INTEGRATED MORTGAGE DISCLOSURES

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1 INTEGRATED MORTGAGE DISCLOSURES (TILA RESPA RULE) Financial Solutions Patti Blenden October CFPB s Statutory Objectives 1. To ensure that consumers have timely and understandable information to make responsible decisions about financial transactions; 2. To protect consumers from unfair, deceptive, or abusive acts or practices, and from discrimination; 3. To reduce outdated, unnecessary, or overly burdensome regulations; 4. To promote fair competition by enforcing the Federal consumer financial laws consistently; and 5. To advance markets for consumer financial products and services that operate transparently and efficiently to facilitate access and innovation. 2 Loan Estimate page 1

2 September 2014 Guide The Loan Estimate and Closing Disclosure must be used for most closed end consumer mortgages other than a reverse mortgage. HELOC s & mobile home only (without land) continue to use current forms Designed to provide consumers a better understanding of: Key Features Costs Risks Certain Mortgage &Variable Rate Transactions (a) Mortgage transactions subject to RESPA (current) (a) Reverse mortgage transactions subject to RESPA (eff. 8/1/15) (b) Certain variable rate transactions (c) Electronic disclosures (d) Substitutes for variable rate disclosures (e) Mortgage loans secured by real property Early disclosures (eff. 8/1/15) (e)(1) Provision of disclosures (e)(2) Predisclosure activity (e)(3) Good faith determination for estimates of closing costs (e)(4) Provision and receipt of revised disclosures (f) Mortgage loans secured by real property final disclosures (eff. 8/1/15) (f)(1) Provision of disclosures (f)(2) Subsequent changes (f)(3) Charges disclosed (f)(4) Transactions involving a seller (f)(5) Prohibition on fee for disclosures (g) Special information booklet at time of application (eff. 8/1/15) 4 Loan Estimate page 2

3 Reg Z Subpart E SPECIAL RULES FOR CERTAIN HOME MORTGAGE TRANSACTIONS 5 Federally Related Mortgage Loan A federally related mortgage loan is any loan made by a federally regulated or insured financial institution, or a dealer or a mortgage broker that is: Secured by a lien on Residential real property upon which there is located, or following closing of the loan there will be constructed or placed using proceeds of the loan A 1 4 family residence or a mobile home. 6 Loan Estimate page 3

4 RESPA Coverage in 3 Simple Steps 1. The loan must be made to an individual as in Reg Z Individuals only are covered Non individual entities (business entities) are not covered 2. The loan must be primarily for a consumer purpose (parallels Reg Z s definition) The proceeds need not necessarily be used for any housing related purpose Look to the primary purpose for multi purpose loans 3. Loan must be secured by a lien on residential real property RESPA is purpose driven, but collateral dependent and lien position does not matter. Residential real property means dirt, and must be residential in character. There must be a 1 to 4 family residence on the land (e.g., stick built home, manufactured home, condo). House boats and travel trailers are not covered. RESPA coverage includes construction loans, if the proceeds will be used to build a residence on the land within 2 years. Occupancy of the residence as a primary residence is not required. Doesn t have to be the primary residence, owner occupied, or even owned by the borrower(s) 7 Exemptions: Loans Not Covered Loans secured by 25 or more acres of land (Eliminated 8/1/15) It doesn t matter where the land is, or if it is more than one parcel The character of the land doesn t matter, either This means it doesn t matter what buildings (if any) are on the land Vacant land Loan secured by vacant or unimproved property is exempt Loan is not secured by residential real estate But, it would not be exempt if the proceeds of the loan will be used to construct a 1 to 4 family dwelling or mobile home on the property within 2 years Ask what will be done with the proceeds of the loan! 8 Loan Estimate page 4

5 Exemptions: Loans Not Covered Business purpose loans Fails # 1 or # 2 of the 3 part test RESPA, like Reg Z, is purpose driven RESPA follows Reg Z s definition of business purpose Loans to non individuals are not covered (a non individual cannot have a consumer purpose) Look to the primary purpose of mixed purpose loans as under Reg Z Rental property loans Prior to 1997, loans made to purchase or rehabilitate rental homes were covered by RESPA; not any more Purpose of the loan is what counts, not collateral 9 Exemptions: Loans Not Covered Temporary financing Less than two years is temporary confusing meaning? Are only certain types of temporary loans exempt? RESPA s language is confusing here ( such as a construction loan ), but no specific type of loan was originally intended by HUD according to HUD s staff, but Loan should be temporary in nature (i.e. construction or bridge loan) Intended to be replaced by more permanent financing Loans that are permanent in nature, regardless of term, cannot be temporary If the term of a construction loan is 2 years or more, it is not exempt 10 Loan Estimate page 5

6 Exemptions: Loans Not Covered Temporary Financing Exceptions to the exemption: Certain loans, although temporary in nature, are covered Where the same lender (e.g. construction lender) has issued a commitment to do the permanent financing (conditional or not) Where loan proceeds are used to finance the transfer of residence title to first user Who is the first user? First party to live on land as a residence (e.g. lot loans) 11 TILA RESPA Rule Significant Changes Initial Truth in Lending disclosure and RESPA Good Faith Estimate (GFE) combined into new Loan Estimate form ( and Appendix H 24) Given 3 business days after application received Final Truth in Lending disclosure and RESPA HUD 1 combined into new Closing Disclosure ( and Appendix H 25) Given 3 business days prior to consummation New timing requirements for disclosures ( (e) and (f)) New tolerance levels for disclosed estimates ( (e) and (f)) New pre disclosure requirements ( (e)(2)) The rule leaves sufficient flexibility for creditors, brokers and settlement agents to arrive at the most efficient means of preparation and delivery of the Loan Estimate and the Closing Disclosure. Creditors retain all responsibility! 12 Loan Estimate page 6

