WISCONSIN MORTGAGE LENDING REGULATIONS

Transcription

1 WISCONSIN MORTGAGE LENDING REGULATIONS

2 Wisconsin State Law Introduction This course is to cover statutes of Wisconsin law as related to Loan Originators for the State of Wisconsin. The statutes covered in this class are required to be learned to renew your Loan Originator license, and for the ethical practice of mortgage origination in Wisconsin. Even though you may have an understanding of the State Law, this is the first time that the State has required you to review the statutes that are covered in this class. This module addresses the following topics: Basic Information for Wisconsin Mortgage Origination Money & Rates of Interest as Covered in Chapter 138 of the Wisconsin Statutes Licensing Law-Mortgage Bankers, Brokers and Loan Originators as Covered in Chapter 224 Section III of the Wisconsin Statutes High Cost Lending-First Lien Real Estate as Covered in Chapter 428 of the Wisconsin Statutes Definitions & Applicability Requirements for Mortgage Banking Regulation as Covered in DFI-BKG 40 of the Wisconsin Statutes Fees & Registration for Mortgage Bankers, Brokers and Originators as Covered in DFI-BKG 41 of the Wisconsin Statutes Mortgage Banking Audit Reports & Trust Accounts as Covered in DFI- BKG 42 of the Wisconsin Statutes Ethical & Competent Practice for Mortgage Bankers, Originators & Solicitors as Covered in DFI-BKG 43 of the Wisconsin Statutes Mortgage Broker Agreements & Consumer Disclosure Statements as Covered in DFI-BKG 44 of the Wisconsin Statutes Responsible High Cost Mortgage Lending as Covered in DFI-BKG 46 of the Wisconsin Statutes Wisconsin Mortgage Lending Regulations 2

3 Key Terms Bona fide office of a Mortgage Banker or Mortgage Broker It means an office that meets the following requirements: Located in the state Regular hours of operation Accessible to the public Serves as an office for the transaction of business. Staffed by an individual registered (licensed) under this chapter who is an employee of the Mortgage Banker or Broker. Is not shared by any other business. Bridge Loan A loan with a maturity of less than 18 months which requires only payments of interest until the time that the unpaid balance is due. Business Day Monday through Friday, excluding holidays and weekends. For Right of Rescission purposes, Saturday also counts as a business day. Contract Rate The rate contracted to be paid from time to time on the principal of a loan. Covered Loan A high cost consumer credit mortgage loan transaction other than a HELOC or reverse mortgage in which all of the following apply: These types of loans are not readily available in the market. There are many lenders that will not fund a high cost loan. Customer is a natural person (Individual). Debt is for primary personal, family or household purposes. The loan is secured by a mortgage on or an equivalent security interest in residential real property which will be occupied by the borrower as the borrower s principal dwelling. The terms of the loan provide any of the following: o That the loan is considered a mortgage. o That the points and fees payable by the borrower at or before the close exceed six percent of the total loan amount. Wisconsin Mortgage Lending Regulations 3

4 o Total points and fees do not include reasonable affiliate or nonaffiliate fees paid to affiliates or non-affiliates of the lender for bona fide services. Customer An individual to whom a covered loan is offered or made. Customer does not include a surety, guarantor, co-signer, or endorser. Department The Department of Financial Institutions Depository Institution A bank, savings bank, savings and loan association or credit union which is authorized to do business in Wisconsin or that is federally chartered. Division The Division of Banking Finds a Loan Means to assist a loan applicant in locating a lender for the purpose of obtaining a loan for the applicant and to make arrangements for a loan applicant to obtain a loan. Interest of the Customer What is proper and prudent for the customer under the circumstances. Factors to be considered in determining the interest of the customer shall include: The terms of the refinanced loan. The borrower s economic and non-economic circumstances. The purpose of the refinanced loan. The cost of the refinanced loan. Any other similar factors. Investor A mortgagee or a land contract vendor Loan A loan secured by a first lien real estate mortgage on, or an equivalent security interest in, a one-to-four family dwelling which the borrower uses as his or her principal place of residence and which is made, refinanced, renewed, extended, or modified on or after November 1, 1981, but does not include a mobile home transaction. Wisconsin Mortgage Lending Regulations 4

5 Loan Administration A lender s processing of a loan. Includes review, underwriting and evaluation of the loan application, document processing, and preparation and administration of the loan closing, but does not include appraisals, inspections, surveys, credit reports or other activities incidental to loan origination and normally taking place outside the office of the lender or performed by third persons. Loan Application Fee A fee collected at the time of application to pay for services in advance. Typically the appraisal and/or credit report. Loan Commitment A written statement signed by a lender, setting forth the terms and conditions upon which the lender is obligated to make a particular mortgage loan to a particular applicant. Loan Commitment Fee A fee charged by a registrant to an applicant in exchange for a promise to make a loan pursuant to a loan commitment. Loan Originator A person who, on behalf of a Mortgage Banker or Broker, finds a loan or negotiates a land contract, loan, or commitment for a loan. Loan Solicitor A type of Loan Originator who has limited duties. Mortgage Banker Originates loans for itself, as payee on the note evidencing the loan, or for another person. Sells loans or interest in loans to another person. Services loans or land contracts or provides escrow services Mortgage Broker A person who on behalf of a loan applicant or an investor, and for commission, money or other thing of value, finds a loan or negotiates a land contract, loan or commitment for a loan, or engages in Table Funding. Natural Person Is a legal term that means an individual person only? Non-Resident Aliens Not a Wisconsin resident. The primary factors which determine the division's jurisdiction over nonresident persons who engage in activities are as follows: Wisconsin Mortgage Lending Regulations 5

6 Whether the person's activity relates to real property located in Wisconsin which serves or may serve as security for a loan or a land contract. Whether the activity occurs in Wisconsin or the activity involves a resident of Wisconsin. In this section "activity occurs in Wisconsin" includes, but is not limited to, telephone calls into Wisconsin and correspondence sent into Wisconsin. Negotiate To discuss, explain, or present the terms and conditions of a loan or a land contract with or to a loan applicant. "Negotiate" does not include making an underwriting decision on a loan or closing a loan. Net worth The total tangible assets less total liabilities of a person, or, if the person is a natural person, (individual) total tangible assets less total liabilities not including the person s principal residence and its furnishings and personal use vehicles. Originate To make an underwriting decision on a loan and to close a loan. Person Person is a legal term that can either mean a company, corporation, other legal entity, or an individual. Persons Related to with Respect to a Natural Person The spouse of the natural person, a brother, brother-in-law, sister, or sister-in-law of the natural person. An ancestor or lineal descendant, by blood or adoption, of the natural person or that person s spouse or any other relative, by blood, marriage or adoption, of the natural person or that person s spouse who shares the same home with the natural person. Pre-payment Penalties Pre-payment is when more than 20 percent of the original loan amount is paid within a 12 month period. Pre-payment penalties are only allowed during the first five years for a fixed rate loan. Adjustable Rate Mortgage s only allow prepayment penalties for the first three years. Maximum pre-payment penalties can not exceed 60 days of interest. Registration Means to have a license Regular Hours of Operation At least 20 hours each week that a registrant is available either by walk-in or by appointment to meet with customers. Wisconsin Mortgage Lending Regulations 6

7 Right of Rescission Right of Rescission is a three-day window starting on the date of closing during which the borrower may rescind the loan and only applies in a refinance of an owner occupied primary residence. This gives the borrower time to review the costs and loan terms after the closing. Servicer or Provider A person who services loans or land contracts or provides escrow services for another person and for commission, money, or other thing of value and who does not perform acts as a Mortgage Banker, Broker, or Loan Originator is required to register the sole proprietor-owner, the corporation, the limited liability company, or the partnership as a Mortgage Banker. Other officers, members, partners, or employees who do not use the title "Mortgage Banker" or "Loan Originator" and do not advertise or otherwise portray themselves as Mortgage Bankers or Loan Originators are not required to register. Services Mortgage Loans or Land Contracts The receipt of payments on a note or a land contract from the borrower or vendee and distribution of such payments in accordance with the terms of the note, land contract, or servicing agreement. Source of Financing for a Loan A person who provides funding for a loan must be registered as a Mortgage Banker if the person is in the business of originating loans directly with loan applicants. If the person who provides funding engages the services of a registered Mortgage Banker or other lending institution that is lawfully engaged in the practice of originating loans, then the person providing funding is not required to be registered as a Mortgage Banker. Table Funding A transaction in which a lender conducts a loan closing in the lender s name with funds provided by a third party and the lender assigns the loan to the third party within 24 hours of the loan closing. Trust Account An account in a depository institution in which funds are held for the benefit of a third party. A trust account may also be known as a custodial or escrow account. Wisconsin Mortgage Lending Regulations 7

