Planning Guide for Closed-End Home Equity

Transcription

1 Planning Guide for Closed-End Home Equity Lending in Texas P.O. Box Mineral Point Road Madison, WI Phone: Word Wide Web: ETXP04

2 HOME EQUITY SYSTEM TEXAS CLOSED-END PLANNING GUIDE Contents Introduction...1 Purpose of the Planning Guide...1 Benefits of the LOANLINER Home Equity System...1 Home Improvement Loan vs. Home Equity Loan...2 General Considerations...6 Debt to Income Ratio Considerations...6 Loan to Equity Ratio Considerations...6 Appraisals...7 Credit Insurance...7 Collateral...7 Property Insurance...7 Real Estate Settlement Procedures Act...7 Flood Insurance...8 Notice Required by Section 50(a)(6), Article XVI, Texas Constitution...8 Repayment...8 Closing...9 Right of Rescission...9 Credit Union Remedies Upon Borrower s Default...10 Penalty for Failure to Follow Requirements of Section 50(a)(6)...10 CUNA MUTUAL GROUP, 1998, 2003, 12, ALL RIGHTS RESERVED

3 Disclosure Requirements General...11 Fees and Charges...12 RESPA...13 Home Mortgage Disclosure Act (HMDA) and Regulation C...14 Regulation B...14 Texas Notices...14 FACT Act Notice to Home Loan Applicants...15 Risk Based Pricing Notice...16 Credit Score Exception Notice 1-4 Family...17 No Credit Score Notice...18 Closed-End Real Estate Disclosures...19 Ordering Information for Home Equity LOANLINER Documents Document Prices...20 Documents Available...20 Ordering Procedures...22 Attachments NCUA Letter to Credit Unions...24 The LOANLINER Order Form...31

4 Introduction Purpose of the Planning Guide The purpose of this Planning Guide is to help you set up a closed-end home equity lending program. Before you make the first loan or order your first supply of LOANLINER Home Equity documents, read this guide. There are many important decisions your credit union must make in order to establish a program. The Planning Guide offers information to help you make those decisions. Benefits of the LOANLINER Home Equity System LOANLINER Warranty ensures compliance with Truth in Lending and other regulatory requirements LOANLINER compliance staff is just a phone call away Option 2 LOANLINER website gives 24-hour support via the Lending Resource Center at 1 Texas Closed-End Planning Guide

5 Home Improvement Loan vs. Home Equity Loan As a result of the passing of Section 50(a)(6), Article XVI, Texas Constitution, residents of the state of Texas may now use the equity in their homes to obtain home equity loans. These loans are different from home improvement loans which Texans already had the authority to obtain. Home improvement loans are loans secured by the homestead for work and material used in constructing new improvements thereon, if contracted for in writing, or work and material used to repair or renovate existing improvements thereon. Home equity loans, on the other hand, are loans secured by a voluntary lien on the homestead for any purpose, such as to buy a car, to finance a college education, to take a vacation, etc., as well as to make improvements on the home. Each of the above loans, home improvement and home equity, have different requirements and restrictions. Home equity loans require the Credit Union to give a number of notices to the borrower, limit when the borrower can be considered in default and the Credit Union s remedies upon default. Additionally, if a credit union fails to follow all such requirements and restrictions, the penalty can be severe. The Home Equity Note is more restrictive than the Home Improvement Note. For instance, lenders offering home improvement loans can take collateral in addition to the home and are able to get a deficiency judgement in case of default. Credit unions offering home improvement loans, may want to take advantage of the easier rules for home improvement and order our home improvement documents. Thus, when ordering forms and when completing the forms in your credit union, take all precautions to make sure the appropriate lending form is being requested or used. The following chart shows a comparison of home improvement lending to home equity lending. This chart can be used as a quick reference, however, the remainder of the Planing Guide contains a more detailed discussion of home equity lending. 2 Texas Closed-End Planning Guide

6 QUESTIONS ON HOMESTEAD SECURED CREDIT 1. Can such loans be granted for any reason? 2. Are any credit unions prohibited from making such loans? 3. Are there any LTV ratio restrictions? 4. Can a borrower have more than one of these loans? 5. Can property designated as agricultural be used as collateral for such loans? 6. If the value of the property is not sufficient to repay the Credit Union, can the Credit Union satisfy the deficiency out of the borrower s personal assets? 7. Can a credit union take other collateral in addition to the homestead? 8. Can a foreclosure occur without a court order? HOME IMPROVEMENT No - must be for work and material used in constructing new improvements thereon, if contracted for in writing, or work and material used to repair or renovate existing improvements thereon. No No Yes Yes Yes Yes Yes. However, the owner may not sign a confession of judgment or power of attorney to the Credit Union to confess judgment or to appear for the owner in court. HOME EQUITY Yes. However, the Credit Union may not require that the proceeds be used to repay another debt owed to that credit union unless the other debt is secured by the homestead. Yes, if the Credit Union has been found to unlawfully discriminate in its lending. Yes. The LTV ratio of the principal balance of all loans secured by the homestead may not exceed 80% on the date of the loan. Also, the borrower and the Credit Union must sign an acknowledgment of the FMV of the property. No. Additionally, there is an antiflipping provision that prohibits refinancing, or otherwise obtaining another equity loan within a year of the closing date. No, except if the property is used for the production of milk (dairy farms). No. Home equity loans must be nonrecourse loans, except for fraud by the borrower or borrower s spouse. No No. Additionally, a credit union may not accelerate a loan based on the borrower s default on another loan, unless the other loan is secured by a prior lien on the homestead. Also, the owner may not sign a confession of judgment or power of attorney to the Credit Union to confess judgment or to appear for the owner in court. 3 Texas Closed-End Planning Guide

7 QUESTIONS ON HOMESTEAD SECURED CREDIT 9. Can a borrower be considered in default if the market value of the property declines? 10. Can the loan be in the form of a line-of-credit (open-end)? 11. Are there any limitations on the fees a credit union can charge the borrower to close the loan? 12. Can the loan be closed the same day the application is received? 13. Does the member have a right of rescission? 14. Are there any restrictions on where the loan can be closed? 15. Are prepayment penalties prohibited? 16. Are there any restrictions on repayment? 17. What are the penalties for failing to comply with the requirements provided in the Constitution? Yes No No HOME IMPROVEMENT No. Due to the Constitutional Amendment, there is now a 12 day waiting period after the borrower submits an application before the borrower can execute the construction contract, similar to home equity loans, however, the loan can be made immediately if necessary to protect the health and safety of the occupants and the borrower acknowledges such in writing. Yes. In addition, the right of rescission provided by Regulation Z, the Constitution provided borrowers with a three (3) day right to rescind the contract for work and materials, without penalty or charge. However, the three (3) day right of rescission will not apply where the repairs are necessary to protect the health and safety of the occupants provided the borrower acknowledges such in writing. Yes. Now the closing must take place at the Credit Union, a title company or an attorney s office. Not under Texas law, however, the NCUA and the LOANLINER home improvement documents prohibit prepayment penalties. No None No HOME EQUITY Yes - see Planning Guide for Open- End Home Equity. Yes. The fees cannot exceed 3% of the original amount of the loan. No. A home equity loan may not be closed before the 12th day after the later of the date the borrower submits an application, or the date the borrower receives a notice required under the Constitution. Yes. In addition to the right of rescission provided by Regulation Z, the Constitution provides borrowers with a three (3) day right of rescission without penalty or charge. Yes. The closing must take place at the Credit Union, a title company or an attorney s office. Yes Yes. Payments must be substantially equal successive monthly installments beginning no later than two (2) months from the date of the extension of credit. Also negative amortization is prohibited. The Credit Union could lose all interest and principal paid by the borrower if it fails to comply with its obligations within a reasonable time after being notified. It is important to note that not all violations will be curable. 4 Texas Closed-End Planning Guide

8 QUESTIONS ON HOMESTEAD SECURED CREDIT 18. Are there any other important differences? 19. Can the loan have a variable rate? HOME IMPROVEMENT Yes. HB 740 provides that prior to the closing, the Credit Union must provide the owner with a disclosure statement, and must provide the owner will all documentation relating to the loan at least one (1) business day prior to closing. Both of these requirements may be avoided in cases of a bona fide emergency. If the Credit Union pays the funds directly to the contractor, there are additional requirements that must be met. If the Credit Union fails to comply with any of these requirements, the lien is not affected, however, the Credit Union could be fined up to $4,000 for knowingly, intentionally, or recklessly providing a false or inaccurate statement of disbursements. Within a reasonable time after the loan is paid, the Credit Union must cancel and return the promissory note to the owner of the homestead and give the owner a release of lien. Yes. However, the LOANLINER program does not offer this option at this time. HOME EQUITY Yes. There is a notice that is required to be given to borrowers in a separate instrument at least 12 days before closing. Furthermore, if the discussions with the borrower are conducted primarily in a language other than English, the Credit Union, before closing, must provide an additional copy of the notice translated into such language. There can be no blank spaces on any instrument to be signed by the borrower. The Credit Union must provide the owner of the homestead a copy of all documents signed by the owner. Within a reasonable time after the loan is paid, the Credit Union must cancel and return the promissory note to the owner of the homestead and give the owner a release of lien, or a copy of the endorsement and assignment of the lien to the Credit Union that is refinancing the loan. Yes, and the LOANLINER program supplies these documents. THE REST OF THIS GUIDE FOCUSES ON HOME EQUITY LENDING RATHER THAN HOME IMPROVEMENT, HOWEVER, MANY OF THE SAME ISSUES MAY APPLY IN HOME IMPROVEMENT LENDING. Note: In accordance with the Texas Constitution, in order to be able to offer home equity loans, a credit union may not have been found to unlawfully discriminate in its lending. 5 Texas Closed-End Planning Guide

