Integrated Mortgage Disclosures Checklist

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2 Amy Avitable, JD, CPA Amy Avitable is a nationally known compliance expert through both her frequent speaking engagements for state bankers associations, state mortgage associations, the American Bankers Association, and the Mortgage Bankers Association, as well as articles in banking and compliance publications. Amy is the Director of Regulatory Compliance for the TCS BaNCS system at Tata Consultancy Services. She began her career at Deloitte & Touche, LLP and has served financial institutions and other organizations as legal counsel at Lowndes, Drosdick, Doster, Kantor & Reed, PA. Most recently, she has supported software products for financial institutions and engaged in lobbying efforts in Congress as well as with the FDIC, CFPB, and NCUA. She was previously the National Director of Compliance Services at Sheshunoff Consulting + Solutions, where she managed a team of compliance professionals who performed compliance audits and consulting for financial institutions of all sizes. Before joining Sheshunoff, she was the Director of FIS Regulatory Advisory Services (formerly Kirchman/Metavante Regulatory Service), where she was the Editor-In- Chief for the renowned Big Orange Book compliance manual and served hundreds of financial institutions throughout the country as well as the FDIC, Federal Reserve and OCC. 2

3 Mortgage Process with Integrated Disclosures Step 1: Take an Application Step 2: Provide the Information Booklet May Charge a Credit Report Fee May Provide Other Estimate Step 5: Revise Loan Estimate May Charge Other Fees Step 4: Receive Intent to Proceed Step 3: Give a Loan Estimate with Written List Step 6: Provide Closing Disclosure Step 7: Revise Closing Disclosure Close the Loan Step 8: Provide Another Revised Closing Disclosure 3

4 Mortgage Reform Checklist Update Your Processes! Routing applicants Taking applications Loan processing Pre-closing review Pre-closing disclosures Closing disclosures Post-closing revisions Escrow cancellation notice 4

5 Routing Applicants Mortgage Lending Department Commercial Lending Department To natural person for consumer purpose To a non-natural person other than a trust (e.g., corporation) 25 Acre Exemption Eliminated Secured by ag land if primarily for consumer purpose Secured by ag land if primarily for non-consumer purpose Irrevocable trusts now subject to Reg Z To any kind of trust if for consumer purpose To irrevocable trusts if for nonconsumer purpose 5

6 Taking Applications Will be an application when all 6 pieces of information are collected: Applicant name Income Social security number Property address Estimate of value of the property Mortgage loan amount sought Be Aware! Any other information deemed necessary by the loan originator is no longer part of the definition. You can no longer use this language to support requiring additional information or documentation, such as a completed application form, to start the clock for the early disclosure. 6

7 Loan Processing At Application Take E-SIGN Steps 1. Provide E-SIGN notice 2. Obtain consent to provide disclosures electronically 3. Electronically verify that customer can receive and access disclosures Provide Appraisal Notice Applicable: Regulation B Applications for loans to be secured by a first lien on a 1-4 family dwelling Regulation Z HPMLs Required within 3 business days after application but consider providing on or with application Triggered by application, even if no loan is originated E-SIGN requirements N/A if provided on or with application 7

8 Loan Processing Closed End Loans Secured by Real Property 1. At application 2. Within 3 business days after receiving application 3. Underwriting and other loan processing 4. 7 business days before closing 5. At closing 6. After closing Closed End Loans Not Secured by Real Property Integrated disclosures N/A but closing TIL still applicable to loans secured by dwelling but not real property Other Regulation Z mortgage reform rules (high cost mortgage, appraisal requirements, etc.) still apply 8

9 Loan Processing Open End Lines of Credit Secured by Real Property Integrated disclosures N/A Requirements that apply: Open end rules and disclosures Homeownership counseling disclosure If secured by 1 st lien on dwelling, appraisal notice under Reg B High cost mortgage rules and disclosure 9

