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HPMLs &

High Cost Loans Boot Camp 360 Series Presented by Kimberly Lundquist

HPMLs & High Cost Loans - “Boot Camp 360” - Copyright © 2019 FIC Conferences, Inc. 2

HPMLs & High Cost Loans Truth In Lending – Regulation Z The Board of Governors of the Federal Reserve previously had the principal responsibility for Regulation Z which implements the Truth in Lending Act. As of July 2011, the rule-making authority was transferred to the Consumer Financial Protection Bureau (CFPB) as a direct result of the Dodd-Frank Act. The truth in lending disclosure requirements apply only to “consumer credit” extended by a “creditor”. Regulation Z and the Truth in Lending disclosures apply only to consumer credit that is extended primarily for personal, family or household purposes. The application of the regulation is determined by the purpose of the loan. If the purpose of the loan is for business reasons, it is exempt, even if secured by the consumer’s principal residence. The creditor is the person charged with the responsibility to make sure of the purpose of the transaction. Vacation Homes (Consumer Purpose) also used for Business Purpose If the owner expects to occupy the residence for more than 14 days during the coming year, the property cannot be considered non-owner occupied. This is true even if the property is rented out for the balance of the year. This makes this type of loan, subject to Regulation Z and the Truth in Lending disclosure requirements. For example, a beach house that the owner will occupy for a month in the coming summer and rent out for the rest of the year, is considered consumer purpose credit. Non-Owner Occupied Rental Property Credit extended to acquire, improve or maintain rental property (regardless of the number of housing units) that is for business purposes and is not considered consumer credit. This includes for example, the acquisition of a warehouse that will be leased or a single-family house that will be rented to another person to live in. If the owner expects to occupy the property for more than 14 days during the coming year, the property cannot be considered non-owner occupied and this special rule will not apply. Owner Occupied Rental Property If credit is extended to acquire, improve, or maintain rental property that is or will be owner-occupied within the coming year, different rules apply:

• Credit extended to acquire rental property is deemed to be for business purposes if it contains more than two housing units.

• Credit extended to improve or maintain the rental property is deemed to be for business purposes if it contains more than four housing units. Since the amended statute defines “dwelling” to include 1 to 4 housing units, this rule preserves the right of rescission for credit extended for purposes other than acquisition.

Neither of these rules means that an extension of credit for property containing fewer than the requisite number of units is necessarily consumer credit. Exempt Transactions Real Estate transactions which are with business entities, individuals primarily for business, agricultural or commercial purposes, are not covered by the disclosure requirements of the Truth in Lending Act. The exemption for agricultural credit also applies to a transaction involving real property that includes a dwelling (for example, the purchase of a farm with a homestead) if the


transaction is primarily for agricultural purposes. The responsibility to determine if the credit is primarily for an exempt purpose, falls to the creditor. If there is any doubt, disclosures should be made.

Higher-Priced Mortgage Loans Under section 1026.35 of Regulation Z an HPML, is a closed-end consumer credit transaction secured by a consumer’s principal dwelling (whether or not it is attached to real property) with an APR that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set: By 1.5 or more percentage points for loans secured by a first lien on a dwelling, or By 2.5 or more percentage points for jumbo loans secured by a first lien on a dwelling, or By 3.5 or more percentage points for loans secured by a subordinate lien on a dwelling. The coverage of section 1026.35 includes most types of mortgage loans secured by a consumer’s principal dwelling, including: Purchase Money Mortgages Refinances Home Improvement Subordinate Lien Loans Closed-End Home Equity Plans

Exemptions … Reverse Mortgages … Initial Construction & Temporary Bridge Loans … Home Equity Lines of Credit (HELOC) “Average Prime Offer Rate” The average prime offer rate means an annual percentage rate that is derived from average interest rates, points and other loan pricing terms currently offered to consumers by a representative sample of creditors for mortgage transactions that have low-risk pricing characteristics. Other pricing terms include commonly used indices, margins, and initial fixed- rate periods for variable-rate transactions. Relevant pricing characteristics include a consumer’s credit history and transaction characteristics such as the loan to value ratio, owner-occupied status and purpose of the transaction. The Board publishes average prime offer rates for a broad range of types of transactions in a table updated at least weekly as well as the methodology the Board uses to derive these rates. The term “higher-priced mortgage loan” does not include a transaction to finance the initial construction of a dwelling, a temporary or “bridge” loan with a term of twelve months or less, (such as a loan to purchase a new dwelling where the consumer plans to sell a current dwelling within 12 months), a reverse-mortgage transaction or a home equity line of credit. “Comparable Transaction” A higher-priced mortgage loan is a consumer credit transaction secured by the consumer’s principal dwelling with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by the specified margin. The table of average price offer rates published by the Board indicates how to identify the comparable transaction.


“Rate Set” A transaction’s annual percentage rate is compared to the average prime offer rate as of the date the transaction’s interest rate is set (or “locked”) before consummation. Sometimes a creditor sets the interest rate initially and then re-sets it at a different level before consummation. The creditor should use the last date the interest rate is set before consummation. Rules for Higher-Priced Mortgage Loans Repayment Ability – Document the borrower’s ability to pay The CFPB established Ability to Repay (ATR) requirements which generally require creditors to make a reasonable, good faith determination of a consumer’s ability to repay any consumer credit transaction secured by a dwelling (excluding HELOC’s, Timeshare Plans, Reverse Mortgages and Temporary Financing) and it established certain protections from liability under the ATR requirements for Qualified Mortgages. This final rule also limits prepayment penalties. The Ability to Repay requirements describe eight (8) minimum requirements for creditors making ATR determinations, but do not dictate that Creditors follow particular underwriting models. The rule does not preclude Creditors from considering additional factors, but creditors must consider each of the eight minimum ATR factors. Prepayment Penalty Imposing a prepayment penalty after two years or imposing a prepayment penalty at any time under certain circumstances are prohibited as follows:

• A mortgage lender is prohibited from imposing a prepayment penalty on a higher-priced mortgage loan after the first two years.

• In addition, a mortgage lender is prohibited from imposing a prepayment penalty at any time during the term of a higher-priced mortgage loan if: Other applicable law (e.g., state law) prohibits such penalty. The consumer’s mortgage payment (i.e., payment of principal or interest or both) can

change during the first four years of the loan term. For example, the imposition of a prepayment penalty on a higher-priced adjustable-rate mortgage that resets every five years would be permissible. However, if the loan contract in this example permits negative amortization and the right of the mortgage lender to accelerate the payment reset date, for instance, when the loan balance reaches a contractually set threshold caused by the negative amortization within the first four years of the loan term, the imposition of a prepayment penalty would be prohibited.

The source of the prepayment funds is a refinancing by the same mortgage lender or an affiliate of the mortgage lender. This prohibition is specifically designed to prevent equity stripping through repeated loan flipping by the same mortgage lender, a common practice among subprime mortgage lenders.