9 General Considerations The following information should assist your credit union in making informed decisions about the design and administration of your home equity lending system. Debt to Income Ratio Considerations A borrower with considerable equity but without the ability to repay is a poor risk. A use of conservative underwriting practices such as those suggested by the NCUA, can help minimize risks involved with home equity lending. The NCUA strongly recommends that you write your mortgage lending policies with Letter No. 124 in mind. The letter applies to all federally chartered credit unions and state-chartered credit unions that are federally insured. Use the NCUA Letter No. 124 as a resource for information on how to establish an effective debt to income ratio for your home equity lending. Some lenders use underwriting standards closer to ordinary consumer credit formulas, but the more conservative guidelines offer you greater protection against delinquency problems. The more cautious your underwriting standards are, the fewer delinquencies you will have. Foreclosure is an unpleasant, time-consuming and expensive process. The sale price in foreclosure situations may not be at market value. Underwriting standards should take into consideration not only the borrower s ability to repay at the current interest rate, but also the borrower s ability to repay at the maximum interest rate you could charge if you are following a variable rate. Your underwriting practices should always take into account the potential impact of changing interest rates. Loan to Equity Ratio Considerations In accordance with the Texas Constitution, when you add the principal balances of all other indebtedness against the property, the ratio of the total amount of credit extended to the total equity in the home should not exceed 80% of the fair market value of the home on the date the extension of credit is made. The larger the equity cushion, the bigger stake the borrower still has in the property. The larger the cushion, the less likely it is that foreclosure will be necessary. If foreclosure does occur, the cushion will make it more probable that the Credit Union s lien will be repaid. Under the Texas Constitution, you are not permitted to collect any deficiency if the home sells for less than what the borrower owes. The application asks the borrower to state the current market value of the home and the total value of liens. The title examination will supply more information about the liens. The appraisal will supply more information about fair market value. Additionally, in accordance with the Texas Constitution, the Credit Union and the owner of the property must sign a written acknowledgment as to the fair market value of the homestead property on the date the extension of credit is made. The LOANLINER Home Equity System provides an Acknowledgment of Fair Market Value. 6 Texas Closed-End Planning Guide

10 Appraisals All federally insured credit unions must comply with Part 722 of the NCUA Regulations. These regulations require an appraisal by a state licensed or certified appraiser for loans over $250,000 or a written estimate of market value for loans less than $250,000. For loans under $250,000 you will want to review the Interagency Appraisal and Evaluation Guidelines issued by the NCUA and other regulators December 2010 to make sure the Credit Union s procedures comply with best practices. Credit Insurance The LOANLINER Home Equity System includes the MemberElect Credit Insurance application and certificate to make it easy for borrowers to enroll for the insurance. These documents meet with Regulation Z, Section (d) requirements for voluntary insurance. Encouraging borrowers to elect credit insurance decreases your credit union s risk of loss and provides important low-cost protection to all borrowers. Collateral In accordance with the Texas Constitution, home equity loans may only be secured by the homestead. There can be no other security for the loan, thus the lender may not have the borrower assign wages as security for the loan, take a security interest in shares or have any other collateral, such as a car, secure the loan. Additionally, the loan cannot be secured by homestead property designated for agricultural use unless the homestead property is used primarily for the production of milk. Only one (1) home equity loan can be secured by the borrower s homestead at a time Therefore, the borrower must pay off any existing home equity loan before he/she may obtain another. Property Insurance When setting up the home equity loan, the loan officer should review the borrower s property insurance to make sure that the Credit Union is listed on the policy. Many policies state that the proceeds may be paid to listed parties as their interest may appear. The minimum insurance coverage should be enough to pay the first mortgage holder and the home equity loan balance. State law may regulate the maximum amount of insurance coverage a credit union may require. At the time of the loss, the Credit Union should be entitled to insurance proceeds equal to the amount due under the home equity loan. To exclude property insurance from the finance charge, the Credit Union must allow the borrower to choose an insurer acceptable to the lender as well as borrower, Regulation Z, Section (d)(2). The required Truth in Lending disclosures regarding property insurance are included on the LOANLINER forms. Real Estate Settlement Procedures Act Since 1992, the Real Estate Settlement Procedures Act (RESPA) has applied to almost all home equity loans. For closed-end home equity loans the Credit Union must give certain RESPA required disclosures. At the time of application, the Credit Union must give the applicant a Good Faith Estimate of settlement costs. At closing, the borrower must receive a HUD Settlement Statement. The LOANLINER Home Equity System provides both the Good Faith Estimate and both versions of HUD s Settlement Statements (1 and 1-A). 7 Texas Closed-End Planning Guide

11 Flood Insurance For every loan made by a credit union (federally chartered or state-chartered, federally insured) which is secured by a building or mobile home, the Credit Union must use a standard Flood Hazard Determination to determine whether the secured property is or will be located in a special flood hazard area (SFHA). The Credit Union may charge a reasonable fee for the costs of making a flood hazard determination under specified circumstances. Additionally, notice must be provided to the borrower, if it is determined that the secured property is located in a SFHA. The LOANLINER Home Equity System provides this notice. If the property is located in a special flood hazard area, the loan officer should make sure the borrower obtains a flood insurance policy if it is available in the community. If the property is located in a SFHA and, after required notice, the borrower fails to purchase flood insurance, the Credit Union must purchase the insurance on the borrower s behalf. This cost may be passed on to the borrower. Notice Required by Section 50(a)(6), Article XVI, Texas Constitution To make a home equity loan, the Credit Union must provide the owner of the property (borrower) with a special notice which explains the Credit Union s responsibilities and prohibitions, and the borrower s rights and remedies. This notice must be given to the borrower at least 12 calendar days prior to closing. We recommend that the notice be given at the time a borrower receives an application. The LOANLINER Home Equity System provides this notice. Note: If the discussions with the borrower are conducted primarily in a language other than English, the Credit Union shall, before closing, provide an additional copy of this notice to the borrower, in the language in which the discussions were conducted. The LOANLINER Home Equity System offers the Notice in Spanish as well as English. Repayment In accordance with the Texas Constitution: 1. There can be no prepayment penalty or other charge related to prepayment. 2. Installment payments (not more often than every 14 days and not less often than monthly) must be substantially equal, and must begin within two (2) months of the closing of the loan. Therefore, balloon payments and demand features are prohibited. 3. Negative amortization is prohibited. 4. The borrower may not be required to apply the proceeds to repay another debt the borrower has at the Credit Union unless it is secured by the homestead. 5. After the debt is repaid, the Credit Union must cancel and return the note to the borrower and give the borrower in recordable form, a release of the lien securing the loan or a copy of an endorsement and assignment of the lien to a lender that is refinancing the extension of credit. 8 Texas Closed-End Planning Guide

12 Closing In accordance with the Texas Constitution: 1. The Credit Union must obtain the consent of each owner and of the owner s spouse. 2. A home equity loan may not close until the 12th calendar day after the later of the date that the owner of the homestead submits a loan application to the Credit Union or the date that the Credit Union provides the borrower a copy of the notice required by the constitutional amendment. Furthermore, a home equity loan may not close until after the first anniversary of the closing date of any other equity loan secured by the homestead. 3. The loan may only be closed at the Credit Union, an attorney s office, or a title company. 4. The Credit Union may not require a borrower to sign a document in which there are blanks that need to be filled in. 5. The Credit Union may not require the borrower to sign power of attorney over to the Credit Union to confess judgment or to appear in court. 6. The owner must receive a copy of all documents signed, by the owner, at closing. 7. The Texas Constitution provides that the loan cannot close before one (1) business day after the date that the owner of the homestead receives a final itemized disclosure of the actual fees, points, interest, costs, and charges that will be charged at closing. Right of Rescission Under the Texas Constitution, the owner of the homestead and the owner s spouse may, within three (3) calendar days after the extension of credit, rescind the extension of credit without penalty or charge. The Texas right of rescission applies to all loans secured by the homestead including business loans. Furthermore, almost all home equity loans are subject to the right of rescission under Regulation Z. A right of rescission exists under Regulation Z when a security interest is taken in a borrower s principal dwelling for a consumer loan (however, it does not apply to purchase money mortgages, or to refinancings of the original loan, at the same financial institution, and no new money is given). If New Money is given and the loan is with the same financial institution, then only the additional funds would be subject to the right of rescission rules. New Money does not include financing closing costs. Each person who has an ownership interest in and lives in the dwelling that is being given as security for the loan has a right to rescind the transaction. The rescission period lasts for three (3) business days after the last of certain events which are [1] when the rescission notice is given, [2] giving of all the material disclosures as defined by Regulation Z, and [3] when the mortgage documents are signed. If the Credit Union fails to properly give the material disclosures or the right of rescission notice, the right of rescission will continue for three (3) years after closing, or until the property is sold or the borrower s interest is otherwise transferred. A right of rescission notice, Notice of Right to Cancel, must be given to each person who has an ownership interest in, and lives in the dwelling. Two (2) copies of the notice must be given to each person entitled to rescind. The borrower cannot waive the three (3) day right to rescind unless the extension of credit is needed to meet a bona fide personal financial emergency. The LOANLINER Home Equity System provides the Notice of Right to Cancel. 9 Texas Closed-End Planning Guide

