20 hour safe loan originator pre-licensing 2016-2017 slides

20 Hour SAFE Comprehensive Pre-Licensing and Exam Prep

C-1167

WA State Pre-LicensingC-3430

Jillayne Schlicke

Jillayne Schlicke

National Association of Mortgage Fiduciaries

Section 1 Introduction Introduction of trainer Introduction of students

Who are you Where do you work What do you do?

Exam anxieties

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Section 1 Module 1.1

UST Uniform State Test $1103 hrs, 10 min115 questions plus 10 sample questions75% to passIf you pass you will know your score.If you fail, they will give you a printout showing

your strong and weak areas.Prometric.com

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Exam Components23% Federal Law

23% General Mortgage Knowledgeprograms, products, terms

25% Loan Originationapplication, qualifying, title, escrow, math

16% Ethicsconsumer protection, fraud, fair housing

13% Uniform State Contentlicensing law, prohibited practices

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Section 1 Module 1.1Exam prep basics: If you understand the purpose of

each law, you are on your way to selecting the best answer on a multiple choice exam.

There will be two obvious wrong answers. If you know the purpose of the law, you will be able to spot these. Of the two that remain, one will be a little bit better than the other.

Exam writers do not write trick questions. The language of the test questions look tricky because you are being tested on law and most lay people are not use to reading law on a daily basis. This is the only fair way to deliver a 50-state exam.

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Section 1 Module 1.1There are many different learning styles. I will try to

touch all of these throughout the next three days.Auditory-learns by listeningVisual-learns by processing imagesTactile-learns best when writing Whole Body-learns best when entire body is engagedEmotional-learns best when complex info can be tied

to an emotionLearning disabilities-

You may be eligible for extra accommodations if you have a diagnosed learning disability. Contact the NMLS after reading the exam candidate handbook.

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Section 2 Module 2.0Depository

BankChecking,

savingsCAN fund its

own loansLOs are

“registered”

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Mortgage BrokerNo ck/svgsDoes NOT fund

its own loans Pure middlemanFor a fee, finds

the mortgage money

LOs are licensed.In some states,

these LOs owe fiduciary duties to clients

Non-Depository Lender

Non-Bank Lender

No ck/svgsCAN fund its

own loans via lines of credit with banks

LOs are licensed

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The Mortgage Machine

A mortgage is like a machine with many moving parts.Shout out all the different entities/different jobs that are involved with creating a mortgage loan….

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The Mortgage Machine Realtors Customers/Clients/Consumers credit Loan originators Processing, underwriting Escrow closers, title insurance Funder….quality control….auditor Investors…..secondary market Appraisers Regulators….government Insurance….fire/hazard…mortgage insurance…

flood

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There are many moving parts in the Mortgage Machine. The function of loan origination is just one piece.

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Title Insurance, Escrow

Secondary marketUnderwritingAppraiserHome inspectorLoan originatorLO AssistantsLoan processorsRealtors/ Real estate

brokersMortgage insurance Hazard insuranceFlood insuranceState/Fed regulators

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Section 2 Module 2.2 Residential Loan ApplicationAssignment:

Break into small groups and talk about sections of the loan app:

What sections might the customers ask you about?

What sections might the customer consider lying?

What sections might the customer refuse to provide information?

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Section 2 Module 2.2Large group discussion:

OccupancyAssetsHMDAEducationDOBFormer employerWays of holding titleAcknowledgement, signatureOther Real Estate Owned

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Section 2 Module 2.3Last two most recent paystubsLast two years W-2sLast three months bank statementsMost recent statement on 401Ks or IRAsDocumentation of ownership of stocks, bondsLast two months statements from any investment accountInformation on current mortgage or landlord contact infoSoc number or green card for all borrowers or co-signersLetter of explanation for any known credit problemsDocumentation supporting any other incomeFor self employed, borrowers paid on commission or in the

field of sales, and borrowers who own other real property:Two years signed personal tax returns including all

schedules IRS Form 4506-T 13

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Section 2 Module 2.4FIRST RATIOPITIPrincipal, Interest, Taxes, Insurance

plus home owner’s assoc dues, if applicableDivided byTotal gross monthly income= %

SECOND RATIOPITI plus all other monthly revolving debtDivided byTotal gross monthly income= %

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Section 2 Module 2.5 Loan Processing As documents are received, processors

compare the information verified to the original loan application and consult the credit underwriting guidelines.

A processor is a liaison between the originator, the borrower, the Realtor, underwriting and management.

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Section 2 Module 2.6 Underwriting

Sufficient and stable monthly income Prior credit history Assess collateral Sufficient down payment

Other factors: Payment shock, debt-to-income ratios, cash on hand after closing, other compensating factors

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Section 2 Module 2.7 Case Study: David and Ryan Read the case study. Break into small groups

and discuss: Is this an approvable loan? Large group recap

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Section 2 Module 2.8 Ability to Repay Rule under Dodd Frank Act

Eight factors:1. Current income and assets2. Current employment3. Monthly mortgage payment4. Monthly payment on simultaneous loans5. Property taxes, fire/flood insurance, HOA dues6. Debts including alimony or child support7. Monthly total DTI ratio8. Credit history

Underwriters CAN consider other factors18

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Section 2 Module 2.9Qualified Mortgages and The Dodd Frank Act

•Regular periodic payments that are substantially equal•Loan term does not exceed 30 years•Total points and fees do not exceed 3% for loans over $100,000 •Total monthly debt to income does not exceed 43% (Back-End)

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Section 3 Credit Module 3.1Assignment: Break into small groups.Read the credit report.Question: Does this person posses decent and

reasonable credit history?If yes, why?If no, why not?