Escrow Requirements All covered HPML first lien transactions, require escrow accounts be established before consummation for payment of property taxes and premiums for mortgage related insurance required by the creditor, such as insurance against the loss of or damage to property, or against liability arising out of the ownership or use of the property, or insurance protecting the creditor against the consumer’s default or other credit loss, unless exemptions apply.


Small Creditors are exempt from Escrow requirements if the Creditor: During the preceding calendar year, (or during either of the 2 preceding calendar years, if the application was received before April 1st of the current calendar year): 1. Made a covered transaction in a rural and underserved area; AND 2. Together with its affiliates, has an asset size less than $2 billion; (indexed annually for inflation) AND 3. Together with its affiliates, has originated 2000 or fewer first-lien mortgages that were sold, assigned, transferred, or subject at the time of consummation to a commitment to be acquired by another person; AND 4. Together with its affiliates, do not escrow for any mortgage it or its affiliates currently services, except to accommodate HPML requirements or as an accommodation to distressed consumers to assist them after consummation in avoiding default or foreclosure. Under the rule, eligible creditors need not establish escrow accounts for mortgages intended at consummation to be held in portfolio but must establish accounts at consummation for mortgages that are subject to a forward commitment to be purchased by an investor that does not itself qualify for the exemption. The Economic Growth, Regulatory Relief & Consumer Protection Act – S.2155, provides relief from some of the burdens created by the Dodd-Frank Act. Several sections do not have effective dates, which means those sections are effective; however, we are waiting on guidance from the CFPB as to the actual implementation of these changes. Effective 5/24/2018 Treatment of Loans Held by Smaller Institutions: The Bureau shall, by regulation, exempt from these requirements of subsection (a) any loan made by an insured depository institution or an insured credit union, secured by a first lien on the principal dwelling of a consumer if -

a. Made a covered transaction in rural and underserved area; AND b. The insured depository institution or insured credit union, has assets of less than $10

billion; (indexed annually for inflation) AND c. Together with its affiliates, has originated 1000 or fewer first-lien mortgages on the principal dwelling; AND d. Together with its affiliates, do not escrow for any mortgage it or its affiliates currently services, except to accommodate HPML requirements or as an accommodation to distressed consumers to assist them after consummation in avoiding default or foreclosure.

Under the rule, eligible creditors need not establish escrow accounts for mortgages intended at consummation to be held in portfolio but must establish accounts at consummation for mortgages that are subject to a forward commitment to be purchased by an investor that does not itself qualify for the exemption. Escrow Rules for Higher-Priced Mortgage Loans If the Creditor is NOT exempt, it is prohibited from originating an HPML secured by a first lien on a primary residence, without establishing an escrow account. The escrow account must be maintained until the underlying debt obligation is terminated or after a five-year period following consummation, the consumer may request that the escrow account be cancelled. However, if the Creditor is cancelling the escrow account at the consumer’s request, the loan’s unpaid principal balance must be less than


80% of the original value of the property securing the underlying debt obligation, and the consumer must not be currently delinquent or in default on the obligation – so if these conditions are not met, you will need to maintain the escrow account beyond five years. Exemption - Escrow Requirement for Loans Secured by Cooperatives, Condo’s, PUD’s etc. Escrow accounts need not be established for loans secured by shares in a cooperative; and insurance premiums (i.e., mortgage-related insurance required by the creditor, such as insurance against loss of or damage to property, or against liability arising out of the ownership or use of the property, or insurance protecting the creditor against the consumer’s default or other credit loss) need not be included in escrow accounts for loans secured by condo units or planned unit developments or other common interest communities, where the consumer must participate in a governing association such as a condo association that has an obligation to purchase a master policy insuring all dwellings. Evasion; Open-End Credit A creditor shall not structure a home-secured loan as an Open-End credit transaction in order to evade the requirements of this section.


Appraisal Requirements for HPMLs A Creditor must meet the following conditions: (unless an exemption applies):

• Written Appraisals are required; • Appraisal is performed by a certified or licensed appraiser; and • Appraiser conducts a physical property visit of the interior of the property.

The rule also requires the creditors take the following steps during the application process for an HPML that is covered by the rule: (Statement must be included on the Loan Estimate)

• Notice must be provided to the Applicant no later than 3 business days of Application to notify the applicant of the purpose of the Appraisal • Notice must state that a free copy of any written appraisals obtained for the transaction will be provided to the Applicant no later than 3 business days before consummation or no later than 30 days after the Creditor determines the loan will not close • Notice must include, Applicant may be charged for the appraisal, and that the applicant may choose to have a separate appraisal conducted at their own expense

“We may order an appraisal to determine the property’s value and charge for this appraisal. We will give you a copy of any appraisal even if your loan does not close. You can pay for an additional appraisal at your own cost.” The disclosure requirements of this rule overlap with an amendment the Dodd-Frank Act made to ECOA, which also requires creditors in first lien transactions to provide free copies of appraisals and to disclose this requirement at application. The rule allows creditors to use a single unified disclosure notice for HPMLs that are first liens, which are therefore subject to the ECOA rule. Second Written Appraisal on “flipped” Properties In addition, as required by the Dodd-Frank Act, the rule requires a HPML mortgage loan creditor to obtain a second written appraisal based on an interior inspection of the property, at no cost to the borrower, in connection with certain “flipped” properties. Subject to certain exemptions, the second appraisal would be required where:

• The seller acquired the home within 180 days prior to the date of the consumer’s purchase agreement; and

• The consumer is acquiring the home for a price that exceeds the seller’s acquisition price by 10% (if the seller acquired the property within the past 90 days) or 20% (if the seller acquired the property between 91 and 180 days earlier).

Appraisal Exemption for Qualified Mortgages Unless otherwise specified by the regulation, the Appraisal rules for HPML transactions do not apply to a loan that satisfies the criteria of a qualified mortgage. Appraisal Exemptions for Extensions of Credit $25,000 or Less The Agencies adopted without change the proposed exemption from the HPML appraisal rules for extensions of credit of $25,000 or less, indexed every year for inflation. Appraisal Exemption for Transactions secured by a Mobile Home, Boat or Trailer Appraisal Exemption for a transaction to finance the Initial Construction, a Bridge Loan (12 months or less) or a Reverse Mortgage


Appraisal Exemption for Certain Refinancings A refinancing secured by a 1st lien (except the creditor need not be the original creditor or holder or servicer of the original obligation), provided the refinancing meets the following criteria: Either: - The credit risk of the existing obligation remains the same on the refinancing, and there is no commitment at consummation to transfer the credit risk to another person; or - The refinancing is insured or guaranteed by the same Federal government agency that insured or guaranteed the existing obligation; and The regular periodic payments under the refinance loan must not result in negative amortization, cover only interest on the loan or result in a balloon payment; and Finally, the proceeds from the refinance loan may only be used to pay off the existing obligation and to pay closing or settlement charges. Appraisal Exemption for Transactions Secured by a Manufactured Home

• Transactions secured by a new manufactured home and land will be exempt from the requirement that the appraisal include a physical inspection of the interior of the property, but will be subject to all other HPML appraisal requirements.