13 Credit Union Remedies Upon Borrower s Default In accordance with the Texas Constitution, the borrower may not be considered in default and the loan cannot be accelerated if the market value of the property declines or if the borrower is in default on other indebtedness, unless such other indebtedness is secured by a prior valid encumbrance against the homestead. If a member defaults on a home equity loan, the Credit Union s only remedy is to bring a foreclosure proceeding in court and sell the property. The Credit Union cannot obtain a deficiency judgment or go after the owners/borrowers for any amounts still owing after sale of the property, unless the owner/borrower or the spouse of the owner/borrower obtained the loan by actual fraud. Penalty for Failure to Follow Requirements of Section 50(a)(6) If the Credit Union fails to comply with its obligations under the extension of credit and fails to correct the failure to comply as provided in the Texas Constitution, after the Credit Union is notified by the borrower of its failure to comply, the Credit Union shall forfeit all principal and interest of the extension of credit. It is important to note that not all violations will be curable. 10 Texas Closed-End Planning Guide

14 Disclosure Requirements The federal Truth in Lending Act governs almost all consumer credit transactions. Home equity loans are covered by the Act. The regulations issued by the Consumer Financial Protection Bureau (CFPB) to implement the Act are referred to as Regulation Z. Regulation Z is primarily a disclosure regulation which requires all credit unions to disclose the terms and cost of credit to home equity borrowers. General Regulation Z requires the Credit Union make the disclosures required by Section in writing and in a form that the borrower may keep. The disclosures shall be grouped together, segregated from everything else, and not contain any information not directly related to the disclosures required under Section The disclosures must be made within three days of application and before consummation of the transaction. Consummation is defined by state law. Also refer to the Section (a)(13) of Regulation Z and the commentary to Regulation Z regarding the definition of consummation. The LOANLINER Home Equity Note and Disclosure meet the requirements of Regulation Z, Section The disclosures should reflect the credit terms to which the Credit Union and borrower are legally bound at the outset of the transaction. Estimates can only be used when the exact information is unknown at the time disclosures are made. Information is unknown if it is not reasonably available to the Credit Union at the time the disclosures are made. The reasonably available standard requires that the Credit Union, acting in good faith, exercise due diligence in obtaining information. If estimates apply, they must be labeled as such. Refer to Regulation Z Commentary Section (c)(2)-2. The LOANLINER Note and Disclosure Statement allows consumers to request a written itemization of the amount financed. Regulation Z allows the Good Faith Estimate required by RESPA to be used in lieu of the itemization, and that is how the LOANLINER documents are intended to be used. Beginning July 2009 an initial Truth in Lending (TIL) disclosure is required under Section of Regulation Z to be given within three days of application for all closed-end real estate mortgage transactions secured by the member s dwelling. Closing cannot occur until a minimum of seven (7) business days after the initial TIL has been delivered. A revised TIL must be given if the annual percentage rate (APR) changes by more than 1/8% (up or down); closing cannot occur sooner than three (3) business days if a revised TIL needs to be sent. Lenders are also required to determine if the interest rate is classified as being higher priced under Section of Regulation Z. First liens found to be higher priced are required to have mandatory escrow for taxes and liens for a minimum of 12 months. Credit unions can test interest rates at HYPERLINK to determine whether they fall into the higher priced mortgage classification. Regulation Z Section requires that each consumer that gives a security interest in his or her principal dwelling must have a right to rescind the credit transaction. Each consumer must receive two (2) copies of the Notice of Right to Cancel. A Notice of Right to Cancel is available with the LOANLINER Home Equity System. The legal document used to obtain a security interest in real estate is called a deed of trust. 11 Texas Closed-End Planning Guide

15 Fees and Charges In accordance with the Texas Constitution, fees required by the Credit Union, in addition to interest, to originate, evaluate, maintain, record, insure or service the loan may not exceed, in the aggregate, 3% of the original principal amount of the loan. Since fees such as points are normally considered interest under Texas law, they do not appear to be included in the 3% cap. Additionally, charges for products such as voluntary credit insurance also do not appear to be included in the 3% cap. Application Fee Regulation Z Section (c)(1) allows the Credit Union to charge an application fee that is excluded from the finance charge as long as the fee is a charge to recover the costs associated with processing applications for credit. The fee may cover the costs of services such as credit reports, credit investigations and appraisals. However, in order for the application fee to be excluded from the finance charge it must be charged to all applicants, not just to applicants who are approved or who actually receive credit. Points or Origination Fees - Finance Charges Some credit unions charge points or origination fees on home equity transactions. Regulation Z Section (b)(3) identifies points and origination fees as finance charges. The points or origination fee must be reflected in the APR calculation and disclosed as a prepaid finance charge. If you charge points or origination fees, your credit union should be sure to use a calculation tool or data processor that is able to correctly disclose the effect of the points or origination fee on the APR. Flood Insurance Fees Only the flood determination fee related to the initial granting of credit can be excluded from the finance charge, Section (c)(7) Regulation Z. The remainder of the fee is a finance charge. If it is not possible to distinguish which part of the fee is for the initial determination and which part is for the life of loan coverage, the entire fee should be classified as a finance charge. Loan Processing and Closing Costs The Credit Union may want the borrower to pay all or some of the costs of processing a home equity loan. Many of these costs are paid to third parties such as appraisers, credit reporting agencies, title insurers, attorneys and surveyors. These type of fees, (fees for title examination, abstract of title, title insurance, property survey, preparing deeds, mortgages, reconveyance, settlement, notary, appraisal, credit reports, flood determination fees (initial determination only), and amounts required to be paid into escrow or trustee accounts), in a transaction secured by real property, are excluded from the finance charge if the fees are bona fide and reasonable in amount. 12 Texas Closed-End Planning Guide

16 Payment Protection Premiums for Payment Protection are excluded from the finance charge in Regulation Z Section (d) if: 1. The insurance coverage is voluntary and that fact is disclosed. 2. The premium is disclosed (for closed-end the premium for the initial term of insurance or the term of the loan must be disclosed). 3. The consumer signs or initials an affirmative request for the insurance after receiving the two (2) disclosures above. Even though payment protection may be excluded from the finance charge by meeting the above requirements, it still is a charge that must be disclosed if it is to be excluded from the finance charge. The LOANLINER Note and Disclosure Statement and associated payment protection documents include all the necessary disclosures required by Regulation Z Section (d)(1). When the borrower elects payment protection, it is important for the Credit Union to calculate a payment that is adequate to fully amortize the principal, interest and payment protection premiums or fees. Be sure your amortization schedule takes the insurance premiums into account. Security Interest Charges If the borrower must pay taxes and fees which are prescribed by law and are paid to officials for determining the existence of or for perfecting, releasing, reconveying, or satisfying a security interest, the cost must be disclosed. Thus, the cost of recording a mortgage or releasing a mortgage must be disclosed. Late Charges Federal credit unions should comply with their bylaws when charging late charges. State-chartered credit unions should comply with any state late charge requirements. RESPA As explained in the previous paragraphs, Regulation Z requires the Credit Union to classify and disclose fees in a certain way. The Real Estate Settlement Procedures Act (RESPA) also requires disclosures about settlement service fees that a borrower has to pay when getting a closed-end home equity loan. RESPA requires that two (2) disclosures be given for closed-end home equity loans. A Good Faith Estimate must be given at the time of application. This is the Credit Union s best estimate of the fees that the applicant will have to pay in connection with the home equity loan. If the Credit Union allows applicants to shop for certain third parties and pay for their services, such as an appraiser, as a condition of the loan, then additional disclosures must be given with the Good Faith Estimate. This is called a List of Settlement Service Providers. One day before closing, a HUD Settlement Statement must be made available to the borrower. That disclosure lists the actual fees that the borrower paid. It is also a summary of how the loan proceeds were distributed. For home equity loans, credit unions can use either the HUD 1 Settlement Statement or the HUD 1-A Settlement Statement. Credit Unions that make purchasemoney mortgage loans will be familiar with the HUD 1 document, but the HUD 1-A document is simpler to use. Credit unions may prefer to use the HUD 1-A document for home equity loans. RESPA also requires a mortgage servicing disclosure if the loan is in first lien position. 13 Texas Closed-End Planning Guide

