Presented by. Danielle Barbato, Training & Development Gregory Korn, VP Risk Management Dan Pass, BSA Officer

Transcription

1 Presented by Danielle Barbato, Training & Development Gregory Korn, VP Risk Management Dan Pass, BSA Officer Merrimack Mortgage Company, Inc Elm Street, Suite 601 Manchester, NH

2 Federal Law Review Dodd Frank Act Laws requiring financial disclosures in real estate transactions: Truth in Lending Act and the Mortgage Disclosure Improvement Act Real Estate Settlement Procedures Act Homeowner s Protection Act Laws protecting privacy and consumer identification: Fair Credit Reporting Act, Fair and Accurate Credit Transactions Act Red Flag Rules Gramm-Leach-Bliley Act U.S. Patriot Act National Do Not Call Registry Anti Money Laundering & Suspicious Activity Reporting Laws/Rules prohibiting predatory lending: Home Ownership Equity Protection Act Dodd Frank Act 2013 Final Loan Originator Compensation Rule Unfair Deceptive Abusive Acts and Practices Laws prohibiting discrimination: Civil Rights Act of 1866 Fair Housing Act ECOA CRA HMDA 2

3 Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 Title X created Consumer Financial Protection Bureau and transfers rule-making and enforcement authority of the following: Truth in Lending Act (TILA) Real Estate Settlement Procedures Act (RESPA) Homeowners Protection Act (HPA) Fair Credit Reporting Act (FCRA) Fair and Accurate Credit Transactions Act (FACTA) Portions of Gramm-Leach Bliley Act (information privacy) Equal Credit Opportunity Act (ECOA) Home Mortgage Disclosure Act (HMDA) Home Ownership and Equity Protection Act (HOEPA) 3

4 QM/ATR Rule In January 2013, the CFPB amended Reg Z by issuing new regulations governing mortgage lending requirements known as the Ability-to-Repay and Qualified Mortgage Rule 4

5 QM/ATR Rule Reg Z currently prohibits lenders from making a higherpriced or higher cost mortgage loans without regard for the consumer s ability to repay the loan The rule establishes minimum requirements for all lenders to make an ability-to-repay determination prior to extending a residential mortgage loan Many lenders will only accept Qualified Mortgages from all borrowers. 5

6 QM/ATR Rule The ability-to-repay rules applies to all closed end mortgage loans It does not apply to open end credit plans, time shares, reverse mortgages or temporary mortgages (with terms of 12 mos or less) 6

7 ATR Determinations At a minimum, lenders must consider 8 underwriting factors to determine a borrower s ability-to-repay 7

8 8 Minimum Underwriting Factors Current or reasonably expected income and assets Current employment status The monthly payment on the current transaction The monthly payment on any simultaneous loans The monthly payment for mortgage-related obligations Current debt obligations including child support and alimony The monthly debt-to-income ratio or residual income Credit history 8

9 Stipulations for QM Loans Qualified Mortgage: A residential mortgage that provides for regular, substantially equal payments and does not carry any of the following: Negative amortization Interest only Balloon payments (some exceptions) Loans with terms exceeding 30 years ARM loans must be qualified using two tests methods. Clarification is forthcoming. No doc loans (where income and assets are not verified) Points and fees are in excess of 3% for loans amounts over $100,000 While HPML loans do qualify for QM, they have stricter qualifications. They fall under a rebuttable presumption of compliance DTI limited to 43% (temporary exceptions for FNMA, FHLMC, FHA, VA and RD) All income, assets, debt, child support and alimony but be verified in accordance with Appendix Q 9

10 Debt to Income Under the general definition of QM, the max allowable DTI is 43%. A temporary waiver of the 43% DTI limit is allowed on FNMA, FHLMC, FHA, VA and RD loans receiving an AUS approval. The waiver has an expiration date of January 10, 2021 at the latest 10

11 Safe Harbor By originating a Qualified Mortgage, the creditor is given a presumption of compliance, and for High Priced Mortgage Loans (HPML) a rebuttable presumption of compliance as long as the HPML loan meets QM standards and/or Agency requirements 11

12 Rebuttable Presumption HPML transactions that meet the QM definition APR exceeds APOR as of date rate is set by 1.5% for 1 st lien, 3.5% for subordinate lien Under a rebuttable presumption, if a court finds that a mortgage you originated was a higher-priced QM loan, a consumer can argue that you violated the ATR rule. However, to prevail on that argument, the consumer must show that based on the information available to you at the time the mortgage was made, the consumer did not have enough residual income left to meet living expenses after paying their mortgage and other debts. 12

13 Points and Fees Cap Amount financed $100,000 >: 3% of the amount financed Amount financed $60,000 - $99,999: $3,000 Amount financed $20,000 - $59,999: 5% of amount financed Amount financed $12,500 - $19,999: $1,000 Amount financed $12,499 <: 8% of amount financed 13

14 QM Disclosures Homeownership Counseling Notice A lender must provide a written list of housing counseling agencies to all applicants for federally-related mortgages. Only HUD-approved counseling agencies may appear on the list. Disclosure of Right to Receive Copy of Appraisal Initial disclosure Acknowledgement of Receipt of Appraisal Report Signed by borrower at closing. 14

15 QM/ATR Violations Statutory damages equal to sum of all finance charges and fees paid by the consumer in addition to actual damages, and court costs and attorney s fees There is no statute of limitation when used as a defense to foreclose Statute of limitation is 3 years from the date of the violation A borrower in foreclosure may seek damages amounting to 3 years of finance charges and fee paid as well as actual damages, statutory damages, court costs and attorney fees 15

16 Truth in Lending Act (TILA) Enacted in 1968 to promote the informed use of consumer credit and standardize how costs were calculated Use of APR Administered by Consumer Financial Protection Bureau Implemented by Regulation Z Does not limit interest rates or finance charges 16

17 TILA Disclosures When credit offered but before consummation Clear and conspicuous, in writing When credit terms are advertised Clear and conspicuous Certain information required with triggering terms Specific disclosures Truth in Lending Statement (TIL) and guide Consumer Handbook on Adjustable Rate Mortgages (CHARM booklet) and ARM program details (if applicable) When Your Home is on the Line (home equity loans) Maintain evidence for at least 2 years 17

18 TILA: APR and Finance Charges APR: Annual Percentage Rate Total cost of financing loan as % Includes interest rate on the note Reflects associated finance charges Finance charges Consumer credit as a dollar amount Spread out over life of loan Direct, indirect charges for extending credit Does not include charges payable in comparable cash transaction 18

19 TILA: Finance Charges May include fees charged by someone other than creditor if creditor: Requires use of third party Retains portion of third party charge Fees charged by closing agent are finance charges only if creditor: Requires those particular services Requires imposition of charge Retains portion of third-party charge (to the extent of portion retained) Fees charged by mortgage broker are finance charges 19

20 TILA: Finance Charges-Included Interest, time price differential, any amount payable under add-on or discount system of additional charges Service, transaction, activity, carrying charges Points, loan fees, assumption fees, finder's fees, similar charges Premiums for insurance related to credit transaction Charges imposed on creditor by another for purchasing or accepting consumer's obligation Discounts to induce payment by a means other than use of credit Debt cancellation fee 20

21 TILA: Finance Charges-Excluded Appraisal and credit report Application fees Charges for actual unanticipated late payment, over credit limit or delinquency/default Charges imposed by financial institution for paying items that overdraw account Fees for participation in credit plan Seller s points Interest. forfeited Certain fees for residential property transaction if bona fide and reasonable Discounts to induce payment for purchase by cash, check, other Premiums for voluntary insurance under some conditions Property insurance premiums under some conditions Some security interest charges if disclosed 21