8 Trust Funds All monies other than nonrefundable fees which a registrant receives on behalf of any person pending disbursement of the funds in accordance with instructions from the person on whose behalf the funds are deposited. Trust funds are not loan application fees that a registrant has disclosed to a loan applicant as being nonrefundable, even though the registrant may actually refund all or part of these fees later. Warehouse Line of Credit A line of credit to fund loans held for sale to other persons. Wisconsin Mortgage Lending Regulations 8

9 Table of Contents LESSON 1: BASIC INFORMATION FOR WISCONSIN MORTGAGE ORIGINATION Lesson Topics: Regulating Body Exam Administration License Information License Renewal LESSON 2: MONEY & RATES OF INTEREST AS COVERED IN CHAPTER 138 OF THE WISCONSIN STATUTES Lesson Topics: Chapter Residential Mortgage Loans Chapter Variable Rate Contracts Chapter Variable Rate Loans Chapter Penalties Chapter Reverse Mortgage Loans LESSON 3: LICENSING LAW - MORTGAGE BANKERS, BROKERS AND LOAN ORIGINATORS AS COVERED IN CHAPTER 224 SECTION III OF THE WISCONSIN STATUTES Lesson Topics: Definitions Registration Relationship between a Loan Originator and either a Mortgage Banker or Mortgage Broker Division s Review of Operations Record Keeping Requirements Continuing Education and Examination Records Trust Accounts Wisconsin Mortgage Lending Regulations 9

10 Discipline Fee Splitting Consumer Mortgage Brokerage Agreements and Consumer Disclosures Penalties and Cause of Action Limitation on Actions for Commissions and Other Compensation Compensation Presumed LESSON 4: HIGH COST LENDING - FIRST LIEN REAL ESTATE AS COVERED IN CHAPTER 428 OF THE WISCONSIN STATUTES Lesson Topics: Definitions Prohibitions on and Requirements of Lenders and Assignees False Statements Recommending Default Pre-payment Disclosures to Customers Exclusive State Regulation Authority Property Exempt From Debt Collection Administration and Penalties Parity for Federally Insured Depository Institutions LESSON 5: DEFINITIONS & APPLICABILITY REQUIREMENTS FOR MORTGAGE BANKING REGULATION AS COVERED IN DFI- BKG 40 OF THE WISCONSIN STATUTES Lesson Topics: DFI-Bkg Definitions DFI-Bkg Applicability Requirements DFI-Bkg Loan Solicitor Activities Wisconsin Mortgage Lending Regulations 10

11 LESSON 6: FEES & REGISTRATION FOR MORTGAGE BANKERS, BROKERS AND ORIGINATORS AS COVERED IN DFI- BKG 41 OF THE WISCONSIN STATUTES Lesson Topics: Chart of Fees and Charges for Licensees DFI-Bkg Registration and Renewal of Registration Fees DFI-Bkg Registration Periods LESSON 7: MORTGAGE BANKING AUDIT REPORTS & TRUST ACCOUNTS AS COVERED IN DFI-BKG 42 OF THE WISCONSIN STATUTES Lesson Topics: DFI-Bkg Annual Reports DFI-Bkg Trust Accounts LESSON 8: MORTGAGE BROKER AGREEMENTS & CONSUMER DISCLOSURE STATEMENTS AS COVERED IN DFI-BKG 44 OF THE WISCONSIN STATUTES Lesson Topics: DFI-Bkg Authority and Intent DFI-Bkg Improper, Fraudulent or Dishonest Dealing DFI-Bkg Incompetency to Act as a Mortgage Banker, Mortgage Broker, or Loan Originator LESSON 9: MORTGAGE BROKER AGREEMENTS & CONSUMER DISCLOSURE STATEMENTS AS COVERED IN DFI-BKG 44 OF THE WISCONSIN STATUTES Lesson Topics: DFI-Bkg Mortgage Broker Agreement DFI-Bkg Consumer Disclosure Statement Wisconsin Mortgage Lending Regulations 11

12 Lesson 10: RESPONSIBLE HIGH COST MORTGAGE LENDING AS COVERED IN DFI-BKG 46 OF THE WISCONSIN STATUTES Lesson Topics: DFI-Bkg Definitions DFI-Bkg Ability to Repay DFI-Bkg Disclosure Forms Wisconsin Mortgage Lending Regulations 12

13 Lesson 1: BASIC INFORMATION FOR WISCONSIN MORTGAGE ORIGINATION This lesson focuses on the following topics: Regulating Body Exam Administration License Information License Renewal Regulating Body Regulating body is the Wisconsin Department of Financial Institutions ( The Wisconsin Department of Financial Institutions mission is to ensure the safety and soundness of Wisconsin s financial institutions, to protect the consumers of financial services, and to facilitate economic growth. The agency regulates and licenses financial service providers who do business in Wisconsin. Exam Administration Exam administrator is Pearson Vue ( This is for originators to receive their initial license. Loan originators in the State of Wisconsin must pass this test to be licensed. You must be licensed in order to originate loans or to refer to yourself as a Loan Originator. License Information You can go to the Pulse Portal at to check on the status of your license, change your address, or check on your continuing education credits. Originators can renew their licenses at this portal by using a credit card. Companies with a Mortgage Bankers or Mortgage Brokers license can use the portal to obtain license numbers, renew their licenses, or check on the Originators that are licensed to their office. The portal also allows access to consumers to check if a party has an active license to originate loans. Wisconsin Mortgage Lending Regulations 13

14 License Renewal The license period is two years for all licenses. The expiration date will be the 1 st day of the month you originally received your license. You must renew your license prior to the expiration date. There is a grace period of 30 days from the date of expiration for late renewal, but an additional fee will be charged. To renew your Loan Originator s license, continuing education credits are required. You must have a total of 16 hours of continuing education, which includes two hours of new developments, or you must pass a test-out exam that is provided by Pearson Vue. Continuing Education credits must be entered into the Pulse Portal by the approved education provider PRIOR to your expiration date. You do not have a 30-day grace period to get your CE credits. If you do not have the CE credits or pass a test-out exam prior to your expiration date, then you have to start over. You would need to pass the initial exam and receive a new license. It is important to note that you cannot originate any loans or promote yourself as an Originator until you have the new license. There are two renewal options for licenses: Option 1: Licensees can renew by going to the Pulse Portal and entering credit card information. Once your payment and CE credits from the approved provider are verified, you will be renewed. When renewing a Mortgage Banker or Mortgage Broker license, credits are not required to renew these licenses. You simply enter credit card information into the Pulse Portal and you are renewed. Option 2: Renewing by mail. You go to and print off the renewal form for the appropriate license. Complete the form; send it in with a paper check and either a copy of your CE completion certificate or certification that you passed the Pearson Vue test-out exam. To renew a Mortgage Bankers or Mortgage Brokers license by mail, you have to print out the form and send in a paper check. This concludes lesson one. Wisconsin Mortgage Lending Regulations 14