7 Change in RESPA Reg X Exemption Under the new rule, the existing RESPA exemption on property of 25 acres or more is eliminated to make Regulation X (RESPA) more consistent with Regulation Z (TILA). CFPB believes that most of these loans will be exempt under other exempted categories, such as loans for business, commercial or agricultural purposes. If a loan on property of 25 acres or more is not exempt by one of these other categories, the CFPB believes that the new integrated disclosures will be useful to the consumer. 13 NOT Covered by Integrated Disclosure Rule Loan Type Home equity lines of credit (HELOCs) and reverse mortgages Chattel dwelling loans (secured by a mobile home or by a dwelling not attached to land) Certain loan types subject to TILA but not RESPA (i.e., construction only, lot loans, etc. Entity Persons making 5 or fewer mortgages per year (therefore NOT a Creditor) No Interest Loans Secured by subordinate liens made for the purpose of down payment or similar home buyer assistance, property rehabilitation, energy efficiency, or foreclosure avoidance or prevention 14 Loan Estimate page 7

8 Partial Exemption Certain transactions associated with HUD housing assistance loan programs for low and moderate income consumers are partially exempt from new rule. They re given disclosures geared specifically to these exempt transactions. They re exempt from the requirements to provide: RESPA Special Information Booklet (settlement costs), RESPA Good Faith Estimate (GFE), RESPA settlement statement (HUD 1, HUD 1A), and Mortgage servicing transfer disclosure. The exemptions are still subject to all other requirements of Reg X, such as provisions implementing the servicing requirements in RESPA 6 (other than the application servicing disclosure statement), prohibitions on referral fees and kickbacks in RESPA 8, and limits on amounts to be deposited in escrow accounts in RESPA HUD s Housing Assistance Loans 6 Prerequisites The loan is secured by a subordinate lien; The loan s purpose is to finance downpayment, closing costs, or similar homebuyer assistance, such as principal or interest subsidies, property rehabilitation assistance, energy efficiency assistance, or foreclosure avoidance or prevention; Interest is not charged on the loan; Repayment of the loan is forgiven or deferred subject to specified conditions; Total settlement costs do not exceed one percent of the loan amount and are limited to fees for recordation, application, and housing counseling; and Loan recipient is provided at or before settlement with a written disclosure of the loan terms, repayment conditions, and costs of the loan. 16 Loan Estimate page 8

9 Integrated Disclosures Effective Date The new Integrated Disclosures must be provided for an application for a closedend consumer credit transaction secured by real property on or after 8/1/2015. Creditors required to use the GFE, HUD 1 and TILA forms for applications received prior to 8/1/2015. As applications received prior to August 1 st are consummated, withdrawn, or cancelled, the use of the GFE, HUD 1, and TILA will no longer be used for most mortgage loans. Example: For an application received 7/31/2015, the Loan Estimate, Closing Disclosures and the Special Information Booklet required under the new TILA RESPA integrated disclosure rule do not apply. Instead, the creditor and the settlement agent must provide the disclosure requirement under the existing TILA and RESPA rules, as applicable. Do not implement the forms use prior to the effective date! 17 Restrictions Effective on August 1, 2015 Regardless of an application s date before, on or after August 1 st, the following activity restrictions are effective on August 1, 2015: 1. Imposing fees on a consumer before the Loan Estimate has been received and the consumer has expressed an intent to proceed, with exception of credit report fee. 2. Providing written estimates of terms or costs specific to consumers before the Loan Estimate is received without a written statement information the consumer that the terms and costs may change. 3. Requiring the submission of verification documents related to the consumer s application before providing the Loan Estimate. 4. Provisions addressing the preemption of inconsistent state disclosure laws ( (a)(1)), as well as the commentary regarding the substantial similarity standard used to grant state exemptions ( ). 18 Loan Estimate page 9

10 Restriction on Fees Before Intent to Proceed Prohibited from imposing fees on a consumer before the Loan Estimate has been received and the consumer has expressed an intent to proceed, with exception of credit report fee Example: A third party submits a consumer's application to a creditor following a different creditor's denial of the consumer's application (or following the consumer's withdrawal of that application)a If a credit report fee has already been assessed, the new creditor or third party may not impose any additional fee until the consumer receives the Loan Estimate from the new creditor and indicates an intent to proceed with the transaction described by those disclosures. 19 Fees Imposed by a Person (e) Fee considered imposed if the person requires a consumer to provide a method for payment, even if the payment is not made at that time. XIf a person requires a $500 check or a credit card number to pay for a processing fee before the consumer receives the Loan Estimate, the person does not comply with the fee restriction, even if stated the check will not be cashed or the credit card will not be charged until after the disclosures are received and person waited until after subsequent intent to proceed to cash the check or charge the card. In contrast, a creditor or other person complies if they require a credit card number before receipt of the disclosures and later indicates an intent to proceed, provided that the consumer ONLY authorizes the credit report and is ONLY charged a reasonable and bona fide fee for obtaining the consumer's credit report. Creditor still complies if they maintain the credit card number on file and charges the consumer a $500 processing fee after the disclosures are received and the consumer later indicates an intent to proceed with the transaction described by those disclosures, provided that the creditor or other person requested and received a separate authorization for the processing fee after receipt of the disclosures followed by an intent to proceed. 20 Loan Estimate page 10