22 TILA: Disclosing APR Must disclose APR when quoting interest rate (including advertising) Loan Application Advertising in all forms Even when Verbally quoting an interest rate 22

23 TILA: Truth in Lending Statement Required for mortgage loans subject to RESPA secured by consumer s dwelling (other than HELOCs) Must be given (along with other required disclosures) no later than 3 business days after receipt of consumer s completed application Earliest loan can close is 7 th business day after disclosures delivered or placed in mail 23

24 TILA: Truth in Lending Statement No fee may be charged for preparation of TIL No fee, other than bona fide and reasonable credit report fee, may be charged prior to delivery of TIL and other required disclosures May be made in language other than English at consumer s request 24

25 TILA: Truth in Lending Statement Required data in the Federal Box Mandatory statement You are not required to complete this agreement merely because you have received these disclosures or signed a loan application. 25

26 TILA: Truth in Lending Statement Other Data for Closed-End Transactions Name of the lender/creditor Notice of a right to receive itemization Number of payments, amount, timing New payment, late payment, prepayment provisions Description and identification of the security Loan assumption Refinancing notice Payment summary table (with additional data for adjustable or step-rate mortgages) 26

27 TILA: TIL Accuracy / Redisclosure Consumer must receive corrected disclosure at least 3 business days prior to loan consummation Cannot close loan until both waiting periods pass May be able to waive if bona fide financial emergency 27

28 TILA: TIL Accuracy / Redisclosure APR accurate if no variance above or below initial disclosure by more than: 1/8% (.125) for regular transaction 1/4% (.25) for irregular transaction (ARMs) Multiple advance Irregular payment periods Irregular amounts 28

29 TILA: 3/7/3 Rule Initial disclosure within 3 business days of receipt of completed application Earliest consummation on 7th business day after disclosures delivered/mailed Consumer must receive corrected disclosure at least 3 business days before loan can be consummated Business day: All calendar days except Sundays and legal public federal holidays 29

30 TILA: 3/7/3 Rule Example 1: The creditor takes an application for a fixed rate loan on Tuesday, May 1 and mails the initial TIL the next day, May 2. The earliest the loan can close assuming the APR on the final TIL is within the tolerance is Thursday, May 10 the seventh business day after mailing the initial disclosure. 30

31 TILA: Rescission AKA Right to Cancel Rescind: Withdraw from contract; void mortgage Right extends to security interest of existing principal residence only (home equity, refinance, etc.) Exercise by one consumer is effective for all consumers Creditor has 20 calendar days to return collected money Relieves borrower of liability for the loan, finance charges Right extends until midnight of the third business day after whichever of these is last: Loan consummation Delivery of required rescission notice Delivery of all material disclosures 31

32 TILA: Rescission Notice Creditors must provide 2 copies of notice of right to rescind to each entitled consumer Must be in separate document and conspicuously disclose: Retention/acquisition of security interest in principal dwelling Right to rescind How to exercise right Effects of rescission Date on which rescission period ends 32

33 TILA: Extended Rescission Possible extended three-year rescission period if: Creditors fails to properly notify of the right to rescind Creditor fails to provide required material disclosures Disclosed finance charge considered accurate if it does not vary from the actual finance charge by more than $ Overstatements are not violations. Extended rescission right expires after: Three years from occurrence Transfer of interest in property Sale of property 33

34 TILA: Advertising Requires clear and conspicuous disclosure of terms Any specific loan terms shown in an ad must be actually available Triggering terms include: Amount of down payment Amount of any payment Number of payments Period of repayment Amount of any finance charge Required disclosures with triggering term include: Amount or percentage of down payment Terms of repayment Annual percentage rate, using that term spelled out in full Whether the note rate may increase If ad contains only APR, additional disclosures not required 34

35 TILA: Advertising Triggering Terms Triggering Terms (require disclosure) 20% down Pay only $700 per month Only 360 monthly payments 30-year financing available 1% finance charge Non-Triggering Terms (do not require disclosure) 5% APR Easy monthly payments FHA financing available 100% VA financing available Terms to fit your budget 35

36 TILA: Advertising Closed-End Balance expected to be repaid by specified future date If Ad Includes: Rate Payment amount *Payment and rate comparison Term fixed when rate or payment can change Must Disclose: Each simple rate (current margin and index if more will apply) Period of time each rate applies APR for the loan Amount of each over life of loan Period of time each payment will apply Prominent statement that payment/rate subject to adjustment Time period when first adjustment occurs Adjustable, variable, or ARM must appear before and as large as term fixed Clear description of what s fixed (payment and/or rate) Statement that rate/payment can increase as appropriate * if variable rate based on index/margin 36

37 TILA: Other Advertising Provisions Tax implications: Cannot be misleading Consumers must be advised to consult a tax adviser Misrepresentations are prohibited, for example: Loan product being endorsed or sponsored by government Misleading use of the current lender s name Misleading claims of debt elimination Use of counselor to reference for-profit mortgage broker or mortgage creditor Making some required disclosures only in English in otherwise foreign language ads Clear and conspicuous standard 37

38 TILA: Appraisal on Closed-End Creditors, mortgage brokers, and affiliates prohibited from coercing, influencing, or encouraging appraiser to misstate value of dwelling: Implying that current/future work depends appraised value Excluding appraiser from consideration for reporting value that does not meet or exceed a minimum threshold Telling appraiser minimum value needed to approve loan Failing to compensate appraiser for not valuing at or above a certain amount Conditioning appraiser compensation on loan consummation 38

39 TILA: Appraisal on Closed-End Cannot extend credit if improper coercion has occurred unless able to document appraisal did not materially misrepresent value May ask appraiser to consider additional information or correct errors May obtain multiple appraisals if selecting most reliable May withhold compensation for breach or substandard work 39

40 TILA: Servicing on Closed-End Servicing: Receiving scheduled periodic payments from borrower according to the terms of loan and making payments to loan owner/other third parties Violations: Failing to credit a payment as of the date of receipt (unless the delay results in no adverse consequences to the borrower) Pyramiding late fees by imposing late fee or delinquency charges in connection with a payment under certain circumstances Failing to provide statements showing payoff amounts 40

41 TILA: True or False Determine whether the following statements about the Truth in Lending Act are true or false: 1. TILA is implemented by Regulation Z. 2. TILA applies to real estate loans extended to consumers and to companies. 3. The APR is also known as the note rate. 4. A credit report fee is the only fee that may be collected before providing the required disclosures. 5. An ad stating APR of 3.65% would trigger additional disclosures. 41

42 TILA by the Numbers 1. Initial disclosures must be given within of receipt of a completed application. 2. A consumer who is not informed of the APR may have the right to rescind a loan for up to. 3. The earliest a loan can close is the after disclosures are delivered. 42

43 RESPA Real Estate Settlement Procedures Act of 1974 Implemented as Regulation X With the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, RESPA is under the regulatory authority of the new Consumer Financial Protection Bureau (formerly HUD) Helps consumers shop for settlement services Eliminates unnecessary increases in costs of certain settlement services 43

44 RESPA: Covered Transactions Covered: One- to four-family residential property Conventional and government agency Most purchase loans, assumptions, refinances, property improvement loans, HELOCs, some construction loans 44

45 RESPA: Section 8-Kickbacks Prohibits: Giving/accepting a fee, kickback, or anything of value in exchange for referrals of settlement service business (allows minimal value promotional items) Fee-splitting and receiving unearned fees Required use of specific settlement service providers Allows: Fees/salary for actual services performed/goods provided Payment between real estate agents and brokers Legitimate discounts if: Combination of services results in lower price Optional to consumer Lower price not countered elsewhere Fines up to $10,000, 1 year prison, 3x liability 45