15 Lesson 2: MONEY AND RATES OF INTEREST AS COVERED IN CHAPTER 138 OF THE WISCONSIN STATUTES This lesson focuses on the following topics: Chapter Residential Mortgage Loans Chapter Variable Rate Contracts Chapter Variable Rate Loans Chapter Penalties Chapter Reverse Mortgage Loans This chapter deals with information regarding interest rates, pre-payment penalties and Variable Rate Mortgages (ARM s). There are some people who felt that pre-payment penalties were not allowed in Wisconsin, and as you will see, that is not the case. Definitions Chapter Residential Mortgage Loans Contract Rate The rate contracted to be paid from time to time on the principal of a loan. Loan A loan secured by a first lien real estate mortgage on, or an equivalent security interest in, a one-to-four family dwelling which the borrower uses as his or her principal place of residence and which is made, refinanced, renewed, extended, or modified on or after Nov. 1, 1981, but does not include a mobile home transaction. Loan Administration A lender s processing of a loan. Includes review, underwriting, and evaluation of the loan application, document processing, and preparation and administration of the loan closing, but does not include appraisals, inspections, surveys, credit reports or other activities incidental to loan origination and normally taking place outside the office of the lender or performed by third persons. Person Person is a legal term that can either mean a company, corporation, other legal entity or an individual. Natural Person means an individual person only. Wisconsin Mortgage Lending Regulations 15

16 Persons Related to with Respect to a Natural Person The spouse of the natural person, a brother, brother-in-law, sister or sister-in-law of the natural person. An ancestor or lineal descendant, by blood or adoption, of the natural person or that person s spouse or any other relative, by blood, marriage or adoption, of the natural person or that person s spouse who shares the same home with the natural person. Pre- Payment Penalties Pre-payment is when more than 20 percent of the original loan amount is paid within a 12-month period. Pre-payment penalties are only allowed during the first five years for a fixed rate loan. Adjustable Rate Mortgages only allow prepayment penalties for the first three years. Maximum pre-payment penalties can not exceed 60 days of interest. A bank, credit union, savings bank, savings and loan association, or Mortgage Banker that originates a loan on or after Jan. 1, 1994, that requires an escrow to assure the payment of taxes or insurance shall pay interest on the outstanding principal balance of the escrow at the variable interest rate unless the escrow funds are held by a third party in a non-interest-bearing account. Chapter Variable Rate Contracts This section does not apply to loans or forbearances to corporations or limited liability companies. No loan may contain a variable interest rate clause unless the contract provides that: When an increase in the interest rate is permitted by a movement upward of a prescribed index, a decrease in the interest rate is also required by a downward movement of the prescribed index. Interest rates can only be adjusted once every six months, or twice a year. Interest rates cannot change by more than two percent per year. Decreases required by the downward movement of the prescribed index shall be mandatory. Increases permitted by the upward movement of the prescribed index shall be optional. The fact that a lender may not have invoked an increase, in whole or in part, shall not be deemed a waiver of the lender s right to invoke an increase at any time thereafter within the limits imposed by this section. Wisconsin Mortgage Lending Regulations 16

17 Changes in the interest rate shall only be made when the prescribed index changes a minimum of one-tenth of one percent. The borrower may prepay the loan, in whole or in part, within 90 days of notification of any increase in the rate of interest without a pre-payment charge. A disclosure must be provided to the borrower. Prior to execution of the loan documents of a loan containing a variable interest rate, the lender must in writing clearly and conspicuously disclose to the borrower all of the following: The loan contract contains a variable interest rate. The identification of the index used and the current base of the index. The pre-payment rights of the borrower upon receiving notice of any change. Notice of Interest Adjustment When a change in the interest rate is required or permitted by a movement in the prescribed index, the lender shall give notice to the borrower by mail, addressed to the borrower s last known post office address, not less than 30 days prior to any change in interest rate, which notice shall clearly and concisely disclose: The effective date of the interest rate change. The amount of the interest rate change. The change in the index which caused the interest rate change. The amount of the borrower s monthly principal and interest payments before and after the effective date of the change in the interest rate. Whether as a result of an increase in the interest rate, a lump sum payment may be necessary at the end of the loan term. The borrower s right to prepay the loan within 90 days after said notice without a pre-payment charge if the notice required an increase in the interest rate. Chapter Variable Rate Loans Approved index means any of the following: An index that is readily identifiable by the public that is available in a public format such as the Wall Street Journal. An index readily verifiable by borrowers and beyond the control of an individual lender and approved by: Wisconsin Mortgage Lending Regulations 17

18 o The office of credit unions, if the lender is a credit union. o The commissioner of insurance, if the lender is an insurance company. o The division of banking for all other lenders. A variable rate loan contract: May not be amortized longer than 40 years. Must use an approved index. May not increase more than one percent every six months. A lender may not include a pre-payment penalty in a variable rate loan using an approved index unless ALL of the following are satisfied: The lender provides the borrower with a written statement that the lender also makes variable rate loans without pre-payment penalties. Borrower must acknowledge in writing receipt of this statement at the time the loan is offered. The penalty is limited to pre-payment that is made within three years of the date of the loan. The pre-payment is not made in connection with the sale of a dwelling securing the loan. Negative Amortization Occurs when loan payments are not enough to cover the amount of interest due, resulting in an increased loan balance. The principal balance of a variable rate loan may be increased to implement an interest rate adjustment only if: Within 10 years after the loan is closed, and at least every five years thereafter, the payment amount is adjusted to a level that will allow the loan to be paid off at the then-existing interest rate over the remaining term of the loan. The payment amount shall be maintained at least at that level until subsequently adjusted, except that the payment amount shall be decreased to reflect any decrease in the interest rate. Wisconsin Mortgage Lending Regulations 18

19 Chapter Penalties Any lender who intentionally violates the statutes is liable to the borrower for all excess interest collected, plus interest thereon at the rate of five percent per year. In addition, the borrower may recover actual damages, including incidental and consequential damages, sustained by reason of the violation. Chapter Reverse Mortgage Loans Qualified Lender means a lender approved by the Federal Department of Housing and Urban Development (HUD) to enter into a loan insured by the federal government. Reverse mortgage loan means a loan or an agreement to lend that is secured by a first mortgage on the borrower s principal residence, is insured by the federal government, and requires repayment as specified in the loan agreement under any of the following conditions: All the borrowers have died. All the borrowers have sold the residence or conveyed title to the residence or all the borrowers have moved permanently from the residence. Reverse mortgage loan payments made to a borrower shall be treated as proceeds from a loan and not as income for the purpose of determining eligibility and benefits under means-tested programs of aid to individuals. (Social Security and Medicare) This concludes lesson two. Wisconsin Mortgage Lending Regulations 19

20 Lesson 3: LICENSING LAW - MORTGAGE BANKERS, BROKERS AND LOAN ORIGINATORS AS COVERED IN CHAPTER 224 SECTION III OF THE WISCONSIN STATUTES This lesson focuses on the following topics: Definitions Registration Relationship between a Loan Originator and either a Mortgage Banker or Mortgage Broker Division s Review of Operations Record Keeping Requirements Continuing Education and Examination Records Trust Accounts Discipline Fee Splitting Consumer Mortgage Brokerage Agreements and Consumer Disclosures Penalties and Cause of Action Limitation on Actions for Commissions and Other Compensation Compensation Presumed This chapter deals with the requirements and responsibilities of being licensed as a Mortgage Banker, Mortgage Broker or Loan Originator in the State of Wisconsin. Wisconsin does not have different levels of licensing. Even if you only intend to originate loans and never own a company you have to know the requirements and responsibilities of having a Mortgage Banker or Mortgage Broker license. A person with a license as a Mortgage Banker or Mortgage Broker cannot originate mortgage loans unless he also has a Loan Originator license. The Loan Originator license is only a license that gives one the right to originate loans. Wisconsin Mortgage Lending Regulations 20

