Mortgage Lending Compliance

Transcription

1 Mortgage Lending Compliance Presented on behalf of CUNA by Mary-Lou Heighes 1 Mortgage Compliance Self Study 2 mheighes@cuaskme.com 1

2 Regulation B 3 Penalties individual 500,000 class action or 1% of net worth Other damages under state law 4 mheighes@cuaskme.com 2

3 Types of Discrimination Overt Disparate Treatment Disparate Impact Effects Test 5 Protected Classes ECOA Race or color Religion National Origin Sex Marital status Age Receipt of public assistance FHA Race or color Religion National Origin Sex Familial status Handicap 6 mheighes@cuaskme.com 3

4 Applications Acceptance Cannot make oral or written statement discouraging applications Only real estate applications are required to be in writing Different rates for different borrowers not prohibited as long as it is not higher for protected classes Sex- applications must be neutral 7 Applications Marital Status Cannot obtain info on applicants requesting individual unsecured credit in noncommunity property state OK to gather spousal info if: Spouse will be contractually liable or a user of the account, The member is relying on spousal income for repayment Member is relying on alimony or child support Community property states or relying on property located in a community property state for repayment Spousal info can be requested in community property state Alimony, Child Support, Dependents Childbearing, childrearing, 8 mheighes@cuaskme.com 4

5 National Origin Applications Residency, immigration status ok Age Credit History all available info on credit of the type the credit union considers Collection of HMDA info ok too 9 Applications Income amount and duration Protected: part-time, alimony, child support separate maintenance (written agreement or court order, regularly received, how long, can court compel payment, creditworthinessetc.), - cannot request it annuities, pensions, public assistance 10 mheighes@cuaskme.com 5

6 Signatures on Loan Applications Creditworthy Applicants Joint Applicants Collateral Owners Cosigners/Guarantors Cannot require the signature of a spouse or other person if the individual qualifies Spousal signature ok on security instrument for jointly held property securing the loan, or if relying on spousal income for repayment If requesting guarantor, do not request spouse 11 Adverse Action Notice Written Within 30 days of completed application Statement of action taken, name and address of CU, non-discrimination statement, NCUA address, reasons Principal Applicant Fair Credit Reporting Act 12 mheighes@cuaskme.com 6

7 Credit Decisions Completed Application Approval, notify within 30 days Counteroffers - 30 days/90 days Incomplete Applications - 30 days to send notice of incomplete, must send adverse action if no response in 30 days Withdrawn Applications includes approved but no inquiries, document in file Can be provided electronically, comply with E-SIGN 13 Self Tests Any program, practice or study that is designed and used specifically to determine the extent or effectiveness of a credit union s compliance with ECOA and Reg B and Creates data or factual info that cannot be derived from loan files or other records Voluntary - caution Can include testers, collect prohibited info 14 mheighes@cuaskme.com 7

8 Home Mortgage Disclosure Act 15 Completing the Loan Application Register (LAR) 16 8

9 Application or Loan Information Identification Number a unique identifier for the loan that will allow it to be retrieved later member name and SSN are not recommended Date application received consistently use the date received or the date on the application For purchases use N/A 17 Application or Loan Information Type of loan conventional, FHA, VA, Farm or Rural housing service Housing Type 1-4 family (inc. condos and co-ops) manufactured housing, multifamily (5 or more) Purpose home purchase, home improvement or refinancing 18 mheighes@cuaskme.com 9

10 What if the loan is multipurpose? If any part of the loan is for purchase, use home purchase; If it is for home improvement and refinancing, use home improvement 19 Application or Loan Information Occupancy indicate whether it will be the borrowers primary residence For multi-family dwellings and loans outside an MSA, you may either use the code for not applicable or use provide the information For loans purchased use owner-occupied unless otherwise indicated Use non-owner occupied for vacation homes and rentals 20 10