10 Within 3 Business Days After Application Disclosures Required Within 3 Business Days Unless Denied Homeownership Counseling Disclosure Must be based on customer s current address using CFPB or HUD tool Information Booklet Only required for loans to purchase 1-4 family residential property Loan Estimate Cannot require customer to provide verifying documentation before providing Loan Estimate Written List of Settlement Service Providers Must be separate from Loan Estimate but may be provided along with it Business Day = Day on which the creditor s offices are open to the public for carrying on substantially all of its business functions 10

11 Providing the Loan Estimate Receive Application Closing Send Within 3 Business Days Standard Definition Provide Loan Estimate Send At Least 7 Business Days Before Rescission Definition 11

12 Underwriting and Other Loan Processing Charge a Fee Can only charge a fee (other than credit report fee) after both: Cannot: Customer receives the Loan Estimate Customer receives Loan Estimate when delivered in person or 3 business days (rescission definition) after mailed And customer expresses intent to proceed Explicit intent to proceed must be communicated and documented Accept check early and deposit it later Take credit card authorization early for fees other than credit report fee Provide Another Estimate Warning verbiage required with specific content, formatting and location on document 12

13 Underwriting and Other Loan Processing Apply Ability to Repay and QM Rules Interagency Statement on Fair Lending Compliance and the Ability-to- Repay and Qualified Mortgage Standards Rule Decision to make all or mostly QMs will not, absent other factors, elevate fair lending risk. But: Will you require certain products to be QMs and others to be underwritten using the Ability to Repay standards? How do you decide which products are subject to which standards? Could different underwriting standards for different products inadvertently result in denials and pricing that disproportionately affect protected classes negatively? Apply underwriting consistently and use exceptions VERY CAREFULLY! 13

14 Sexual Orientation and Gender Identity HUD Final Rule on Equal Access to Housing in HUD Programs- Regardless of Sexual Orientation or Gender Identity Effective March 5, 2012 Bank of America Settlement Borrower and partner s mother applied for a loan BOA denied the loan, stating that co-applicants were not directly related because borrower and partner were not married In January 2013, HUD and BOA entered into settlement under which BOA will pay HUD $7,500 and revise its fair lending program Members of the housing industry should take note of this settlement agreement. HUD will enforce its regulations to make sure its programs are truly open to all qualified families. 14

15 Sexual Orientation and Gender Identity New HUD Guidance: Notice H , Notice of Program Eligibility for HUD Assisted and Insured Housing Programs for All People Regardless of Sexual Orientation, Gender Identity or Marital Status as Required by HUD s Equal Access Rule Notice CPD-15-02, Appropriate Placement for Transgender Persons in Single-Sex Emergency 14 Shelters and Other Facilities Reiterate that: Housing financed or insured by HUD must be made available without regard to actual or perceived sexual orientation, gender identity, or marital status Owners and operators of HUD-funded housing, or housing whose financing was insured by HUD, cannot inquire about an applicant s sexual orientation or gender identity or denying housing on that basis Sexual orientation and gender identity cannot be part of any lending decision for an FHA-insured mortgage 15

16 Sexual Orientation and Gender Identity Allowed: Voluntary self-identification by the applicant Lawful inquiries of gender where housing is temporary, emergency shelter involving sharing of sleeping areas or bathrooms Lawful inquiries for purpose of determining number of bedrooms to which household may be entitled Gathering gender information as required under HMDA and Reg. B 16

17 Same-Sex Marriage CFPB Staff Memo - June 2014 Sets forth the agency s policy to regard a person who is married under the laws of any jurisdiction as married nationwide, regardless of residency Not applicable to domestic partnerships, civil unions or other relationships not denominated as marriage by law Applicable to all laws, regulations and policies administered by CFPB, including: Regulation B Fair Debt Collection Practices Act Regulation Z RESPA 17