21 Definitions Bona fide office of a Mortgage Banker or Mortgage Broker It means an office that meets the following requirements: Located in the state Regular hours of operation Accessible to the public Serves as an office for the transaction of business. Staffed by an individual registered (licensed) under this chapter who is an employee of the Mortgage Banker or Broker. Is not shared by any other business. This office contains all the records and books of the Mortgage Broker or Banker, or copies of the books and records, unless the Mortgage Banker or Broker has agreed to furnish copies of its books and records as soon as practicable, upon the request of the division. Division The Division of Banking Loan Originator A person who, on behalf of a Mortgage Banker or Broker, finds a loan or negotiates a land contract, loan or commitment for a loan. Loan Solicitor A type of Loan Originator who has limited duties. Mortgage Banker Originates loans for itself, as payee on the note evidencing the loan, or for another person. Sells loans or interest in loans to another person. Services loans or land contracts or provides escrow services. Mortgage Broker A person who on behalf of a loan applicant or an investor, and for commission, money or other thing of value, finds a loan or negotiates a land contract, loan or commitment for a loan or engages in Table Funding. Table Funding A transaction in which a lender conducts a loan closing in the lender s name with funds provided by a third party and the lender assigns the loan to the third party within 24 hours of the loan closing. Wisconsin Mortgage Lending Regulations 21

22 Mortgage Banker or Mortgage Broker do not include the following: Bank, Trust Company, Savings Bank, Savings and Loan, Insurance Company, Community Based Organization/Housing Authority, Credit Union, Licensed Attorney, employees of an exempt entity if performing required duties or any person who originates, sells, or services loans only with their own funds for their own investment and who has not done more than four loans during the previous 12 months Registration Use of the term Registration refers to having a license. Net worth The total tangible assets less total liabilities of a person, or, if the person is a natural person, (individual) total tangible assets less total liabilities not including the person s principal residence and its furnishings and personal use vehicles. Warehouse Line of Credit A line of credit to fund loans held for sale to other persons. Registration (licensing) is required. A person may not act as a Mortgage Banker, Mortgage Broker or Loan Originator, use the title Mortgage Banker, Mortgage Broker or Loan Originator, or advertise or otherwise portray himself or herself as a Mortgage Banker, Mortgage Broker or Loan Originator, unless the person has been issued a certificate of registration (license) from the division. A person desiring to act as a Mortgage Banker, Mortgage Broker, or Loan Originator shall apply for a certificate of registration to the division on forms prescribed by the division and shall pay the fee specified in the rules. An application shall satisfy all of the following: The applicant shall verify (sign) the application. If the applicant is a partnership, Limited Liability Company or corporation, the application shall be verified as follows: o By at least two partners of the partnership or by at least two officers of the corporation who have authority to verify the application or by at least two members of the limited liability company. o If the applicant is a partnership, limited liability company or corporation, the application shall identify each partner, member or officer who will use the title Mortgage Banker, Mortgage Broker, or Loan Originator. Wisconsin Mortgage Lending Regulations 22

23 Social Security and federal employer identification numbers. If an applicant who is an individual does not have a Social Security number, then they shall submit a statement made or subscribed under oath or affirmation to the division that the applicant does not have a Social Security number. The form of the statement shall be prescribed by the Department of Workforce Development. The department may not disclose any information to any person except as follows: The department may disclose information to the department of revenue for the sole purpose of requesting certifications. The department may disclose information to the department of workforce development in accordance with a memorandum of understanding. Any certificate of registration issued or renewed in reliance upon a false statement submitted by an applicant is invalid. Additional Requirements for Loan Originator Applicants Submit to the division a $ license fee. The application must include the name of the Mortgage Banker or Mortgage Broker who will employ the Loan Originator. Each applicant for registration as a Loan Originator, other than an applicant employed by an affiliate of a credit union, shall pass a written examination, approved by the Loan Originator Council, covering primary and subordinate mortgage financing transactions and the provisions of this subchapter. This exam is provided by Pearson Vue. The employer of each applicant for registration as a Loan Originator, other than an applicant employed by an affiliate of a credit union, shall obtain a criminal history search relating to the applicant from the records maintained by the Department of Justice and submit the results of the search to the division. Additional Requirements for Mortgage Banker Applicants Submit to the division a $1, license fee. With a Bona Fide Office One of the following items: An approval letter from HUD, GNMA, FNMA or FHLMC. $25,000 Commercial Surety Bond filed with the division. Wisconsin Mortgage Lending Regulations 23

24 $25,000 Line of Credit, Personal Bond or 3rd party guarantee filed with the division in a form acceptable to the division and secured by one of the following forms of security: o A Certificate of Deposit o A debt security acceptable to the division. o An irrevocable bank letter of credit issued by a financial institution that is authorized to do business in this state or that is federally chartered. Submit evidence that establishes to the division s satisfaction either of the following: o A minimum net worth of $25,000 and a warehouse line of credit of not less than $250,000. o A minimum net worth of $100,000 Without a Bona Fide Office ALL of the following items: $300,000 Commercial Surety Bond filed with the division. Submit evidence that establishes, to the division s satisfaction, a minimum net worth of $250,000. Additional requirements for Mortgage Broker Applicants Submit to the division a $ license fee. With a Bona Fide Office ONE of the following items: $10,000 Commercial Surety Bond filed with the division. $10,000 Line of Credit, Personal Bond or 3rd party guarantee filed with the division in a form acceptable to the division and secured by one of the following forms of security: o A Certificate of Deposit o A debt security acceptable to the division. o An irrevocable bank letter of credit issued by a financial institution that is authorized to do business in this state or that is federally chartered. Submit evidence that establishes, to the division s satisfaction, a minimum net worth of $100,000. Wisconsin Mortgage Lending Regulations 24

25 Without a Bona Fide Office ALL of the following items: $120,000 Commercial Surety Bond filed with the division. Submit evidence that establishes, to the division s satisfaction, a minimum net worth of $120,000. Release of Security Held by the Division The division or its agent shall hold security (Surety bond or other required documentation), the security shall remain in effect, and the division may not release it, until all of the following conditions are met: A period of 180 days has elapsed since at least one of the following: The date on which the division is given notice that the Mortgage Banker or Mortgage Broker is no longer acting as a Mortgage Banker or Mortgage Broker. The date on which the Mortgage Banker s or Mortgage Broker s registration expires or is revoked. The division determines that the Mortgage Banker or Mortgage Broker is no longer in business. The division determines that all claims of persons to whom the Mortgage Banker or Mortgage Broker provided services have been satisfied. Insufficient Security If the division finds that the surety bond, security, or insurance policy filed by a Mortgage Banker or Mortgage Broker has been cancelled without the required notice to the division, then the division may summarily suspend the Mortgage Banker s or Mortgage Broker s registration or license. A registration for a license shall be considered complete upon receipt of the following: Loan Originator An applicant will be registered as a Loan Originator upon the department s receipt of the following: Passing a written test A properly completed application for registration as a Loan Originator. A fee specified in the rules The applicant providing the employer information. Wisconsin Mortgage Lending Regulations 25

26 Mortgage Banker and Mortgage Broker An applicant will be registered as a Mortgage Banker or Mortgage Broker upon the department s receipt of the following: A properly completed application for registration as a Mortgage Banker or Broker. A fee specified in the rules. Satisfactory evidence of compliance with all requirements. Renewal of Registration A Loan Originator, Mortgage Banker, or Mortgage Broker may renew their registration by submitting to the division the following on or before the renewal date specified on their license: The renewal fee Additional renewal requirements for loan originators and loan solicitors include: Successfully complete at least 16 hours of continuing education for loan originators and 12 hours for loan solicitors or pass a test-out exam based on the educational subjects set by the division which is administered by an instructor approved by Pearson Vue. If the Loan Originator has changed employer s since his or her criminal history was last searched, then the applicant s current employer shall obtain a criminal history search relating to the applicant from the records maintained by the Department of Justice and submit the results of the search to the division. Denial of Application for Issuance or Renewal of Registration The division may not issue or renew a certificate of registration under this section if any of the following applies: Applicant fails to provide information required by the division. Information provided to the division indicates that the applicant has been convicted of a felony and, as a result of the conviction; the applicant represents an unreasonable risk of violating this subchapter, in the opinion of the division. The department of revenue has certified that the applicant is liable for delinquent taxes. The applicant for the issuance or renewal is an individual who fails to comply, after appropriate notice, with a subpoena or warrant issued by the department of workforce development or a county child support agency Wisconsin Mortgage Lending Regulations 26