46 RESPA: AfBAs Affiliated business arrangements (ABAs or AfBAs) recognized as legitimate Individual, entity, associate in position to refer settlement services: Has affiliate relationship or ownership interest of more than 1% in settlement services provider AND Refers business or in some way influences selection of provider Acceptable compensation: Legitimate fees, wages for actual services rendered, hours worked Bona fide compensation from ownership interest 46

47 RESPA: Section 9-Title Insurance Prohibits seller from requiring use of particular title insurance company as condition of sale Buyers may sue violators Three times all charges made for title insurance 47

48 RESPA: Section 10-Escrow Taxes, hazard insurance, other charges Does not mandate escrow accounts Some programs or lenders may require Loan with mortgage insurance TILA higher-priced loan for at least 12 months No more than 1/12 annual disbursement Allows cushion of 2 months Requires annual analysis Inform consumer of any shortage Return excess over $50 (if not delinquent) 48

49 RESPA: Disclosures May not charge fee for preparing disclosures mandated by TILA and RESPA Disclosures required at various times throughout loan process With receipt of completed application: Submission of a borrower s financial information in anticipation of a credit decision If not given at loan application, MLO must provide within 3 business days unless Applicant withdraws application Lender turns down the loan 49

50 RESPA: Within 3 Business Days HUD Settlement Costs Booklet Good Faith Estimate (GFE) of Settlement Costs May only collect credit report fee prior to GFE and TIL After the TIL and GFE are Hand-delivered to the borrower And borrower intends to proceed, other fees may be collected That day ed to the borrower with the borrower s permission Faxed to the borrower Mailed to the borrower Next day after send receipt is returned as evidence was received Next day after signed TIL, GFE faxed back 3 business days after TIL, GFE mailed Mortgage Servicing Disclosure Statement Lender s intent to service or transfer servicing 50

51 RESPA: Other Disclosures Before Settlement Occurs Affiliated Business Arrangement (AfBA or ABA) Disclosure (at or prior to referral) HUD-1 Settlement Statement (1 business day prior if requested) At Settlement HUD-1 Settlement Statement Initial Escrow Statement (no later than 45 days from settlement) After Settlement Annual Escrow Statement Servicing Transfer Statement (within 15 days of effective date) Does not include sale into secondary market unless servicing rights also transferred 51

52 RESPA: Good Faith Estimate Required by RESPA without charge Dollar amount of settlement charges the borrower is likely to pay Required within 3 business days of receipt of completed loan application May be provided by lender or MLO Requires used of HUD s standardized GFE Will be replaced with integrated TIL and GFE 8/

53 RESPA: GFE Page 1 Explains the purpose of disclosure Summarizes critical data necessary to shop for settlement services and the best loan Important dates Date through which interest rate available Estimate for all other settlement charges must be available for at least ten (10) business days Business day: Entity open to the public for business Loan summary Escrow account information Summary of settlement services 53

54 RESPA: GFE Page 2 Documents settlement charges Indicates acceptable tolerances If MLO permits borrower to shop for third party settlement services, must give written list of providers At time of GFE On separate paper 54

55 RESPA: GFE Page 3 Summarizes the categories of charges Tradeoff table Shows relationship between total estimate settlement charges and interest rate/monthly payment Allows comparison of loan alternatives Shopping cart Allows consumer to compare other GFEs 55

56 GFE: Tolerances Charges that may not exceed GFE amount Origination charge (e.g., fees associated with application, processing, underwriting, administrative) Credit or charge for interest rate chosen/adjusted origination charge while interest rate locked Transfer taxes Charges that cannot exceed 10% of GFE amount Lender-required settlement services, where the lender selects Lender-required services, title services and required title insurance, and owner's title insurance, when borrower uses provider identified by loan originator Government recording charges Amounts charged for all other settlement services may change at settlement MLO may cure tolerance violations at settlement or within 30 calendar days 56

57 GFE: Binding Loan originator bound to terms unless new GFE provided Revised GFE required within 3 business days of learning of changed circumstances Document reason for change and retain for at least 3 years Reasons for changing GFE: Changed circumstances that increase settlement costs to exceed tolerances Changed circumstances affecting eligibility for specific loan terms Borrower-requested changes affecting charges/terms Changes if interest rate not locked or lock expires 57

58 GFE: Changed Circumstances Includes: Acts of God, war, disaster, or other emergency Information relied on in providing the GFE that changes or is found to be inaccurate New information not relied on in providing the GFE Other circumstances particular to borrower or transaction (e.g. boundary dispute, flood insurance, environmental issues) Does not include basic information relied on unless: Changed or inaccurate afterwards MLO did not rely on that information Market fluctuations by themselves are not changed circumstance GFE expires in 10 business days if no intent to continue 58

59 RESPA: HUD-1 Settlement Statement Completed by closing/settlement agent Itemizes all charges related to the transaction Borrower: $ to bring to settlement Sellers: $ to receive at settlement Lender/servicer must retain for 5 years after settlement 59

60 RESPA: HUD-1 Should be compatible with GFE Charges from GFE paid by seller: Credit to borrower and charge to seller Charges from GFE paid by others: Credit to borrower and show identity of party Paid Outside of Closing (P.O.C.) Must be included on HUD-1 and marked P.O.C. Must not be included in computing totals Indirect payments from lender to mortgage broker may not be disclosed as P.O.C. Party paying must be identified Third party services covered by "no cost" provisions must be itemized, listed in borrower column Must be offset with a negative adjusted origination charge 60

61 RESPA: HUD-1 Page 2 Itemizes settlement charges paid by the borrower and the seller: Items paid in connection with the loan Items required by the lender to be paid in advance Reserves deposited with the lender Title charges Government recording and transfer charges Any additional settlement charges 61

62 RESPA: HUD-1 Page 3 Compares exact amounts from GFE and actual settlement charges on HUD-1 Charges that cannot increase Charges that cannot increase more than 10% Charges that can change Summary of loan terms 62

63 RESPA: True or False Determine whether the following statements about the Real Estate Settlement Procedures Act are true or false: 1. RESPA is implemented by Regulation X. 2. MLOs may not refer consumers to settlement service providers with whom they have an ownership interest. 3. Borrowers may request to see a completed HUD-1 Settlement Statement 1 business day prior to closing. 63

64 RESPA by the Numbers 1. RESPA applies to most loans secured by a mortgage placed on residential properties designed for occupancy for families. 2. When necessary, a revised GFE must be provided within of receiving information sufficient to establish changed circumstances. 64

65 RESPA by the Numbers 3. Estimate for all settlement charges on the GFE must be available for at least. 4. To cure tolerance violations, borrowers must be reimbursed at settlement or within after settlement. 65

66 Homeowners Protection Act Lenders / servicers must notify borrower of rights related to private mortgage insurance (PMI) Initial written disclosure Annual reminder Applies to mortgages on single-family, primary residences Does not apply to VA, FHA, or loans with no PMI Borrower may request PMI cancellation at 80% LTV if borrower has Good history of payment Not taken out any other loans on the property Not experienced a decline in the value of the home PMI automatically canceled at 78% LTV if borrower is current Borrower may accelerate cancellation date with additional payments 66

67 HPA: Disclosure Requirements Fixed rate mortgages Initial amortization schedule at closing Cancellation date borrower may seek to cancel PMI Automatic termination date Adjustable rate mortgages (ARMs) No amortization schedule at closing Lender must inform the borrower when the LTV reaches 80% Final disclosure required after PMI coverage terminated or cancelled 67

68 HPA: Changing Property Values HPA does not require servicers to consider current property value Some lenders/servicers may allow early PMI cancellation if property values increase under certain circumstances, e.g.: Minimum amount of time passes Good payment history for minimum amount of time Documentation of home improvements to demonstrate the higher property value 68