17 Home Mortgage Disclosure Act (HMDA) and Regulation C HMDA and its implementing regulation, Regulation C, require credit unions, under certain conditions, to collect data about their housing related lending activity. Credit unions subject to HMDA will include information about home equity and home improvement applications. Regulation B Home equity loans are not subject to data collection requirements of Regulation B unless the home equity loan refinances a purchase-money loan. If a credit union inadvertently obtains the monitoring information in a dwelling related transaction not covered by Regulation B, the Credit Union may process and retain the application without violating the regulation. Home equity lenders are subject to providing borrowers with an adverse action notice as required under Regulation B. The LOANLINER Home Equity System provides an Adverse Action Form. Texas Notices In addition to the Constitutional Notice that must be given at application, there are several other notices to be given at closing. 1. Acknowledgment of Fair Market Value (ETX40) The Acknowledgement of Fair Market Value documents the property s value to show that the home equity loan is no more than 80% of fair market value and that an appraisal or valuation was done on the property. 2. Receipt of All Documents Signed at Closing (ETX70) The Receipt of All Documents Signed at Closing is a recommended document to show that the borrower has been provided all required documents. 3. Texas Mortgage Fraud Notice (RTX10) Texas statutes require this notice to be provided to borrowers at closing to ensure they know that fraudulent statements may result in criminal prosecution. 4. Texas Home Equity Affidavit and Agreement (ETX60) The Affidavit and Agreement is highly recommended to be used for Texas home equity loan closings for the lender s protection. The borrower acknowledges compliance with all the state laws surrounding closed-end home equity loans. 5. Affidavit of Designation of Homestead. Texas law makes it important to distinguish homestead property from non-homestead property. It is typical that the homestead property will be used in a home equity loan. The purpose of the Affidavit of Designation of Homestead is to obtain the borrower s clear acknowledgement that the property security the loan is the borrower s homestead property and to get the borrower s clear statement that any other property owned by the borrower is not the homestead (such as a vacation home). 14 Texas Closed-End Planning Guide

18 FACT Act Notice to Home Loan Applicant The Fair and Accurate Credit Transaction Act (FACT Act) requires financial institutions that use credit scores in connection with applications for consumer credit secured by one to four family dwellings provide the following information to the consumer as soon as reasonably practicable: The current credit score of the consumer The range of possible credit scores under the model used All the key factors (not to exceed four) that adversely affected the credit score of the consumer The date on which the credit score was created The name of the person or entity that provided the credit score or credit file A FACT Act Notice to Home Loan Applicant disclosure The FACT Act Notice to the Home Loan Applicant provides information to the borrower about how to contact the consumer reporting agency if there are questions about the accuracy of the information provided by the consumer reporting agency (CRA) to the Credit Union. Document Description When Used: The FACT Act Notice to Home Loan Applicant disclosure must be used when credit scores are used in connection with applications for mortgage loans made for a consumer purpose. Purpose: The FACT Act Notice informs the applicant of the name and contact information of the consumer reporting agency (CRA) used to obtain the credit score, the applicant s current credit score, and other pertinent information. Document Number: MXX11* *Spaceholder for version number How Distributed: Imprinting: Number of Pages: A copy of the FACT Act Notice is provided to each applicant within a reasonable period of time after the applicant s credit score is received by the Credit Union. Optional imprinting of credit union name, address, telephone number, and logo One State Specific Versions: None 15 Texas Closed-End Planning Guide

19 Risk Based Pricing Notice This document can be used by credit unions who use credit reports or credit scores in making credit decisions when, based on a credit report or credit score, credit is extended to the member on materially less favorable terms than the most favorable terms available to a substantial proportion of the Credit Union s other members. The Risk-Based Pricing Rule of January 15, 2010 was established over concern that consumers are not adequately informed of the effect negative information contained in their credit report has on the APR consumers receive when applying for credit. Document Description When Used: This disclosure should be provided by credit unions which use the direct comparison, credit score proxy or tiered risk based pricing methods. Purpose: To inform borrowers of the effect negative information contained in their credit report has on the APR they receive with credit. Document Number: MXX61* *Spaceholder for version number How Distributed: Imprinting: Number of Pages: Only one notice is required per credit transaction, and only one notice to co-borrowers having the same address. Optional imprinting of credit union name, address, telephone number, and logo One State Specific Versions: None 16 Texas Closed-End Planning Guide

20 Credit Score Exception Notice 1-4 Family This notice can be provided to all members applying for a loan that will be secured by 1-4 units of residential real property. Document Description: When Used: Used under the credit score disclosure exception to the general risk-based pricing disclosure requirement. Used for credit secured by 1-4 units of residential property. Purpose: Informs the member about their credit score, information about credit reports, credit score, ranges of credit scores and a statement on how the member s credit score compares to other consumers. The advantage of using the Credit Score Exception Notice 1-4 Family document is that it contains the FACT Act Notice to Home Loan Applicants, which means the Credit Union does not need to order the stand-alone FACT Act Notice, MXX11*. Document Number: MXX63* *Spaceholder for version number How Distributed: Imprinting: Number of Pages: Notice must be in writing, in a form that the member may keep, and must be provided to each applicant. Optional imprinting of credit union name, address, telephone number, and logo One State Specific Versions: None 17 Texas Closed-End Planning Guide

21 No Credit Score Notice This notice is used when a member applying for a loan does not have a credit score on file. Document Description When Used: Used under the credit score disclosure exception. Used when a credit score is not available from a credit bureau regularly used by your credit union. Purpose: Informs the member that no credit score was available, together with information regarding consumer reports and credit scores. Document Number: MXX65* *Spaceholder for version number How Distributed: Imprinting: Number of Pages: Notices must be in writing, in a form that the member may keep, and must be provided to any applicant without a credit score. Optional imprinting of credit union name, address, telephone number, and logo One State Specific Versions: None 18 Texas Closed-End Planning Guide

22 CLOSED-END REAL ESTATE DISCLOSURES DOCUMENT REGULATION Home Improvement Home Equity AT APPLICATION Loan Application Texas Notice to Borrower UPON RECEIPT OF A COMPLETED APPLICATION ECOA Texas Constitution Mortgage Servicing Disclosure RESPA X (if in first lien position only) UPON RECEIPT OR WITHIN THREE (3) DAYS OF APPLICATION X X (if in first lien position only) Good Faith Estimate RESPA X X Initial Truth in Lending Regulation TIL X X AT CLOSING Flood Certification (FEMA Form) in file Acknowledgment of Fair Market Value Escrow Account Disclosure (if lender requires and has control of account) Truth in Lending Disclosure [ (a)-(r)] and accompanying contract documents Flood Insurance Law Texas Constitution RESPA X X X TIL X X HUD 1 or HUD 1-A Settlement Statement RESPA X X Notice of Right to Rescind (non-purchase/ principal residence) Itemization of Third Party Fees Affidavit of Designation of Homestead Texas Fraud Notice Texas Home Equity Affidavit and Agreement PERIODIC DISCLOSURE Annual Escrow Statement (if lender requires and has control of account) TIL/TX X X Texas Constitution Texas Constitution Texas Finance Code RESPA X X X X X X X X X X X Note: For a mobile home that is real property or attached to real property, all above disclosure requirements apply. For a mobile home, personal property with no real estate, all above disclosure requirements apply except RESPA. 19 Texas Closed-End Planning Guide

23 Ordering Information for Home Equity LOANLINER Documents CUNA Mutual Group s LOANLINER Department is at your service to save you time and money by offering you quality documents that have been carefully researched, reviewed and developed especially for credit unions in accordance with Federal Truth in Lending Regulations. Included is a current Home Equity LOANLINER catalog which gives the document numbers and a brief description of each document. If you have questions, suggestions or are checking on an order, please call us directly at Document Prices Prices for the documents are available upon request. Please contact your CUNA Mutual Group Representative or call us at: Documents Available Standard Documents 1. Application Standard LOANLINER Home Equity FNMA Application 1003 Document Numbers EST51* EST63* 2. Verification of Deposit EVD41* 3. Verification of Employment EVE49* 4. Direct Credit Verification EVC42* 5. Verification of Mortgage EVM43* 6. Notice of Right to Cancel EST47* 7. Good Faith Estimate EST77* 8. HUD 1-A Settlement Statement EST22* 9. Standard Flood Hazard Determination EST88* 10. Flood Insurance Notice EST89* 11. Adverse Action MXX07* Adverse Action Mailer MXX08* 12. Truth in Lending Disclosure for Fixed Rate (RE or Dwelling) MXX12* * Indicates version 20 Texas Closed-End Planning Guide

