Mortgage Laws Part 3

  1. HOEPA
    creates certain protections for high-cost mortgages
  2. high-cost mortgage
    loans with high interest rates and high fees
  3. reverse redlining
    targeting communities with limited access to credit with offers for risky subprime mortgages
  4. Loans Regulated by HOEPA
    • APR is 6.5 percentage points above average prime offer rate
    • subordinate lien: 8.5 percentage points
  5. HOEPA Disclosures
    • Special HOEPA Disclosure
    • Notice of Balloon Payment
    • Amount Borrowed
    • Notice of the Inclusion of Insurance Premiums
    • Variable-Rate Disclosure
  6. Special HOEPA Disclosure
    intended for first-time borrowers who may not be familiar with lending process or the risks associated with high-cost mortgages
  7. ATR Rule
    requires creditors to base lending decisions on a reasonable, good faith determination
  8. Counseling Requirements
    for high-cost mortgage, borrower must have certificate of HUD-approved counseling
  9. HOEPA Prohibitions
    • Balloon payments (exceptions)
    • Negative amortization
    • advances payments
    • increased interest rate after default
    • improperly calculated rebates
    • prepayment penalties
    • acceleration of debt (exceptions)
  10. HPML
    • closed-end loans that exceed average prime offer rate by:
    • 1.5 percentage points
    • 2.5 percentage points for jumbo loans
    • 3.5 percentage points for subordinate lien
  11. Requirements for HPMLs
    • 1) Establishment of an escrow account for taxes and insurance
    • 2) Appraisal Requirements
  12. escrow account
    any account established or controlled by a servicer on behalf of a borrower to pay taxes, insurance, or other charges
  13. escrow account for HPMLs
    • maintained for at least 5 years
    • borrower may request cancellation if balance is less than 80%
  14. Escrow account not required for:
    • subordinate-lien HPMLs
    • transaction secured by shares
    • transaction to finance the inititial construction of a dwelling
    • temporary or bridge loan with a term less than a year
    • reverse mortgage
    • HELOCs
  15. Appraisal Requirements for HPMLs
    general rule that creditor may not offer an HPML to a consumer without obtaining a written appraisal
  16. Appraisal requirements for HPMLs do not apply to:
    • qualified mortgages
    • transactions secured by a manufactured home
    • transactions secured by a mobile home, boat or trailer
    • transactions to finance the initial construction of a dwelling
    • bridge loans 12 months or less
    • reverse mortgages
  17. Two Appraisals Requirement
    • seller acquired home 90 or fewer days prior and new price is more than 10% more
    • seller acquired home 91 to 180 days prior and new price is more than 20% more
    • ----creditor may not charge for second appraisal
  18. Exemptions from Two Appraisal Requirement
    • government
    • acquired property thru foreclosure
    • nonprofit entities
    • seller acquired properties
    • employers
    • servicemember
    • federal disaster areas
    • rural areas
  19. LO Compensation Rule
    • intends to discourage harmful practices like:
    • basing comp on terms or loan
    • allowing dual comp
    • creating incentives for steering
  20. Loan Estimate
    • intended to help consumers compare costs and shop competitively for mortgages
    • no more than three business days after the creditor receives application
    • no later than seven business days prior to consummation (includes all days except Sunday and legal public holidays)
  21. Closing Disclosure
    disclose the actual terms of a transaction and the costs of a mortgage
  22. Consumers Intent to Proceed
    this information must be retained for at least three years
  23. Loan Estimate in Good Faith
    the aggregate amount of closing costs and recording fees does not exceed estimate by more than 10%
  24. The Revised Loan Estimate permitted:
    • changed circumstances
    • change in eligibility
    • consumer-requested revisions
    • delays caused by the consumer
    • delays related to construction loans
  25. Loan Estimate may contain up to two additional tables
    • Adjustable Payment Table
    • Adjustable Interest Rate
  26. Closing Disclosure
    • no later than three business days prior to consummation, include all days except for Sundays and legal public holidays
    • also includes a Projected Payments table and a Costs at Closing table
  27. HPA
    allows borrowers to request that lenders cancel PMI when their loan balance reaches 80%, or until 78% LTV is reached
  28. HPA Disclosures closed before 7/29/99
    only one disclosure requirement, provide the borrower with an annual notice telling them it is possible to request cancellation of PMI
  29. HPA Disclosures closed after 7/29/99
    numerous disclosure and notification requirements
  30. HMDA Primary Goal
    identify urban areas where the availability of home financing at reasonable terms is limited
  31. HMDA Three Specific Purposes
    • 1) determine if depository institutions are meeting the housing needs of their communities
    • 2) identify discriminatory lending practices and patterns
    • 3) Determine how to distribute public-sector investments where they are needed
  32. HMDA New Rules
    most are effective start of 2018, some are effective start of 2020
  33. HMDA Reporting Requirements
    requires them to collect extensive data about each mortgage loan application and origination
  34. LAR
    Mortgage lenders report the information to federal regulators using LAR
  35. FCRA
    • 1970
    • to ensure the accuracy, fairness, and privacy of consumers' personal information
    • to protect the rights of consumers, the law creates special obligations and restrictions for CRAs
  36. Consumer report