69 HPA: True or False Determine whether the following statements about the Homeowners Protection Act are true or false: 1. The Homeowners Protection Act does not apply to FHA or VA loans. 2. Lenders are required only to provide an initial written disclosure about PMI cancellation rights. 3. Borrower-requested cancellation and automatic termination of PMI does not apply to high-risk loans. 69

70 HPA: True or False TRUE FALSE TRUE Determine whether the following statements about the Homeowners Protection Act are true or false: 1. The Homeowners Protection Act does not apply to FHA or VA loans. 2. Lenders are required only to provide an initial written disclosure about PMI cancellation rights. 3. Borrower-requested cancellation and automatic termination of PMI does not apply to high-risk loans. 70

71 HPA by the Numbers 1. HPA generally does not apply to residential loans made prior to. 2. If a borrower is current with payments, PMI is automatically terminated when a mortgage has been paid down to of the property s original appraised value. 3. Borrowers may request cancellation of PMI when a mortgage has been paid down to of the property s original appraised value. 71

72 Privacy and Consumer ID Laws Maintain integrity of relationship by protecting consumer financial information In this section: Fair Credit Reporting Act (FCRA) Fair and Accurate Credit Transactions Act (FACTA) Gramm-Leach-Bliley Act U.S. Patriot Act National Do Not Call Registry 72

73 Fair Credit Reporting Act (FCRA) Regulation V, supervised by Consumer Financial Protection Bureau Deals with Access to credit information Rights of debtors to seek damages Responsibilities of creditors to protect against identity theft If adverse action based on credit report, must provide consumer with agency s name, address, phone number 73

74 FCRA: Consumer Rights Free copy of credit report annually and if: Information resulted in adverse action Victim of identity theft (with fraud alert) Inaccurate information resulting from fraud Public assistance or unemployed Other rights: Request credit score (not free) * Dispute incomplete/inaccurate information Limit prescreened offers * Will be allowed for adverse action 74

75 FCRA: Credit Agency Obligations May not report negative credit information: More than 7 years Bankruptcies more than 10 years Most credit reporting agencies maintain: Chapter 11 bankruptcy for 7 years Chapter 7 bankruptcy for 10 years Must limit access to a credit file to those with legitimate business need May not give out consumer credit information to an employer, or a potential employer, without written consent 75

76 FCRA: True or False Determine whether the following statements about the Fair Credit Reporting Act are true or false: 1. FCRA is implemented by Regulation V. 2. Disclosure provisions of both the ECOA and the FCRA can be satisfied with one adverse action notice. 3. Consumers are entitled to a free copy of their credit report used in taking any adverse action. 76

77 FCRA by the Numbers 1. Consumer reporting agencies may not report negative credit information that is more than old or bankruptcies that are more than old. 77

78 FACT Act (or FACTA) Fair and Accurate Credit Transaction Act of 2003 Amends Fair Credit Reporting Act Provides for free copy of credit report annually from three national credit bureaus Allows consumer to place fraud alerts and credit freezes Requires creditor to make reasonable effort to confirm identity Requires businesses to truncate credit/debit card information on receipts Requires measures to secure and dispose of sensitive consumer credit information 78

79 FACTA: Red Flag Rules Section 114 of the FACTA requires: Financial institutions and creditors to implement written identity theft protection program Card issuers to assess the validity of change of address requests Users of credit reports to reasonably verify the identity of subject in case of address discrepancy Applies to any person/entity participating in credit decision 79

80 FACTA: Red Flags Alerts, notifications, or warnings from consumer reporting agency Suspicious documents Suspicious personally identifying information Unusual use of, or suspicious activity relating to, a covered account Notices from customers, victims of identity theft, law enforcement authorities, or other businesses about possible identity theft in connection with covered accounts 80

81 FACTA: True or False Determine whether the following statements about the Fair and Accurate Credit Transaction Act are true or false: 1. FACTA amends the Equal Credit Opportunity Act. 2. FACTA is primarily concerned with security of consumer financial information. 3. The Red Flags Rules defines specific steps that lenders must follow in order to secure consumer financial data. 81

82 Gramm-Leach-Bliley Act Financial Services Modernization Act of 1999 Provisions in Title V - Privacy to protect and regulate disclosure of consumer financial information Gives enforcement authority to federal agencies and states Applies to financial institutions and other providers of financial services Lending, brokering, or servicing any type of consumer loan Transferring or safeguarding money Preparing individual tax returns Providing financial advice or credit counseling Providing residential real estate settlement services Collecting consumer debts 82

83 GLBA: Financial Privacy Rule Governs collection of nonpublic personal information, for example, from Application Credit bureau or other source Transactions, such as balance, purchases Restricts when information may be disclosed to affiliates and nonaffiliated third parties Requires Consumer Privacy Notice Provides opt-out opportunity 83

84 GLBA: Consumer or Customer Consumer: Individual who obtains or has obtained a financial product or service Consumer Privacy Notice before personal data is disclosed to nonaffiliated third party Customer: Consumer with a continuing relationship with a financial institution Consumers Privacy Notice annually during financial relationship 84

85 GLBA: Safeguards, Pretexting Requires financial institutions to design, implement, and maintain safeguards to protect and control consumer data Written Safeguards Policy: Ensure security and confidentiality Protect against anticipated threats or hazards Protect against unauthorized access that could harm or inconvenience consumers Pretexting provisions Protects consumers from individuals and companies that obtain their personal financial information under false, fictitious, or fraudulent pretenses 85

86 GLBA: True or False Determine whether the following statements about the Graham-Leach-Bliley Act are true or false: 1. GLBA allows you to share NPI with your spouse. 2. A consumer is someone who has a continuing relationship with a financial institution. 3. The Privacy Rule allows consumers to opt out of having their financial information shared. 86

87 GLBA: True or False Determine whether the following statements about the Graham-Leach-Bliley Act are true or false: 4. A credit score would be considered nonpublic personal information. 5. Customers must receive a financial institution's privacy notice every two years for as long as the relationship lasts. 6. Consumers must receive a financial institution's privacy notice annually. 87

88 U.S. Patriot Act Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (2001) Eases restrictions on law enforcement for information gathering Requires lenders and banks to create and maintain customer identification programs (CIPs) Prevent financing of terrorist operations/money laundering Institutions must verify ID customers entering into formal relationship Minimum information required when opening new account: Name Date of birth Address Tax ID number or similar verification 88

89 National Do Not Call Registry Limits phone calls to consumers who request to be on list Managed by the FTC, the FCC, and states Applies to marketing via interstate phone calls Required maintenance: National list updated every 3 months Internal list updated every 30 days Allows consumers to file complaints with FTC Fines up to $16,000 per incident Established business relationship (EBR) Allows calls for up to 18 months from last transaction Allows calls up to 3 months from inquiry or application Consumer on internal list cannot be called even if EBR (unless in reference to current relationship) 89

90 Do Not Call by the Numbers 1. When there is an established business relationship, calls may be made for up to after the last purchase or payment. 2. After an inquiry or application, calls may be made for up to. 3. Violations of Do Not Call could result in fines up to per incident. 4. An organization s federal DNC list must be updated every. 90

91 Anti-Money Laundering Laws Minimum requirements consist of: Detecting Fraud Filing SARs Development of internal policies, procedures, and controls. Designation of a compliance officer. Ongoing employee training program. Independent audit function to test for compliance. 91

92 92 What is Anti-Money Laundering? Anti-Money Laundering Program and Suspicious Activity The Currency and Foreign Transactions Reporting Act of 1970 (commonly referred to as the Bank Secrecy Act or BSA ) requires U.S. financial institutions to assist U.S. government agencies to detect and prevent money laundering. Report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. The BSA is sometimes referred to as an anti-money laundering law ( AML ) or jointly as BSA/AML. Several AML acts, including provisions in Title III of the USA PATRIOT Act of 2001, have been enacted up to the present to amend the BSA. Originally the rule did not apply to Non-bank residential mortgage lenders and originators RMLOs, mortgage companies and mortgage brokers in the residential mortgage business sector. Compliance Date was August 13, The Internal Revenue Service ( IRS ) has been delegated the authority, under this regulation, to examine for compliance with FinCEN s regulations those financial institutions that are not examined by a Federal functional regulator. FinCEN may delegate exam authority to the CFPB by giving public notice of that fact.