24 Texas Home Equity Lending Only Document Numbers 13. Note and Disclosure Statement ETX50* 14. Deed of Trust Closed-End Open-End 15. Loan Officer Checklist Closed-End Open-End 16. Notice to Borrower (English Version) (required by Texas Constitution) ETX21* ETX90* ETX80* ETX10* ETX20* 17. Notice to Borrower (Spanish Version) ETX22* 18. Acknowledgment of Fair Market Value ETX40* 19. Receipt of All Documents Signed at Closing ETX70* 20. Note and Disclosure Statement (Home Improvement) ETX55* 21. Deed of Trust (Assignment of Contractor s Lien) ETX23* 22. Risk Based Pricing Notice MXX61* 23. Account Review Risk Based Pricing Notice MXX62* 24. Credit Score Exception Notice 1-4 Family MXX63* 25. No Credit Score Notice MXX65* 26. Itemization of Third Party Fees EST23* 27. Affidavit of Designation of Homestead ETX85* 28. Texas Mortgage Fraud Notice RTX10* 29. Texas Home Equity Affidavit and Agreement ETX60* * Indicates version 21 Texas Closed-End Planning Guide

25 Ordering Procedures 1. Complete all sections of the attached order form 2. Mail to: CUNA Mutual Group Attn.: LOANLINER Customer Service P.O. Box 391 Madison, WI Fax to: to: Your order is important to us. Individual attention is given to all requests to be sure you receive the best possible service. To provide this service we need your help. When placing an order, please be sure to give us: 1. Credit Union 8 digit contract number By providing this number your orders can be processed easier and faster. 2. Credit Union Name 3. Contact Name Name of individual we can contact about this order. 4. Credit Union Phone Number 5. Credit Union FAX Number 6. Credit Union Address 7. Ship To Address Street address where documents are to be sent. (Postal regulations will not allow us to ship UPS to a post office box.) 8. Data Processor Information If electronic documents ordered, fill out section completely. 9. Bill To Address Please provide your billing address if it is different from your shipping address. 10. Logo Type None: No logo is to be used. Standard: Credit union logo. Special: Credit union s own special logo. Please send a camera ready copy of your logo if you have not previously received LOANLINER documents displaying your logo. Camera ready logos must always be mailed. 11. Imprint Information Specify information for credit union name, address, phone, etc. that will print with logo. 12. Select Document Choices 13. Quantity Enter the quantity. 22 Texas Closed-End Planning Guide

26 Attachments The two (2) documents listed below are included in this section. A copy of NCUA Letter No. 124 The LOANLINER Order Form 23 Texas Closed-End Planning Guide

27 NCUA Letter to Credit Unions NCUA Letter No. 124 DATE: June 1991 TO: The Board of Directors of the Federally Insured Credit Union Addressed: Real estate secured loans at federally insured credit unions have increased over 137% in the last five (5) years. This growth is the result of increased demand for real estate secured credit by members, as well as a drop in demand for other consumer loans for such items as automobiles. Although growth during 1990 slowed to a 9% rate by year-end, over 34% of all loans outstanding to federally insured credit unions were secured by residential real estate. For many credit unions, real estate secured credit is the single largest balance sheet item. Credit union boards of directors must clearly understand the risks and issues which must be addressed before becoming involved or expanding their involvement in real estate lending. These matters go far beyond the usual credit risk evaluation process required for consumer loans. In general, residential real estate loans are granted for larger amounts and for longer terms than consumer loans, and cash flow is lower than for shorter term loans. These distinguishing characteristics can create interest rate and liquidity risks. In addition, there is collateral risk that residential property values may drop due to local, regional or national market changes. Finally, diversification risk exists to the extent that the volume of real estate loans held in portfolio becomes a major portion of the Credit Union s income-producing assets. Real estate lending is a necessary loan category for many credit unions. These guidelines are not intended to curtail such lending, but rather to clarify areas of risk and concern. NCUA Letter No. 112 and other real estate lending guidelines recently issued by some of the NCUA regional offices are superseded by these guidelines. These guidelines do not apply to other real estate owned (OREOs). Credit unions which deviate significantly from these guidelines are expected to support and justify their policies and practices. The level of expertise expected in developing written real estate lending policies, asset/liability management strategies, use of secondary market conduits and other principles described in this letter shall be directly related to the level of involvement and exposure in real estate loans. Failure to recognize or to properly address the risks involved with residential real estate lending shall be considered an unsafe and unsound lending practice by NCUA examiners. Although this letter is intended to provide guidance and is not a regulatory requirement, we do expect to propose regulatory provisions in the areas of documentation, written lending policies, asset/liability management and staffing within the near future. The need to include additional regulatory provisions will be considered based on a review of examination findings. 24 Texas Closed-End Planning Guide

28 The following guidelines apply to credit unions which grant residential real estate loans: Written Lending Policies. A written policy must be developed and approved by the board of directors. Policies should be reviewed periodically (at least annually). Since each credit union is unique, there is no single policy that can best serve all credit unions. Each credit union must tailor its policies and procedures to accomplish its goals and to meet the needs of its own members. Nevertheless, all policies should include, at a minimum, the following: Types of loans that will be offered, i.e., first mortgage, second mortgage, home equity lineof-credit, fixed equity, conventional, VA or FHA; Loan limits concerning the percentage or amount of assets that will be committed to residential real estate loans. A limit by each loan type is recommended; Loan limits concerning the maximum amounts to be made available in aggregate to any single borrower (excluding loans sold into the secondary market); Debt ratios used to qualify loan applicants. Due consideration should be given that debt ratios in real estate lending differ from consumer lending and include factors such as the down payment, LTV ratio, disposable income and market or collateral risk issues; Trade area in which residential real estate loans will be offered, consistent with the provisions of the Fair Housing Act; Qualification and experience requirements of personnel involved in making and administering loans; Maximum loan-to-value ratios for the various types of loans made available, including requirements for PMI at certain LTV levels. Provisions for adjusting LTV ratios based on changing market conditions may be appropriate; Pricing policy; Quality control policies to ensure adequate underwriting, servicing, follow-up and collection procedures; and Monitoring policies to assess the interest rate, credit and collateral risks. Secondary Market. Although credit unions are not required to sell loans to the secondary market, underwriting standard loans which conform to secondary market investor requirements provide a number of advantages to lenders: Standard loans meet proven industry standards which minimize credit risk; Standard loans are saleable, providing some protection from interest rate and liquidity risks; Standard loans produce improved yield on sale versus nonstandard products; and Standard loans are widely accepted by consumers (members) as the industry norm - simplifying marketing efforts. 25 Texas Closed-End Planning Guide

29 Nonstandard loans should be limited to those which the Credit Union is safely able to hold to maturity, including asset/liability management concerns. The determination of able to hold should consider the level of capital in a credit union. Interest rate and liquidity risk are virtually eliminated for loans which are immediately sold into the secondary market. For loans that are not sold, these risks can be managed effectively by granting loans which are saleable into the secondary market and by careful adherence to an asset/liability management program which measures risk and indicates the point at which loans should be sold to minimize losses. Writing loans to secondary market investor requirements does not require that a credit union qualify as a seller/servicer or master seller with one of the two (2) dominant participants in the secondary market, the Federal National Mortgage Association (FNMA) or the Federal Home Loan Mortgage Corporation (FHLMC). Loans may also be sold to other mortgage conduits, including some who are credit union service organizations (CUSOs). Asset/liability Management. Credit unions engaged in residential real estate lending should adopt an asset/liability management policy that addresses, at a minimum, the rate sensitivity of the balance sheet, asset/liability maturity matching, liquidity and cash flow needs and interest rate risk. Examiner s have noted several instances where mortgage programs funded by high cost certificates of deposit have resulted in serious liquidity and interest rate mismatches. It is advisable to develop simulation models to test the effect of reasonable interest rate fluctuations on profitability and capital adequacy. Contingency plans should be considered to determine when and if loans should be sold in order to maintain cash flow, liquidity and profitability. Fixed Rate Loans. Because of the high level of interest rate risk, fixed rate long-term mortgages should only be carried by credit unions that have made them in conjunction with an ALM plan that is well thought out, carefully executed and regularly reviewed. Future saleability is an important factor with fixed rate loans. Adjustable (Variable) Rate Loans. The short repricing periods of adjustable rate loans (and balloon mortgages) help to reduce interest rate risk. However, infrequent adjustment periods with annual and lifetime interest rate caps mean that interest rate risk is not entirely eliminated. Balloon mortgages carry an additional risk of default during periods of rising interest rates because a borrower s ability to repay at the higher rate is limited. Interim monitoring of these loans is necessary. In addition, these loans are limited by the fact that their low interest rates mean lower earnings. Further, the low first-year rates that are offered to attract borrowers can mean negative earnings for a year, or longer, under some circumstances. Staffing. Credit union personnel who underwrite and administer residential real estate loans should be adequately trained and experienced prior to becoming involved with this type of lending. The use of untrained or inexperienced personnel shall be considered an unsafe and unsound lending practice. Credit unions may want to consider the use of qualified outside underwriters to review loans before closing to ensure that secondary market standards are met. 26 Texas Closed-End Planning Guide