11 Requiring Verification Docs Too Early i. A creditor may ask for the sale price and address of the property, but the creditor may not require the consumer to provide a purchase and sale agreement to support the information the consumer provides orally before the creditor provides the early disclosures. ii. A mortgage broker may ask for the names, account numbers, and balances of the consumer's checking and savings accounts, but the mortgage broker may not require the consumer to provide bank statements, or similar documentation, to support the information the consumer provides orally before the mortgage broker provides the early disclosures. 21 New Forms In General Require disclosure of categories of information that will vary due to: Loan type, Payment schedule, Fees charged, Terms of transaction, and State law provisions Use exact format specified by CFPB in model forms. May include logo or slogan at top of LE Page 1 in the allotted space. Signature section on page 3 is optional. 22 Loan Estimate page 11

12 Definitions Application Per Reg Z Subpart C (Closed end Credit) (a)(3), submission of a consumer s financial information for purposes of obtaining an extension of credit. Six elements including name, income, SSN, property address, loan amount and estimated property value. Business Day For purposes of Loan Estimate, a day on which the creditor s offices are open to the public for carrying out substantially all of its business functions. Business Day For rescission and Closing Disclosure receipt by consumer, all calendar days except Sundays and legal public holidays (i.e., mail schedule) Issue Deliver or place in the mail the applicable disclosure 23 Special Information Booklet Creditor must deliver or place in the mail the Special Information Booklet not later than 3 business days after the mortgage application is received. If the creditor denies the application before the end of the 3 BDay period, the creditor is not required to send the booklet. 24 Loan Estimate page 12

13 LOAN ESTIMATE (LE) 25 Integrated Disclosures: Loan Estimate Old Disclosures Combined into the Loan Estimate Good Faith Estimate Early TIL ECOA Appraisal Notice RESPA Mortgage Servicing Transfer Previously 5 to 6 pages long Now 3 pages long 26 Loan Estimate page 13

14 Loan Estimate = GFE + etila The Loan Estimate form also includes several new disclosures required by the Dodd Frank Act, such as: Total interest percentage (TIP), Aggregate amount of loan charges and closing costs the consumer must pay at closing (Cash at Closing), Homeowner s insurance disclosure, and For refinance transactions the anti deficiency protection notice. 27 Loan Estimate Key Timing Provisions 3 Business Days After Application 7 Business Days Before Closing 28 Varies by Creditor. Gives Creditor flexibility to issue. Same for Everyone (rescission BDay). All about when applicant receives disclosures! Loan Estimate page 14

15 Loan Estimate Page 1 General Information General Application Information Loan Terms Projected Payments Costs at Closing Page 2 Closing Cost Details Loan Costs Other Costs Calculating Cash to Close Adjustable Payment (AP) Table Adjustable Interest Rate (AIR) Table Page 3 Additional Information About This Loan Contact Information Comparisons Table Other Considerations Table Appraisal Assumption Homeowner s Insurance Late Payment Refinance Servicing Confirm Receipt Signature Statement (optional) Delivered by the lender or the mortgage broker Lender retains responsibility for accuracy Content of Disclosures for Certain Mortgage Transactions (Loan Estimate) The disclosures required by are required to reflect the terms of the legal obligation between the parties, and if any information necessary for an accurate disclosure is unknown to the creditor, the creditor shall make the disclosure in good faith, based on the best information reasonably available to the creditor. Where a disclosure is not applicable to a particular transaction, unless otherwise provided by , form H 24 of appendix H to this part may not be modified to delete the disclosure from form H 24, or to state not applicable or N/A in place of such disclosure. The portion of the form pertaining to the inapplicable disclosure may be left blank, unless otherwise provided by If no points paid, leave that section blank. The adjustable payment and adjustable interest rate tables required by those paragraphs may be included only if those disclosures are applicable to the transaction and otherwise must be excluded. 30 Loan Estimate page 15

16 Issuance and Delivery (2.1.1) Loan Estimate (LE) must be provided to consumer by hand delivery or mail, no later than 3 BDays of receipt of application Application is considered received when consumer provides: Address of property Loan amount Income Estimated property value Name Social Security Number (to obtain credit report) Removed the 7 th Catch All 31 Ability to Repay (ATR) CFPB clarifies that this timing provision does not prevent a creditor from fulfilling its obligation to evaluate a borrower s ability to repay. Creditors will be able to collect any information needed to evaluate a borrower s ability to repay as long as they sequence the collection of that information to ensure the creditor provides a Loan Estimate within 3 business days of receiving the required 6 application pieces of information. Creditors cannot condition the issuance of the disclosure on verifying the information. 32 Loan Estimate page 16