• Transactions secured by an existing (used) manufactured home and land will not be exempt from the rules.

• Transactions secured solely by a manufactured home and not land will be exempt from the rules if the creditor gives the consumer one of three types of information about the home’s value no later than 3 business days prior to consummation: The manufacturer’s invoice of the unit cost (for a transaction secured by a new

manufactured home). An independent cost service unit cost. A valuation conducted by an individual who has no financial interest in the property or

credit transaction, and has training in valuing manufactured homes. An example would be an appraisal conducted in accordance with to procedures approved by the US Department of Housing and Urban Development (HUD) for existing (used) home-only transactions.

Effective 5-24-2018 – Exemption from Appraisals of Real Property Located in Rural Areas In response to a lack of qualified appraisers, this amends Title XI of FIRREA (Financial Institutions Reform Recovery Enforcement Act) to exempt general requirements for independent home appraisals in rural areas where a financial institution has contacted three State Licensed or State Certified Appraisers who could complete an appraisal in a reasonable amount of time. Loans less than $400,000 would not require an appraisal, but if there is no appraisal the ability to sell a loan would be restricted. APPRAISAL NOT REQUIRED – Except as provided in subsection (d) Exemption, notwithstanding any other provision of the law, an appraisal in connection with a federally related transaction involving real property or an interest in real property is not required if – The real property or interest in real property is located in a rural area, as described in section

1026.35(b)(2)(iv)(A) of Title 12, CFR.


Not later than 3 days after the date on which the Closing Disclosure under TRID requirements relating to the federally related transaction is given to the consumer, the mortgage originator or its agent, directly or indirectly –

• Has contacted not fewer than 3 State Certified or State Licensed appraisers, as applicable, on the mortgage originator’s approved appraiser list in the market area; AND

• Has documented that no State Certified or State Licensed appraiser, as applicable, was available within 5 business days beyond customary and reasonable fee and timeliness standards for comparable appraisal assignments, as documented by the mortgage originator or its agent; AND

The transaction value is less than $400,000; AND The mortgage originator is subject to oversight by a Federal financial institutions regulatory

agency. SALE, ASSIGNMENT OR TRANSFER – A mortgage originator that makes a loan without an appraisal under the terms shown above, shall not sell, assign, or otherwise transfer legal title to the loan unless, The loan is sold, assigned or otherwise transferred to another person by reason of the

bankruptcy or failure of the mortgage originator; The loan is sold assigned or otherwise transferred to another person regulated by a Federal

financial institutions regulatory agency, so long as the loan is retained in portfolio by the person;

The sale, assignment, or transfer is pursuant to a merger of the loan originator with another person or the acquisition of the mortgage originator by another person or of another person by the mortgage originator; or

The sale, loan, or transfer is to a wholly owned subsidiary of the mortgage originator, provided that, after the sale, assignment, or transfer, the loan is considered to be an asset of the mortgage originator for regulatory accounting purposes.

EXEMPTION – shall not apply if: A Federal financial institutions regulatory agency requires an appraisal under section

225.63(c), 323.3(c), 34.43(c), or 722.3(e) of Title 12, CFR; or The loan is a high-cost mortgage as defined by TILA and Regulation Z

ANTI-EVASION – Each Federal financial institution’s regulator agency shall ensure that any mortgage originator that the Federal financial institutions regulatory agency oversees that makes a significant amount of loans under subsection (b) is complying with the requirements of subsection (b)(2) with respect to each loan.


High Cost or High Rate Mortgages The Home Ownership and Equity Protection Act of 1994 imposed specific restrictions on certain transactions deemed to be "high cost" or "high rate" mortgages. Section 1026.32 was added to Regulation Z and compliance became mandatory on October 1, 1995. The CFPB issued a final rule expanding the coverage of section 32 to most types of mortgage loans secured by a consumer’s principal dwelling, including: Purchase Money Mortgages Refinances Home Improvement with Limitations Subordinate Lien Loans Closed-End Home Equity Plans Home Equity Lines of Credit – HELOC’s

The final rule retains the exemption from HOEPA coverage for reverse mortgages and adds the following three (3) exemptions: Loans to finance the initial construction of a dwelling The exemption for construction loans applies only to loans that finance the initial construction

of a new dwelling. It does not extend to loans that finance home improvements or home remodels. The exemption is straightforward for construction only loans, but a bit more complicated for construction to permanent loans. When you make a construction to permanent loan as two separate transactions, the

construction loan is exempt, but the permanent financing is not. For a construction to permanent loan originated as a single transaction, coverage must

be determined in accordance with Appendix D of Regulation Z. Loans originated and financed by Housing Finance Agencies The exclusions for HFA and USDA loans apply only to loans that these organizations directly

finance, not loans they guarantee or insure. Loans originated through the USDA Rural Housing Service section 502 Direct Loan

Program. Revised HOEPA Coverage Tests Mortgages are considered to be "high cost" under Regulation Z, if –

a) the APR on first lien transactions at consummation exceeds the Average Prime Offer Rate (APOR) by more than 6.5%, or by more than 8.5% for a first mortgage if the dwelling is personal property and the transaction is less than $50,000; or

b) the APR on subordinate or junior lien transactions at consummation exceeds the APOR by more than 8.5%; or

c) the transaction’s points and fees exceed 5% of the total transaction amount or, for loans below $20,000, the lesser of 8% of the total transaction amount or $1,000 (with the dollar figures adjusted annually for inflation); or

d) the loan contract or open-end credit agreement, permit the creditor to charge or collect a prepayment penalty more than 36 months after transaction closing or permit such fees or penalties to exceed, in the aggregate, more than 2% of the amount prepaid.


Total Loan Amount for a Closed-End Credit transaction is calculated by taking the amount financed and deducting any cost listed in 1026.32(b)(1)(iii), (iv), or (vi) that is both included in the points and fees and financed by the Creditor. The total loan amount for an Open-End plan is the credit limit for the plan when the account is opened. Affiliate means a company that controls, is controlled by or is under common control with another company, as set forth in the Bank Holding Company Act of 1956 (12 USC 1841 et.seq.). Creditors Originating a HELOC Creditors originating a HELOC should compare the HELOC’s APR (calculated using the special rules for HOEPA coverage) to the APOR for the most closely comparable closed-end credit transaction. To identify the most closely comparable closed-end transaction, first determine if the HELOC is

fixed or variable rate. If the HELOC has a variable rate and an optional, fixed rate feature, the HELOC is a variable rate transactions for purposes of the APR coverage test.

For a variable rate HELOC, the most closely comparable closed-end transaction will be a variable rate transaction with an initial fixed rate period that lasts approximately as long as the introductory period, if any, on the HELOC. (If the HELOC has no initial, fixed-rate period, assume an initial, fixed rate period of one year).