11 Loan Amount Report the amount in thousands: $150,000 is 150 (rounding up for amounts of $500 or more - $150,500 is 151) Automated filing, add leading zeros Home purchases amount of the loan Purchased loans unpaid principal balance Home improvement amount of the loan even if some is not for home improvement Refinance total amount including new and old money Denied or withdrawn amount applied for HELOC only amount for home purchase or improvement 21 Preapproval A preapproval is a full review of the applicant s creditworthiness resulting in a written commitment to lend Property may be identified later, and verification that no material change has occurred with borrower s qualifications may be done later No written commitment to lend is not a preapproval, it is a prequalification and is not reportable. If the CU has a covered preapproval program, indicate if preapproval was requested or not If no covered program, enter the code for Not applicable. Also use the code for not applicable for home improvements, refinancings and loans purchased Home purchase loans only are reported 22 mheighes@cuaskme.com 11

12 Code 1 Code 2 Code 3 Code 4 Code 5 Code 6 Code 7 Code 8 Action Taken Loan originated Includes accepted counteroffers Includes ones resulting from a preapproval Application approved but not accepted Includes no response Do not use for preapprovals (see below) Application denied includes unaccepted counteroffers Application withdrawn Express withdrawal before a credit decision is made (withdrawn preapprovals are not reported) File closed for incompleteness No response after written request for additional information (incomplete preapprovals are not reported) Loan purchased by your institution Preapproval request denied Preapproval request approved but not accepted (optional reporting) 23 Date Action Taken Format Originated Purchased paper 01/02/2009 electronic 2009/01/02 settlement or closing date, include preapprovals date of purchase Denials, unaccepted approvals and incomplete applications Withdrawal date action taken or date notice is sent to applicant date of express withdrawal 24 mheighes@cuaskme.com 12

13 Property Location Metropolitan Area State and County Census Tract Census Tract Number Property outside an MSA can use NA Can also use NA for All fields on any property located in an MSA where you have no home or branch office (credit union, not CUSO). Preapprovals that were denied or not accepted Must also be reported on purchased loans even if not provided by seller 25 GMI Not required to report GMI for loans purchased by the credit union For loan applications by telephone, mail or internet, the credit union must still attempt to get the information. If it is not provided by the applicant use the code for not provided on applications by mail, phone or internet. Do not use not applicable Not required to report GMI on non-natural person applicants (businesses, trusts etc.) 26 13

14 What if an applicant selects more than one race or ethnicity? Submit all the selections of the applicant if possible. 27 What if there is more than one co-applicant? Provide the information for the first co-applicant listed

15 Sex GMI Only use not applicable for non-natural persons or purchases For internet, telephone and mail applications, if not provided by applicant(s) use the code for not provided in a mail. 29 Income Use the gross annual income that was relied upon in making the decision Round to the nearest thousand (e.g. $35,500 is 36) Use NA - not applicable If no income was requested or relied upon, For employee loans For multifamily dwellings loan purchases and loans to non-natural persons 30 mheighes@cuaskme.com 15

16 Type of Purchaser Code 0- loan was not originated, loan was not sold in the calendar year covered by the report Includes loans denied, withdrawn, approved but not accepted, and incomplete Originated or purchased loans that were not sold Loans sold later are not reported Other purchasers: Fannie, Ginnie, Freddie, Farmer, Private investor, other bank or savings assoc., Code 7 sale to another credit union or mortgage co. Code 8 to an affiliate 31 Denial Reasons Code 1 Debt-to-income ratio Code 2 Employment history Code 3 Credit history Income insufficient for amount of credit requested, and Excessive obligations in relation to income. Temporary or irregular employment, and Length of employment. Insufficient number of credit references provided; Unacceptable type of credit references provided; No credit file; Limited credit experience; Poor credit performance with us; Delinquent past or present credit obligations with others; Garnishment, attachment, foreclosure, repossession, collection action, or judgment; and Bankruptcy. 32 mheighes@cuaskme.com 16