17 Application Submission of application Writing Electronic format Written record of oral application Issue Loan Estimate within 3 business days of receiving all 6 application items If applicant withdraws or creditor denies application within the 3 BDay period, no Loan Estimate required If creditor later consummates the transaction on the terms originally applied for, out of compliance with the Loan Estimate delivery requirements If consumer amends application, deliver Loan Estimate within 3 BDays of receiving amended or resubmitted application 33 Estimated Information Creditors must act in good faith, exercising due diligence to obtain information required to complete the Loan Estimate. Creditors may normally rely upon other parties representations. If information is unknown (i.e., not reasonably available to the creditor at the time the LE is prepared), Creditor may use estimates. Designate estimated figures as estimates on the LE. (Comment 17(c)(2)(i) 2) New disclosures may be required under (c) or Loan Estimate page 17

18 Changed Circumstances New RESPA TILA Rule Extraordinary event beyond the control of any interested party or other unexpected event Information specific to the consumer applicant that was inaccurate or has changed New information Change requested by consumer Interest rate dependent charges at rate lock Expiration of a previously issued LE Old RESPA Rules Information particular to the borrower relied upon to create the GFE and changes or is found to be inaccurate later New information that was not relied upon in compiling the GFE Acts of God, war, disaster, or other emergency Other allowable changed circumstances 35 Circumstances Justifying Charge > Estimate Expressly permitted variations Unlimited variance Limited to 10% more than estimate Excess amount is below the allowable tolerance threshold Changed circumstances permitting a revised LE or a Closing Disclosure permitting the charge Creditors generally prohibited from revising estimates due to Technical errors Miscalculations Underestimations of charges 36 Loan Estimate page 18

19 Examples of Charges Allowed NO Increase Fees paid to the creditor Fees paid to a mortgage broker Fees paid to an affiliate of the creditor or a mortgage broker Fees paid to an unaffiliated third party, if the creditor required the service provider and did not allow the consumer to shop Transfer taxes. 37 Estimate Variance Limits 0 Tolerance: (e)(3)(i) An estimated closing cost disclosed is not in good faith if the charge paid by or imposed on the consumer exceeds the amount originally disclosed by any amount 10 % Aggregate Increase Limit: (e)(3)(ii) Limited increases permitted for certain charges No Limit on Increase: (e)(3)(iii) Variations permitted for certain charges 38 Loan Estimate page 19

20 Charges Without Regard to a Tolerance Limitation Creditors may charge >LE disclosed amount without tolerance limit: 1. Prepaid interest, property insurance premiums 2. Escrowed amounts 3. Serviced required by the creditor for which consumer may shop and the third party service provider is NOT on the creditor s written list of service providers 4. Services not required by the creditor paid to third parties (even creditor s affiliates) No regard to tolerance ONLY if credit did not purposefully under disclose the estimated costs 39 Charges Subject to a 10% Cumulative Tolerance An estimate for a third party service of a recording fee is in good faith if all three conditions are met: 1. The sum of the actual charges for third party services and recording fees does not exceed the category s estimated sum on the LE by more than 10%; 2. The charge for third party service is not paid to the creditor or an affiliate of the creditor; and 3. The creditor permits the consumer to shop for the third party service. 40 Loan Estimate page 20

21 Aggregate Increase Limit If an estimated service is not performed, the estimate for that charge should be removed from the category s total of estimated charges. May charge for a service that was not included on the LE so long as the sum of the category s charges is below the estimated category total. If the creditor does not include an estimated charge for a notary fee but a $10 notary fee is charged to the consumer, and the notary fee is subject to (e)(3)(ii), then the creditor complies if the sum of all amounts charged to the consumer does not exceed 110% of estimated costs, even though an individual notary fee was not included in the estimated disclosures provided. 41 Charges Subject to Zero Tolerance Creditors may not charge consumers more than disclosed on the LE under any circumstances other than changed circumstances for these items: Fees paid to (and retained by) the creditor, mortgage broker, or an affiliate of either; Fees paid to an unaffiliated third party if the creditor did not permit the consumer to shop for a third party service provider for a settlement service, or Transfer taxes. 42 Loan Estimate page 21

22 Cure for Excess Over Allowable Tolerances If amounts paid by consumer at closing exceed the LE disclosure tolerances, the creditor must refund the excess and provide a corrected disclosure reflecting the refund no later than 60 calendar days after consummation. For charges subject to zero tolerance, any amount charged beyond the LE disclosure amount must be refunded to the consumer. For charges subject to a 10% cumulative tolerance, the difference in the total category s sum compared to the disclosed estimated category s sum must be refunded to the consumer. 43 Loan Estimate Disclosure Delivery Deliver or place in the mail no later than on the third business day after receiving completed application Creditor responsible for ensuring LE s delivery complies with requirements for: Content Delivery Timing If LE not delivered in person, considered received by consumer 3 business days after it is delivered or placed in the mail 44 Loan Estimate page 22

23 Revised Loan Estimate: Six Exceptions 1. Changed circumstances altering settlement charges 2. Changed circumstances affecting eligibility (e.g., borrower s creditworthiness, value of the collateral) 3. Revisions requested by the consumer 4. Interest rate dependent charges 5. Consumer s intent to proceed after expiration of the LE disclosures 6. Delayed settlement on a construction loan (closing scheduled to occur >60 days after delivery of the estimated disclosures if consumer was alerted to this possibility when LE was provided) 45 Changed Circumstances Affecting Settlement Charges 1. An extraordinary event beyond the control of any interested party or other unexpected event specific to the member or transaction; 2. Information specific to the consumer or transaction that the creditor relied upon when providing the disclosures and that was inaccurate or subsequently changes; or 3. New information specific to the consumer or transaction that was not relied on when providing the disclosures. The new rule eliminates the existing 4th section of the definition which included other circumstances that are particular to the borrower or transaction, including boundary disputes, the need for flood insurance, or environmental problems. CFPB believes this is already covered by other elements of the definition and suggests that the overlap contributed to uncertainty surrounding what scenarios constitute a changed circumstance. 46 Loan Estimate page 23