93 93 Detecting Fraud Red flags are signals of potentially unusual or suspicious transactions or other activities that should raise the level of suspicion and may call for further escalation. The mere presence of a red flag is not necessarily evidence of money laundering or terrorist financing activity. However, it does indicate that further review should be performed before proceeding to determine if the activity in question has a reasonable or legitimate purpose. If a reasonable explanation is not determined, the suspicious transactions or other activities should be escalated for further investigation

94 94 Detecting Fraud 3 Stages of Money Laundering 1 st Stage The first and most vulnerable stage of laundering money is placement. The goal is to introduce the unlawful proceeds into the financial system without attracting the attention of financial institutions or law enforcement.

95 95 Detecting Fraud 3 Stages of Money Laundering 2 nd Stage The second stage of the money laundering process is layering, which involves moving funds around the financial system, often in a complex series of transactions to create confusion and complicate the paper trail. Examples of layering include exchanging monetary instruments for larger or smaller amounts, or wiring or transferring funds to and through numerous accounts in one or more financial institutions.

96 96 Detecting Fraud 3 Stages of Money Laundering 3rd Stage The ultimate goal of the money laundering process is integration. Once the funds are in the financial system and insulated through the layering stage, the integration stage is used to create the appearance of legality through additional transactions.

97 97 Penalties for Noncompliance Violations of BSA requirements may result in civil penalties: Civil penalties of $1,000 per day for each day of noncompliance. Willful violations may result in civil penalties for the RMLO or its employees, officers, or owners in an amount of the transaction (up to $100,000) or $25,000, whichever is greater. Civil penalties of up to $500 may be imposed for negligent violations, but if the RMLO engages in a pattern of negligent violations, then civil penalty could go up to $50,000. Criminal penalties also are possible.

98 98 When SAR Filing is Required A SAR must be reported if a transaction involves funds or other assets of at least $5,000, and the RMLO knows, suspects, or has reason to suspect that the transaction: Involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity as part of a plan to violate or evade any federal law or regulation; Is designed to evade BSA requirements; Has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage; or Involves use of the RMLO to facilitate criminal activity.

99 99 SAR Filing A SAR must be filed no later than 30 days after initial detection by the RMLO of facts that may constitute a basis for filing a SAR. If no suspect is identified on the date of such initial detection, RMLO may delay filing a SAR for an additional 30 days to identify a suspect, but in no case may reporting be delayed more than 60 days after the date of initial detection A SAR filing must not be disclosed

100 100 Confidentiality of SARs A SAR, and any information that would reveal the existence of a SAR, are confidential and shall not be disclosed except to FinCEN, federal, State, or local law enforcement agencies, and regulatory agencies.

101 101 Examinations Overall authority for enforcement and compliance of the rule is with FinCEN. FinCEN can further delegate this authority, and it plans to work with relevant regulatory agencies to develop consistent compliance exam procedures. So, who will conduct examinations of RMLOs? It could include: FinCEN IRS State regulatory agencies CFPB Federal banking agencies

102 102 Types of Reportable Activity Bribery Check Fraud Check Kiting Computer Intrusion Counterfeit Check Counterfeit Credit/Debitcard Credit/Debit Card Fraud Embezzlement Mortgage Fraud False Statement Loan Fraud Misuse of Position Mysterious-Disappearance Wire Transfer Fraud Tax Evasion Terrorist Financing Identity Theft

103 103 AML BSA Regulations The Regulations require RMLOs to develop and implement a risk-based AML program reasonably designed to prevent their being used to facilitate money laundering or the financing of terrorist activities. Policies, procedures and internal controls based on the company s assessment of the money laundering and terrorist financing risks associated with its products and services. The policies, procedures and controls must include provisions for complying with integrating the company s agents and brokers into the AML program, and obtaining all relevant customer-related information necessary for an affective AML program. The policy must be approved by senior management and be in writing. This isn t just about catching the bad guys. Mortgage fraud is also an operational risk and FinCEN has said that preventing fraud should be a result of an AML program.

104 Each AML program must include the following 4 Pillars Designation of a BSA Compliance Officer Policies, procedures and internal controls based on the company s assessment of the money laundering and terrorist financing risks associated with its products and services. Provisions for ongoing training of staff concerning their responsibilities under the AML program.. Independent testing of the AML program, to monitor its structure and effectiveness. 104

105 105 Four Pillars of an AML Program Designation of a BSA Compliance Officer The FFIEC Manual laid out certain musts with respect to the designation of a BSA Compliance Officer: Board of Directors must appoint the individual. The BSA Officer must be charged with managing the institution s BSA/AML Compliance and is ultimately responsible to the Board of Directors. The BSA Officer must be knowledgeable of all applicable AML regulations and have a working understanding of the businesses product and service offerings. The BSA Officer must have a direct line of communication into the Board of Directors and Senior Management. The BSA Officer will be responsible for managing communication with regulatory authorities for all AML-related issues and reporting

106 106 Four Pillars of an AML Program Development of Internal Policies, Procedures, and Controls Internal controls are comprised of policies, procedures, and controls. The FFIEC Manual breaks down the level of sophistication of internal controls to depend on the size and scale of the institution; however, internal controls should: Ensure that a business-specific risk assessment is developed and updated, taking into consideration: products, services, customers, geographic locations, and controls. Inform the Board of Directors and Senior Management of compliance initiatives, deficiencies, and corrective actions taken. Identify a person responsible for BSA/AML Compliance. Meet all regulatory recordkeeping and reporting requirements. Identify reportable transactions and accurately file all required reports, including SARs and CTRs. Provide sufficient controls and systems for filing SARs. Incorporate BSA compliance into the job description and performance evaluation of personnel, as appropriate. Train employees to be aware of their responsibilities under the BSA regulations and internal policy guidelines This pillar in particular covers all internal controls including risk assessment, policies and procedures, transaction monitoring, and reporting.

107 107 Four Pillars of an AML Program Ongoing, Relevant Training of Employees Training is the third of the Pillars of an AML Compliance Program. Without proper training, staff might leave an institution too exposed to significant money laundering risk. There are several components of a training program that the FFIEC Manual dictates: At a minimum, the bank s training program must provide training for all personnel whose duties require knowledge of the BSA. The training should be tailored to the person s specific responsibilities. An overview of the BSA/AML requirements typically should be given to new staff during employee orientation. Changes to internal policies, procedures, processes, and monitoring systems should also be covered during training. Examples of money laundering activity and suspicious activity monitoring and reporting can and should be tailored to each individual audience. Training programs and staff completion should be documented for examiner review.

108 108 Four Pillars of an AML Program Independent Testing and Review Independent testing is the fourth pillar of an effective AML program. Independent testing provides verification as to whether your compliance program is operating as effectively as possible and is compliant with the law. Independent testing should: Be conducted by Internal Audit, outside auditors, consultants, or other qualified independent parties. Be conducted every months commensurate with the institution s risk profile. Have the testers reporting directly to Board of Directors or to a designated Board committee. The scope of the independent test should, at a minimum, include: An evaluation of the overall adequacy and effectiveness of the BSA/AML compliance program, including policies, procedures, and processes A review of the institution s risk assessment for reasonableness given its risk profile (i.e., products, services, customers, entities, and geographic locations) Appropriate risk-based transaction testing to verify adherence to BSA recordkeeping and reporting requirements An evaluation of management s efforts to resolve violations and deficiencies noted in previous audits and regulatory examinations, including progress in addressing outstanding supervisory actions, if applicable A review of staff training for adequacy, accuracy, and completeness A review of the effectiveness of the suspicious activity monitoring systems (i.e. manual, automated, or a combination) used for BSA/AML compliance. Related reports may include, but are not limited to, SARs, CMIRs, CTRs, etc. An assessment of the overall process for identifying and reporting suspicious activity

109 109 Failure to comply with the AML Requirements is a violation of the regulations and of the Bank Secrecy Act and could lead to criminal penalties and large fines. FinCEN has designated the IRS to perform audits to check for compliance this designee may change in the future.