27 related to paternity or child support proceedings or who is delinquent in making court-ordered payments of child or family support, maintenance, birth expenses, medical expenses, or other expenses related to the support of a child or former spouse as provided in a memorandum of understanding Relationship between a Loan Originator and either a Mortgage Banker or Mortgage Broker Responsibility for Loan Originators A Mortgage Banker or Mortgage Broker is responsible for, and shall supervise the actions of, a Loan Originator or any other person who otherwise acts on behalf of the Mortgage Banker or Broker as an employee. Restriction on Loan Originator If the division suspends or revokes a Mortgage Banker s or Mortgage Broker s certificate of registration (license), a Loan Originator may not act on behalf of that Mortgage Banker or Mortgage Broker during the period of suspension or revocation. Transfer by Loan Originator A registered Loan Originator may at any time apply, on forms prescribed and provided by the division, to transfer employment to another registered Mortgage Banker or Mortgage Broker. The Loan Originator will have to pay a $40 transfer fee Division s Review of Operations Each year on a date specified and on a form required by the division, a Mortgage Banker or Mortgage Broker shall submit to the division an annual report relating to the Mortgage Banker s or Mortgage Broker s operations during its most recently completed fiscal year. Each year no later than six months following the end of its most recently completed fiscal year, a Mortgage Banker or Mortgage Broker shall submit a copy of an audit of their operations during that fiscal year. An audit shall be conducted by an independent certified public accountant in accordance with generally accepted auditing standards. The financial statements in the audit report shall be prepared in accordance with generally accepted accounting principals. Wisconsin Mortgage Lending Regulations 27

28 The division may request that a Mortgage Banker or Mortgage Broker obtain an audit of their operations if the division has reason to believe that the Mortgage Banker or Mortgage Broker may not have sufficient financial resources to meet its obligation to its clients or investors or to other persons directly affected by the activities conducted by the Mortgage Banker or Mortgage Broker under the certificate of registration granted by the division. If the division requests an audit, then the Mortgage Banker or Mortgage Broker shall have the audit completed no later than 90 days after the date of the division s request. The Mortgage Banker or Mortgage Broker shall submit the audit report to the division no later than five days after the date on which the audit is completed. An audit shall be conducted by an independent certified public accountant in accordance with generally accepted auditing standards. The financial statements in the audit report shall be prepared in accordance with generally accepted accounting principals. The division may at any time on its own motion or upon complaint, examine the books of account, records, condition, and affairs of a Mortgage Banker, Mortgage Broker, or Loan Originator. The division shall prepare a report of each examination conducted. As part of the examination or preparation of the report, the division may examine under oath any of the members, officers, directors, agents, employees or customers of the Mortgage Banker, Mortgage Broker or Loan Originator. The division may require a Mortgage Banker, Mortgage Broker or Loan Originator who is examined to pay to the division a reasonable fee for the costs of conducting the examination. Examination reports and correspondence regarding the reports are confidential, except that the division may release examination reports and correspondence in connection with a disciplinary proceeding conducted by the division, a liquidation proceeding or a criminal investigation or proceeding. Wisconsin Mortgage Lending Regulations 28

29 Record Keeping Requirements Fee Record System A Broker or Banker must establish and maintain a record system showing all fees charged to a loan applicant, as well as the application and disposition of those fees. The Mortgage Broker or Mortgage Banker must maintain a log that contains: The application date Name of the applicant(s) Address of the property to be managed Disposition of the application and the reason for the disposition. The type of loan A Mortgage Banker or Mortgage Broker shall maintain for each mortgage loan application all of the following documents, if used by the Mortgage Banker or Mortgage Broker in connection with the mortgage loan application file: Completed loan application Copy of the loan commitment Federal loan disclosures Loan closing statement Copy of the Mortgage, Note or Bond A copy of the letter rejecting the application, if applicable. A copy of the appraisal report and credit report. Any other documents, records, or forms shown to or signed by the loan applicant. Period of Record Retention A Mortgage Banker or Mortgage Broker shall keep for at least 25 months copies of: All deposit receipts Cancelled checks Trust account records Other relevant documents or correspondence received or prepared by the Mortgage Banker or Mortgage Broker in connection with a loan or loan application. Wisconsin Mortgage Lending Regulations 29

30 The retention period begins on the date the loan is closed or, if the loan is not closed, the date of the loan application. If the loan is serviced by a Mortgage Banker, then the retention period commences on the date that the loan is paid in full. The Mortgage Banker or Mortgage Broker shall make the records available for inspection and copying by the division. If the records are not kept within this state, the Mortgage Banker or Mortgage Broker shall, upon request of the division, promptly send exact and complete copies of requested records to the division. Contents of Credit Report If a Mortgage Banker or Mortgage Broker charges a loan applicant a separate fee for a credit report, then the credit report shall consist of, at a minimum, a written statement indicating the name of the credit reporting agency that investigated the credit history of the applicant. Contents of the Appraisal Report If a Mortgage Banker or Mortgage Broker charges a loan applicant a separate fee for an appraisal report, then the appraisal report shall consist of, at a minimum, a written statement indicating the appraiser s opinion of the value of the property with the basis for that opinion and the name of the person who conducted the appraisal. If requested by a loan applicant, a Mortgage Banker or Mortgage Broker shall provide the loan applicant with a copy of any written appraisal report held by the Mortgage Banker or Mortgage Broker if the loan applicant paid a fee for the report and the report relates to residential real estate that the loan applicant owns or has agreed to purchase. A Mortgage Banker or Mortgage Broker is responsible for the preparation and correctness of all entries on forms, documents, and records which are under the Mortgage Banker s or Mortgage Broker s control and which are not dependent on information provided by the loan applicant or a 3rd party. A Mortgage Banker or Mortgage Broker shall maintain books and records in accordance with generally accepted accounting principles. Wisconsin Mortgage Lending Regulations 30

31 Continuing Education and Examination Records CE and Exam Records must be kept by the Originator and the approved provider for a period of four years. A person who administers examinations or provides education shall maintain records documenting attendance and examination performance for at least four years Trust Accounts A Mortgage Banker, Mortgage Broker, or Loan Originator shall deposit in one or more trust accounts all funds other than nonrefundable fees that it receives on behalf of any person, pending disbursement of the funds in accordance with instructions from the person on whose behalf the funds are deposited. A Mortgage Banker or Mortgage Broker shall maintain trust accounts in a bank, savings bank, savings and loan association, or credit union that is authorized to do business in this state or whose accounts are insured by the Federal Deposit Insurance Corporation or the National Credit Union Administration. The Mortgage Banker or Mortgage Broker shall notify the division of the location of its trust accounts Discipline Prohibited Conduct The division may deny an application, revoke, suspend, or limit the registration of a Mortgage Banker, Mortgage Broker, or Loan Originator, or may reprimand a Mortgage Banker, Mortgage Broker, or Loan Originator if it finds that they have: Made a material misstatement in an application for registration, or in the information furnished to the division. Made a substantial misrepresentation in the course of practice injurious to one or more of the parties to a transaction. Made a false promise that influences, persuades or induces a client to act in a way that is to his or her injury or damage. Pursued a continued and flagrant course of misrepresentation, or made false promises, whether directly or through agents or advertising. Wisconsin Mortgage Lending Regulations 31