17 Denial Reasons Code 4 Collateral Code 5 Code 6 Unverifiable information Code 7 Code 8 Code 9 Other Value or type of collateral not sufficient. Insufficient cash (downpayment, closing costs) Unable to verify credit references; Unable to verify employment; Unable to verify income; and Unable to verify residence. Credit application incomplete Mortgage insurance denied Length of residence; Temporary residence; and Other reasons specified on notice. 33 Rate Spread old way The rate spread will be calculated on loans that have an APR 3% (firsts) or 5% (subordinate lien) above the rate of a Treasury Constant Maturity issue with a comparable term. The CU obtains these rates from the FRB s H15 Statistical Release Treasury Securities of Comparable Maturity under Regulation C Use 15 th of the month before the rate was locked April 31 use April 15 April 13 th use March 15 Use NA for home improvement loans, applications that do not result in origination, unsecured home improvement loans, and purchased loans If the difference is less than is required to be reported, use NA Calculator: 34 mheighes@cuaskme.com 17

18 If the APR is 9.45% on a first lien (20 years) and the yield on a 20 year Treasury Constant Maturity security is 5.21%, the difference is 4.24 and will be reported on the HMDA report. superceded 35 Higher Priced Mortgatges/ Rate Spread for applications received on 10/1/09 or after For a home purchase loan, a refinancing, or a dwelling-secured home improvement loan that you originated, report the spread (difference) between the annual percentage rate (APR) and the applicable average prime offer rate if the spread is equal to or greater than 1.5 percentage points for first-lien loans or 3.5 percentage points for subordinate-lien loans. Otherwise, report the code for not applicable mheighes@cuaskme.com 18

19 Higher Priced Mortgages/Rate Spread A calculator to aid you in determining what number, if any, to report in this field can be found at www. ffiec.gov/hmda. If you create your own calculator, you may use the average prime offer rates in the tables Average Prime Offer Rates FIXED and Average Prime Offer Rates ADJUSTABLE, or you may determine the applicable average prime offer rate using the Board's published Methodology Statement, all available at the same web address. 37 Rate Setting If the loan is subject to a rate lock, the date to use is the date of the lock If the loan rate adjusts after the lock, then the date of the last re-adjustment is used If there is no rate lock, then the date the rate was finalized before funding. 38 mheighes@cuaskme.com 19

20 HOEPA Status First liens that are 8% above the rate of a comparable Treasury Security Subordinate liens 10% above the rate of a comparable Treasury Security Based on the H 15 statistical release Or have more than 8 points or fees of $583, whichever is greater Originations and purchased loans, not home-purchase loans 39 Lien Status For loans that the credit union originates, and applications that do not result in origination (approved but not accepted, denied, withdrawn or incomplete) Report the lien status, first, subordinate or not secured Use Not Applicable only for loans the credit union purchases 40 mheighes@cuaskme.com 20

21 More info. Checklist for completing the LAR Checklist for certifying officer Data should be edited before transmission using the FFIEC edit feature or the edit feature in the software you are using 41 Data Transmission Use Separate LARs for the credit union and a CUSO 25 or fewer entries may be reported on paper Data entry software is available online: hmda/softinfo.htm Use the export to regulatory agency via internet e- mail option to submit data If correcting data already submitted, you must resubmit the entire file, clearly marked as Complete Resubmission of 2009 file 42 mheighes@cuaskme.com 21

22 Truth in Lending for Mortgages 43 Misc. Open-End Info 44 22

23 Subsequent Disclosures Periodic Statements every billing cycle on which there is a finance charge imposed Notice of change typically required 15 days prior to change, however, for changes previously agreed to such as changes in rates and payments under a HELOC, no notice is required 45 HELOC Freezes or Reductions Collateral declines significantly below appraised value 50% decrease in equity at time of granting Based on individual properties, not area Creditor reasonably believes that consumer cannot make payments Both a material change in borrower s financial situation and belief that payments cannot be made Default on a material provision Precedence taking lien, owner moves out 46 mheighes@cuaskme.com 23

24 HELOC Reductions OK to reduce limit or suspend further advances Fraud or material misrepresentation, Failure to meet payment terms Actions affecting the property pledged as security Must implement timely reinstatement once situation that caused reduction ceases to exist May require borrowers to request reinstatement May require fee to make determination Reductions below outstanding balance cannot require borrower to make higher payment 47 Advertising Real Estate Loans 48 24