24 Revised Loan Estimate (2.1.2) If AFTER Loan Estimate has been provided, a changed circumstance occurs: Creditor can revise the Loan Estimate If revising, must revise within 3 business days of learning of change A revised Loan Estimate generally can be provided no later than 7 business days BEFORE consummation (see section below) 47 Rounding (2.1.4) Dollar amounts must be rounded to nearest whole dollar where noted in the regulation ( (o)(4)). If an amount is required to be rounded but is composed of other amounts that are not required or permitted to be rounded, use the unrounded amounts in calculating the total and then round the final sum. Conversely, if amount is required to be rounded & is composed of rounded amounts, use rounded amounts in calculating the total (Comment 37(o)(4) 2). Percentage amounts may not be rounded and should be shown up to 2 or 3 decimals, as needed, except where noted in regulation ( (o)(4)(ii)). If percentage amount is a whole number, show the whole number with no decimals ( (o)(4)(ii)); Comment 37(o)(4)(ii) 1) 48 Loan Estimate page 24

25 Consummation (2.1.5) Look to State law for guidance! Consummation is not always the same thing as Closing or Settlement. Consummation occurs when consumer becomes contractually obligated to the creditor on the loan NOT when consumer becomes contractually obligated to seller on a real estate transaction ( (a)(13). Point when consumer becomes contractually obligated to creditor on the loan depends on applicable State law ( (a)(13); Comment 2(a)(13) 1. Verify when applicable State laws determine when consummation will occur and ensure delivery of the Loan Estimate within 3 business days of receipt of application. 49 Loan Estimate (2.2), Page 1 Page 1 of the Loan Estimate includes: General information, A Loan Terms table with descriptions of applicable information about the loan, A Projected Payments table, A Costs at Closing table, and A CFPB link for consumers to obtain more information about loans secured by real property. Page 1 includes a statement of Save this Loan Estimate to compare with your Closing Disclosure. Page 1 also includes the creditor s name and address. If there are multiple creditors, use only the name of the creditor completing the Loan Estimate. (Comment 37(a)(3) 1) If a mortgage broker is completing the Loan Estimate, use the name and address of the creditor if known. If not yet known, leave this space blank. (Comment 37(a)(3) 2) 50 Loan Estimate page 25

26 General Loan Information (2.2.1) Date Issued Applicants Property Sales Price Loan Term Purpose Product Loan Type Loan ID # Rate Lock Figure 2: General Information of the Loan Estimate 51 Loan Estimate: General Loan Information Date Issued: Date mailed or delivered to the consumer Applicants: Name and mailing address of the consumer(s) applying for the loan. Use name and mailing address for each if multiple applicants. An additional page may be added if the space provided is insufficient. 52 Loan Estimate page 26

27 Property Use the address, including zip code, that will secure transaction If address is unavailable, use description of location (lot number or property description) Personal property (i.e., furniture, appliances, etc.) may secure the credit transaction, but are not required to be included as Property An additional page may NOT be appended to Loan Estimate to disclose a description of personal property 53 Sale Price If loan is a purchase money mortgage, use Sale Price If seller s Sale Price is not yet known, use the estimated value of the property used as the basis for the LE disclosures If personal property is included in Sale Price of Property, use that combined Sale Price without any reduction for appraised or estimated value of personal property If loan is for a transaction without a seller (such as a refinance), use Appraised Value or Estimated Value If Creditor has obtained or estimated valuation by issuance of LE, use that Appraisal Value or Estimated Value 54 Loan Estimate page 27

28 Loan Term Loan Term is the term of the debt obligation Describe Loan Term as years when the Loan Term is in whole years For a Loan Term is more than 24 months but is not whole years, describe using years and months with the abbreviations yr. and mo. Example: Loan term of 185 months is disclosed as 15 yr., 5 mo. For a Loan Term of exactly 24 months, us 2 years For Loan Term less than 24 months and not whole years, use months only with abbreviation mo. Example: 6 mo. or 16 mo. 55 Purpose Describe the consumer s intended use for the loan Purpose is disclosed using one of four descriptions: 1. Purchase: Loan will be used to finance the acquisition of the identified Property 2. Refinance: Loan will be used to refinance an existing obligation that is secured by the Property (even if creditor is not holder or servicer of original obligation) 3. Construction: Loan will finance initial construction of a dwelling on property disclosed on Loan Estimate 4. Home Equity Loan: Loan will be used for any other purpose not listed in the categories above 56 Loan Estimate page 28