If a variable rate HELOC has an initial fixed-rate period that is not in whole years, for example, 20 months, you should use the most closely comparable closed-end transaction using whole years, closest to the actual fixed rate period, which in this example you must use the APOR for a two-year Adjustable Rate Loan.

For a fixed rate HELOC, the most closely comparable closed-end transaction will be a fixed rate transaction with the same term (in years) as the term of the HELOC to maturity. (If the HELOC has no definite plan length, assume a 30-year term until maturity.)

Calculating APR - Special rules for HOEPA Coverage You calculate the APR that you use to determine if a transaction is a high cost mortgage differently from the APR you disclose on your TILA disclosures. For fixed rate transactions, calculate the APR by using the interest rate in effect on the date

that you set the interest rate for the transaction For transactions where the interest rate varies with an index, use the greater of the

introductory interest rate (if any) or the fully indexed rate (i.e., the interest rate that results from adding the maximum margin permitted at any time during the term of the transaction to the value of the index rate in effect on the date you set the interest rate for the transaction).

If the interest rate for the transaction will vary other than in accordance with the index, such as in a step-rate loan, the maximum rate that the applicant may pay during the term of the transaction should be used.

For construction to permanent transactions, where a creditor discloses the two phases as a single transaction, a single APR, reflecting the appropriate charges from both phases, must be calculated for the transaction in accordance with 1026.32(a)(3) and Appendix D to part 1026. The APR must be compared to the APOR for a transaction that is comparable to the permanent financing to determine coverage under 1026.32. Likewise, a single amount of points and fees, also reflecting the appropriate charges from both phases of the transaction, must be calculated and compared with the total amount to determine coverage under 1026.32. If the transaction is determined to be a high-cost mortgage, only the permanent phase is subject to the requirements of sections 1026.32 and 1026.34.


Calculating Points & Fees for HOEPA Coverage To calculate points & fees for HOEPA coverage of closed-end credit transactions, use the same general approach that you use for calculating points and fees for QM’s under the Bureau’s Ability to Repay/Qualified Mortgage standards under Regulation Z/TILA. For HELOC’s use the same general approach as for closed-end transactions, but include the additional items noted below, if applicable: Participation fees payable at or before account opening Fees you charge consumers to draw on their HELOCs (you should assume that the consumer

will draw on the credit line at least once) Points & Fees Unless specified otherwise, you should include the amounts that are known at or before consummation, even if the consumer pays for them at consummation by rolling them into the loan amount. In addition, unless specified otherwise, closing costs that you pay and recoup from the consumer over time through the interest rate are not counted in points and fees. In connection with a Closed-End credit transaction, points and fees means the following fees or charges that are known at or before consummation: §1026.32(b)(1)(i) - Finance Charges All items included in the finance charge under 1026.4(a) and (b) except that the following items are exempt: A. Interest or the time-price differential; B. Any premium or other charge imposed in connection with any Federal or State agency program for any guaranty or insurance that protects the creditor against the consumer’s default or other credit loss; Federal or state government-sponsored MIPs: For example, exclude up-front and annual FHA

premiums, VA funding fees, and USDA guarantee fees. C. For any guaranty or insurance that protects the creditor against the consumer’s default or other credit loss that is not in connection with a Federal or State agency program; Private mortgage insurance (PMI) premiums: Exclude monthly or annual PMI premiums. You may

also exclude up-front PMI premiums if the premium is refundable on a prorated basis and a refund is automatically issued upon loan satisfaction. However, even if the premium is excludable, you must include any portion that exceeds the up-front MIP for FHA loans. Those amounts are published in HUD Mortgagee Letters, which you can access on HUD’s website at: http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/letters/mortgagee.

D. Bona fide third-party charges not retained by the creditor, loan originator, or an affiliate of either, unless the charge is required to be included in the points and fees under another section. In general, you may exclude these types of charges even if they would be included in the finance

charge. For example, you may exclude a bona fide charge imposed by a third-party settlement agent (for example, an attorney) so long as neither the creditor nor the loan originator (or their affiliates) retains a portion of the charge.

However, you must still include any third-party charges that are specifically required to be included under other provisions of the points-and-fees calculation (for example, certain PMI premiums, certain real estate-related charges, and premiums for certain credit insurance and debt cancellation or suspension coverage).

http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/letters/mortgagee


Note that up-front fees you charge consumers to recover the costs of loan-level price adjustments imposed by secondary market purchasers of loans, including the GSEs, are not considered bona fide third-party charges and must be included in points and fees.

E. Up to two “bona fide” discount points Exclude up to 2 bona fide discount points if the interest rate before the discount does not exceed the

APOR for a comparable transaction by more than 1 percentage point; or F. If no discount points have been excluded under E., then the creditor may: Exclude up to 1 bona fide discount point if the interest rate before the discount does not exceed the

APOR for a comparable transaction by more than 2 percentage points. For transactions that are secured by personal property, exclude up to 1 or 2 bona fide discount points

as set forth above, except compare the interest rate before the discount to the average rate for a loan insured under Title I of the National Housing Act (12 U.S.C. 1702 et seq.), not to the APOR.

Note that a discount point is “bona fide” if it reduces the consumer’s interest rate by an amount that reflects established industry practices, such as secondary mortgage market norms. For example, a creditor may rely on pricing in the to-be-announced (TBA) market for mortgage-backed securities (MBS) to establish that the interest rate reduction is consistent with the compensation that the creditor could reasonably expect to receive in the secondary market. For closed-end credit, “bona fide” discount point means an amount equal to 1% of the loan amount paid by the consumer that reduces the interest rate or time-price differential applicable to the transaction based on a calculation that is consistent with established industry practices for determining the amount of reduction in the interest rate or time-price differential appropriate for the amount of discount points paid by the consumer. For open-end credit, “bona fide” discount point means an amount equal to 1% of the credit limit for the plan when the account is opened, paid by the consumer, and that reduces the interest rate or time-price differential applicable to the transaction based on a calculation consistent with established industry practices for determining the amount of reduction in the interest rate or time-price differential appropriate for the amount of discount points paid by the consumer. §1026.32(b)(1)(ii) - Loan Originator Compensation Include compensation paid directly or indirectly by a consumer or creditor to a loan originator, other than an employee of the creditor that is attributable to the transaction, to the extent that such compensation is known as of the date the interest rate for the transaction is set. In general, include the following: Compensation paid directly by a consumer to a mortgage broker: Include the amount the

consumer pays directly to the mortgage broker, unless it has already been included in the points and fees under the finance charge section (b)(1)(i), in which case it does not have to be included again in the loan originator compensation section (b)(1)(ii).

Compensation paid by a creditor to a mortgage broker: Include the amount the creditor pays to

the broker for the transaction, even if the creditor does not receive an up-front payment from the consumer to cover the broker’s fee but rather recoups the fee from the consumer through the interest rate over time.