30 Following are some of the issues that must be considered to ensure that loans meet secondary market standards: Documentation - Uniform Instruments. Uniform instruments, as accepted by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), FNMA and FHLMC, are highly recommended. Use of other documents may be appropriate when the underlying loan is subject to sale to the secondary market and the contracting investor has stipulated the documentation which will be required. In general, most secondary market investors insist on the use of Uniform Instruments. Appraisals. Part 722 of the NCUA Rules and Regulations pertains to appraisal requirements. After January 1, 1992, an appraisal by a licensed or certified appraiser, as appropriate, is required for each residential real estate loan over $50,000. Transactions of $50,000 or less require a written estimate of value performed by an independent, qualified individual. Credit unions must ensure that the appraiser is competent to perform the work assigned. This requires investigation concerning the training and experience of the appraiser. Note, however, that for loans to be saleable on the secondary market, the appraisal must be completed by a licensed or certified appraiser, regardless of amount. Loan-to-Value (LTV) Ratio Limits. LTV limits should be established. For conventional loans, the maximum LTV permissible should be no greater than 80% of the lower of the appraised value or sales price unless private mortgage insurance (PMI) is obtained. The PMI should be obtained from a company acceptable to the Credit Union and to established secondary markets. On government insured loans, the LTV may not exceed the applicable FHA or VA guidelines. Credit Reports. Credit unions should normally obtain a credit report before granting a residential real estate loan. Credit reports should be acceptable to the established secondary market. Typically, secondary market investors require the use of a residential mortgage credit report as opposed to an in file credit report. Hazard Insurance. A hazard insurance policy, naming the Credit Union as loss payee, should be required on all residential real estate loans. The policy should be in the amount of the original loan balance or the replacement value of the structure, whichever is less. Coverage should be sufficient to pay the mortgage balance including prior liens, if any. Grace Periods and Interest Calculations Basis. Residential real estate loans documented for possible sale in secondary markets should have interest calculation bases acceptable to those markets. Generally, to satisfy this objective, loans must be based on a 30-day month/360-day year interest calculation basis and have a 15-day grace period. Use of a 30-day month, 15-day grace period and a late payment fee is consistent with member expectations, easier to administer and also facilitates future sale of the loan, if that should become necessary. Title Search and Abstract. A title search or abstract must be performed prior to the closing of all residential real estate loans to ensure that there is enough unencumbered equity in the property to secure the loan. 27 Texas Closed-End Planning Guide

31 Title Insurance. Credit unions which desire to originate first mortgage loans for possible sale into established secondary markets must obtain a lender s title insurance policy. Even if loans are not intended for sale, credit unions should consider the benefits of requiring lender s title insurance to protect the Credit Union s interests. Title insurance is also encouraged on second mortgage loans. Indexes for Adjustable Rate Loans. The index used to establish the rate for adjustable rate loan programs should be acceptable to secondary markets and appropriate to the type of loan granted. Use of internal indexes for adjustable rate loans are normally not acceptable to secondary market investors or consumers. Finally, margins over the index should be acceptable to the secondary market. In addition to policies and practices generally required by the secondary market, credit union real estate lending programs should also address the following: Construction Loans. Loans should be limited to those which finance the acquisition and construction of a member s principal residence. Construction involves the risks associated with the uncertainties of building. These loans carry a higher risk of default and, therefore, entail more extensive underwriting and administration than financing completed homes. Construction loans are expected to meet, at a minimum, the following requirements: Detailed cost estimates and building plans should be obtained from the member before approval of the loan; An evaluation of the quality of the builder including financial stability, experience, and track record should be performed. Builder s risk insurance should be considered; Building permits should be acquired prior to disbursal of loan proceeds; The member should provide substantial equity in the project (30% is suggested) consisting of funds or land value. The members funds should be used before disbursing the proceeds of the loan. Loans involving unimproved land are considered highly speculative and lower LTV ratios should be required (50% to 60%); An appraisal, meeting the requirements of Part 722 of the NCUA Rules and Regulations, must be obtained before approval, based on an as is condition, and as if completed to specified plans; and Funds must be released in stages based on the percentage of the home s completion, verified by on-site inspections. On-site inspections should be made only by qualified individuals, such as the original appraiser, independent of the underwriting function of the Credit Union. Before disbursing draws, credit unions should consider updating the title search to ensure that the title remains clear. 28 Texas Closed-End Planning Guide

32 Compliance with Consumer Protection Laws. Residential real estate loans are subject to a number of special provisions concerning consumer protection. These include requirements of the Home Mortgage Disclosure Act, the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Fair Credit Reporting Act, the Flood Disaster Protection Act and the Real Estate Settlement Procedures Act, including the recent disclosure provisions regarding a change in loan servicers. Other requirements may also apply including state provisions and Internal Revenue Service reporting requirements. Credit unions involved with residential real estate lending must ensure that the provisions of these laws are met before granting such loans. Home equity line-of-credit loans (HELOCs) require the same careful underwriting and administrative attention that is required of closed end loans (first and second mortgages, fixed equity loans). The following guidelines specifically apply to HELOCs: Written Lending Policies - The guidelines applicable to closed end loans apply equally to HELOCs. Secondary Market - HELOCs are generally not saleable at this time; therefore, standard underwriting standards are not available. Asset/liability Management - The guidelines applicable to closed end loans apply equally to HELOCs. Staffing - The guidelines applicable to closed end loans apply equally to HELOCs. Documentation - Uniform Instruments are not available. Credit unions should ensure that documents meet all state and federal laws. Appraisals - Part 722 of the NCUA Rules and Regulations applies equally to HELOCs. Loan-to-Value (LTV) Ratios - LTV limits should be established. Credit Reports - A credit report should be obtained prior to granting the loan. Hazard Insurance - A hazard insurance policy, naming the Credit Union as loss payee, should be required. The policy should be in an amount sufficient to pay the maximum credit line granted, including any prior liens. Title Search and Abstract - A title search or abstract must be performed prior to closing the loan. Title Insurance - Credit unions are encouraged to consider the benefits of title insurance in connection with HELOCs. Indexes for HELOCs - The use of an internal index is not permissible under the Federal Truth in Lending Act. Indexes selected should be outside of the control of the Credit Union, and readily available to the public. 29 Texas Closed-End Planning Guide

33 The secondary market for home equity loans is extremely limited; therefore, these products require careful underwriting and administration in order to avoid creating undue levels of risk. HELOCs generally feature long draw periods (up to 10 years) and extended repayment periods (five (5) years after the end of the draw period). Credit unions should tailor HELOCs to meet the needs of the members and the ability of the Credit Union to manage such programs. Payments should be required at least quarterly, if not monthly. Repayment terms should call for regular principal and interest payments over the term of the loan and should provide for full amortization within a reasonable period after the close of the draw period. Credit risk can be managed by monitoring draws and repayments to ensure that, at the end of the draw period, borrowers have the capacity for repayment and sufficient collateral in case they can t pay. Agreements should allow for the periodic review of creditworthiness and collateral suitability. In summary, real estate lending is a valuable service to credit union members and an important part of many credit union lending programs. Careful management of the risks associated with real estate lending is an important factor in creating a successful and profitable lending program. NCUA is committed to helping credit unions better understand and manage these risks. These guidelines provide a foundation for safe and sound real estate lending. For the National Credit Union Administration Board, Roger W. Jepsen Chairman 30 Texas Closed-End Planning Guide

34 LOANLINER Closed-End Home Equity Lending Order Request M Place my order. M Provide me with a price quote. TO ORDER Please complete all information in each section of this order form as instructed to assure accuracy in processing your order. If you have any questions on document pricing or placing your order, please call LOANLINER Customer Service at Select Option 1 for product questions and ordering, or Option 2 for compliance questions. If you would like to view document samples to help in placing your order, visit our website at You may place your order using any of the following delivery methods: Please return pages 1-6 only of this Order Request! Call: , Option 1 OR Fax: OR Order Processing: Standard order processing time for paper documents without a proof is 12 calendar days. Standard order processing time for electronic documents without a proof is 14 calendar days. Mail: CUNA Mutual Group LOANLINER Customer Service PO Box 391 Madison, WI CONTACT INFORMATION Contract #: Credit Union: Street Address: City/State/Zip: Contact Name*: Telephone: Fax Number: Address: Billing Address: M New Customer M Change ATTN: Credit Union: Street Address: City/State/Zip: * The contact name should be someone at the credit union we can contact if we have questions relating to the information provided on this order request. CREDIT UNION LOGO / OTHER PERSONALIZATION INFORMATION (OPTIONAL) Select a credit union logo to be included on your document(s): Credit Union logo type (Please select one) M Graphic only M Graphic and address Street Address: City/State/Zip: Logo file format M My logo is already on file with CUNA Mutual Group M My logo is included (We can accept a.tif,.eps, or cameraready art for scanning. The quality of any other method cannot be guaranteed.) Toll Free Number: Telephone: M Include Hands & Globe logo (instead of CU logo) Fax Number: Web Address: M Address only Street Address: City/State/Zip: Toll Free Number: Telephone: Fax Number: Web Address: M None (Rev. 01/12) Page 1 Questions? Call LOANLINER Customer Service at Texas Closed-End Planning Guide