29 Product: Payment Feature & Rate Feature The description of the loan should contain these 2 pieces of information: Any payment feature that may change the periodic payment Negative Amortization: Principal balance of loan may increase due to the addition of accrued interest to the principal of the loan Interest Only: When one or more periodic payments may be applied only to interest accrued and not to principal of the loan Step Payment: When the scheduled variations in regular periodic payments amounts occur that are not caused by changes to interest rate during loan term Balloon Payment: When terms of legal obligation include a payment that is more than 2 times that of a regular periodic payment Seasonal Payment: When terms of the obligation expressly provide that regular periodic payments are not scheduled between specified unit periods on a regular basis (ex. teacher loan not requiring monthly payments during summer months) If a loan can be described with more than one description, only first applicable feature is disclosed. Ex: Loan with both Neg Amort and Balloon would only disclose Neg Amort 57 Product Rate Feature: Not a Fixed Rate Product Interest rate applied Adjustable Rate: Interest rate may increase after consummation, but rates that will apply or the periods for which they apply are not known at consummation Description must be preceded by duration of any introductory rate or payment period, and the first adjustment period, as applicable When no introductory period for an adjustable rate, disclose 0 Step Rate: Interest rate will change after consummation and the rates that apply and the periods for which they apply are known at consummation Description must be preceded by duration of any introductory rate or payment period, and the first adjustment period, as applicable When no introductory rate for a Step Rate, disclose 0 and then the applicable time period until the first adjustment 58 Loan Estimate page 29

30 Product Rate Feature: Fixed Rate Product Fixed Rate: Interest rate is not an Adjustable Rate or Step Rate Examples: Year 7 Balloon Payment, 3/1 Step Rate: A step rate with an introductory interest rate that lasts for 3 years and adjusts each year thereafter until a balloon payment is due in the 7 th year of the loan 2 Year Negative Amortization: A fixed rate produce with a step payment feature for the first 2 years of the obligation that may negatively amortize 2.58/1 Adjustable Rate: An adjustable rate product with an introductory interest rate for 31 months that adjusts every year thereafter (2 years and 7 months, where 7/12=0.58 and stated as 2.58) 18 mo./18 m0. Adjustable Rate: An adjustable rate product with an introductory interest rate for 18 months that adjusts every 18 months thereafter 59 Loan Type Loan Type is the type of loan from these 4 categories: Conventional: Not guaranteed or insured by Federal or State government agency FHA: Loan is insured by the Federal Housing Administration VA: Loan is guaranteed by the U.S. Department of Veterans Affairs Other: Describe if loan is insured or guaranteed by another Federal or State agency 60 Loan Estimate page 30

31 Loan ID# The creditor s loan identification number that may be used by a creditor, consumer and other parties to identify the transaction May contain alpha numeric characters and must be unique to the particular transaction Same Loan ID# may not be used for different, but related, loan transactions (such as different loans to same borrower) When a revised Loan Estimate is issued, the Loan ID# must be sufficient to identify the transaction associated with the initial Loan Estimate 61 Rate Lock Indicate rate is locked with Yes, indicate rate is not locked with No When interest rate is locked at time of Loan Estimate s delivery, the date and time (including applicable time zone) when lock period ends must be disclosed Date and time (including time zone) at which estimated closing costs expire must be disclosed on every Loan Estimate (see bold below) Before closing, your interest rate, points, and lender credits can change unless you lock the interest rate. All other estimated closing costs expire on xx/xx/2014 at 5:00 p.m. EDT 62 Loan Estimate page 31

32 Estimated Closing Costs Expiration Date 63 US Time Zones Eastern Standard Time (EST) [GMT 5] Central Standard Time (CST) [GMT 6] Mountain Standard Time (MST) [GMT 7] Pacific Standard Time (PST) [GMT 8] Alaskan Time (AKST) [GMT 9] Hawaiian Aleutian Time (HAST) [GMT 10] Atlantic Time Zone (AST)[GMT 4) Samoa Standard Time (SST)[GMT 11] Chamorro Standard Time (CHST)[GMT+10] GMT = Greewich Mean Time (a.k.a. Zulu Time). Arizona, Puerto Rico, Hawaii, U.S. Virgin Islands and American Samoa do not observe Daylight Saving Time. Samoa standard time (UTC 11) and Chamorro Standard Time (UTC+10) 64 Loan Estimate page 32

33 Chamorro Time Zone Samoa Time Zone 65 Atlantic Time Zone (AST) Puerto Rico and the USVI The U.S. Virgin Islands (USVI) consist of the main islands of Saint Croix, Saint John, and Saint Thomas. USVI also includes with the much smaller but historically distinct Water Island and many other surrounding minor islands. 66 Loan Estimate page 33

34 Loan Terms (2.2.2) Figure 3: Loan Terms Table of the Loan Estimate Disclose in the Loan Terms table: Loan Amount (if the amount is in whole dollars, do not disclose cents) ( (o)(4)), Initial Interest Rate, Initial Monthly Principal & Interest amount, Any adjustments to these amounts after consummation, Whether the loan includes a Prepayment Penalty, and Whether the loan includes a Balloon Payment. ( (b)) 67 Interest Rate and Monthly Principal & Interest If interest rate is not known at consummation, the fully indexed rate is disclosed (fully indexed rate is the interest rate calculated using the index value and margin at the time of consummation Initial principal and interest payment amount also would be calculated using the same fullyindexed rate 68 Loan Estimate page 34