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Section 3 Module 3.2What’s in a FICO Score?

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Section 4 Title Insurance Module 4.1

What does it mean when we say we hold title to something?

Is there a document called “title” that we get when we buy a home?

Can we do anything we want with and to our home and land?

How deep into the ground and how high up do our property rights extend?

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Section 4 Title Insurance Module 4.2For a one time fee, a title insurance

company will check the public records system and disclose all matters that affect the title of real property.

They will insure against loss and defend you should somebody lay claim to your title.

Pay once, it’s good for as long as you or your heirs own the property.

Starts the day of closing and looks backward in time.

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Section 4 Title Insurance Module 4.3How does a title company protect

residential homeowners and residential lenders?

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Section 4 Module 4.4 Case StudySmall group assignment:

Read the case study “John and Sara”

Come up with 10 things a loan originator must discuss/discover before moving forward with this transaction.

10 documents10 questions…

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National Association of Mortgage FiduciariesDodd Frank ActWe now have three categories of mortgage loans

QRM Qualified Residential Mortgage (Added as part of the Dodd Frank Act of 2010)

Higher Priced (Added in 2009 as part of MDIA)1.5 or more points higher (APR) FRM3.5 or more points higher for a subordinate lien

HOEPA (Added in 1994 as Section 32 of TILA)High cost/2nd mtg/HELOC

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Truth in Lending AmendmentsRegulation Z, Subpart C, Closed End Credit, Section 226.17,General Disclosure Requirements Effective July 30, 2009

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Sample APOR test question What are the trigger thresholds under the

Dodd Frank Act for conforming loans? The Act was superseded by the new subprime

loans are ridiculous act 1.5 percentage points above the average

prime offering rate (APOR) 2.5 percentage points above the average

prime offering rate (APOR) There are no triggers

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Section 4 Module 4.5Legal rights and responsibilities of a title

company.

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Section 5 Module 5.1What is escrow?

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Section 5 EscrowModule 5.1Module 5.2Module 5.3Module 5.4Module 5.5Module 5.6

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Section 6 AppraisalsModule 6.1Module 6.2Module 6.3Module 6.4Module 6.5

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Section 7 Mortgage MathModule 7.0Module 7.1 Module 7.2Assignment: Complete the mortgage

math calculations together as a group.

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Number 3Loan Amount

104,500 divided by .95 = 110,000

Seller contribution is 3 percent.

110 x 3 = 3,300

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Number 5On a 5/1 ARM loan, the payment is FIXED for the first five years and thereafter adjusts every YEAR.

The rate the borrower will pay adjusts based on fluctuating INDEX plus the MARGIN

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Number 897,000 x 2.25% = $2182.50UP FRONT MIP

97,000 x .85% = $824.50ANNUAL MIP

Divide that^ by 12 for the monthly MIP824.50 divided by 12 = $68.71

Number 9 is a.

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Number 101241.73 X 360 = 447,022.80

447,022.80 – 189,000 = 258,022.80

Number 11.375.125.75.625

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Number 1290%

Number 13

$51,560

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Number 14Monthly taxes: 2250 div by 12 = 187.50355 div 12 = 29.58

Number 15

99,500 x .40 = $398.00

99,500 x .30 = 298.50

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Number 16Substantially Equal30 years3%5 years

Number 17CF

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Number 18a. $6500b. $2925c. $3575

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Number 19$300,000 value of home + land$60,000 is the 20% down payment$9,000 + 60,000 = $69,000 cash to close

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Section 8 Mortgage Loan Programs:

Conforming Conventional Loans Fannie Mae, Freddie Mac

Government Loans FHA, VA, USDA

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Section 8 Module 8.1 Conventional, Conforming Loans Conforming to guidelines established by

Fannie Mae and Freddie Mac. This means loans can be packaged and sold to Fannie or Freddie on the secondary market.

Handout: Fannie Mae Eligibility Matrix

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Section 8 Module 8.2 FHA

FHA = Federal Housing AdministrationFHA provides mortgage insurance on low down payment loans made by FHA-approved lenders

U.S. Department of Housing and Urban Development was created through the US Housing Act of 1937. HUD does lots of things:

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Section 8 Module 8.2 FHAWhat does HUD do?

Provides opportunities for homeownershipProvides housing assistance for low income personsHelps to rehabilitate and maintain affordable housingEnforces Fair Housing lawsHelps the homelessSpurs economic growth in distressed neighborhoods

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Section 8 Module 8.2Insuring and EndorsementWhen an FHA loan closes, the lender collects and remits an up front MIP directly to HUD via wire transfer.

Then the lender sends the original loan file (aka case binder) to the FHA HOC for review.

If the paperwork is in order, HUD transmits an electronic MIC (mortgage insurance certificate.)