25 Open End Loan Advertising Trigger Terms: Circumstance for imposing a finance charge How the finance charge is determined Grace period Periodic Rate and APR Balance on which finance charge is calculated Any finance charge other than interest» A finance charge is the cost of consumer credit expressed as a dollar amount including transaction fees points, cash discounts Triggered Terms: minimum, fixed, transaction or other charges; APR; membership or participation fee 49 Home Equity LOC Advertising Trigger Terms: All open end requirements (whether positive or negative) plus: Payment terms Draw period Repayment period Length of plan How minimum payments are determined You must disclose: fees that are a % of limit; Estimate of other fees as a single $ or range; APR; Maximum APR; Discounted or premium rates (not based on index); Time rate is available; Balloon; Tax deductibility statement cannot be misleading. 50 mheighes@cuaskme.com 25

26 HELOC Advertising Balloon Payments Making the specified payments results in a payment more than two times the regular payment that must be paid in a lump sum at the end of the loan If a minimum payment is stated, and the minimum payment amount may result in a balloon payment (even if such a payment is uncertain or unlikely) Must state the amount and timing of the balloon payment with equal prominence and in close proximity (NO footnotes) to the stated payment 51 HELOC & CE Advertising Tax Implications Written or Internet ads secured by the consumer s principal dwelling promoting a product where the loan amount (combined LTV) may exceed the fair market value of the property If you make a statement that the credit may exceed the fair market value Must state that the interest on the portion above the FMV is not tax deductible for Federal Income Tax purposes AND To consult a tax advisor 52 mheighes@cuaskme.com 26

27 HELOC & CE Advertising Promotional Rates and Payments Rate is not derived using the current index and margin Variable rate - Payment is not derived using the current index and margin and is less than other payments using reasonably current index and margin Fixed rate payment is less than other payments under the plan for a specified period of time. If promotional rate or payment is stated: Must state what the fully indexed rate would have been without the promotional rate; Amounts and time periods of fully indexed payments Excludes envelopes, banner ads and pop-ups 53 HELOC & CE Advertising TV and Radio ads must include a toll-free or reverse charges number with a code that allows caller to identify program to access the disclosures required for HELOC advertisements Multi-purpose telephone number. When an advertised telephone number provides a recording, disclosures should be provided early in the sequence to ensure that the consumer receives the required disclosures. For example, in providing several options--such as providing directions to the advertiser's place of business--the option allowing the consumer to request disclosures should be provided early in the telephone message to ensure that the option to request disclosures is not obscured by other information. Statement accompanying telephone number. Language must accompany a telephone number indicating that disclosures are available by calling the telephone number, such as ``call for details about credit costs and terms.'' 54 mheighes@cuaskme.com 27

28 HELOC & CE Advertising Clear and conspicuous promotional rate or payment Same type size as rate or payment Located directly above or immediately next to the specified rate or payment For Internet no competing or interfering graphics or text No fine print, no footnotes Consumers must be able to see (TV, Internet), hear (radio) and comprehend disclosures 55 HELOC & CE Advertising Reasonably current index and margin- an index and margin is considered reasonably current if: For direct mail advertisements, it was in effect within 60 days before mailing; For advertisements in electronic form it was in effect within 30 days before the advertisement is sent to a consumer's e- mail address, or in the case of an advertisement made on an Internet Web site, when viewed by the public; or For printed advertisements made available to the general public, including ones contained in a catalog, magazine, or other generally available publication, it was in effect within 30 days before printing. 56 mheighes@cuaskme.com 28

29 Closed End Ads Prohibited Acts Dwelling secured loans Using the word fixed in conjunction with variable rate loans unless: The words adjustable rate mortgage, variable rate mortgage, or ARM appear first, and Each use of the word fixed is in close proximity to and equally prominent to the time period the rate and or payment is fixed and The fact that the rate may increase after that period 57 Prohibited Acts Dwelling secured loans Using the word fixed in conjunction with non- variable rate loans unless: Such as stepped-rate transactions Each use of the word fixed is in close proximity to and equally prominent to the time period the rate and or payment is fixed and The fact that the rate may increase after that period 58 29