35 LOANLINER Closed-End Home Equity Lending Order Request Credit Union: Contract #: ADDITIONAL FEES Consultation and Development Fees: Consultation and Development Fees charged at $175.00/hr. Various types of customization are available at an additional cost. Minimum one hour; $43.75 for each additional 15-minute Contact LOANLINER Customer Service at , increment. Option 1, for more information. DELIVERY INFORMATION Electronic Files to: M Credit Union Address: M Data Processor Address: Data Processor Contact Name: Data Processor Name: Telephone: Please circle the states you lend in. AL AK AZ AR CA CO CT DE DC FL GA HI ID IL IN IA KS KY LA ME MD MA MI MN MS MO MT NE NV NH NJ NM NY NC ND OH OK OR PA RI SC SD TN TX UT VT VA WA WV WI WY All States Place a checkmark (3) directly below the document number of the item(s) you wish to order and complete all columns as applicable for each document. CHOOSE HOME EQUITY DOCUMENTS Description 3 Paper Electronic Format Document (Standard document size is 8 1 /2 x 11 for all media for CU Quantity Number types. Actual paper document size is indicated Logo/ (3 all that apply) (Minimum 10) if different than standard size.) Other USAGE FORMAT EST63* Application: Fannie Mae Form x 17 EST51* Standard Application ETX20* TX Notice to Borrowers - English ETX22* TX Notice to Borrowers - Spanish MXX11* Fact Act Notice to Home Loan Applicant MXX12* Truth in Lending for Fixed Rate MXX1B* Truth in Lending for Variable Rate MXX61* Risk Based Pricing Notice MXX62* Account Review Risk Based Pricing Notice *Document Version If column is grayed out, the feature is not allowed or the document format is not available. Questions? (Rev. 01/12) Page 2 Call LOANLINER Customer Service at Texas Closed-End Planning Guide

36 LOANLINER Closed-End Home Equity Lending Order Request Credit Union: Contract #: Place a checkmark (3) directly below the document number of the item(s) you wish to order and complete all columns as applicable for each document. Document Number Description (Standard document size is 8 1 /2 x 11 for all media types. Actual paper document size is indicated if different than standard size.) CHOOSE HOME EQUITY DOCUMENTS 3 for CU Logo/ Other Paper Quantity (Minimum 10) Electronic Format USAGE (3 all that apply) FORMAT MXX63* Credit Score Exception Notice 1-4 Family MXX65* No Credit Score Notice MXX66* MXX67* Risk Based Pricing Notice With Credit Score Information Account Review Risk Based Pricing Notice With Credit Score Information EST23* Itemization of Third Party Fees EED00* EST91* Adjustable Rate Mortgage Disclosure (Variable Rate Loans Only) CHARM Booklet (Variable Rate Loans Only) EST77* Good Faith Estimate EST88* Standard Flood Hazard Determination EST89* Flood Insurance Notice (Minimum 50) EPK44* Verification Packet 1 ETX80* TX Closed-End Home Equity Loan Officer Checklist ETX85* Affidavit of Designation of Homestead 1 Includes Request for Verification of Employment, Request for Verification of Deposit, Direct Credit Verification, Request for Verification of Mortgage, and Loan Officer Checklist for all states except TX. *Document Version If column is grayed out, the feature is not allowed or the document format is not available. Questions? (Rev. 01/12) Page 3 Call LOANLINER Customer Service at Texas Closed-End Planning Guide

37 LOANLINER Closed-End Home Equity Lending Order Request Credit Union: Document Number Description (Standard document size is 8 1 /2 x 11 for all media types. Actual paper document size is indicated if different than standard size.) CHOOSE HOME EQUITY DOCUMENTS 3 for CU Logo/ Other Paper Quantity (Minimum 10) Electronic Format USAGE (3 all that apply) FORMAT ETX40* Acknowledgment of Fair Market Value ETX70* EST22* EST47* Receipt of All Documents Signed at Closing 8 1 /2 x 5 1 /2 HUD-1A Settlement Statement 8 1 /2 x 14 Notice of Right to Cancel 8 1 /2 x 14 (Minimum 50) Contract #: Place a checkmark (3) directly below the document number of the item(s) you wish to order and complete all columns as applicable for each document. CHOOSE ELECTRONIC STATE-SPECIFIC NOTE AND DISCLOSURE STATEMENT(S) (see document listing on page 7) M AK M AL M CA M CO M FL M GA M IA M KS M LA M MA M ME M MN M MO M NC M NE M NH M NY M OK M OR M PA M RI M SC M TX M UT M VA M VT M WA M WI M WV M Choice of Multi-State EST55* ( AR, AZ, CT, DC, DE, HI, ID, IL, IN, KY, MD, MI, MS, MT, ND, NJ, NM, NV, OH, SD, TN, WY ) 3 for CU Logo/ Other Electronic Format (3 all that apply) USAGE FORMAT M ll.com M Fillable PDF Select format above for all of the selected state-specific documents If a different Usage/Format is required for a particular state document, please indicate below: State: Usage/Format: State: Usage/Format: State: Usage/Format: State: Usage/Format: CHOOSE PAPER STATE-SPECIFIC NOTE AND DISCLOSURE STATEMENT(S) (see document listing on page 7) M CA M FL M GA M IA M NY M PA M VA M Choice of Multi-State EST31* ( AR, AZ, CT, DC, DE, HI, ID, IL, IN, KY, MD, MI, MS, MT, ND, NJ, NM, NV, OH, SD, TN, WY ) 3 for CU Logo/ Other Paper Quantity (Minimum 50) Select format above for all of the selected state-specific documents If a different Usage/Format is required for a particular state document, please indicate below: State: Usage/Format: State: Usage/Format: State: Usage/Format: State: Usage/Format: *Document Version If column is grayed out, the feature is not allowed or the document format is not available. Questions? (Rev. 01/12) Page 4 Call LOANLINER Customer Service at Texas Closed-End Planning Guide

38 LOANLINER Closed-End Home Equity Lending Order Request Credit Union: Contract #: Please 3 and/or provide the language as you would like it to appear on the Note and Disclosure Statement. LATE CHARGES M N/A M Use this language: VARIABLE RATE LOANS For credit unions doing variable rate closed-end loans, please also complete the LOANLINER Variable Rate Closed-End Home Equity Lending Questionnaire and include it with the Order Request. CHOOSE STATE-SPECIFIC SECURITY INSTRUMENT DOCUMENTS (see document listing on page 7) M AK M AL M AR M AZ M CA M CO M CT M DC M DE M FL M GA M HI M IA M ID M IL M IN M KS M KY M LA M MA M MD M ME M MI M MN M MO M MS M MT M NC M ND M NE M NH M NJ M NM M NV M NY M OH M OK M OR M PA M RI M SC M SD M TN M TX M UT M VA M VT M WA M WI M WV M WY 3 for CU Logo/ Other If a different Usage/Format is required for a particular state document, please indicate below: Paper Quantity (Minimum 10) Electronic Format USAGE M LOS M Internet M ll.com (3 all that apply) FORMAT M Static PDF M Fillable PDF Select format above for all of the selected state-specific documents State: Usage/Format: State: Usage/Format: State: Usage/Format: State: Usage/Format: *Document Version If column is grayed out, the feature is not allowed or the document format is not available (Rev. 01/12) Page 5 Questions? Call LOANLINER Customer Service at Texas Closed-End Planning Guide

39 LOANLINER Closed-End Home Equity Lending Order Request Credit Union: Contract #: Enter the document number and description of the item(s) you wish to order and complete all columns as applicable for each document. Document Number *Document Ver sion CHOOSE MISCELLANEOUS DOCUMENT(S) AND/OR RIDER(S) (see document listing on page 7) Description (Standard document size is 8 1 /2 x 11 for all media types.) 3 for CU Logo/ Electronic Format (3 all that apply) Other USAGE FORMAT (Rev. 01/12) Page 6 Questions? Call LOANLINER Customer Service at Texas Closed-End Planning Guide