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Section 8 Module 8.2GNMA = Government National Mortgage Association

Ginnie Mae is not a lender nor does it buy or sell mortgages. GNMA guarantees Residential Mortgage Backed Securities that are backed by pools of FHA loans

GNMAs are backed by the federal government

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Section 8 Module 8.2Only an FHA-approved lender can originate FHA loans

Property Types: 1 to 4 unit propertiesPurchases up to 96.5% LTV

Borrower Contributions3.5% cash investment

100% gift acceptable

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Section 8 Module 8.2Reserves are not required on 1 & 2 unit propertiesFHA loans are fully assumable No income limitations

FHA Loans are only to owner occupied borrowersExceptions:

HUD owned propertyNon-owner occupied purchase at 85% LTV

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Section 8 Module 8.2FHA Home Mortgage Insurance Programs:

203b Single Family234c Condo203h Disaster Victims255 HECM203k RehabEEM Energy Efficient Mortgage

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Section 8 Module 8.2Single Family

Owner occupied1 to 4 unitsPUDs (Planned Unit Developments)Manufactured Homes

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Section 8 Module 8.2RolesLoan originator satisfies the processorProcessor satisfies the underwriterUnderwriter satisfies managementManagement satisfies FHARole of the underwriter is to build a defensible positionFHA satisfies minimum risk for FHALenders set minimum risk for themselvesFHA might say yes but your lender might say no.

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Section 8 Module 8.2Social Security NumberHandbook 4155.1 paragraph 3-1C

HUD/FHA require all lenders to ensure that each FHA borrower, co-borrower and co-signer has their own valid Social Security Number as issued by the Social Security Administration

Verification also through FHA Connection

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Section 8 Module 8.2U.S. Citizenship Not RequiredFHA will insure mortgages made to lawful permanent and non-permanent resident aliensPermanent resident alien:

Must have evidence of permanent resident statusHave a valid social security number

Non-permanent resident alienProperty must be their principal residenceMust be eligible to work in the U.S.Have a valid social security numberHave likelihood of continued lawful status

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Section 8 Module 8.2Documentation acceptable to verify social security number includes:

PaystubValid tax returnCopy of SSN cardDriver’s licenseMedical informationService provider with access to SSA

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Section 8 Module 8.2FHA UnderwritingTOTAL Scorecard Factors:

Credit FICO scoreMonthly housing expense ratioNumber of monthly payments in reserveLoan to value ratioLoan term

These are the five biggest risk factors and the only things TOTAL looks at.Accept or Refer

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Section 8 Module 8.2FHA Underwriting:

What must an FHA borrower possess?

Decent and reasonable credit historyPerfect credit is not a requirement.

Stable, reliable, and sufficient incomeVerified funds to closeSufficient security for the loan

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Section 8 Module 8.2The Four Cs of Underwriting:

CharacterCredit

CapacityIncome

CollateralValue

CapitalLiquid assets

• Does the borrower have the ability and willingness to repay the loan?

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Section 8 Module 8.3VA = Veteran’s AdministrationSee course book

USDA = U.S. Department of Agriculture. Rural LoansSee course book

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Section 9 AssignmentReview the CSBS/AAMR Guidance on Non-Traditional

Lending

CSBS = Conference of State Bank SupervisorsAAMR = American Association of Mortgage

RegulatorsOct 2006 banking regulators published guidelines on

non-trad lending. Examples:

Interest only loansPay option ARMsReduced/no documentationSimultaneous second lien

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Section 9 CSBS/AAMR Guidance Ability to repay

Watch for payment shock

Assure borrower understands the loan terms

Avoid misleading claims…payment, rates, refi-out

Risk management strategies

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Section 9 Non-Traditional LendingModule 9.1Module 9.2 Non Conforming JumboModule 9.3 Alt AModule 9.4 Hard Money and Private MoneyModule 9.5 ARMsModule 9.6 ARM featuresModule 9.7 ARM CapsModule 9.8 Hybrid ARMsModule 9.9 Option ARMsModule 9.10 HECM Reverse Mortgage LoansModule 9.11 Suitability


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DAY 2

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Section 10 SAFE Mortgage Licensing Act

The SAFE Act of 2008

SAFE = Secure and Fair Enforcement Act

Passed in order to increase uniformity, reduce regulatory burden, enhance consumer protection, and reduce fraud. Establishes the Nationwide Mortgage Licensing System and Registry. Title V SAFE Mortgage Licensing Act of 2008

http://mortgage.nationwidelicensingsystem.org/SAFE/NMLS%20Document%20Library/SAFE-Act.pdf

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Section 10 SAFE Act“Registered Loan Originator”

An employee of:a depository institution;a subsidiary that is:owned and controlled by a depositoryinstitution ANDregulated by a federal banking agency OR

An institution regulated by the Farm Credit Admin

Title V SAFE Mortgage Licensing Act of 2008http://mortgage.nationwidelicensingsystem.org/SAFE/NMLS%20Document%20Library/SAFE-Act.pdf

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Section 10 SAFE Act

State or Federally Chartered Depository Banks:

LOs are exempt from testing and education.

NOT exempt from “registration.”

Register with the Nationwide Mortgage Licensing System (NMLS) and will be given a unique identifier.