Example: Assume that a consumer pays to the creditor a $3,000 origination fee and that creditor pays

a mortgage broker $1,500 in compensation that is attributable to the transaction. Assume further that the consumer pays no other charges to the creditor that are included in the points and fees under the finance charge section (b)(1(i) and that the mortgage broker receives no other compensation that is included in points and fees under this loan originator compensation section (b)(1)(ii). For purposes of calculating points and fees, the $3,000 origination fee is included under (b)(1)(i) and the $1,500 loan origination compensation is included under (b)(1)(ii), equaling $4,500 in total points and fees, provided that no other points and fees are paid or compensation received.

Compensation that is paid by a retailer of manufactured homes to its employee. If a

manufactured home retailer qualifies as a loan originator, then compensation that is paid by a consumer or creditor to the retailer for loan origination activities that can be attributed to the transaction at the time the interest rate is set must be included in the points and fees.

Example: Assume a manufactured home retailer takes a residential mortgage loan application and is entitled to receive at consummation a $1,000 commission from the creditor for taking the mortgage loan application. The $1,000 commission is loan originator compensation that must be included in points and fees.

Compensation included in the Sales Price of a manufactured home: If the creditor has

knowledge that the sales price of a manufactured home includes loan originator compensation, then such compensation can be attributed to the transaction at the time the interest rate is set and therefore is included in the points and fees under this loan originator compensation section – (b)(1)(ii). However, the creditor is not required to investigate the sales price of a manufactured home to determine if the sales price includes loan originator compensation.

Loan originator compensation includes amounts the loan originator retains and is not dependent on the label or name of any fee imposed in connection with the transaction. The amount of compensation that can be attributed to a particular transaction is the dollar value of compensation that the loan originator will receive if the transaction is consummated. The amount of compensation that a loan originator will receive is calculated as of the date the interest rate is set and includes compensation that is paid before, at or after compensation. Salaries and other types of compensation that are dependent on other factors (for example, long-term performance of the loan originator’s loans) are not attributable to the transaction. Loan Originator – means a person who, in expectation of or for direct or indirect compensation or other monetary gain, performs any of the following activities: Takes an Application, Offers, Arranges, Assists a consumer in obtaining or applying to obtain, Negotiates or otherwise obtains or makes an extension of consumer credit for another person; or through advertising or other means of communication represents to the public that such person can or will perform any of these activities. The term “loan originator” includes an employee, agent or contractor of the creditor or loan originator organization if the employee, agent or contractor meets this definition. So a “loan originator” may be an “individual loan originator” or a “loan originator organization.” The term “loan originator” includes a creditor that engages in loan origination activities if the creditor does not finance the transaction at consummation out of the creditor’s own resources, warehouse line of creditor or out of


deposits held by the creditor. All creditors that engage in any of the foregoing loan origination activities are loan originators for the purposes of 1026.36(f) - Loan Originator Qualifications and 1026.36(g) - Name and NMLSR ID on loan documents. The term “loan originator” does not include: 1. A person who does not take a consumer credit application or offer or negotiate credit terms available from a creditor that a consumer selected base on the consumer’s financial characteristics, but who performs purely administrative and clerical tasks on behalf of a person who does engage in such activities. 2. An employee of a manufactured home retailer who does not take a consumer credit application, offer or negotiate credit terms, or advise a consumer of credit terms. 3. A person who performs only real estate brokerage activities and is licensed or registered in accordance with applicable State law, unless such person is compensated by a creditor or loan originator or by any agent of such creditor or loan originator for a particular consumer credit transaction subject to this section. 4. A seller financer that meets this definition under Regulation Z. 5. A servicer or servicer’s employees, agents and contractor’s who offer or negotiate terms for purposes of renegotiating, modifying, replacing, or subordinating principal of existing mortgages where consumers are behind on their payments, in default, or have a reasonable likelihood of defaulting or falling behind. This exception does not apply, however, to a servicer or a servicer’s employees, agents, and contractors who offer or negotiate a transaction that constitutes a refinancing under 1026.20(a) or obligates a different consumer on the existing debt. Mortgage Broker – with respect to a particular transaction is any loan originator that is not an employee of the creditor. §1026.32(b)(1)(iii) - Real Estate-Related Fees Amounts held for the future payment of taxes do not have to be included in the points and fees calculation. All of the other following categories of charges are excluded from points and fees only if they meet all 3 of these requirements:

1. The charge is reasonable; 2. The creditor receives no direct or indirect compensation in connection with the charge; and

3. The charge is not paid to an affiliate of the creditor. If one or more of those three conditions is not satisfied, you must include these charges in points and fees even if they would be excluded from the finance charge: Fees for title examination, abstract of title, title insurance, property survey, and similar

purposes Fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or

settlement documents Notary and credit-report fees Property appraisal fees or inspection fees to assess the value or condition of the property if the

service is performed prior to consummation, including fees related to pest-infestation or flood-hazard determinations

Amounts paid into escrow or trustee accounts that are not otherwise included in the finance charge


Example: A reasonable fee paid by the consumer to an independent, third party appraiser may be excluded from the points and fees calculation (assuming no compensation is paid to the creditor or its affiliate and no charge is paid to an affiliate). By contrast, a fee paid by the consumer for an appraisal performed by the creditor must be included in the calculation, even though the fee may be excluded from the finance charge if it is bona fide and reasonable in amount. § 1026.32(b)(1)(iv) - Premiums or other charges payable at or before consummation for any credit life, credit disability, credit unemployment, or credit property insurance or other life, accident, health or loss-of-income insurance for which the creditor is beneficiary or any payment directly or indirectly for any debt cancellation or suspension agreement or contract. Include premiums for these types of insurance that are payable at or before consummation even if

such premiums are rolled into the loan amount, if permitted by law. It does not matter if the insurance or coverage is optional or required. Such charges are also included whether the mount represents the entire premium or payment for the coverage or an initial payment.

You do not need to include these charges if they are paid after consummation (for example, monthly premiums).

Note that credit property insurance means insurance that protects the creditor’s interest in the property. It includes insurance loss against loss of or damage to personal property, such as a houseboat or manufactured home. Credit property insurance does not include homeowner’s insurance that typically protects the consumer’s interest in the property.

You do not need to include premiums for life, accident, health, or loss-of-income insurance if the consumer (or another person designated by the consumer) is the sole beneficiary of the insurance. Premiums or other charges for these types of insurance are included in points and fees only if the creditor is a beneficiary.