32 Acted for more than one party in a transaction without the knowledge and consent of all parties on whose behalf the Mortgage Banker, Mortgage Broker, or Loan Originator is acting. Accepted a commission, money or other thing of value for performing an act as a Loan Originator from anyone other than their employer. As a Loan Originator, represented or attempted to represent a Mortgage Banker or Mortgage Broker other than their employer. Failed, within a reasonable time, to account for or remit any monies coming into the Mortgage Banker s, Mortgage Broker s, or Loan Originator s possession which belong to another person. Demonstrated a lack of competency to act as a Mortgage Banker, Mortgage Broker, or Loan Originator in a way which safeguards the interests of the public. Paid or offered to pay a commission, money or other thing of value to any person for acts or services in violation of this subchapter. Violated any provision of this subchapter or any federal or state statute, rule or regulation which relates to practice as a Mortgage Banker, Mortgage Broker, or Loan Originator. Engaged in conduct which violates a standard of professional behavior which, through professional experience, has become established for Mortgage Bankers, Mortgage Brokers, or Loan Originators. Engaged in conduct, whether of the same or a different character than specified elsewhere in this section, which constitutes improper, fraudulent, or dishonest dealing. In the course of practice as a Mortgage Banker, Mortgage Broker, or Loan Originator, except in relation to housing designed to meet the needs of elderly individuals, treated a person unequally solely because of sex, race, color, handicap, sexual orientation, religion, national origin, age, or ancestry, the person s lawful source of income, or the sex or marital status of the person maintaining the household. Intentionally encouraged or discouraged any person from purchasing or renting real estate on the basis of race. Because of the age or location of the property or the race of the loan applicant, rather than because of the credit worthiness of the applicant and the condition of the property securing the loan: o Refused to negotiate, to offer, or to attempt to negotiate a land contract, loan or commitment for a loan, or refused to find a loan. o Found a loan or negotiated a loan on terms less favorable than are usually offered. Wisconsin Mortgage Lending Regulations 32

33 o Failed to notify the division that the Mortgage Banker s or Mortgage Broker s net worth fell below the minimum amount required. The division may assess against a person who is registered a forfeiture of not more than $2,000 for each violation. A person may contest an assessment of forfeiture by sending, within 10 days after receipt of notice of the assessment, a written request for hearing to the division of hearings and appeals. The administrator of the division of hearings and appeals may designate a hearing examiner to preside over the case and recommend a decision to the administrator. The decision of the administrator of the division of hearings and appeals shall be the final administrative decision. The division of hearings and appeals shall commence the hearing within 30 days after receipt of the request for hearing and shall issue a final decision within 15 days after the close of the hearing. In any petition for judicial review of a decision by the division of hearings and appeals, the party, other than the petitioner, who was in the proceeding before the division or hearings and appeals shall be the named respondent. All forfeitures shall be paid to the division of banking within 10 days after receipt of notice of assessment or, if the forfeiture is contested, within 10 days after receipt of the final decision after exhaustion of administrative review. The division of banking shall remit all forfeitures paid to the secretary of administration for deposit in the school fund. The attorney general may bring an action in the name of the state to collect any forfeiture imposed under this subsection if the forfeiture has not been paid following the exhaustion of all administrative and judicial reviews. The only issue to be contested in any such action shall be whether the forfeiture has been paid. The division may revoke, suspend, or limit a certificate of registration or reprimand a Mortgage Banker or Mortgage Broker if a director, officer, trustee, partner, or member of the Mortgage Banker s or Mortgage Broker s business, or a person who has a financial interest in or is in any way connected with the operation of the Mortgage Banker s or Mortgage Broker s business is guilty of an act or omission that would be cause for refusing to issue a certificate of registration to that individual. Wisconsin Mortgage Lending Regulations 33

34 Fee Splitting A Mortgage Banker, Mortgage Broker, or Loan Originator may not pay money or anything of value to a person who is not registered (licensed) by a commission for performing an act as a Mortgage Banker, Mortgage Broker, or Loan Originator Consumer Mortgage Brokerage Agreements and Consumer Disclosures Every contract between a Mortgage Broker and a consumer under which the Mortgage Broker agrees to provide Brokerage services to the consumer: Shall be in writing Shall be in the form prescribed by rule of the division. Shall contain all information required by rule of the division. The division shall promulgate rules to administer this subsection in consultation with the loan originator council. (Promulgate: To put a law into effect by formal declaration.) The division shall design these rules to facilitate the comparison of similar charges and total charges assessed by different mortgage Brokers. Consumer Disclosure Statement Before entering into a contract with a consumer to provide Brokerage services, a mortgage Broker shall: Give the consumer a copy of a consumer disclosure statement. Explain the content of the statement. Ensure that the consumer initials or signs the statement, acknowledging that the consumer has read and understands the statement. The consumer disclosure statement shall contain: A brief explanation of the relationship between the consumer and the Mortgage Broker under the proposed contract. A brief explanation of the manner in which the Mortgage Broker may be compensated under the proposed contract. Any additional information required by rule of the division. Wisconsin Mortgage Lending Regulations 34

35 The division shall promulgate rules to administer this subsection in consultation with the loan originator council. The division shall specify the form and content of the consumer disclosure statement required under this subsection Penalties and Cause of Action Penalties from the Division A person who violates Section (registration) may: Be fined not more than $2,000. Be imprisoned for not more than nine months. Be both fined and imprisoned. The district attorney of the county where the violation occurs shall enforce the penalty on behalf of the state. Private Cause of Action A person who is aggrieved by an act which is committed by a Mortgage Banker, Mortgage Broker, or Loan Originator may recover the greater of the following: Twice the amount of the cost of loan origination connected with the transaction, except that the liability under this subdivision may not be less than $100 or greater than $2,000 for each violation. The actual damages, including any incidental and consequential damages that the person sustained because of the violation. The aggregate amount of costs and expenses that the court determines were reasonably incurred by the person in connection with the action, together with reasonable attorney fees Limitation on Actions for Commissions and other Compensation A person who is engaged in the business or acting in the capacity of a Mortgage Banker, Mortgage Broker, or Loan Originator in this state may not bring or maintain an action in this state to collect a commission, money, or other thing of value for performing an act as a Mortgage Banker, Mortgage Broker, or Loan Originator without documenting the possession of a valid license. Wisconsin Mortgage Lending Regulations 35

36 Compensation Presumed In a prosecution arising from a violation of this subchapter, proof that a person acted as a Mortgage Banker, Mortgage Broker, or Loan Originator is sufficient, unless rebutted, to establish that compensation was received by, or promised to, that person. This concludes lesson three. Wisconsin Mortgage Lending Regulations 36

37 Lesson 4: HIGH COST LENDING - FIRST LIEN REAL ESTATE AS COVERED IN CHAPTER 428 OF THE WISCONSIN STATUTES This lesson focuses on the following topics: Definitions Prohibitions on and Requirements of Lenders and Assignees False Statements Recommending Default Pre-payment Disclosures to Customers Exclusive State Regulation Authority Property Exempt From Debt Collection Administration and Penalties Parity for Federally Insured Depository Institutions This chapter covers high cost loans and the rules that apply to them Definitions Bridge Loan A loan with a maturity of less than 18 months that requires only payments of interest until the time that the unpaid balance is due Business Day Monday through Friday, excluding holidays and weekends. For Right of Rescission purposes, Saturday also counts as a business day. Right of Rescission Only applies in a refinance of an owner occupied primary residence. Is a three-day window starting on the date of closing during which the borrower may rescind the loan. This window gives the borrower time to review the costs and loan terms after the closing. Wisconsin Mortgage Lending Regulations 37

38 Covered Loan A high cost consumer credit mortgage loan transaction other than a HELOC or reverse mortgage. These types of loans are not readily available in the market. There are many lenders that will not fund a high cost loan. All of the following conditions apply: Customer is a natural person (Individual). Debt is for primary personal, family, or household purposes. Loan is secured by a mortgage on, or an equivalent security interest in residential real property that will be occupied by the borrower as the borrower s principal dwelling. The terms of the loan provide any of the following: The loan is considered a mortgage. The points and fees payable by the borrower at or before the close exceed six percent of the total loan amount. o Since this is lower than HOEPA (Home Ownership Equity Protection Act), Regulation X of Federal law, which states a maximum of eight percent, parties licensed in Wisconsin are subject to a maximum of six percent. Total points and fees do not include reasonable affiliate or non-affiliate fees paid to affiliates or non-affiliates of the lender for bona fide services. Customer An individual to whom a covered loan is offered or made. Customer does not include a surety, guarantor, cosigner, or endorser. Department The Department of Financial Institutions Lender Any person who originates a covered loan and to whom the covered loan is initially payable. Lender does not include an assignee of a covered loan or any person who for at least 12 consecutive months has failed to originate any covered loans. Wisconsin Mortgage Lending Regulations 38