110 Laws Against Predatory Lending Taking advantage of ill-informed consumers through: Excessively high fees Misrepresented loan terms Frequent refinancing that does not benefit the borrower Other prohibited acts In this section: Home Ownership and Equity Protection Act of 1994 (HOEPA) Higher-priced loans as defined by amendments to the Truth in Lending Act Some provisions of the Mortgage Reform and Anti- Predatory Lending Act (Title XIV of Dodd-Frank) 110

111 Home Ownership and Equity Protection Act HOEPA, 2002 amendment to the Truth in Lending Act, Section 32 of Regulation Z Establishes disclosure requirements, prohibits deceptive practices for high interest rate/fee loans Enforced by FTC for non-depository lenders and by each state s attorney general Allows Fed to prohibit additional practices it finds to be unfair or deceptive Consumers can sue for recovery of statutory and actual damages, court costs, attorney fees May allow three-year right of rescission 111

112 HOEPA: High Cost Triggers Updated by QM regulations APR exceeds rates in Treasury securities: For a first mortgage, by more than 6.5% For a second mortgage, by more than 8.5% Total finance charge paid by the consumer exceeds the larger of: 5% of loan amount Redisclosure of APR triggers 3 business-day waiting period 112

113 HOEPA: Prohibited Terms Balloon payments if less than 5 year-term unless bridge Negative amortization Repayment schedule consolidating more than 2 periodic payments Higher default interest rates Prepayment penalties prohibited unless: Limited to first 2 years Prepayment penalty paid by refinancing lender PITI does not change in first 4 years DTI does not exceed 50% Due on demand clauses 113

114 HOEPA: Prohibited Practices Grant loans on the collateral without regarding borrower s ability to repay Disburse proceeds from home improvement loans to anyone other than the borrower Refinance a HOEPA loan into another HOEPA loan within the first year Wrongfully document a closed-end, high cost loan as an open-end loan 114

115 HOEPA: Required Disclosures Disclosure Form You are not required to complete this agreement merely because you have received these disclosures or signed a loan application. If you obtain this loan, the lender will have a mortgage on your home. You could lose your home, and any money you have put into it, if you do not meet your obligations under the loan. You are borrowing $. [Optional credit insurance is is not included in this amount.] The annual percentage rate on your loan will be %. Your regular frequency payment will be $. [At the end of the loan, you will still owe us $ balloon amount.] [Your interest rate may rise. Increases in the interest rate could raise your payment. The highest amount your payment could increase is to $.] 115

116 HOEPA: True or False Determine whether the following statements about the Home Ownership and Equity Protection Act are true or false: 1. HOEPA rules apply to loans used to purchase or refinance residential properties. 2. HOEPA requires lenders to verify the borrower s ability to repay a high cost loan. 3. Under HOEPA, lenders must disclose that a borrower could lose the home and any equity if in default. 116

117 HOEPA by the Numbers 1. The rules for HOEPA loans are contained in Section of Regulation Z. 2. HOEPA loans require additional disclosure at least prior to loan consummation. 117

118 Higher-Priced Mortgage Loans Defined by Housing and Economic Recovery Act of 2008, amending Truth in Lending Act Closed-end loans secured by borrower s principal dwelling where APR exceeds average prime offer rate by at least: 1.5 percentage points for first lien loans, or 3.5 percentage points for junior lien loans Excludes Initial construction of a dwelling Temporary or "bridge" loan with a term of 12 months or less Reverse mortgage transaction Home equity line of credit APR measured against the applicable average prime offer rate 118

119 Higher-Priced Mortgage Loans Creditors must verify repayment ability Prepayment penalties generally prohibited unless limited to first 2 years of loan. Prohibited if: Amount of the periodic payment of principal, interest, or both can change at any time during first 4 years of loan The source of prepayment funds is a refinance by the lender or its affiliate Escrow account Hazard insurance, PMI, property tax Required for 1 st lien securing borrower s principal dwelling Hazard insurance escrow may not required if HOA maintains master insurance policy Property tax escrow may not be required if HOA pays 119

120 Higher-Priced Loans by the Numbers 1. A higher-priced loan has an APR that exceeds the applicable average prime offer rate by for first lien loans or for junior lien loans. 2. Provisions related to higher-priced loans do not apply if the borrower intends to sell the home via bridge loan, within. 120

121 Loan Originator Compensation Rule 2013 Final LO Compensation Rule (Dodd Frank Act/CFPB) Amendment to Regulation Z Applies to closed-end credit on principal dwelling Applies to all loan originators, including mortgage brokers, employees, and those employed by depository institutions Loan originator: includes individuals and entities that perform loan origination activities for compensation, such as taking an application, offering credit terms, negotiating credit terms on behalf of a consumer, obtaining an extension of credit for a consumer, or referring a consumer to a loan originator or creditor. Prohibits creditors from compensating MLOs based on loan s interest rate or other loan terms Allows other types of compensation, such as hourly, flat fee Anti-Steering provisions 121

122 SAFE Act Title V, Secure and Fair Enforcement for Mortgage Licensing Act Key component of the Housing and Economic Recovery Act of 2008 (HERA) Establishes minimum standards for the licensing and registration of mortgage loan originators (MLOs) Nationwide Mortgage Licensing System & Registry (NMLS) Centralized and standardized system for mortgage licensing 122

123 SAFE Act Objectives License applications and reporting requirements Licensing and supervisory database Information flow among regulators Increased accountability and tracking Streamlined licensing process Enhanced consumer protections and anti-fraud measures 123

124 SAFE Act Objectives Access to free MLO employment and disciplinary and enforcement actions Require MLOs to act in consumer s best interests, to greatest extent possible Facilitate responsible behavior/training in subprime mortgage market Provide comprehensive training related to nontraditional mortgage products Manage consumer complaints 124

125 SAFE Act: MLO Defined Individual who, for compensation or gain or in the expectation of compensation or gain: (A)Takes a residential mortgage loan application, or (B)Offers or negotiates terms of a residential mortgage loan. Assists in obtaining or applying includes: Advising on loan terms (including rates, fees, other costs) Preparing loan packages Collecting information on behalf of the consumer 125

126 SAFE Act: MLO Defined Mortgage loan originator exclusions: Purely administrative or clerical tasks Licensed real estate broker activities unless compensated by lender, broker, MLO Extending credit on timeshare plans Loan processors and underwriters who don t represent to public to conduct loan origination activities Independent contractor must be state-licensed MLO to engage in loan origination activities as loan processor or underwriter Unique identifier from NMLS: Federally registered MLOs employed by depository institution State-licensed all other MLOs 126

127 SAFE Act: Licensing Background check (fingerprints, criminal check) Personal history and experience Authorization to obtain an independent credit report, and information relative to any administrative, civil, or criminal findings Never had a mortgage loan originator license revoked in any government jurisdiction Not convicted of or pled guilty or nolo contendere to Felony in in the past 7 years Any felony involved an act of fraud, dishonesty, or a breach of trust, or money laundering 127