30 Closed End Ads Prohibited Acts For advertisements for variable rate and nonvariable rate transactions The phrase ``Adjustable-Rate Mortgage,'' ``Variable-Rate Mortgage,''or ``ARM'' appears in the advertisement with equal prominence as any use of the term ``fixed,'' ``Fixed-Rate Mortgage,'' or similar terms; and Each use of the word ``fixed'' to refer to a rate, payment, or the credit transaction either refers solely to the transactions for which rates are fixed Or for variable rates: is accompanied by an equally prominent and closely proximate statement of the time period for which the rate or payment is fixed, and the fact that the rate may vary or the payment may increase after that period. 59 Closed End Ads Prohibited Acts Misleading Comparisons Making any comparison in an advertisement between actual or hypothetical credit payments or rates and any payment or simple annual rate that will be available under the advertised product for a period less than the full term of the loan, unless: The advertisement includes the required disclosures and If adjustable, that the rate may change 60 mheighes@cuaskme.com 30

31 Closed End Ads Prohibited Acts Government Endorsements (excluding FHA, VA or similar government endorsed program) Any misleading statement that the loan or lender is endorsed by any federal, state or other government entity Using the current lenders name in an advertisement not sent by the current lender, unless It includes the name of person or creditor making the advertisement along with a statement that it is not being made on the current lender s behalf 61 Closed End Ads Prohibited Acts No misleading ads referring to Debt-elimination that the new loan will eliminate debt or result in forgiveness of existing loans Counselor cannot be used by a for-proift mortgage broker, creditor or its employees Foreign language if used to promote terms that trigger other disclosures, must provide the required triggered disclosures in that language 62 mheighes@cuaskme.com 31

32 Special ROR Rules for Closed End General ROR rules are the same as for HELOCs Tolerances for Accuracy Disclosures are accurate if the disclosed finance charge are overstated, or understated by no more than ½ of 1% of the face amount of the note, or $100, whichever is greater. If it is a refinance by a new creditor with no cash out and no consolidation of existing loans, it is 1% or $100, whichever is greater. 63 Special ROR Rules for Foreclosures Closed End If the CU has initiated foreclosure proceedings and has failed to comply with the disclosure requirements, the transaction is rescindable if: A mortgage broker fee was not properly included in the finance charge The wrong right of rescission notice was given The right of rescission notice was not properly completed The finance charge was understated by more than $35 (overstated is OK) 64 mheighes@cuaskme.com 32

33 Really Really High Rate High Fee Mortgages 65 HOEPA Loans Section 32 mortgages Does not apply to purchase money loans or HElOCs Rates 8% above the rate of a comparable treasury security for 1 st liens 10% for subordinate (or fees of $583 (1/1/09) or 8 points) H15 Statistical Release 66 mheighes@cuaskme.com 33

34 HOEPA Disclosures You are not required to complete this agreement APR Regular and balloon payments Variable Rate Amount Borrowed 67 HOEPA Limitations No balloon if loan less than 5 years No negative amortization No payment of more than two advance payments from loan proceeds No default interest rate Refund calculation restriction May only charge a prepayment penalty if: Not applicable after first 2 years Not applicable for refi by same creditor or affiliate Consumer s monthly debt/gross income ratio is 50% or less at consummation and The payment cannot change during the first 4 years Limited Due on Demand clause Restrictions on insurance and annuity sales 68 mheighes@cuaskme.com 34

35 Real Estate Settlement Procedures Act 69 New GFE Required Must document why new GFE is provided and retain for 3 years after settlement Changed circumstances affecting settlement costs exceeds tolerances: Within 3 business days of learning of increased cost Changed circumstance affecting loan Changes due to borrower eligibility 3 business days Ok to show only the changed items 70 mheighes@cuaskme.com 35