39 Prohibitions on and Requirements of Lenders and Assignees Balloon Payments Except as otherwise provided in this subsection, no lender may make a (high cost) covered loan to a customer that requires, or that permits the lender to require a payment that is more than twice as large as the average of all earlier scheduled payments. This subsection does not apply to a loan under which the payment schedule is adjusted to account for seasonal or irregular income of the customer or to a bridge loan with a maturity of less than one year that the customer obtains for the purposes of facilitating the acquisition or construction of a dwelling as the customer s principal dwelling. Call Provision No lender may make a (high cost) covered loan to a customer that permits the lender or an assignee of the loan to demand payment of the outstanding balance before the original maturity date, except as a result of any of the following: Customer fails to make payments. A provision in the loan agreement permits the lender or assignee to make such a demand after the sale of real property that is pledged as security for the loan. Customer commits fraud or material misrepresentation in connection with the loan. Customer commits any act or omission that adversely affects the lender s or assignee s security for the loan or any right of the lender or assignee in such security. Negative Amortization No lender may make a (high cost) covered loan to a customer with a payment schedule that causes the principal balance to increase, except that this subsection does not prohibit such a payment schedule as a result of a temporary forbearance or loan restructuring consented to by the customer. Increased Interest Rate No lender may make a (high cost) covered loan to a customer that includes a payment schedule that consolidates more than two scheduled payments and pays them in advance out of the proceeds of the loan. Wisconsin Mortgage Lending Regulations 39

40 Repayment Ability No lender may make (high cost) covered loans to customers based on the customer s collateral without regard to the customer s ability to repay, including the customer s current or expected income, current obligations, and employment. A lender is presumed to have violated this subsection if the lender engages in a pattern or practice of making covered loans without verifying and documenting the customer s repayment ability. Refinancing of Existing Covered Loans No lender may make a (high cost) covered loan that refinances an existing (high cost) covered loan that the lender made to the same customer unless: The refinancing takes place at least one year after the date on which the loan being refinanced was closed. The refinance is in the interest of the customer. This subsection also applies to assignee and servicers of the loan but does not apply to bridge loans. Payments to Home Improvement Contractors No lender, under a (high cost) covered loan made to a customer, may pay proceeds of the loan to a person who is under contract to make improvements to an existing dwelling unless: The payment is made by an instrument that is payable to the customer The payment is made payable jointly to the customer and the person who is under contract The payment is made with the consent of the customer through a third party in accordance with a written agreement signed by the customer, the lender, and the person under contract. Single Premium Credit Insurance Products These include any individual or group credit life, credit accident and health, credit disability, or credit unemployment insurance product on a prepaid single premium basis sold in conjunction with a covered loan. A lender may not finance these insurance products directly or indirectly through a (high cost) covered loan, and a lender may not finance these products to the same customer within 30 days of making a (high cost) covered loan. Wisconsin Mortgage Lending Regulations 40

41 This prohibition does not include contracts issued by a government agency such as FHA Mortgage Insurance Premium (MIP) or Federal VA Funding Fee or private mortgage insurance company (PMI) to insure the lender against loss caused by a customer s default, and it does not apply to insurance premiums collected and paid on a monthly or other periodic basis. Refinancing of Subsidized Low-Rate Loans In this subsection, Subsidized Low-Rate Loan means a loan that carries a current interest rate at least two percentage points below the then-current yield on treasury securities with a comparable maturity. If the loan s current interest rate is either a discontinued introductory rate or a rate that automatically steps up over time, then the applicable fully indexed rate or the fully stepped-up rate shall be used instead of the current rate to determine whether a loan is a subsidized low-rate loan. A lender may not knowingly replace or consolidate a zero-interest rate or other subsidized low-rate loan made by a governmental or nonprofit lender with a (high cost) covered loan within the first 10 years of the zero-interest rate or other subsidized low-rate loan unless the current holder of the loan consents in writing to the refinancing False Statements No lender, license lender, Loan Originator, Mortgage Banker, or Mortgage Broker may knowingly make, propose, or solicit fraudulent, false, or misleading statements on any document relating to a covered loan Recommending Default No lender, licensed lender, Loan Originator, Mortgage, Banker or Mortgage Broker may recommend or encourage an individual to default on an existing loan or other obligation before or in connection with the making of a covered loan that refinances all or any portion of that existing loan or obligation Pre-payment A customer may prepay a (high cost) covered loan at any time without penalty if the payment is made in the context of refinancing the covered loan and if the covered loan is held by the refinancing lender. Wisconsin Mortgage Lending Regulations 41

42 This subsection does not prohibit the servicer of a (high cost) covered loan from imposing a pre-payment penalty unless the servicer is also the lender and holds the loan at the time of the refinancing. (If the refinancing lender is the same lender, no pre-payment penalty may be imposed.) Any pre-payment penalty is subject to the following limitations: A pre-payment penalty is permitted only during the 36 months immediately following the date of closing of a (high cost) covered loan. A lender may not include a pre-payment penalty in a (high cost) covered loan unless the lender offers the customer the option of choosing a loan product without a pre-payment penalty. The terms of the offer shall be in writing and initialed by the customer. The offer shall be in a clear and conspicuous format and include the following disclosure: o LOAN PRODUCT CHOICE DISCLOSURE: I was provided with an offer to accept a product both with and without a pre-payment penalty provision. I have chosen to accept the product with a pre-payment penalty. A pre-payment penalty may not exceed 60 days interest at the contract rate on fixed-rate covered loans (high cost) over $25,000. A prepayment penalty can be enforced if the borrower prepays more than 20 percent of the original loan amount within 36 months immediately following the date of closing or pays the loan in full during that time Disclosures to Customers At least three business days before making a (high cost) covered loan to a customer, a lender shall ensure that the customer has been given in writing and in a clear and conspicuous format the following notice: Disclosure to Borrower If you obtain this loan, the lender will have a mortgage on your home. You could lose your home and any money that you have put into it if you do not meet your obligations under this loan. Mortgage loan rates and closing costs and fees vary based on many factors, including your particular credit and financial circumstances, your earnings history, your employment status, the loan-to-value ratio of the requested loan, and the type of property that will secure your loan. The loan rate and fees could also vary based on which lender you select. Wisconsin Mortgage Lending Regulations 42

43 As a consumer, you should shop around and compare loan rates and fees. You should also consider consulting a qualified independent credit counselor or other experienced financial adviser regarding the rate, fees, and provisions of this mortgage loan before you proceed. You are not required to complete this loan agreement merely because you have received these disclosures or have signed a loan application. If you proceed with this mortgage loan, you should also remember that you may face serious financial risks if you use this loan to pay off credit card debts or other debts in connection with this transaction and then subsequently incur significant new debt. If you continue to accumulate debt after this loan is made and then experience financial difficulties, you could lose your home and any equity that you have in it if you do not meet your mortgage loan obligations. Property taxes and homeowner's insurance are your responsibility. Some lenders may require you to escrow money for these payments. However, not all lenders provide escrow services for these payments. You should ask your lender about these services. Your payments on existing debts contribute to your credit ratings. You should not accept any advice to ignore your regular payments to your existing creditors Exclusive State Regulation Authority The state shall have sole authority, except as provided under federal law, to regulate any matter governed by this subchapter or by a rule promulgated under this subchapter. No local governmental unit may attempt to regulate directly or indirectly any matter governed by this subchapter or by a rule promulgated under this subchapter, including enacting an ordinance or adopting a resolution or imposing reporting requirements Property Exempt from Debt Collection Except to the extent that the lender has a valid security interest permitted under this subchapter or has a lien on the property, all of the following personal property of the customer is exempt from levy, execution, sale, and other similar process in satisfaction of a judgment for an obligation arising from a covered loan: Clothing of the customer or his or her dependents Dining table and chairs Wisconsin Mortgage Lending Regulations 43