“Registered” LOsTitle V SAFE Mortgage Licensing Act of 2008http://mortgage.nationwidelicensingsystem.org/SAFE/NMLS%20Document%20Library/SAFE-Act.pdf

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Section 10 SAFE ActIssuance of a License:

Never revokedNo felony last 7 yearsNo felony at any time re fraud, dishonesty,

breach of trust, money launderingFinancial responsibilityPre-licensing educationWritten testNet worth and surety bond


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Section 10 SAFE ActLO exam:

75% to passCan retake 3 X at 30 day intervalsIf fail 3 X, must wait 6 months

5 year lapse in license: must retake the test


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Section 10 SAFE ActContinuing Ed

3 hours Federal Law2 hours Ethics, Consumer Protection, Fraud,

Fair Housing2 hours Non Traditional Lending1 hour Undefined

No carry-oversCan’t take the same class each year.


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Section 10 SAFE ActTake the SAFE Act Quiz

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Section 11 EthicsModule 11.1 Module 11.2 Module 11.3 Module 11.4 Module 11.5

Use the following:course bookSection 11 Ethics handout

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Section 11 Module 11.1 Ethics

LawMinimum moral standard“Have to”

EthicsWhen there’s no clear statement in the law

tellingus what to do.“Ought, should.”

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Section 11 Module 11.2 EthicsDifferent sources of moral authorityReligion

We can’t use religion to solve ethical dilemmas when holding a professional role because there are thousands of different religions in the world. Which one would we use?

IntuitionIntuition can sometimes steer us in the wrong direction

Emotion“If I can’t sleep at night it’s not ethical.”If the only reason we’re choosing to do/not do something is out of fear, that’s a pretty low standard of motivation

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Section 11 Module 11.2 EthicsDifferent sources of moral authorityWritten codes of ethics

There is no source of moral authority over LOs other than the law. What written codes of ethics that do exist are voluntary and not mandatory. The written codes of ethics that exist are weak, vague, have no sanctions for violations and in most cases, just simply re-state federal law.

Philosophical ethicsMoral philosophical ethical theories can take the place of a mandatory code of ethics until one is written.

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Section 11 Module 11.3Professional StatusSpecialized knowledgeFormal, pre-licensing educationMandatory continuing educationTestLicensingFiduciary DutiesCode of ethics with sanctions for violations

Compare to non-professionals such as a retail salesperson.

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Section 11 Module 11.3 and 11.5Question: Are loan originators professional?Specialized knowledgeFormal, pre-licensing educationMandatory continuing educationTestLicensingFiduciary Duties (this is emerging in some states)Code of ethics with sanctions for violations

(this piece is not yet in place.)

LOs are classified as “an emerging profession.”

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What is ethics?

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Aristotle Kant J.S. MillRespect

honesty(promotes autonomy)

LoyaltyResponsibilityIntegrityBeneficenceNon-

maleficenceCompassionJustice

384 BC-322 BC

Duty-based ethics

If we have a duty to do something, we ought do it.

What I want for myself, I must also want for the other.

1724-1804

Utilitarianism

Maximize good consequences for the most number of people and also minimize bad consequences for the most number of people

1806-1873

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Section 11 Module 11.4 Assignment: Small group discussion:

What do you remember from past classes in ethics?

What is ethics?

Think about a person you admire or look up to as a mentor, living or dead. What do admire about that person?

Think about an ethical dilemma you’ve faced in your career. How did you solve your dilemma?

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Section 11 Module 11.4 Assignment: Large group recap after small

group discussion, while instructor slowly completes the slide with the three normative moral theories.

Lacking any mandatory, prescriptive and descriptive ethical code, this is the best way for LOs to learn ethics. The next slide lays out the following:

--what kind of person do I want to become?--what duties do I have?--what are the possible consequences?

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Section 11 Module 11.4Moral Development

The intrinsic worth, value and dignity

of all human persons. Some laws might not be moralLaw , society’s rulesThe good, norms, roles, shared

valuesPractical agreementsMorality comes from external

sources

22+

16 to 2212 to 166 to 123 to 50 to 2

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Fiduciary Duties Come from Agency LawAgency:

Consent by one person (principal) that the other (agent) act on his or her behalf.

Agency can be created by oral or written agreement OR it may be implied through conduct.

“I can get you the best loan”“I can get you the best rate”


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ManipulationCoercion

Completely

Controlled

Influences

Completely Non-

ControlledInfluences

Persuasion

SubstantiallyNot

Controlling

SubstantiallyControlling


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Duty of LoyaltyDuty of Care

What Fiduciary does will, in good faith, advance the interests of the client and not the Fiduciary’s personal interests

Act in good faithReasonable person testInformed


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Fiduciary Duties May Include…1. Disclose all loan information to

the borrower2. Act in good faith and deal fairly3. Avoiding secret fees or

undisclosed fee splitting4. No self dealing

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Fiduciary Duties are Higher When…

Broker/LO has higher level of knowledge, experience, skills

Client has limited knowledge

Client is relying exclusively on you

Greater the imbalance the higher the duty


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Remember:

Regulators do not regulate ethics, they regulate law.

It is the job of an industry to self-regulate the ethical conduct of its members.

Our regulators see “ethics” through a legal lens: consumer protection, fraud, fair housing

What is in the best interest of the client?