18 Pregnancy and Parental Leave Discrimination Claims generally deal with pregnant women or women on maternity leave, though men are also protected Suntrust Settlement - May 8, 2013 Prior to closing, bank tries to verify income with employer and learns that applicant is on unpaid maternity leave Employer refused to verify continued employment or return date Due to inability to verify info and in accordance with investor guidelines, bank did not fund the loan Bank ordered to pay $18,000 and adopt Parental Leave policy A woman s maternity status should not determine whether she receives a mortgage loan. Wells Fargo settled claims for $5 million on October 9,

19 Pregnancy and Parental Leave Discrimination Parental Leave Policy Cannot: Inquire about future maternity leave plans Require the applicant to return to work in order to approve or close the loan If applicant is on maternity leave at closing, document: Borrower s intent to return to work That borrower has right to return to work 19

20 Pregnancy and Parental Leave Discrimination Sample Parental Leave Policy Exhibit A or FirstBank Mortgage Partners Conciliation Agreement pdf Temporary Leave Underwriting Guidelines Must consider reduced income in underwriting Customer s Return to Work Date Before First Mortgage Payment Use pre-leave income if post-leave income will not be less Customer s Return to Work Date NOT Before First Mortgage Payment May use any income received during leave to meet underwriting standard If insufficient, customer may use verified liquid assets not required to close the loan to bridge any period of reduced income 20

21 Underwriting and Other Loan Processing Provide Free Copy of Appraisal Report Reg B Applications for loans to be secured by a first lien on a 1-4 Reg Z HPMLs Must be provided by earlier of: Promptly upon completion or 3 business days before closing Must meet E-SIGN Act requirements to provide electronically Waiver only allowed under Regulation B If waived at least 3 business days before closing = Ok If waived within 3 days before closing = Only ok if copy was just making clerical corrections to previous valuation that was provided Routinely obtaining waiver from all applicants has been viewed as a UDAP/UDAAP violation 21

22 Underwriting and Other Loan Processing If Prepayment Penalty Applies Prepayment penalties prohibited unless all of the following are met: APR cannot increase after consummation Qualified mortgage Not a higher priced mortgage loan Prepayment penalty not prohibited under other law Two requirements apply if a prepayment penalty is allowed at all: Must not exceed allowable amounts and Must offer an alternative loan without a prepayment penalty 22

23 Underwriting and Other Loan Processing Requirement #1 Maximum allowable penalty: Up to 2% of prepaid amount if incurred in first 2 years after closing Up to 1% if incurred in 3 rd year after closing Not allowed after 3 rd year Requirement #2 Alternative loan offer where all of the following apply: No prepayment penalty APR does not increase after consummation Same interest rate type as loan with penalty (i.e., fixed or stepped rate) Same term as loan with penalty Meets regular periodic payment and points and fees limits of QMs Creditor has good faith belief that consumer likely qualifies 23

24 Underwriting and Other Loan Processing Revising the Loan Estimate Generally must have a changed circumstance Interest Rate Dependent Charges - Must provide revised Loan Estimate when rate is locked Expiration of Loan Estimate - If customer does not indicate intent to proceed within 10 business days after Loan Estimate provided, Loan Estimate expires and revised Loan Estimate may be issued if customer continues with loan Delayed Settlement on Construction Loan For new construction, may revise Loan Estimate more than 60 days prior to settlement if disclosure about such revision provided on initial Loan Estimate If initial Loan Estimate omitted such disclosure, can only revise Loan Estimate if another changed circumstance arises 24

25 Underwriting and Other Loan Processing When providing a revised Loan Estimate: Must be sent within 3 business days after receiving information supporting a changed circumstance Business days = standard definition AND must be received at least 4 business days before closing A customer receives the Loan Estimate when it is delivered in person or 3 business days after it was mailed Business days = rescission definition 25

26 7 Business Days Before Closing Receive Info on Changed Circumstance Provide Closing Disclosure Must be received by customer at least 3 business days before closing Within 3 Business Days At Least Day Before Provide Revised Loan Estimate Must be received by customer at least 4 business days before closing Closing 26