128 SAFE Act: Character & Fitness Must exhibit character and fitness Must operate honestly, fairly, and efficiently Must not show lack of financial responsibility, such as: Current outstanding judgments (except medical expenses) Current outstanding tax/government liens or filings Foreclosures within past 3 years Pattern of seriously delinquent accounts within past 3 years 128

129 SAFE Act: Prelicensing Education Minimum 20 hours of NMLS-approved prelicensing education on national topics: Federal law and regulation (3 hours) Ethics, including fraud, consumer protection, and fair lending (3 hours) Lending standards for nontraditional mortgage products (2 hours) Electives (12 hours) States may impose additional requirements, specific topics 129

130 SAFE Act: National MLO Exam State-licensed MLOs must pass national NMLS exam Federal mortgage-related laws (35%) General mortgage knowledge (25%) Mortgage loan origination activities (25%) Ethics (15%) May include a state/territory-specific component Can fail only 3 consecutive times, then must wait 6 months before retaking exam. 130

131 SAFE Act: License Renewal Minimum 8 hours of annual continuing education: Federal Law and Regulation (3 hours) Ethics, including fraud, consumer protection, and fair lending (2 hours) Nontraditional mortgage products (2 hours) Elective (1 hour) States/territories may impose additional requirements No credit for the same CE class in consecutive years 131

132 SAFE Act: True or False Determine whether the following statements about the Secure and Fair Enforcement Mortgage Licensing Act are true or false: TRUE TRUE FALSE TRUE Principals of Mortgage Banking - Compliance 1. The SAFE definition of loan originator does not include someone who extends credit for timeshare plans. 2. Independent contractors underwriting residential mortgage loans must be state-licensed as a MLO. 3. MLOs employed by depository institutions must be statelicensed. 4. MLOs must include their NMLS unique identifiers on business cards. 132

133 SAFE Act by the Numbers 1. State-licensed mortgage loan originators must complete at least of prelicensing education, then at least of annual continuing education. 2. Approved prelicensing and CE courses must include at least on federal law and regulation. 3. Candidates for licensure may only take and fail a component of the SAFE MLO Test consecutive times. 4. After a third failure, candidates must wait at least before taking the test again. 133

134 Laws Prohibiting Discrimination Fair and equitable treatment in housing and real estate transactions is a right by law Federal anti-discrimination statutes related to housing and lending include: Civil Rights Act of 1866 Title VII of the Civil Rights Act of 1968 (Fair Housing Act) The Equal Credit Opportunity Act (ECOA) The Community Reinvestment Act (CRA) The Home Mortgage Disclosure Act (HMDA) or use without permission of MBBA-NH 134

135 Discriminatory Practices Blockbusting: Inducing owners to sell homes by suggesting the ethnic or racial composition of the neighborhood is changing, implying property values will decline (also called panic selling) Steering: Channeling prospective buyers/tenants to neighborhoods based on race, religion, or ethnic background Redlining: Refusing to make loans on property located in a particular neighborhood for discriminatory reasons 135

136 Civil Rights Act of 1866 Prohibits public and private discrimination based on race or ancestry in any property transaction in the United States Applies to all property real or personal, residential or commercial, improved or unimproved Person unlawfully discriminated against can sue only in federal district court Remedies include injunctions, compensatory or punitive damages 136

137 Fair Housing Act Federal Fair Housing Act or Title VIII of the Civil Rights Act of 1968 Prohibits discrimination in the sale or lease of residential property, including vacant land intended for residential housing, based on: Race Color Religion Sex National Origin Disability Familial Status 137

138 Fair Housing Act Prohibits discrimination in advertising, real estate brokerage, lending, and other services associated with residential transactions Requires Lender: Equal housing lender slogan in any broadcast advertisement Equal Housing Opportunity poster in every branch where mortgage loans are made Equal Housing Opportunity logo on all printed promotional material 138

139 Fair Housing Act Violations Refusing to rent or sell residential property after receiving a good faith offer. Refusing to negotiate for the sale or rental of residential property. Taking any action that would otherwise make residential property unavailable or deny it to any person. Using discriminatory advertising or any other notice that indicates a limitation or preference or intent to make any limitation, preference, or discrimination. Making any representation that property is not available for inspection, sale, or rent when it is, in fact, available. Coercing, intimidating, threatening, or interfering with anyone because of his enjoyment, attempt to enjoy, or encouragement and assistance to others in their enjoyment of the rights granted by the Fair Housing Act. Discriminating in the terms or conditions of any sale or rental of residential property or in providing any services or facilities in connection with such property. 139

140 Equal Credit Opportunity Act of 1974 (ECOA) Ensures all consumers (individuals and businesses) are given an equal chance to obtain credit Also known as Regulation B Prohibits discrimination in granting credit/prohibits discouraging credit application to people based on: Sex Age Marital status Race Color Religion National origin Receipt of public assistance Rights exercised rights under Consumer Credit Protection Act 140

141 Equal Credit Opportunity Act of 1974 (ECOA) Applies to anyone who grants credit or arranges financing, including bankers and mortgage brokers Requires credit bureaus to maintain separate credit files on married spouses, if requested May not ask about spouse unless: Joint application and spouse will use account or be liable Relying on spouse s income, child support, alimony to qualify In a community property state Can use only these terms: Married, unmarried, separated 141

142 ECOA: Loan Application Section X of Uniform Residential Loan Application: Ethnicity (Hispanic or Latino/Not Hispanic or Latino) Race (American Indian or Alaska Native, Native Hawaiian or Other Pacific Islander, Asian, White, Black or African American) Sex (Male or Female) Applicant may refuse to supply; lender cannot discriminate Interviewer required to note data based on visual observation and surname if application made in person 142

143 ECOA: Considering Age The applicant is too young to sign contracts, generally under age 18. The creditor would favor applicants age 62 and older. It is used to determine the meaning of other factors important to creditworthiness, such as to determine if an applicant s income might drop because of impending retirement. It may be used in a valid credit scoring system that favors applicants depending on their age. 143

144 ECOA: Appraisal Rule Lenders are required to provide copies of all valuations to the borrower at no cost to the borrower. Notice at the time of application advising the borrower that they have the right to receive copies. Acknowledgement must be signed by borrower at closing confirming they received appraisals. Three day waiting period to close after borrower has received appraisal. 144

145 ECOA: Required Disclosures Notify applicants of lending decision within 30 days of filing a complete application If approved, may provide a Commitment Letter If incomplete, send a Notice of Incomplete Application When adverse action is taken, send a Statement of Adverse Action, in writing Disclose customer s rights, including right to appraisal report used in the decision process 145

146 146 Principals of Mortgage Banking - Compliance ECOA: Enforcement Enforced by the CFPB Creditors subject to civil liability for actual and punitive damages in individual or class actions Punitive liability applies only to nongovernmental entities Damages limited to $10,000 in individual actions; lesser of $500,000 or 1% of the creditor's net worth in class actions Civil action must be brought within 2 years of alleged violation

147 Community Reinvestment Act (CRA) Enacted by Congress in 1977 to encourage financial institutions to help meet the credit needs of their respective communities Requires each insured depository institution s record be evaluated periodically In some states, these requirements have been extended to mortgage lenders 147

148 Home Mortgage Disclosure Act of 1975 (HMDA) Enforced by the Fed's Regulation C Provides loan data from certain financial institutions to be used by the public to: Determine if financial institutions are serving community housing needs Aid public officials in distributing public funds in order to attract private investment where needed Identify possible discriminatory lending patterns Relies on public scrutiny for effectiveness Does not establish quota system 148

149 HMDA: Covered Properties Affects applications for residential loans, including: Home purchase Home improvement Refinancing Subordinate financing 149