35 Adjustable Rate Mortgage Example 69 Fixed Rate Loan Example 70 Loan Estimate page 35

36 Adjustment to Loan Amount, Interest Rate and Monthly P&I after Consummation If Loan Amount, Interest Rate or Monthly P&I can increase after consummation, disclose Yes where applicable with information pertinent to adjustment after consummation Loan Amount Adjustment: Creditor must disclose maximum principal balance for transaction and due date (expressed as the year or month in which it occurs, rather than an exact date) of the last payment that may cause principal balance to increase, together with a statement whether the maximum principal balance may or will occur under the terms of the obligation. The date disclosed is the year in which the event occurs, counting from the due date of the initial periodic payment. Interest Rate Adjustment: Disclose frequency of interest rate adjustments, date when interest rate may first adjust, maximum interest rate and first date when interest rate can reach maximum interest rate. Date disclosed is year in which event occurs, counting from date that interest for the first scheduled periodic payment begins to accrue after consummation. 71 Adjustment to Loan Amount, Interest Rate and Monthly P&I after Consummation, cont. Monthly Principal and Interest Adjustment: Disclose the scheduled frequency of adjustments, due date of the first adjustment and maximum possible amount (and earliest date it can occur) of the monthly principal and interest. In addition, if there is a period during which only interest is required to be paid, also disclose with due date of last periodic payment. Date disclosed is year event occurs, counting from due date of initial payment Disclose & reference Adjustable Payment (AP) Table When Loan Amount, Interest Rate or Monthly P&I cannot increase after consummation, disclose No where applicable 72 Loan Estimate page 36

37 Prepayment Penalty & Balloon Payment Prepayment Penalty: Charge imposed for paying all or part of a transaction s principal before due date of principal. Not including a waived third party charge that creditor imposes if consumer prepays loan s entire principal sooner than 36 months after closing Disclose maximum amount of Prepayment Penalty & date prepayment penalty terminates Balloon Payment: Payment that is more than 2 times a regular periodic payment 73 Prepayment Penalty & Balloon Payment, cont. Under subheading: Does the loan have these features? when loan has Prepayment Penalty or Balloon Payment disclose Yes, as applicable. When answer is Yes to either, also disclose as applicable: Max amount of Prepayment Penalty and date when period may be imposed terminates: Example: As high as $3,240 if loan is paid off in first 2 years Max amount of Balloon Payment and due date of such payment. Example: You will pay $149,263 at the end of year 7 74 Loan Estimate page 37

38 Projected Payments (2.2.3) The Projected Payments table shows estimates of the periodic payments that the consumer will make over the life of the loan. Creditors must disclose estimates of the following periodic payment amounts in the Projected Payments table: Principal & Interest; Mortgage Insurance; Estimated Escrow; Estimated Total Monthly Payment; and Estimated Taxes, Insurance, & Assessments, even if not paid with escrow funds. The Projected Payments table also describes whether taxes, insurance, and other assessments will be paid with funds in the consumer s escrow account. ( (c)(2)) Figure 4: Projected Payments Table of the Loan Estimate 75 Periodic Payments Initial: To calculate initial Periodic Payment, use interest rate that will apply at closing, including any initial discounted or premium interest rate. If interest rate at closing is not known, such as an adjustable rate loan without introductory fixed rate period, use fully indexed rate to determine initial Periodic Payment Subsequent: P&I amount or range may change due to: Negative Amortization: P&I may change when negative amortization period ends Interest Only: P&I may change when interest only period ends Minor Periodic Payment: Variations due to months having a different number of days are not triggering events There is a scheduled Balloon Payment 76 Loan Estimate page 38

39 Subsequent Periodic Payments, cont. Lender must automatically terminate Mortgage Insurance or any functional equivalent Even if borrower may cancel insurance earlier, use date on which lender must automatically terminate Mortgage Insurance coverage under applicable law Only termination of Mortgage Insurance is a triggering event, while a decline in Mortgage Insurance premiums is not When Periodic Payment amount changes more than once in a single year, show in subsequent column the Periodic Payment amounts in the year following the one in which there were multiple changes 77 Homeowners Protection Act (HOPA) Private Mortgage Insurance (PMI) PMI is insurance that protects lenders from the risk of default and foreclosure. PMI allows prospective buyers who cannot, or choose not to, provide significant down payments to obtain affordable mortgage financing. Mortgage insurance programs other than mortgage insurance available under the National Housing Act or provided by Rural Development Association or Veterans Administration and are usually abbreviated as MIP 78 Loan Estimate page 39

40 HOPA: Critical PMI Events Origination Cancellation Automatic Termination Final Termination Little to no customer down payment >80% LTV Customer requested 80% LTV Mortgage or Servicer responsibility 78% LTV 77% LTV for Hi Risk Mtgs When neither of other two events have occurred Mid point of amortization Hi Risk loans for these purposes are Jumbo Loans. 79 HOPA: Three Critical Post Closing PMI Events Cancellation: At borrower s request when LTV is down to 80% based on original or appraised value of property Automatic Termination: Mortgage lenders or servicers must automatically cancel PMI coverage on current loans once the mortgage LTV is down to 78% (or at 77% for high risk loans) Final Termination: If PMI has not been canceled or otherwise terminated, coverage must be removed when the loan reaches the midpoint of amortization period. For example, a 30 year loan with 360 monthly payments, the chronological midpoint would occur after 180 payments. 80 Loan Estimate page 40