§ 1026.32(b)(1)(v) – Maximum Prepayment Penalty, as defined in paragraph (b)(6)(i) of this section, that may be charged or collected under the terms of the mortgage loan. (b)(6)(i) – Closed-End Credit Transactions For a closed-end credit transaction, a prepayment penalty means a charge imposed for paying all or part of the transaction’s principal before the date on which the principal is due, other than a waived, bona fide third-party charge that the creditor imposes if the consumer prepays all of the transaction’s principal sooner than 36 months after consummation, provided, however, that interest charged consistent with the monthly interest accrual amortization method is not a prepayment penalty for extensions of credit insured by the Federal Housing Administration that are consummated before January 21, 2015. § 1026.32(b)(1)(vi) – Total Prepayment Penalty, as defined in paragraph (b)(6)(i) or (ii) of this section, as applicable, incurred by the consumer if the consumer refinances the existing mortgage loan, or terminates an existing open-end credit plan in connection with obtaining a new mortgage loan, with the current holder of the existing loan or plan, a servicer acting on behalf of the current holder, or an affiliate of either. (b)(6)(i) – Closed-End Credit Transactions For a closed-end credit transaction, a prepayment penalty means a charge imposed for paying all or part of the transaction’s principal before the date on which the principal is due, other than a waived, bona fide third-party charge that the creditor imposes if the consumer prepays all of the transaction’s principal sooner than 36 months after consummation, provided, however, that interest charged consistent with the monthly interest accrual amortization method is not a prepayment penalty for


extensions of credit insured by the Federal Housing Administration that are consummated before January 21, 2015. (b)(6(ii) – Open-End Credit Transactions For an open-end credit plan, prepayment penalty means a charge imposed by the creditor if the consumer terminates the open-end credit plan prior to the end of its term, other than a waived, bona fide third-party charge that the creditor imposes if the consumer terminates the open-end credit plan sooner than 36 months after account opening. Charges Paid by Parties other than the Consumer Under the definition of Points & Fees, section 1026.32(b)(1) it states that the points and fees may also include charges by third parties in addition to charges paid by the consumer. Specifically, charges paid by third parties that fall within the definition set forth in these previously referenced sections 1026.32(b)(1)(i) through (vi). 1026.32(b)(1) (i) Finance Charges A. Interest or the time-price differential; B. Any premium or other charge imposed in connection with any Federal or State agency program for any guaranty or insurance that protects the creditor against the consumer’s default or other credit loss; C. For any guaranty or insurance that protects the creditor against the consumer’s default or other credit loss that is not in connection with a Federal or State agency program; D. Bona fide third party charges not retained by the creditor, loan originator, or affiliate of either, unless the charge is required to be included in the points and fees under another section. E. Up to two bona fide discount points; F. If no discount points have been excluded under E., then the creditor may exclude up to one bona fide discount point. (ii) Loan Originator Compensation (iii) Real Estate Related Fees (iv) Credit Insurance (v) Maximum Prepayment Penalty (vi) Total Prepayment Penalties In calculating points and fees in connection with a transaction, creditors may rely on written statements from the consumer or third party paying for a charge, including a seller, to determine the source and purpose of the third party payment for a charge. Examples – included in points and fees A creditor’s origination charge paid by a consumer’s employer on the consumer’s behalf that is included in the finance charge under 1026.4(a) or (b), must be included in the points and fees under 1026.32(b)(1)(i) unless other exclusions in 1026.4 or 1026.32(b)(1)(i)(A) through (F) apply. In addition, a third party payment of an item excluded from the finance charge under provision of 1026.4, while not included in the points and fees under 1026.32(b)(1)(i), may be included under 1026.32(b)(1)(ii) through (vi). For example, a payment by a third party of a creditor-imposed fee for an appraisal performed by an employee of the creditor is included in points and fees under section 1026.32(b)(1)(iii).


Examples – not included in points and fees A charge paid by a third party is not included in points and fees under 1026.32(b)(1)(i) if the exclusions to points and fees in section 1026.32(b)(1)(i)(A) through (F) apply. For example, certain bona fide third-party charges not retained by the creditor, loan originator, or an affiliate of either are excluded from points and fees under section 1026.32(b)(1)(D), regardless of whether those charges are paid by a third party or the consumer. Seller’s Points Seller’s points, as described in 1026.4(c)(5) and commentary, are excluded from the finance charge and thus are not included in the points and fees under section 1026.32(b)(1)(i). However, charges paid by the seller for items listed in section 1026.32(b)(1)(ii) through (vi) are included in the points and fees. Creditor Paid Charges Charges that are paid by the creditor, other than loan originator compensation paid by the creditor that is required to be included in points and fees under 1026.32(b)(1)(ii), are excluded from points and fees.


Restrictions on Loan Terms

Because the coverage test Higher-Priced Mortgage Loans (HPMLs) is generally broader than High Cost Mortgages, most closed-end high cost mortgages are subject to the prohibitions and requirements for HPMLs (such as escrows and appraisals), in addition to the limitations for High Cost Mortgages.

Balloon payments are generally banned, unless they are to account for the seasonal or irregular income of the borrower, they are part of a short-term bridge loan, or they meet the specific criteria for balloon-payment qualified mortgages made by certain small creditors. The repayment schedule for a high cost mortgage must fully amortize the outstanding principal balance through “regular periodic payments.” A payment is a “regular periodic payment” if it is not more than two times the amount of other payments.

For purposes of open-end credit plans, the term “regular periodic payments” or “periodic payment” means the required minimum periodic payment. If the terms of an open-end credit plan provide for a repayment period during which no further draws may be taken, these balloon payment limitations apply to regular periodic payments required by the credit plan during the draw period, but do not apply to any adjustment in the regular periodic payment solely from the credit plans transition from the draw period to the repayment period. Further, these limitations on balloon payments do not preclude increases in regular periodic payments that result solely from the initial draw or additional draws on the credit line during the draw period. If the terms of an open-end credit plan do not provide for a repayment period, these balloon limitations apply to all periods of the credit plan. The repayment schedule must fully amortize any outstanding principal balance in the draw period through regular periodic payments.

Negative Amortization is not allowed. A payment schedule with regular periodic payments that cause the principal balance to increase causing negative amortization is not allowed.

A payment schedule that consolidates more than two periodic payments and pays them in advance from the proceeds is not allowed.

An increase in the interest rate after default is not allowed. This limitation on interest rate increases does not apply to rate increases resulting from changes in accordance with the legal obligation in a variable rate transaction, even if the increase occurs after default by the consumer.

A high cost mortgage loan shall not include rebates. A refund calculated by a method less favorable than the actuarial method, for rebates of interest arising from loan acceleration due to default.

Creditors are prohibited from charging prepayment penalties for high cost mortgages.

A high cost mortgage shall not contain an acceleration of debt. A demand feature that permits the creditor to accelerate the indebtedness by terminating the high cost mortgage in advance of the original maturity and to demand repayment of the entire outstanding balance, except in the following circumstances:

i. There is fraud or material misrepresentation by the consumer in connection with the loan or open-end credit agreement;

ii. The consumer fails to meet the repayment terms of the agreement for any outstanding balance that results in default in payment under the loan; or


iii. There is any action or inaction by the consumer that adversely affects the creditor’s security for the loan, or any right of the creditor in such security.