36 New GFE Required Borrower requested changes Affecting settlement services or loan Within 3 business days of request Interest rate dependent charges and terms If rate has not been locked or lock has expired If borrower later locks rate, new GFE for the charge or credit for the interest rate chose, the adjusted origination charges, per diem interest and loan terms related to the rate All other terms remain the same 71 New GFE Required Expiration of original GFE If borrower does not express intent to continue within 10 business days of the GFE or longer time provided, the GFE costs are no longer binding New Home Purchases If settlement will occur more than 60 days after the GFE, state that any time up until 60 calendar days prior to closing, that a new GFE may be issued Failure to provide notice limits (as stated above) ability to provide revised GFE 72 mheighes@cuaskme.com 36

37 New GFE Form 73 Page 1 Top of form: property address, applicant name and contact information and loan originator s contact information 74 mheighes@cuaskme.com 37

38 Important Dates #2 must be good for at least 10 business days #3 does NOT mean that the rate is locked, just what will happen after they do lock it and how long it would be good for #4 is listed as N/A if the rate has already been locked If there is no rate lock available then 1, 3 and 4 are N/A 75 Loan Summary 76 mheighes@cuaskme.com 38

39 Escrow Accounts 77 Summary Page 1 78 mheighes@cuaskme.com 39

40 Trade off table Each lender must complete the first column of the tradeoff table. The second and third columns are optional and you may complete them if you have additional products to offer 79 GFE Seller paid items Q: If at the time a GFE is issued it is known that the seller will pay settlement charges typically paid by the borrower, how are the charges disclosed on the GFE? A: All charges typically paid by the borrower must be disclosed on the GFE regardless of whether the charges will be paid for by the borrower, the seller, or other party. Q: Are charges to the seller listed on the GFE? A: RESPA requires that only the borrower receive a GFE. The GFE is defined as an estimate of settlement charges a borrower is likely to incur in connection with the settlement. Charges that typically would not be charged to the borrower, but would be charged to another party such as the seller do not have to be included on the GFE. If the borrower typically would incur charges for title services and lender's and owner's title insurance, the GFE instructions make it clear that those charges are required to be listed regardless of whether, for example, the contract requires the seller to pay for the service. If there is a question about whether the borrower or seller is to pay for a particular settlement service, the charge for that service should be disclosed on the GFE. 80 mheighes@cuaskme.com 40

41 Affiliated business arrangement Affiliated business arrangement means an arrangement in which: a person who is in a position to refer business incident to or a part of a real estate settlement service involving a federally related mortgage loan, or an associate of such person, has either an affiliate relationship with or a direct or beneficial ownership interest of more than 1 percent in a provider of settlement services; and either of such persons directly or indirectly refers such business to that provider or affirmatively influences the selection of that provider; 81 Affiliated Business Arrangements Describe the business arrangement that exists between the two providers and give the borrower an estimate of the second provider's charges. The referring party cannot require the consumer to use the particular provider being referred except where a lender refers a borrower to an attorney, credit reporting agency or real estate appraiser to represent the lender's interest in the transaction 82 mheighes@cuaskme.com 41