150 HMDA: Data Reporting Requires financial institutions to submit a Loan/Application Register (or LAR) to their supervisory agency every March Data for LAR is collected on loan originations, applications, loan purchases, requests under a preapproval program LARs may be used to discover discriminatory practices, including redlining LAR data must be maintained and made available upon request for 3 years 150

151 HMDA: Role of the FFIEC Supervisory agencies, through the Federal Financial Institutions Examination Council (FFIEC), compile HMDA data for each institution Produces other aggregate reports that show lending patterns by home age and property location Data analysis helps determine compliance of with ECOA, fair lending laws Reg C requires notice about availability of HMDA data to be posted in lobbies of lending institutions 151

152 ECOA by the Numbers 1. Creditors must notify applicants of their lending decision within of the filing of a complete application. 2. When adverse action is taken, an applicant has the right to request specific reasons for the decision within. 3. After a creditor notifies an applicant of an action taken, the creditor is required to maintain pertinent documentation for. 152

153 Questions 1. Which law requires mortgage loan originators to provide borrowers with a Good Faith Estimate of closing costs? A. FCRA B. HMDA C. RESPA D. TILA 153

154 2. The most important disclosure requirement under the Truth in Lending Act is the A. amount of index. B. amount of the loan origination fee. C. APR. D. name of the secondary market purchaser. 154

155 3. How many business days after closing does the consumer have the right to rescind a refinance of his personal residence? A. 2 B. 3 C. 5 D. There is no right of rescission. 155

156 4. Which will trigger the required disclosures of the Truth in Lending Act if included in an advertisement for credit? A. Affordable Financing B. Easy Monthly Payments C. FHA Financing Available D. Only 360 Monthly Payments 156

157 5. If an advertisement discloses only the APR, what additional disclosures are required? A. amount of any finance charges B. percentage of down payment C. terms of repayment D. no additional disclosures are required 157

158 6. Which act requires mortgage lenders to give consumers information about obtaining their credit report when they are turned down for a loan? A. ECOA B. FCRA C. RESPA D. TILA 158

159 7. Under what circumstances does RESPA allow a sale to be conditioned on the use of a particular escrow company chosen by the seller? A. if full disclosure is made B. if no kickbacks are involved C. if no unearned fees are involved D. under no circumstances 159

160 8. Which regulation mandates the use of the HUD-1 Settlement Statement? A. Regulation B B. Regulation C C. Regulation X D. Regulation Z 160

161 9. For how many months after a loan closes may a mortgage loan originator call a customer whose phone number is on the National Do Not Call Registry to solicit new business? A. 3 months B. 6 months C. 18 months D. No calls can be made to a number on the registry. 161

162 10. Which law includes Red Flag Rules that require financial institutions and creditors to implement procedures to protect customer identity? A. Fair and Accurate Credit Transaction Act B. Fair Credit Reporting Act C. Gramm-Leach-Bliley Act (The Privacy Act) D. Homeowners Protection Act 162

163 11. The SAFE Act requires state-licensed originators to have a minimum of how many hours of approved prelicensing education? A. 8 B. 12 C. 20 D

164 12. The Home Ownership and Equity Protection Act A. amends the Homeowners Protection Act. B. does not consider optional credit insurance as a finance charge. C. gives borrowers with high cost loans three business days to rescind the loan. D. permits negative amortization only for the first five years of a loan. 164

165 13. According to the Homeowners Protection Act, borrowers may request cancellation of their mortgage insurance premiums when the LTV reaches A. 75%. B. 78%. C. 80%. D. 82%. 165

166 14. As a result of the Mortgage Disclosure Improvement Act, how soon can a residential loan close? A. the next business day B. after three business days for a refinance or home equity loan C. within three business days of applying D. on the seventh business day after delivery of required disclosures 166

167 15. Which fee can be collected prior to delivery of a Truth in Lending Statement and a Good Faith Estimate? A. appraisal fee B. credit report fee C. origination fee D. No fees can be collected prior to delivery of these disclosures. 167

168 16. A mortgage broker rents office space from a title company at a discount in exchange for referring customers for settlement services. Which federal law does this arrangement violate? A. RESPA B. SAFE Act C. TILA D. It does not violate any federal law. 168

169 17. The APR on an initial TIL for a 30-year fixed rate loan is 6.25%, and the APR on the final TIL is 6.5%. After redisclosure, how long must the borrower wait to close the loan? A. 1 business day B. three business days after redisclosure C. seven business days after redislcosure D. There is no waiting required since the difference is within the acceptable tolerance. 169

170 18. A higher-priced mortgage loan is one that has A. an APR that exceeds the applicable average prime offer rate by at least 1.5% for a first lien loan. B. an APR that exceeds the rates on Treasury securities of comparable maturity by more than 8%. C. total points and fees greater than 8% of the loan amount. D. total points and fees greater than 10% of the loan amount for junior liens. 170

171 19. According to the SAFE Act, which incident from 10 years ago would NOT automatically disqualify an applicant for a loan originator license? A. conviction for felony assault B. conviction for felony fraud C. conviction for felony money laundering D. revocation by the state of a mortgage broker s license 171

172 20. Which of these circumstances would NOT be an acceptable reason to provide a revised GFE to a borrower? A. The borrower lost the income from a part-time job and so was no longer eligible for the specific loan terms identified in the GFE. B. The borrower requested to change the loan term from 15 to 30 years. C. The mortgage loan originator regretted overlooking certain liabilities in order to qualify the borrower for a better interest rate. D. The title company discovered a junior lien on the property that was not considered when preparing the GFE. 172

173 21. Initial Disclosures must be given within Business days of receipt of a completed application. 173

174 True or False? 22. A consumer that closes on a loan that meets the requirements of Safe Harbor has no recourse against the lender? 174

175 True or False 23. A mortgage broker can advertise an interest rate that will be available once the market improves? 175

176 24. TILA is implemented by: A. Regulation B B. Regulation C C. Regulation X D. Regulation Z 176

177 True or False 25. A credit report fee is the only fee that can be collected before providing the required disclosures. 177

178 26. RESPA is implemented by: A. Regulation B B. Regulation C C. Regulation X D. Regulation Z 178

179 True or False 27. Referral Fee s are allowed if paid to a licensed Realtor? 179

180 28. When necessary, a revised GFE must be provided within business days of receiving information sufficient to establish a changed circumstance. 180

181 29. To cure a tolerance violation, Borrowers must be reimbursed at settlement or within calendar days after settlement. 181

182 30. The Fair Housing Act is regulated by. 182

183 True or False 31. Underwriters are responsible to determine the value of the subject property? 183

184 True or False 32. The Fair Housing Act prohibits discrimination in the sale of residential property based on: Race Color Religion Sex National Origin Disability Familial Status 184

185 33. ECOA is implemented by: A. Regulation B B. Regulation C C. Regulation X D. Regulation Z 185

186 34. ECOA is regulated by the. 186

187 What item below doesn t belong? 35. ECOA Prohibits discrimination in granting credit based upon: Race Color Religion Sex National Origin Age FICO Score Marital Status Rights exercised under the Consumer Credit Protection Act 187

188 True or False 36. The Community Reinvestment Act (CRA) was established in 1977 to ensure financial institutions meet the needs of their respective communities. 188

189 37. HMDA, establishes in 1975, was implemented under: A. Regulation B B. Regulation C C. Regulation X D. Regulation Z 189

190 38. True or False You can charge a borrower a reasonable fee to provide them a copy of their appraisal? 190

191 True or False 39. Equity in the property should be considered when determining a borrowers ability to repay. 191

192 True or False 40. It is against the law to fund a non QM mortgage. 192

193 Chapter 4 QUESTIONS Please complete module evaluation Merrimack Mortgage Company, Inc Elm Street, Suite 601 Manchester, NH Danielle Barbato, Training & Development Gregory Korn, VP Risk Management Dan Pass, BSA Officer 193