40 LOANLINER Closed-End Home Equity Lending Order Request PAPER DOCUMENT NUMBER ELECTRONIC DOCUMENT NUMBER LOANLINER CLOSED-END HOME EQUITY DOCUMENT LISTING DOCUMENT DESCRIPTION EST31* EST55* Multi-State CE Note and Disclosure (AK, AR, AZ, CT, DC, DE, HI, ID, IL, IN, KY, MD, MI, MS, MT, ND, NJ, NM, NV, OH, SD, TN, WY) EAL55* AL CE 2 nd Note and Disclosure EAL20* EAL20* AL CE 2 nd Mortgage EAK55* AK CE 2 nd Note and Disclosure EAK21* AK CE 2 nd Mortgage EAZ22* EAZ22* AZ CE 2 nd Mortgage EAR23* EAR23* AR CE 2 nd Mortgage ECA35* ECA55* CA CE 2 nd Note and Disclosure ECA24* ECA24* CA CE 2 nd Mortgage ECO55* CO CE 2 nd Note and Disclosure ECO26* ECO26* CO CE 2 nd Mortgage ECT27* ECT27* CT CE 2 nd Mortgage EDE29* EDE29* DE CE 2 nd Mortgage EDC28* EDC28* DC CE 2 nd Mortgage EFL02* EFL55* FL CE 2 nd Note and Disclosure EFL20* EFL20* FL CE 2 nd Mortgage EGA31* EGA55* GA CE 2 nd Note and Disclosure EGA21* EGA21* GA CE 2 nd Mortgage EHI22* HI CE 2 nd Mortgage EID23* ID CE 2 nd Mortgage EIL24* EIL24* IL CE 2 nd Mortgage EIN25* EIN25* IN CE 2 nd Mortgage EIA36* EIA55* IA CE 2 nd Note and Disclosure EIA26* EIA26* IA CE 2 nd Mortgage EKS55* KS CE 2 nd Note and Disclosure EKS27* EKS27* KS CE 2 nd Mortgage EKY28* EKY28* KY CE 2 nd Mortgage ELA55* LA CE 2 nd Note and Disclosure ELA29* ELA29* LA CE 2 nd Mortgage EME55* ME CE 2 nd Note and Disclosure EME20* EME20* ME CE 2 nd Mortgage EMD21* EMD21* MD CE 2 nd Mortgage EMA55* MA CE 2 nd Note and Disclosure EMA22* EMA22* MA CE 2 nd Mortgage EMI23* EMI23* MI CE 2 nd Mortgage EMN55* MN CE 2 nd Note and Disclosure EMN24* EMN24* MN CE 2 nd Mortgage EMS25* MS CE 2 nd Mortgage EMO55* MO CE 2 nd Note and Disclosure EMO26* EMO26* MO CE 2 nd Mortgage *Document Version PAPER DOCUMENT NUMBER ELECTRONIC DOCUMENT NUMBER If column is grayed out, the feature is not allowed or the document format is not available. DOCUMENT DESCRIPTION EMT27* EMT27* MT CE 2 nd Mortgage ENE55* NE CE 2 nd Note and Disclosure ENE20* ENE20* NE CE 2 nd Mortgage ENV21* ENV21* NV CE 2 nd Mortgage ENH55* NH CE 2 nd Note and Disclosure ENH22* ENH22* NH CE 2 nd Mortgage ENJ23* ENJ23* NJ CE 2 nd Mortgage ENM24* ENM24* NM CE 2 nd Mortgage ENY35* ENY55* NY CE 2 nd Note and Disclosure ENY25* ENY25* NY CE 2 nd Mortgage * ENC55* NC CE 2 nd Note and Disclosure ENC28* ENC28* NC CE 2 nd Mortgage END29* END29* ND CE 2 nd Mortgage EOH26* EOH26* OH CE 2 nd Mortgage EOK55* OK CE 2 nd Note and Disclosure EOK27* EOK27* OK CE 2 nd Mortgage EOR55* OR CE 2 nd Note and Disclosure EOR28* EOR28* OR CE 2 nd Mortgage EPA31* EPA55* PA CE 2 nd Note and Disclosure EPA21* EPA21* PA CE 2 nd Mortgage ERI55* RI CE 2 nd Note and Disclosure ERI29* ERI29* RI CE 2 nd Mortgage ESC55* SC CE 2 nd Note and Disclosure ESC20* ESC20* SC CE 2 nd Mortgage ESD21* ESD21* SD CE 2 nd Mortgage ETN22* ETN22* TN CE 2 nd Mortgage ETX50* TX CE Note and Disclosure (Fixed/Variable) ETX21* ETX21* TX CE Deed of Trust ETX55* TX CE Note and Disclosure Home Improvement ETX23* ETX23* TX CE Deed of Trust Home Improvement EUT55* UT CE 2 nd Note and Disclosure EUT24* EUT24* UT CE 2 nd Mortgage EVT55* VT CE 2 nd Note and Disclosure EVT25* EVT25* VT CE 2 nd Mortgage EVA36* EVA55* VA CE 2 nd Note and Disclosure EVA26* EVA26* VA CE 2 nd Mortgage EWA55* WA CE 2 nd Note and Disclosure EWA28* EWA28* WA CE 2 nd Mortgage EWV55* WV CE 2 nd Note and Disclosure EWV27* EWV27* WV CE 2 nd Mortgage EWI55* WI CE 2 nd Note and Disclosure EWI29* EWI29* WI CE 2 nd Mortgage EWY20* WY CE 2 nd Mortgage (Rev. 01/12) Page 7 Questions? Call LOANLINER Customer Service at Texas Closed-End Planning Guide

41 LOANLINER Closed-End Home Equity Lending Order Request PAPER DOCUMENT NUMBER ELECTRONIC DOCUMENT NUMBER LOANLINER CLOSED-END HOME EQUITY MISCELLANEOUS DOCUMENT LISTING DOCUMENT DESCRIPTION N/A RCA10* CA Registered Domestic Partners N/A RCA20* CA Impound Disclosure/Waiver N/A RCA30* CA Insurance Notice N/A RCA50* CA Limit on Waiver of Interest Accrual N/A RCT10* CT Notice of Mortgage Loan Applicant N/A RCT30* CT Bridge Loan Disclosure N/A RDC10* DC Notice to Pay Insurance/Taxes N/A RFL10* FL Insurance Anti-Coercion Statement N/A RIA10* IA Oral Modification Disclosure N/A RMA10* MA Notice of Right to Counsel N/A RMD03* MD Montgomery County Property Addendum N/A RMD05* MD Intake Sheet N/A RMD10* MD Notice to First Mortgage Loan Applicants N/A RMD30* MD Lender Attorney Fee Certification PAPER DOCUMENT NUMBER ELECTRONIC DOCUMENT NUMBER DOCUMENT DESCRIPTION N/A RMN10* MN Notice of Right to Discontinue Escrow N/A RNJ10* NJ Attorney Disclosure N/A RNM10* NM Freedom to Choose Insurer N/A RNY03* NY Insurance Disclosure N/A RNY04* NY Balloon Disclosure for Note N/A RNY20* NY Interest Rate Determination N/A RNY30* NY Credit Report Notice N/A RNY40* NY Straight Balloon Preapplication Disclosure N/A RNY60* NY Hazard Insurance Disclosure N/A ROH10* OH Application Notice N/A RRI10* RI Loan Application Disclosure N/A RSC10* SC Insurance Rights N/A RTN10* TN Placement of Insurance N/A RTX10* TX Mortgage Fraud Notice N/A RMD60* MD Affidavit of Refinance of Principal Residence N/A N/A RUT10* RUT20* UT Deposit and Servicer Disclosure Notice UT Initial Servicer Disclosure Statement N/A RMD80* MD Frederick Refinance Affidavit N/A RVA10* VA First Mortgage Application Disclosure N/A RMD90* MD Delivery of Net Proceeds N/A RVT10* VT Authorization to Obtain Credit Report N/A RME10* ME Choice of Insurer N/A RVT20* VT Civil Union Disclosure N/A RME30* ME Fully Amortizing Loans with ARM Features N/A RWI10* WI Preapplication Fee Disclosure N/A RMI10* MI Borrower s Bill of Rights N/A RWI20* WI Escrow Notice N/A RMI20* MI Counseling Notice N/A RWY10* WY Notice of Required Insurance RIDER DOCUMENTS N/A RR001* First Mortgage Multi-State 1-4 Family Rider N/A RRNY3* NY First Mortgage Biweekly Rider N/A RRMI1* MI First Mortgage 1-4 Family Rider N/A RRWV3* WV First Mortgage Biweekly Rider N/A RR003* First Mortgage Multi-State Biweekly Rider N/A RR002* First Mortgage Multi-State Condo Rider N/A RRME3* ME First Mortgage Biweekly Rider N/A RR009* First Mortgage Multi-State PUD Rider * Document Version (Rev. 01/12) Page 8 Questions? Call LOANLINER Customer Service at Texas Closed-End Planning Guide