Late fees are restricted to four percent of the payment that is past due, and pyramiding of late fees is prohibited. A late payment charge may be imposed in connection with a high cost mortgage only if the payment is not received by the end of the 15-day period beginning on the date the payment is due or, in the case of a high cost mortgage on which the interest on each installment is made in advance, the end of the 30-day period beginning on the date the payment is due. There are rules for imposing late fees when a consumer resumes making payments after missing one or more payments. A late payment charge may not be imposed if the delinquency is attributable only to a late payment charge imposed on an earlier payment, and the payment otherwise is a full payment for the applicable period and is paid by the due date or within any applicable grace period. Failure to make required payments – The terms of a high cost mortgage agreement may provide that any payment shall first be applied to any past due balance. If the consumer fails to make a timely payment by the due date and subsequently resumes making payments but has not paid all past due payments, the creditor may impose a separate late payment charge for any payment(s) outstanding (without deduction due to late fees or related fees) until the default is cured. Fees for generating or providing payoff statements are generally banned, with limited exceptions. In general, a creditor or servicer may not charge a fee for providing to a consumer or a person authorized by the consumer to obtain such information, a statement of the amount due to pay off the outstanding balance of a high cost mortgage. A creditor or servicer may charge a processing fee to cover the cost of providing a payoff statement, by fax or courier, provided that such fee may not exceed an amount that is comparable to fees imposed for similar services provided in connection with consumer credit transactions that are secured by the consumer’s principal dwelling and are not high cost mortgages. Prior to charging a processing fee, a creditor or servicer shall disclose the availability to the consumer, or person authorized by the consumer to obtain such information, of obtaining a payoff statement by a method other than by fax or courier and without charge. If the creditor or servicer has provided the payoff statement without charge (other than an allowable processing fee), four times during a calendar year, may thereafter charge a reasonable fee for providing such statements during the remainder of the calendar year. Timing for delivery of a payoff statement for a high cost mortgage is within five business days after receiving a request for such statement from a consumer or a person authorized by the consumer to obtain such statement. Creditors cannot finance points and fees - (i.e. rolled into the loan amount). However, you can finance closing charges excluded from the definition of points and fees, such as bona fide third party charges. Creditors and mortgage brokers are prohibited from recommending or encouraging a consumer to default on a loan or debt to be refinanced by a high-cost mortgage. Creditors, servicers, and assignees cannot charge a fee to modify, defer, renew, extend, or amend a high cost mortgage. You cannot purposely structure a transaction to evade HOEPA coverage (for example, splitting a loan into two loans to divide the loan fees to avoid the points and fees threshold.


Before making a high cost mortgage, creditors are required to obtain confirmation from a federally certified or approved homeownership counselor that the consumer has received counseling on the advisability of the mortgage. Creditors originating HELOCs are required to assess consumers’ ability to repay. (Creditors originating high cost, closed-end credit transactions already are required to assess consumers’ ability to repay under the Bureau’s 2013 Ability-to-repay (ATR) Final Rule addressing a Dodd-Frank Act requirement that creditors determine that a consumer is able to repay a mortgage loan.)

Homeownership Counseling Requirements - High Cost Mortgages Prior to making a high cost mortgage, you must receive written certification that the consumer has received homeownership counseling on the advisability of the mortgage from a HUD-Approved Counselor or a State housing finance authority, if permitted by HUD. The homeownership counselor cannot be affiliated with or employed by your organization. You cannot steer the consumer to a particular counseling agency. The consumer will need to have received either the Loan Estimate or the disclosures required under §1026.40 for HELOCs before the homeownership counseling session on the advisability of the mortgage. Note that the rule does not require “in-person” counseling. Counseling may be provided via telephone, so long as it is provided by a HUD-approved counselor. A self-study program may not be used to satisfy the counseling requirement. The counselor can send you the written certification via mail, email, or facsimile, so long as the certification is in a retainable form. Content of the Certification The certification must include the following: 1. Name(s) of the consumer(s) who obtained the counseling 2. Date(s) of the counseling 3. Name and address of the counselor 4. A statement that the consumer(s) received counseling on the advisability of the high cost mortgage

based on the terms provided either in the Loan Estimate or the disclosures required by 1026.40 of Regulation Z.

5. A statement that the counselor has verified that the consumer(s) received the disclosures required either by Regulation Z or RESPA informing the consumer(s) of Homeownership Counseling availability with respect to the transaction.

Counseling Fees A creditor can pay the fees of a counselor or counseling organization for providing required counseling but may not condition the payment of such fees on the consummation or account opening of a mortgage transaction. If the consumer withdraws the application that would result in the extension of a high cost mortgage, a creditor may not condition the payment of such fees on the receipt of certification from the counselor. A creditor may, however, confirm that a counselor has provided counseling to the consumer, prior to paying the fee of a counselor or counseling organization. Consumers can pay the fee themselves, or they can finance the fee as part of the mortgage transaction.


Steering Prohibited A creditor that extends a high cost mortgage shall not steer or otherwise direct the consumer to choose a particular counselor or counseling organization for the required counseling. Two Additional Counseling Related Requirements The final rule implements two additional Dodd-Frank Act homeownership counseling related provisions that are not amendments to HOEPA. 1. The final rule contains a requirement that you must give applicants for federally-related mortgages (whether or not they are high cost mortgages) a written list of homeownership counseling organizations, within three business days of receiving the application. Pursuant to the Dodd-Frank Act, the CFPB issued the RESPA Homeownership Counselor Amendments in January 2013, effective on January 10, 2014. The final rule requires lenders to provide applicants for federally-related mortgages with a written list of ten HUD-approved housing counseling organizations that provide relevant services in the loan applicant’s location. The written list along with required accompanying information must be provided within 3 business days of an application. The written list should be updated within 30 days of being provided to the applicant. 2. The final rule implements a requirement under TILA that creditors must obtain confirmation that a first-time borrower has received homeownership counseling from a federally certified and approved homeownership counselor or counseling organization before making a high cost mortgage loan that provides for or permits negative amortization to the borrower. High Cost Mortgage Disclosure The disclosure must be furnished at least 3 business days prior to consummation of the Section 32 Mortgage. A change in terms may trigger new disclosures and a new 3 day waiting period. A consumer may waive the 3 business day waiting period only for a bona fide personal financial emergency. The following shall be disclosed clearly and in a conspicuous type size. The disclosure need not be part of the Note or Mortgage documents. Notices The following statement: “You are not required to complete this agreement merely because you have received these disclosures or have signed a loan application. If you obtain this loan, the lender will have a mortgage on your home. You could lose your home, and any money you have put into it, if you do not meet your obligation under this loan.”


H-16 Mortgage Sample Disclosure for High Cost Loans You are not required to complete this agreement merely because you have received these disclosures or have signed a loan application. If you obtain this loan, the lender will have a mortgage on your home. YOU COULD LOSE YOUR HOME, AND ANY MONEY YOU HAVE PUT INTO IT, IF YOU DO NOT MEET YOUR OBLIGATIONS UNDER THIS LOAN. You are borrowing $__________ (optional credit insurance is □ is not □ included in this amount). The annual percentage rate on your loan will be ____________%. Your regular [frequency] payment will be $_____________.