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Sample Ethics Question Q: An appraiser approaches you with a deal to

give you the values you need in exchange for referrals of your next 10 appraisals.

a. This is unethicalb. This is allowed under certain circumstancesc. This is only allowed with a special agreement

fee worksheet approved by DFId. This conduct could be allowed but only if the

appraisal company was owned by the mortgage company

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Sample Ethics Question A LO discovers that his/her co-worker is signing

client documents for the client. The LO asks his/her co-worker about this practice, and the co-worker answers, “my customer gave me permission to sign her name on her behalf.”

a. This is unethicalb. It’s possible that this could be allowedc. Federal law “signatures are cool” allows thisd. This practice is normal

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Section 12Consumer Protection Case Study Carnell v. KMC Funding

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Module 13.1Module 13.2Module 13.3Module 13.4Module 13.5Module 13.6Module 13.7Module 13.8

Section 13 Fair Housing

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1968 Civil Rights Act1968 Fair Housing

Act~

Protected Classes:RaceColorReligion (Creed)SexNational OriginFamilial Status

Sexual orientation added in 2012 (lending only)

Disability

Section 13Module 13.1, 13.3

Intent v. Effect

Realtors and lenders have great power to affect neighborhoods

Fair Housing/Fair Lending http://www.hud.gov/offices/fheo/lending/index.cfm

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WA GLBTQ Honorably discharged military veteran Use of a service animal

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Section 13 Module 13.2 Redlining

Denying or increasing the cost of services to residents of a racially specific geographical area

SteeringGuiding prospective homebuyers to or away from a specific neighborhood based on his/her race

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BlockbustingEncouraging white property owners to sell their homes at a loss by fraudulently implying that racial or religious minorities were moving into their neighborhood


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Section 13 Module 13.4In Mortgage Lending: No one may take any of the

following actions based on race, color, national origin, religion, sex, familial status or handicap (disability):

Refuse to make a mortgage loanRefuse to provide information regarding loansImpose different terms or conditions on a loan, such as

different interest rates, points, or feesDiscriminate in appraising propertyRefuse to purchase a loan orSet different terms or conditions for purchasing a loan.Fair Housing/Fair Lending http://www.hud.gov/offices/fheo/lending/index.cfm

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Section 13 Module 13.7Fair Housing Thought Questions

Should we make a woman on maternity leave return to work before counting her income when qualifying for a loan?

Should we make long term disabled applicants provide additional documentation proving that they will stay disabled?

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Section 13 Mortgage FraudModule 14.1 through 14.11

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FBI US Department of JusticeFinancial Crimes Report to the Public 2010-2011http://www.fbi.gov/stats-services/publications/financial-crimes-report-2010-2011

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Section 14 Module 14.1Fraud for Housing, or fraud for property, is perpetrated by borrowers and/or one or more industry professionals when they misrepresent information on the loan application. This type of fraud does not usually result in significant losses to a financial institution.

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Section 14 Module 14.1Fraud for profit consists of systematic transactions by industry professionals who are attempting to steal a significant amount of the funds associated with one or more mortgage transactions. This type of fraud usually involves multiple parties in various disciplines within the mortgage industry, such as mortgage originators, appraisers, real estate brokers, escrow closers, builders and title companies. Fraud for profit usually results in significant—if not catastrophic—losses to financial entities involved in mortgage loan transactions and it is of major concern to the mortgage industry

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Section 14 Module 14.2Property FlippingSilent SecondStraw BorrowersIdentity TheftAppraisal FraudForeclosure RescueEquity SkimmingLoan Mod ScamsShort Sale Fraud

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Section 14 Modules 14.6-14.11SARSSuspicious Activity ReportsAMLAnti Money Laundering

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Financial Crimes Enforcement Network Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for Residential Mortgage Lenders and Originators AGENCY: Financial Crimes Enforcement Network (‘‘FinCEN’’), Treasury. ACTION: Final rule.Federal Register / Vol. 77, No. 30 / Tuesday, February 14, 2012 / Rules and Regulations Page 8159Subpart C—Reports Required To Be Made by Loan or Finance Companieshttp://www.gpo.gov/fdsys/pkg/FR-2012-02-14/pdf/2012-3074.pdf

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Section 14

Reflect on everything learned today.…any final questions?Preview of tomorrow.

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DAY 3

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National Association of Mortgage FiduciariesCFPB =Consumer Financial Protection Bureau

All federal laws governing mortgage lending are now regulated by the CFPB with one exception:

Fair Housing stays with HUD

Each state also regulates it’s own state laws governing mortgage lending. State laws can be tougher than federal law.

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The Main Fed Law AcronymsTILATruth in Lending ActMDIAMortgage Disclosure Improvement ActRESPAReal Estate SettlementAnd Procedures ActTRIDTILA/RESPA Integrated DisclosureECOAEqual Credit Opportunity ActSAFESecure and Fair Enforcement Act

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Federal LawsThe laws shown in blue were passed during the late 1960s/early 1970s and notice that we are currently living through another wave of consumer protection laws directed at the mortgage lending industry.

Truth in Lending Act2009 Changes to TILA = MDIA2011 FRB Rule on LO CompR.E. Settlement and Proc. Act2010 Dodd Frank Act

2015 TRIDEqual Credit Opportunity ActFair Credit Reporting ActFair HousingOther Fed Laws2008 SAFE Act2010 Dodd Frank Act2015 TILA/RESPA Integrated Discl.

