first scheduled to reach 80% of original value of property based on

amortization schedule then in effect for that mortgage, or first reaches 80% of

original value based on actual payments;

• Servicer will notify borrower when cancellation date is reached;

• Requirement for PMI will automatically terminate on date principal balance is first

scheduled to reach 78% of original value of property;

• Borrower will be notified of termination or that PMI will be terminated as soon as

borrower is current on loan payments; and

(16)

16

Annual PMI Notice

• Annual PMI disclosure

• In each residential mortgage transaction with required PMI consummated on or after July 29, 1999, servicer must

provide borrower with an annual written statement disclosing:

• Borrower’s rights to cancellation or termination of PMI requirement; and

• An address and telephone number borrower may use to contact servicer to determine whether borrower may cancel PMI

• Beginning July 29, 1999, if PMI was required in connection with a residential mortgage entered into before July 29, 1999,

servicer must provide borrower with an annual written statement disclosing:

• That the PMI may, under certain circumstances, be cancelled by the borrower with the consent of the lender or in accordance with applicable

state law; and

• An address and telephone number that the borrower may use to contact the servicer to determine whether the PMI can be cancelled

• Notes:

• Information may be provided on the RESPA annual escrow statement or as part of annual disclosure of interest

payments made per IRS regulations on a form promulgated by IRS for that purpose

• Because of the Act’s definition of “residential mortgage”, a residential mortgage consummated prior to July 29, 1999

must receive this annual notice, even if the loan was not for the purpose of financing the acquisition, initial

(17)

17

Cancellation of PMI

• Borrower can submit written request to cancel PMI when

• The cancellation date is imminent or has been reached

• Borrower must also:

• Have good payment history

• If required, prove that the present value of the property has not declined

• Certify that there are no junior or subordinate liens on the property

• If cancellation request denied

• Provide reasons to borrower

• If based upon appraisal then include results of appraisal

(18)

18

Termination of PMI

• PMI must terminate on termination date unless

• Loan is not current

• PMI must terminate on the first date thereafter that the borrower becomes current

• If loan is high risk mortgage based upon an initial determination by the lender

• Loan does not need to be current

• If PMI not terminated because of delinquency

(19)

19

Notification on Cancellation or Termination

• If PMI either cancelled or terminated

• Must notify borrower in writing within 30 days that PMI is no longer required

• No additional premiums shall be due

• Must return any unearned premiums under PMI policy within 45 days

(20)

20