[At the end of your loan, you will still owe us $[balloon amount].] [Your interest rate may increase. Increases in the interest rate could increase your payment. The highest amount your payment could increase is to $________.]

I/We have received a copy of this disclosure. _____________________________ _________________________

Borrower Date _____________________________ _________________________

Borrower Date Creditors Making Section 32 Mortgages May Not: 1. In connection with an open-end, high cost mortgage, a creditor shall not open a plan for a consumer where credit is or will be extended without regard to the consumer’s repayment ability as of account opening. This includes the consumer’s current and reasonably expected income, employment, assets and other collateral, current obligations including mortgage related obligations that are required by another credit obligation undertaken prior to or at account opening, and are secured by the same dwelling that secures the high cost mortgage transactions. (i.e., expected property taxes, premiums for mortgage related insurance when required by the creditor and similar expenses). There is a presumption that a creditor has violated this section if it has not verified and documented the consumers' repayment ability; however, this does not apply to temporary or “bridge” loans with terms of twelve months or less, such as a loan to purchase a new dwelling where the consumer plans to sell a current dwelling within twelve months. 2. Pay loan proceeds to a home improvement contractor except by a jointly payable check to the consumer and the contractor; or at the election of the consumer, through a third-party escrow agent in accordance with the terms established in a written agreement signed by the consumer, the creditor, and the contractor prior to the disbursement. 3. Sell or otherwise assign a Section 32 mortgage without giving a specific notice to the purchaser or assignee concerning the consumer’s right to raise claims and defenses. “Notice: This is a mortgage subject to special rules under the federal Truth in Lending Act. Purchasers or assignees of this mortgage could be liable for all claims and defenses with respect to the mortgage that the borrower could assert against the creditor.”


4. Within one year of having extended a high cost mortgage, refinance any high cost loan to the same borrower into another high cost mortgage loan, unless the refinancing is in the borrower's interest. The determination of whether or not a refinancing covered by this section is in the borrower’s interest is based on the totality of the circumstances, at the time the credit is extended. A written statement by the borrower that “this loan is in my interest” alone does not meet this standard.

i. A refinancing would be in the borrower’s interest if needed to meet the borrower’s “bona fide personal financial emergency.”

ii. In connection with a refinancing that provides additional funds to the borrower, in determining whether a loan is in the borrower’s interest consideration should be given to whether the loan fees and charges are commensurate with the amount of new funds advanced, and whether the real estate related charges are “bona fide” and reasonable in amount.

5. Application of the one-year refinancing prohibition to creditors & assignees An assignee holding or servicing an extension of mortgage credit subject to section 1026.32, shall not, for the remainder of the one-year period following the date of origination of the credit, refinance any loan subject to section 1026.32, unless the refinancing is in the borrower’s interest. A creditor (or assignee) is prohibited from engaging in acts or practices to evade this provision, including a pattern or practice of arranging for the refinancing of its own loans by affiliated or unaffiliated creditors, or modifying a loan agreement (whether or not the existing loan is satisfied and replaced by the new loan) and charging a fee. Liability 1. Section 32 disclosures and substantive limitations are material for rescission purposes. 2. Liable to the borrower for all finance charges and fees paid by the borrower, unless the creditor demonstrates that the failure to comply is not material. 3. Purchasers and assignees of Section 32 Mortgages may be subject to all claims and defenses that the consumer could assert against the original creditor.


Quiz 1. A subordinate lien loan on a vacation or second home would be subject to all of the HPML rules and restrictions if the APR exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set: a. By 1.5 or more percentage points for loans secured by a first lien on a dwelling b. By 2.5 or more percentage points for jumbo loans secured by a first lien on a dwelling c. By 3.5 or more percentage points for loans secured by a subordinate lien on a dwelling d. None of the above, a vacation or second home property is not subject to this section 2. The term HPML does not include a transaction to finance the initial construction of a dwelling, a temporary or “bridge” loan with a term of twelve months or less, (such as a loan to purchase a dwelling where the consumer plans to sell a current dwelling within 12 months), a reverse mortgage transaction or a home equity line of credit. a. True b. False 3. Escrow Accounts are only required for first lien HPMLs secured by a consumer’s principal dwelling, that are not exempt. a. True b. False 4. If a small creditor was otherwise exempt from requiring escrow accounts on HPMLs, it is not exempt if the small creditor has been providing escrow accounts for any mortgage it or its affiliate currently services. a. True b. False 5. A written appraisal performed by a certified or licensed appraiser which includes both an interior as well as exterior inspection of the property is required for HPMLs that are not: a. Subordinate Lien Loans b. Secured by a Mobile Home c. To finance the Initial Construction, a Bridge loan (12 months or less) or a Reverse Mortgage d. Qualified Mortgages 6. Mortgages are considered to be “high cost” under Regulation Z, if: a. the APR on first lien transactions at consummation exceeds the Average Prime Offer Rate (APOR) by more than 6.5%, or by more than 8.5% for a first mortgage if the dwelling is personal property and the transaction is less than $50,000; or b. the APR on subordinate or junior lien transactions at consummation exceeds the APOR by more than 8.5%; or c. the transaction’s points and fees exceed 5% of the total transaction amount or, for loans below $20,000, the lesser of 8% of the total transaction amount or $1,000 (with the dollar figures adjusted annually for inflation); or d. none of the above


7. All High Cost or High Rate Mortgages must be secured by either the consumer’s principal dwelling or a vacation or second home. a. True b. False 8. When comparing the APR to the APOR for transactions where the interest rate varies with an index, use the greater of the introductory interest rate (if any) or the fully indexed rate (i.e., the interest rate that results from adding the maximum margin permitted at any time during the term of the transaction to the value of the index rate in effect on the date you set the interest rate for the transaction). a. True b. False 9. High Cost or High Rate Mortgages must have mandatory escrow accounts for a period of at least five years unless they are exempt under the small creditor exemptions for HPMLs. a. True b. False 10. The Homeownership Counseling Notice requirements as well as Certification that the Homeownership Counseling has been completed must be provided: a. Prior to consummation of the transaction b. Within the first year after consummation has taken place c. May be waived if the consumer pays a fee not to exceed 1% of the loan amount d. None of the above

Congratulations! Now that you have completed this short quiz for self-assessment, please check with your administrator for the answer key along with your Certificate of Completion! For your convenience, we have already sent these to the person who signed up your Institution for this Boot Camp 360. You are also welcome to send us your name, email and contact information and we will happily send you the answer key along with your Certificate of Completion! [email protected]


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Thank you for your participation! Please contact us if you have any questions or need assistance. We want to be “Your Partner in Compliance!” Email if you have questions concerning the information provided! Thank you for your business and we look forward to hearing from you again soon! Kimberly Lundquist [email protected] FIC Conferences, Inc. 1150 N Loop 1604 W Suite 108-603 San Antonio, TX 78248 Tel 210-493-1761 Fax 210-493-9659 www.ficconferences.com

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