    the communication of any information from a consumer reporting agency that relates to a consumer's worthiness, credit standing, credit capacity, character, personal characteristics, or mode of living
  37. CRA
    any person who regularly engages for fees or on a cooperative nonprofit basis in the practice of assembling or evaluating of consumer credit information in order to provide consumer reports
  38. investigative consumer report
    a consumer report that is obtained thru personal interviews
  39. CRA disclosures to consumers
    if requested, CRAs must clearly disclose all information in the consumer's file
  40. FACTA Overview
    additional provisions to FCRA in order to address the problem of identity theft to facilitate consumers' access to the info retained by CRAs and to improve the accuracy of consumer reports
  41. FACTA obligations for Mortgage Professionals
    • disclosure of credit score
    • response to consumer's request for information on fraudulent transactions
    • rule for the proper disposal of consumer info
  42. Red Flags Rule
    measure included in FACTA to address identity theft
  43. Red Flag
    a pattern, practice, or specific activity that indicates the possible existence of identity theft
  44. Requirements of Red Flags Rule
    requires creditors and financial institutions to establish an Identity Theft Prevention Program
  45. Identity Theft Prevention Program
    • identify patters, practices that may indicate possible existence of theft
    • detecting irregularties when obtaining info from a person opening an account
    • preventing and mitigating identity theft by responding appropriately
    • updating the program periodically to identify new risks
  46. helpful list of red flags
    • notifications or warnings from a CRA
    • suspicious documents
    • suspicious personal identifying info
    • suspicious activity related to the covered account
    • notices from customers, identity theft victims, law enforcement
  47. Dodd-Frank Act Overview
    the law addresses a broad range of issues that relate to financial and investment activities, including mortgage lending and investing
  48. Portions of Patriot Act that impact mortgage lending
    • International Money Laundering Abatement
    • Anti-Terrorist Financing Act of 2001
  49. Title III of Patriot Act Requirements
    • Establish a CIP (Consumer Identification Program)
    • create an AML (Anti-money laundering program)
    • make suspicious activity reports
    • report receipt of currency in excess of $5000
  50. GLB Act Overview
    to ensure that financial institutions, including mortgage brokers and lenders,protect nonpublic personal info
  51. Nonpublic personal information
    personally identifiable financial information provided by a consumer to a financial institution
  52. GLB Disclosures
    • Initial Privacy Notice
    • Opt-Out Notices
    • Annual Privacy Notices
  53. The Safeguards Rule
    to ensure the protection of privacy of personal info with the creation, implementation and maintenance of an effective security program
  54. MAP Rule
    addresses misrepresentations in the advertising of mortgage products
  55. E-Sign Act Overview
    general goal is to address the validity of documents, records, and signatures that are in electronic form. Applies to interstate and foreign commerce. Many states have their own laws
  56. Do-Not-Call Registry
    allows consumers to restrict unwanted sales calls. Consumers are requires to take the initiative to place their names on the registry
  57. Do-Not-Call Requirements
    • prompt verbal disclosure
    • -the identity of the caller
    • -the fact that the purpose of the call is to sell goods or services
    • -the nature of the goods/services being sold
    • -assurance that no purchase or payment is required to participate in any type of promotion
  58. Prohibitions of Telemarketing Sales
    • use of threats, intimidation or profane language
    • placing calls to consumers before 8am or after 9pm
    • making false or misleading statements
    • requireing payment of a fee in advance
    • charging a consumer for goods or services without consent
    • failing to transmit number over caller ID
    • initiating a call to a consumer on the Do-Not-Call Registry
  59. Two Types of Mortgage Fraud
    • Fraud for Profit
    • Fraud for Housing
  60. Fraud for Profit
    the conspiratorial involvement of unscrupulous individuals coming from all areas of the mortgage lending industry
  61. Fraud for Housing
    a borrower misrepresents their employment history, credit history, intention to occupy a property, etc
  62. FERA
    enacted to facilitate the prosecution of those who commit mortgage fraud and to increase the financial resources that are available to investigate and prosecute fraud cases
  63. ATR Rule and QM Rule Requirements
    retain records to show compliance with the rules for at least three years after consummation of a covered transaction
  64. ATR Rule
    very broad
  65. QM Rule
    defines a qualified mortgage by identifying lending terms that these residential mortgage loans may not include
  66. QM may not include:
    • a term longer than 30 years
    • points and fees that exceed a % of the total loan amount (generally 3% but varies based on loan amount)
    • negative amortization
    • balloon payments (some exceptions)
    • ability to defer repayment of principal (interest-only loans)
  67. QM based on:
    • a maximum debt-to-income ratio of 43%
    • verification of income and assets
    • calculation of regular and substantially equal periodic payments
  68. QM conclusive presumption of compliance
    prime loans
  69. QM rebuttable presumption of compliance
    subprime / high-priced loans
  70. Temporary Qualified Mortgage
    • consummated before 2021
    • -the loan has all product features of a qualified mortgage
Card Set
Mortgage Laws Part 3