42 To: Affiliated Business Arrangement From: Property: Date: This is to give you notice that [referring party] has a business relationship with [settlement services providers(s)]. [Describe the nature of the relationship between the referring party and the providers(s), including percentage of ownership interest, if applicable.] Because of this relationship, this referral may provide [referring party] a financial or other benefit. [A.] Set forth below is the estimated charge or range of charges for the settlement services listed. You are NOTrequired to use the listed provider(s) as a condition for [settlement of your loan on] [or] [purchase, sale, or refinance of] the subject property. THERE ARE FREQUENTLY OTHER SETTLEMENT SERVICE PROVIDERS AVAILABLE WITH SIMILAR SERVICES. YOU ARE FREE TO SHOP AROUND TO DETERMINE THAT YOU ARE RECEIVING THE BEST SERVICES AND THE BEST RATE FOR THESE SERVICES. [provider and settlement service] [charge or range of charges] [B.] Set forth below is the estimated charge or range of charges for the settlement services of an attorney, credit reporting agency, or real estate appraiser that we, as your lender, will require you to use, as a condition of your loan on this property, to represent our interests in the transaction. [provider and settlement service][charge or range of charges] ACKNOWLEDGMENT I/we have read this disclosure form, and understand that [referring party] is referring me/us to purchase the above-described settlement service(s) and may receive a financial or other benefit as the result of this referral....[signature] 83 Transfer of Servicing Disclsoure [Sample language; use business stationery or similar heading] [Date] SERVICING DISCLOSURE STATEMENT NOTICE TO FIRST LIEN MORTGAGE LOAN APPLICANTS: THE RIGHT TO COLLECT YOUR MORTGAGE LOAN PAYMENTS MAY BE TRANSFERRED You are applying for a mortgage loan covered by the Real Estate Settlement Procedures Act (RESPA) (12 U.S.C et seq. ). RESPA gives you certain rights under Federal law. This statement describes whether the servicing for this loan may be transferred to a different loan servicer. Servicing refers to collecting your principal, interest, and escrow payments, if any, as well as sending any monthly or annual statements, tracking account balances, and handling other aspects of your loan. You will be given advance notice before a transfer occurs. Servicing Transfer Information [We may assign, sell, or transfer the servicing of your loan while the loan is outstanding.] [or] [We do not service mortgage loans of the type for which you applied. We intend to assign, sell, or transfer the servicing of your mortgage loan before the first payment is due.] [or] [The loan for which you have applied will be serviced at this financial institution 84 and we do not intend to sell, transfer, or assign the servicing of the loan.] mheighes@cuaskme.com 42

43 Escrow Calculation Aggregate analysis The account at some point during the year will be at zero plus no more than the cushion (two months escrow payments) Take all the premiums owed during the year and the months that they are owed. Add them all up and divide by 12. If a large premium is due before sufficient $$ is in the account, this can be collected at the first month s payment (or disbursal). Example: Taxes $1,200 ($550 7/25; $700 12/10) Hazard insurance $360 on 9/20 $1,560/12 months = $130 per month 85 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun pmt dis ) bal * ) bal * mheighes@cuaskme.com 43

44 A cushion of $260 was added to the initial amount. The lowest point of this account should be no more or less than the required cushion. Jun Jul Aug Sep Oct Nov DEC Jan pmt dis bal * Feb Mar APR May Jun Annual Analysis If the analysis uncovers a surplus (over $50), within 30 days must refund the surplus to the borrower. If less than $50, may refund or just apply to next year. If short/deficient (less than one month s escrow payment) CU can Allow the shortage Repay the shortage within 30 days If more than one month s payment Repay the shortage over 12 months 88 mheighes@cuaskme.com 44

45 Annual Statement Provided within 30 days of the completion of the escrow account computation year. Also include previous year s projection or initial escrow account statement Amount of the current mortgage payment and amount going to escrow Amount of past year s monthly mortgage payment and portion in the escrow account Total amount paid into the escrow account during the last year Total amount paid out (separately identified) Balance in the escrow account Explanation of how surplus/shortage is being handled No annual statements are required on loans in default, foreclosure or bankruptcy 89 Transfer of Servicing Special Transfers No change in place where payment sent with regard to transfers between affiliates, mergers or master servicers with no change in sub-servicer no notice FHA loans are not required to have a notice Con t on next page 90 mheighes@cuaskme.com 45

46 Transfer of Servicing Special Transfers 30 days after the effective date Termination of the contract for cause Commencement of BK proceeding for the servicer Commencement of proceedings by FDIC for conservatorship 91 Form Review 92 46

47 At application Special Information Booklet purchase money only Good Faith Estimate, including information about required providers Mortgage Servicing Disclosure Statement whether the lender intends to service the loan or transfer it to another lender, information about complaint resolution 93 Before Settlement Affiliated business arrangement statement at time of referral Settlement statement available to borrowers upon request 1 day prior to closing, may be an estimate 94 mheighes@cuaskme.com 47