27 7 Business Days Before Closing Pre-Closing Review 1. Lock interest rate 2. Provide last revised loan estimate 3. Determine if the loan is an HPML or High Cost Mortgage 4. If High Cost Mortgage, provide High Cost Mortgage disclosure 5. Provide Closing Disclosure Reminders: All of these disclosures must be received at least 3 business days before closing (4 for Loan Estimate) If mailed, will be treated as being received by the customer 3 business days after mailing Can only if E-SIGN steps have been executed Even if ed, follow mailed rule unless you can document that the customer received the earlier 27

28 Waivers of Wait Periods Waiver allowed for 3 and 4 business day wait periods of: Disclosure provided to customer Bona fide personal financial emergency Dated, written statement describing emergency and specifically modifying or waiving period Statement signed by all consumers primarily liable on loan Cannot use printed forms Tip: Don t allow waivers! 28

29 Disclosures for Closing High Cost Mortgage Disclosure Revised disclosure must be received no later than 3 business days before closing Closing Disclosure Revised disclosure may have to be received no later than 3 business days before closing Homeownership Counseling Certification High Cost Mortgages (even HELOCs) Loans to first-time borrowers that could result in negative amortization 29

30 Revising Closing Disclosure Before Closing Must be received no later than 3 business days before closing if: 1. APR becomes inaccurate outside of tolerance More than 1/8% for regular loans More than 1/4% for irregular loans Loans with multiple advances, irregular payment periods, or irregular payment amounts (other than an irregular first period or an irregular first or final payment) 2. Loan product changes so Product information on Closing Disclosure is inaccurate 3. Prepayment penalty added so Prepayment Penalty statement on Closing Disclosure is inaccurate For other changes, provide revised Closing Disclosure at or before closing 30

31 Revising the Closing Disclosure After Closing Event Affecting Charges 30 Days After Closing Must provide revised Closing Disclosure within 30 days after receiving information on the change if: Event occurs during 30 day period after closing that causes Closing Disclosure to become inaccurate and Inaccuracy results in change to an amount actually paid by customer from amount disclosed on the Closing Disclosure Rule also applies to seller s copy if amounts paid by seller affected Overpayment - If customer paid more than disclosed, must refund overpayment and provide revised Closing Disclosure within 60 days after closing Changes Due to Clerical Errors - May provide corrected Closing Disclosure up to 60 days after closing if only changes are nonnumerical clerical errors 31

32 Accuracy of Closing Disclosure Cannot increase: Creditor or broker charges for own services Charges for services provided by affiliate of creditor or broker Charges for services for which customer cannot shop 10% tolerance applies to aggregate other charges unless exception applies Exception from tolerance for: Prepaid interest Property insurance premiums Amounts in escrow, impound or reserve Providers not on the written list Charges not required by creditor 32

33 Escrow Notice Required where escrow will be cancelled on loan secured by 1 st lien on real property or a dwelling Timing Customer request Must be received at least 3 business days before escrow account closed Other reason Must be received at least 30 business days before escrow account closed 33

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35 Action Items 1. Get to know your vendor well! Loan origination system release plan/schedule for integrated disclosures Loan servicing system release plan/schedule for escrow cancellation notice 2. Review processes for: E-SIGN compliance Routing applications to mortgage department Taking applications and triggering early disclosures 3. Review fair lending program for: Gender identity, sexual orientation and marital status discrimination risks Parental leave discrimination risks 35

36 Action Items 4. Develop Pre-Closing Review process 7 business days before closing 5. Be prepared to delay closing anyway for: Changes to High Cost Mortgage disclosure Certain changes to Closing Disclosure 6. Implement process for reviewing Closing Disclosures after closing Ensure that Closing Disclosures are revised timely after closing if required 7. Considering adopting policy of NO WAIVERS Avoid examination red flags and UDAP/UDAAP risks that arise with waivers of disclosure and appraisal timing requirements 36