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Purpose: To promote informed use of credit.

Gives consumers the right to cancel some transactions (owner occupied refi)

Imposes cost limits on home equity loans

Regulates variable rate loansCHARM Booklet required on ARM loans

Early disclosures: 3 days from date of application, final disclosure at settlement

Section 16 Truth in Lending Act

Truth in Lending Acthttp://www.fdic.gov/regulations/laws/rules/6500-200.html

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Annual Percentage Rate/APRthe cost of the loan expressed in the form of a rate annualized over one year.

Loan amount, closing costs, note rate, loan term.

APR was designed as a shopping tool for consumers.

APR is always quoted when we quote a note rate. We are allowed to use a sample APR for advertising.

Tolerances

Section 16 Truth in Lending Act


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APR Tolerances…Can we make a mistake and still be in compliance? Yes:

Example:

|________|_______ APR 7.75_______|________|.25 .125 .125 .25 ARM FRM FRM ARM

ARM = Adjustable Rate Mortgage

FRM = Fixed Rate MortgageTruth in Lending Acthttp://www.fdic.gov/regulations/laws/rules/6500-200.html

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Common consumer question: What costs are included when calculating APR?

At a typical mortgage company, software systems are already programmed to do this for LOs. However, customers ask questions about the TILA disclosure forms and regulators expect licensees to know how to answer basic questions about the information contained in the TILA disclosure form.

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Section 16 Truth in Lending Act A closer look at APR (Annual Percentage Rate)


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IncludedPrepaid interestMortgage insurance

premiumsWire transfer feesRecording feesLoan origination feeUW, proc, adminMortgage broker feeEscrow (closing fee)Discount pointsPest inspection (VA only when

prop is located in mod to high probability of area of pest infestation and lender is paying for it.

Flood Ins. premiums111

Hazard Insurance (IF obtained from a neutral company)

Seller paid discount points

Document prep feeTitle insurance (lender

policy)Notary feeAppraisalCredit reportImpounds for taxes &

insFlood Hazard Check

Excluded

http://www.fdic.gov/regulations/laws/rules/6500-200.html

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Section 16 Truth in Lending Act A closer look at APR (Annual Percentage Rate)Tip: How to remember which costs are included/excluded when calculating APR:

Costs included

These are costs that benefit the lender or costs that the lender requires in order to obtain a loan.

Costs excluded

These are costs that are paid to and benefit third parties other than the lender.


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Sample APR questionIf seller contributes 1% to buy down the interest rate and the buyer also contributes 1% to buy down the interest rate, what is included in the APR calculation?A. buyer’s 1%B. seller’s 1%C. neitherD. both the buyer and seller’s 1% for a total of 2% discount points included in the APR Calc.

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Section 16 a closer look at APR Prepaids Prepaid finance charges = CLOSING COSTS

Impounds = a few months payments of real estate taxes, hazard insurance

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Section 16What items are included when calculating APR?

a)loan amount, closing costsb)term, note rate, loan amount, appraisal c)prepaids, term, note rate, loan amountd)term, note rate, loan amount

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National Association of Mortgage FiduciariesSection 16 Sample Question:What is the APR for the following loan?

Closing costs: $2,000Loan term: 360 monthsNote rate: 5.0%Loan amount: $200,000

a) 5.0b) 4.9c) 5.08d) 6.98

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Rescission: on an o.o. refinance, the borrower has 3 days after signing the final loan documents to cancel and receive a full refund from the lender. LOs must refund any money collected for third party services, even if spent.

For TILA RESCISSION purposes, business days include Saturday (full 24 hours.) Can the 3 day right of rescission ever be waived?

Section 16 Truth in Lending ActModules 16.4


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Section 16 TILA Module 16.4Case Study: What is the first business

day onwhich funds may be disbursed if:

Signing date: Thurs, May 2

1st bus. day: Fri, May 32nd bus. day: Sat, May 4

Sun, May 53rd bus. day: Mon, May 6

The loan can fund on Tuesday May 7th

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How many copies of the rescission notice are printed?

3

1---stays in the escrow closer’s file

2 are provided (not mailed) to the borrower

If the borrower rescinds, one is signed and mailed to escrow, and the other the borrower keeps

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Section 16 TILA Module 16.4

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Section 16 Module 16.5HOEPA =Home Ownership and Equity Protection ActRevised HOEPA Coverage Tests:

APR exceeds APOR by more than 6.5% for first lien mortgages, or;APR exceeds APOR by 8.5% for first lien mortgages under $50,000. or;APR exceeds APOR by more than 8.5% for junior or subordinate liens.

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Sample HOEPA questionWhat is the APR trigger on a first lien mortgage under HOEPA?

a) APR exceeds APOR by 6.5%b) APR exceeds APOR by 8.5%c) APOR is not a factord) APR trigger rules are irrelevant on a first lien mortgage under the special provisional “APR Sucks” amendment to the HOEPA section of the Dodd Frank Act.