48 At Closing Settlement statement If both borrower and seller are not present at the same time, should be mailed as soon as possible after closing Initial Escrow Statement itemizes estimated taxes, insurance premiums and other charges to be paid from the Escrow Account during the first 12 months of the loan it lists the Escrow payment amount and any required cushion. usually given at settlement, but the lender has 45 days from settlement to deliver it 95 During the loan Annual Escrow Statement given annually summarizes escrow account deposits and payments during the twelve month computation year nofies the borrower of any shortages or surpluses in the account and advises the borrower about the course of action being taken. Servicing Transfer Statement required if the loan servicer sells or assigns the servicing rights to a borrower's loan to another loan servicer the existing loan servicer must notify the borrower 15 days before the effective date of the loan transfer must include the name and address of the new servicer, toll-free telephone numbers, and the date the new servicer will begin accepting payments as long the borrower makes a timely payment to the old servicer within 60 days of the loan transfer, the borrower cannot be penalized The new servicer provides notice within 15 days of the transfer 96 mheighes@cuaskme.com 48

49 Penalties Borrowers can sue for 1 year for violations regarding kickbacks and unearned fees or involving title companies Borrowers can sue for 3 years for violations involving servicing of mortgage loans and escrow accounts HUD, a state attorney general or insurance commissioner may sue for the above violations for 3 years HUD can assess civil penalties for failure to provide initial and annual escrow statements Borrowers entitled to restitution if GFE tolerance limits are not met 97 New RESPA FAQs updated 1/20/ mheighes@cuaskme.com 49

50 S.A.F.E. Act Mortgage loan originators must be registered with the Nationwide Mortgage Licensing System and Registry (Registry), a database established by the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators Establishes the registration requirements for mortgage loan originators employed by federally-regulated institutions, and also requires the adoption of policies and procedures to ensure compliance Requires mortgage loan originators to obtain a unique identifier through the Registry that will remain with that originator, regardless of changes in employment. Proposed rules June 1, day delayed implementation after the registry is up and running 99 Homeowner s Protection Act Private Mortgage Insurance 100 mheighes@cuaskme.com 50

51 Private Mortgage Insurance PMI protects mortgage lenders against financial loss if the borrower defaults. When borrowers put less downpayment on a home, the risk of default is greater so PMI is often required as a condition of obtaining a loan with a higher LTV ratio (usually above 80%) HOPA applies to loans for the acquisition, construction or refinancing of 1-4 family primary residences 101 PMI requirements Initial disclosures fixed rate Written initial amortization schedule Written notice statement that the member may cancel PMI, specifying the date it may be requested The member may cancel PMI based on actual payments PMI may terminate automatically on a specific date Specifies whether the exemption for high risk loans applies or does not apply 102 mheighes@cuaskme.com 51

52 PMI Requirements Initial Disclosures - Adjustable Rate The the member may cancel PMI and the servicer will notify the member when the date is reached PMI can terminate automatically on the termination date and the member will be notified of the termination (loan must be current) Exemption for high risk loans 103 HOPA cancellation Cancellation Request Submit request in writing Good payment history Be current Property has not declined below its original value and no subordinate lien Automatic cancellation at 78% of original value 104 mheighes@cuaskme.com 52

53 Annual Notice Every year the service must provide notice of borrower s right to cancel Can be on RESPA annual escrow notice or 1098 mortgage interest statement 105 Cancellation Within 30 days notify the borrower in writing That PMI has terminated Borrower no longer responsible for PMI payments No longer has PMI on loan 106 mheighes@cuaskme.com 53

54 CU Paid PMI When the credit union absorbs the cost of the PMI premiums, it usually charges more in interest. Therefore a disclosure is required: PMI cannot be cancelled by member Usually results in higher rate than if member paid for the insurance Can only be terminated with a refi, payoff or loan termination Both coverages have advantages and disadvantages and an analysis Lender paid insurance may be tax deductible. Also provide notice of other financing options on date when borrower-paid PMI would normally be cancelled. 107 mheighes@cuaskme.com 54