41 TILA RESPA Rule Subsequent Periodic Payments, cont. Lender must automatically terminate Mortgage Insurance or any functional equivalent Even if borrower may cancel insurance earlier, use date on which lender must automatically terminate Mortgage Insurance coverage under applicable law Only termination of Mortgage Insurance is a triggering event, while a decline in Mortgage Insurance premiums is not When Periodic Payment amount changes more than once in a single year, show in subsequent column the Periodic Payment amounts in the year following the one in which there were multiple changes 81 Number of Columns Maximum number of columns Periodic Payments table may contain is 4. If loan has more than 4 triggering events, show a range of payments in the 4 th column that reflects all remaining periodic payments not shown in the first three columns. EXCEPT: Final Balloon Payment: Always requires its own column If disclosing final Balloon Payment triggers other events that will not fit within the 4 column max, show the other events as a range of payments in the 3rd column Non Final Balloon Payment: Does not necessarily require its own column Automatic Termination of Mortgage Insurance: Generally requires corresponding periodic payment to be shown in its own column, unless it exceeds 4 column max Where auto termination need not be shown in its own column, the column showing the next periodic payment or range of payments should show the periodic payment without Mortgage Insurance 82 Loan Estimate page 41

42 Number of Columns Show a range of payments rather than a single payment when: Triggering events exceed 4 columns and one column must be used to show two or more periodic payment amounts More than one triggering event occurs in a single year or one event occurs in the same year as the initial periodic payment P&I payment may adjust based on an interest rate index and the rates are not yet known For a column that contains a range of payments, show both minimum & maximum payment using rounded dollar amounts. For an Adjustable Rate loan, use max & min interest rates that could apply Ranges of payments are required for only P&I amount and the Estimated Total Monthly Payment. Do not show range of payments for Mortgage Insurance or Estimated Escrow. 83 Projected Payments Example 84 Loan Estimate page 42

43 Payment Calculation Column Headings (2.2.3.A) To right of Payment Calculation label, as column headings, use years of loan during which payments or ranges of payments shown will apply Use a sequence of whole years, counting from due date of initial Periodic Payment Example: A two column projected payments table might contain headings years 1 7 and years 8 30 if a triggering event occurs 85 months after the due date of the initial Periodic Payment. If triggering event occurs in middle of a year, use the next year in sequence as the heading for the subsequent column Example: Assume 30 year loan that requires Interest Only payments for first 54 months from due date of initial Periodic Payment. Column heading for initial Periodic Payment would be years 1 5 and column heading for subsequent Periodic Payment would be years 6 30 because triggering event occurs during the 5 th year of loan 85 Payment Calculation Column Headings (2.2.3.A), cont. For Periodic Payments that may increase based on adjustment of interest rate, use maximum loan term possible under terms of legal obligation. To calculate maximum loan term, assume interest rate rises as rapidly as possible under terms of legal obligation, taking into account any applicable interest rate caps For Balloon Payment scheduled as final payment, use Final Payment as column heading 86 Loan Estimate page 43

44 Principal & Interest (2.2.3.B) Use amount due for P&I for period shown in column heading. If payment or range of payments includes any payments of Interest Only, use phrase Only Interest under amount of payment or range of payments 87 Adjustable Rate Loans Generally calculate P&I using max payments by assuming interest rate will rise as rapidly as possible, taking into account terms of legal obligation, including any applicable caps on interest rate adjustments and lifetime interest rate cap Other laws, such as State usury law, can set max rate if legal obligation does not include a lifetime interest rate cap Calculate min payments by assuming interest rate will decrease as rapidly as possible, taking into account any introductory rates, caps on interest rate adjustments and lifetime interest rate floor For an Adjustable Rate loan based on an index that has no lifetime interest rate floor, the min interest rate is equal to the margin 88 Loan Estimate page 44

45 ARM Loan Estimate, Page 1 89 AP & AIR Tables on Loan Estimate Page 2 90 Loan Estimate page 45

46 Adjustable Rate Loans, cont. For loans with Negative Amortization feature, calculate P&I using max payment amounts after end of period during which principal balance may increase by assuming max principal amount permitted under terms of legal obligation at end of period. Calculate minimum payment amount by assuming interest rate is min possible under terms of legal obligation For loans with Balloon Payment feature that may change depending on previous interest rate adjustments, calculate P&I using assumptions for min and max interest rates described above and show as range of payments 91 Negative Amortization Example 92 Loan Estimate page 46

47 Mortgage Insurance (2.2.3.C) Disclose max amount payable as Mortgage Insurance that corresponds to the P&I payment shown in same column, Disclose as a rounded number Mortgage Insurance includes any mortgage guarantee that provides coverage similar to mortgage insurance (such VA or USDA guarantee) even if not technically considered insurance under State or other applicable law Calculate Mortgage Insurance premiums based on principal balance that will exist after changes to interest rate and payment amounts per the note. Example: for Adjustable Rate transaction that has discounted interest rate during initial 5 year period, calculate Mortgage Insurance premiums using composite rate based on rate in effect during initial 5 year period and, thereafter, fully indexed rate, unless otherwise required by applicable law If Mortgage Insurance is not required, disclose 0 Disclose Mortgage Insurance amount that corresponds with P&I amount shown in same column, even if Mortgage Insurance is paid on different schedule than P&I 93 Estimated Escrow (2.2.3.D) Disclose amount consumer will pay into escrow account each month under terms of legal obligation Use rounded number If escrow account will not be established, disclose 0 Disclose if there will be an escrow account, but escrow account will be closed during time frame attributable to applicable Periodic Payment 94 Loan Estimate page 47

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