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Section 16Module 16.6Truth In Lending Act Quiz

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Section 17Mortgage Disclosure Improvement ActMDIA

Module 17.1Module 17.2Module 17.3Module 17.4Module 17.5Module 17.6 --take the TILA/MDIA Quiz

Truth in Lending AmendmentsRegulation Z, Subpart C, Closed End Credit, Section 226.17,General Disclosure Requirements Effective July 30, 2009

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Section 17 Module 17.6 MDIA Quiz

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Section 18 Federal Reserve Board (FRB) ruleon Loan Originator Compensation

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Module 18.1BackgroundFTC v. Golden Empire

Mortgage

Federal ReserveRegulation Z: Loan Originator Compensation and Steering 12 CFR 226http://edocket.access.gpo.gov/2010/pdf/2010-22161.pdf

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Section 18 Federal Reserve Board Rule onLoan Originator Compensation

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Module 18.2 Three main prohibitions:P1: Compensation based on a transaction’s term

or conditions.

P2: Compensation by lender OR consumer but not both.

P3: Prohibitions against steering.Federal ReserveRegulation Z: Loan Originator Compensation and Steering 12 CFR 226http://edocket.access.gpo.gov/2010/pdf/2010-22161.pdf

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Module 18.2 Three main prohibitions:P1: Compensation based on a transaction’s term

or conditions:> Payment based on transaction terms or

conditions.> Compensation cannot go up or down based

on the loan’s terms or conditions.> Minimum or max dollar amount of

compensation may not vary with each loan.Federal Reserve

Regulation Z: Loan Originator Compensation and Steering 12 CFR 226http://edocket.access.gpo.gov/2010/pdf/2010-22161.pdf

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Module 18.2 Three main prohibitions:P2: Compensation by someone other than the

consumer.If an LO will be compensated by the consumer, the LO may not also receive compensation from the lender funding the loan, or any other person connected with that transaction.


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Module 18.2 Three main prohibitions:P3: Prohibitions against steering.

LOs may not steer a consumer to a loan only because the LO will be compensated at a higher rate by selling that product, unless the loan is in the best interest of the consumer.


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Module 18.3Review the Section 18 Handout:RESPA Roundup

RESPA Roundup: Compliance Guide for REPA as it applies to the Federal Reserve Board’s MLO Compensation Rules Published on Sept 24, 2010

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Section 19 RESPAEarly Disclosure PackageWithin 3 days of the date on the loan application, we send the early disclosures to our borrowers.

The Loan EstimateIf Adjustable Rate Mortgage, the CHARM BookletIf HOEPA, the extra required HOEPA disclosuresIf purchase-money loan, Your Home Loan Toolkit.Any other disclosures required by state and federal law.

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Section 19 RESPA Modules 19.1-19.2

PurposeTimely disclosure of settlement costsLimits on loan servicing reserve

accounts* see next slide

Prohibits seller-directed title insurance

Forbids kickbacks (Section 8. See next slide)

Disclosure of Affiliated Business Arrangements

Disclosure of potential loan servicing charges

Your Home Loan ToolkitLender required use agreements

Real Estate Settlement and Procedures Act http://www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm

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Section 19 Real Estate Settlement and

Procedures ActRESPAModules 19.2

Applies to all federally related loans; sale or refi, primary market loans only.

Exemptions: 25 acres or more, temporary financing, assumptions with lender approval, conversions (contract to deed), secondary market transactions, vacant property.

Which entities must comply?Real Estate Settlement and Procedures Act http://www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm

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Which entities must comply?Lenders (banks, brokers, etc.)Real estate agents/RealtorsTitle and XOAppraisersHome inspectorsMortgage insurance companiesCredit reporting agenciesFlood hazard check companiesAttorneysHazard insurance companiesHome warranty companiesBuilders Real Estate Settlement and Procedures Act

http://www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm

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Section 8 Referral Fees

Prohibits the giving or taking of a fee or other thing of value for a referral involving a federally related loan

Un-earned fee (also called a kickback)A fee we receive but we have performed no work in exchange for receiving the fee.



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Section 19 Module 19.2Violations of Section 8's anti-kickback, referral fees and unearned fees provisions of RESPA are subject to criminal and civil penalties.

In a criminal case a person who violates Section 8 may be fined up to $10,000 and imprisoned up to one year.

In a private law suit a person who violates Section 8 may be liable to the person charged for the settlement service an amount equal to three times the amount of the charge paid for the service.

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TILA/RESPA Definition of “an Application”

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Sample RESPA questionDuring a phone interview, borrower provides the loan originator with her name, social security number, income, estimated value of the home that she will be purchasing, and the loan amount she needs, and the property address. The loan originator has:a)Taken a loan application.b)Prequalified the borrower.c)Prequalified the borrower and early disclosures will not be sent out until the loan originator receives a fully executed purchase and sales agreement signed by all parties.d)Taken a loan application and early disclosures are due to be sent to the borrower within three days.

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RESPA QUIZ

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2015 TRIDEqual Credit Opportunity ActFair Credit Reporting ActFair HousingOther Fed Laws2008 SAFE Act2010 Dodd Frank Act

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LE --- (loan estimate)------EllieCD ---- (closing disclosure)-------Seedy

“CD” means something different to Realtors:

Commission Disbursement

Part of the Dodd Frank ActWent into effect Oct 3, 2015TRIDTILA RESPA Integrated Disclosure

Rule

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Section 20TILA RESPA Integrated Disclosure

RuleIntent To Proceed

Real Estate Settlement and Procedures Act (2009 Changes)http://www.federalreserve.gov/boarddocs/supmanual/cch/respa.pdf

Imposing fees on a consumer before the consumer has received the Loan Estimate and indicated an “intent to proceed” with the transaction.

A consumer may indicate intent to proceed in any manner the consumer chooses, unless a particular manner of communication is required by the creditor.

A consumer’s silence is not indicative of intent to proceed. A creditor must document this communication to satisfy the record retention requirements.

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National Association of Mortgage FiduciariesSection 20TILA RESPA Integrated Disclosure RuleRule regarding “worksheets”

There are other restrictions on the form of this statement to assure it is not confused with the Loan Estimate:

Must be in font size no smaller than 12-point font.May not have headings, content, and format substantially similar to the Loan Estimate or the Closing Disclosure.

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For these other purposes, business day means all calendar days except Sundays and the legal public holidays …such as New Year’s Day, the Birthday of Martin Luther King, Jr., Washington’s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.


RuleBusiness Day Definition


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RuleWhat is “an application”


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TILA RESPA Integrated Disclosure Review The Loan Estimate

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761.78 x 360 = 274,240.80P & I x the loan term = 274,240.80-162,000 minus the loan amount=112,240.80 all the interest

Interest div by loan amount =112,240.80 div by 162,000 = 69.28%

Interest plus interim (daily) interest =112,240.80 + 262 = 112,502.80

112,502.80 div by 162,000 = 69.45%149

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Good Faith Requirement and Tolerances Delivery of the Closing Disclosure

Take the TRID quiz


Rule


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Section 21 Module 21.1 and 21.2Equal Credit Opportunity Act ECOA

1974ECOA points us toward the evaluation based

on creditworthiness only.

Nine categories; the prohibited bases:

RaceColorReligionSexMarital StatusNational OriginIncome from Public Assistance(Age)Whether an applicant has exercised

his or herrights under this act.

Equal Credit Opportunity Acthttp://www.fdic.gov/regulations/laws/rules/6500-1200.html

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National Association of Mortgage FiduciariesECOA comparison to RaceColorReligionSexNational OriginMarital StatusIncome from PublicAssistanceAgeWhether an

applicanthas exercised his orHer rights under thisAct.

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Fair HousingRaceColorReligion (Creed)SexNational OriginFamilial Status

Sexual orientation added in 2012 as a protected class in all 50 states to Fair Lending rules

Disability

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Section 21 ECOA Module.21.2It is a violation to discourage an

applicant from making an application for credit on a prohibited basis.

Cannot ask an applicant if he or she receives alimony, child support. The applicant may volunteer such information.

You must ask if he or she PAYS (or is obligated to pay) alimony or child support.

Unmarried…ECOA requires the lender to provide a

copy of the appraisal report.Application need not be in writing for

this act to apply.Can we ask questions NOT related to

creditworthiness? Adverse Action FormEqual Credit Opportunity Act


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Section21Module 21.2Equal Credit Opportunity Act

ECOAMarital Status

1. Unmarried =SingleDivorcedWidowed

2. Married

3. SeparatedEqual Credit Opportunity Acthttp://www.fdic.gov/regulations/laws/rules/6500-1200.html

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Dodd Frank Changes to ECOA(1) Creditors are required to notify applicants within three

business days of receiving an application of their right to receive a copy of appraisals developed.

(2) Creditors are required to provide applicants a copy of each appraisal and other written valuation promptly upon its completion or three business days before consummation or account opening.

(3) Creditors are prohibited from charging for the copy of appraisals and other written valuations, but are permitted to charge applicants reasonable fees for the costs of appraisals or other written valuations unless applicable law provides otherwise.

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Section 21Module 21.3Equal Credit Opportunity Act ECOAQuiz

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HMDA Home Mortgage Disclosure ActFair Credit Reporting ActDo-Not-Call ActDodd Frank ActBank Secrecy ActGramm Leach Bliley (Privacy Act)GLB FTC Safeguard RulesUnfair, Deceptive Acts and PracticesE-Sign ActU.S. Patriot ActPMI ActAdditional Federal Laws Quiz

Section 22 Additional Federal Laws

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Passed to ensure consumers have access to credit information used by lenders and others so that remedial steps could be taken when incorrect or outdated information remained in their file.

Purpose of a credit report:Insurance, licensing, instruction from consumer, extension of credit, employment, response to a court order, potential investor risk, other legitimate business needs.

Credit reports are deemed privileged info.

A CRA has 30 days to respond to a disputed item

Adverse Action: Name, address and phone number of the CRA, reason, and info on how to obtain a free copy of their report.

Section 22 Module 22.1 and 22.2Fair Credit Reporting Act FCRAFair Credit Reporting Act


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Section 26 Final Exam, Recap and Close

Review all remaining unanswered questions.

FINAL EXAM

Students complete end-of-course evaluation form.Instructor provides end-of-course completion certificates.

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Jillayne SchlickeCE Forward, Inc.National Assoc of Mortgage

Fiduciaries206-931-2241jillayne@ceforward.commortgagefiduciaries.com

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