44 Refrigerator Heating stove Cooking stove Radio Beds and bedding Couch and chairs Cooking utensils Kitchenware Household goods, consisting of: o Furniture o Appliances o One television o Linens o China o Crockery o Personal effects including wedding rings Property not exempt from debt collection includes works of art, electronic entertainment equipment, antiques, and jewelry, to the extent that a nonpossessory security interest in these household goods is prohibited Administration and Penalties The rules shall include guidelines for determining a customer s ability to repay a covered loan based upon the customer s debt-to-income ratio. Investigations At any time that the department has reason to believe that a person has engaged in or is about to engage in an act that violates this subchapter, the department may investigate. In performing an investigation under this paragraph, the department may administer oaths or affirmations, subpoena witnesses, compel their attendance, and require the production of any matter, including the existence, description, nature, custody, condition, and location of any books, documents, or other tangible things, and the identity and location of persons having knowledge of relevant facts, or any other matter reasonably calculated to lead to the discovery of admissible evidence. Wisconsin Mortgage Lending Regulations 44

45 The department may access and examine such books, documents, or other tangible things. In any civil action brought on behalf of the department based on evidence obtained in such an investigation, the department may recover the costs of performing the investigation if the department prevails in the action. If five or more persons file a verified complaint with the department alleging that a person has violated this subchapter, then the department shall immediately commence an investigation pursuant to the information above. If the records of a person who is subject to an investigation are located outside of this state, the person, at the person's option, shall either make them available to the department at a convenient location within this state or pay the reasonable and necessary expenses for the department to examine them at the place where they are located. The department may designate representatives, including comparable officials of the state in which the records are located, to inspect them on the department's behalf. At the request of the Department of Financial Institutions and upon reasonable notice to all affected persons, the Department of Justice may apply to any court of record for an order compelling compliance if a person fails to obey a subpoena or to give testimony. Enforcement and Penalties The department may serve a notice of a hearing on a person if the department reasonably suspects that the person has violated this subchapter. The department may receive complaints alleging violations of this subchapter. A hearing conducted pursuant to a notice under this paragraph shall be conducted in the manner specified for a contested case. Except if the person fails to appear at the hearing or if upon the record made at the hearing the department finds that a violation has been established, the department may issue and serve on the person an order specifying any of the following: That the person must cease and desist from the violation or practice and make restitution for any actual damages suffered by a customer. That the person must forfeit not more than $1,000 per violation or, if the person willfully or knowingly violated this subchapter, not less than $1,000 nor more than $10,000 per violation. That the person must pay to the department the costs of its investigation. That a license, registration, or certification issued by the department to the person is suspended or revoked or will not be renewed. That any individual who is responsible for the violation must be removed from working in any capacity related to the violation or related to activities regulated by the department. Wisconsin Mortgage Lending Regulations 45

46 Any additional conditions that the department considers reasonable. An order effective upon service on the person may be appealed. The Department of Justice, at the request of the Department of Financial Institutions, may bring an action to enforce an order issued. Safe Harbor A defense to any alleged violation of this subchapter if the person alleged to have committed the violation establishes all of the following: That the person acted in good faith while committing the violation. That, no later than 60 days after the discovery of the violation and before any investigation or other enforcement action by the department under this section, the person notified the affected customer of the violation and either made appropriate adjustments to the loan to bring the loan into compliance with this subchapter or changed the terms of the loan in a manner beneficial to the customer so that the loan is no longer a covered loan Parity for Federally Insured Depository Institutions This subchapter does not apply to any state chartered bank, trust company, savings and loan association, savings bank, or credit union, or to any subsidiary of a state chartered bank, trust company, savings and loan association, savings bank, or credit union, to the extent that federal law pre-empts or prohibits the application of the provisions of this subchapter to a federally chartered bank, trust company, savings and loan association, savings bank, or credit union of the same type. This concludes lesson four. Wisconsin Mortgage Lending Regulations 46

47 Lesson 5: DEFINITIONS & APPLICABILITY REQUIREMENTS FOR MORTGAGE BANKING REGULATION AS COVERED IN DFI-BKG 40 OF THE WISCONSIN STATUTES This lesson focuses on the following topics: DFI-Bkg Definitions DFI-Bkg Applicability Requirements DFI-Bkg Loan Solicitor Activities DFI-Bkg Definitions Depository Institution A bank, savings bank, savings and loan association or credit union which is authorized to do business in Wisconsin or that is federally chartered. Finds a loan Means to assist a loan applicant in locating a lender for the purpose of obtaining a loan for the applicant and to make arrangements for a loan applicant to obtain a loan. Investor A mortgagee or a land contract vendor Loan Application Fee A fee collected at the time of application to pay for services in advance. Typically the appraisal and/or credit report. Loan Commitment A written statement signed by a lender, setting forth the terms and conditions upon which the lender is obligated to make a particular mortgage loan to a particular applicant. Loan Commitment Fee A fee charged by a registrant to an applicant in exchange for a promise to make a loan pursuant to a loan commitment. Loan Solicitor A loan originator that performs with a limited scope of activities. Wisconsin Mortgage Lending Regulations 47

48 Negotiate To discuss, explain or present the terms and conditions of a loan or a land contract with or to a loan applicant. "Negotiate" does not include making an underwriting decision on a loan or closing a loan. Originate To make an underwriting decision on a loan and close a loan. Person A corporation, partnership, individual, or other legal entity. Person does not mean a state or other governmental body, subdivision or agency. Regular Hours of Operation At least 20 hours each week that a registrant is available either by walk-in or by appointment to meet with customers. Services Mortgage Loans or Land Contracts The receipt of payments on a note or a land contract from the borrower or vendee and distribution of such payments in accordance with the terms of the note, land contract, or servicing agreement. Trust Account An account in a depository institution in which funds are held for the benefit of a third party. A trust account may also be known as a custodial or escrow account. Trust Funds All monies other than nonrefundable fees which a registrant receives on behalf of any person pending disbursement of the funds in accordance with instructions from the person on whose behalf the funds are deposited. Trust funds do not mean loan application fees that a registrant has disclosed to a loan applicant as being nonrefundable, even though the registrant may actually refund all or part of these fees later. DFI-Bkg Applicability Requirements Exemptions The following are exempt: Bank Trust Company Savings Bank Insurance Company Wisconsin Mortgage Lending Regulations 48

49 Land Contract Real Estate Brokers and Salespeople - A real estate licensee who finds a loan for a person is not required to register as a Mortgage Broker if the licensee does not receive a commission, money, or other thing of value from any person for finding the loan. Servicer or Provider A person who services loans or land contracts or provides escrow services for another person and for commission, money or other thing of value and who does not perform acts as a Mortgage Banker, Broker, or Loan Originator is required to register the sole proprietor-owner, the corporation, the limited liability company, or the partnership as a Mortgage Banker. Other officers, members, partners, or employees who do not use the title "Mortgage Banker" or "Loan Originator" and do not advertise or otherwise portray themselves as Mortgage Bankers or Loan Originators are not required to register. Non-Resident Aliens Not a Wisconsin resident. The primary factors which determine the division's jurisdiction over non-resident persons who engage in activities include: Whether the person's activity relates to real property located in Wisconsin which serves or may serve as security for a loan or a land contract. Whether the activity occurs in Wisconsin or the activity involves a resident of Wisconsin. In this section "activity occurs in Wisconsin" includes, but is not limited to, telephone calls into Wisconsin and correspondence sent into Wisconsin. Source of Financing for a Loan A person who provides funding for a loan must be registered as a Mortgage Banker if the person is in the business of originating loans directly with loan applicants. If the person who provides funding engages the services of a registered Mortgage Banker or other lending institution that is lawfully engaged in the practice of originating loans, the person providing funding is not required to be registered as a Mortgage Banker. Wisconsin Mortgage Lending Regulations 49

50 DFI-Bkg Loan Solicitor Activities A Loan Solicitor shall be limited to performing only the following activities: Taking information from a borrower and filling out a loan application. Estimating the maximum mortgage loan amount the prospective borrower can afford. Collecting financial information and related documents that are part of the application process. Assisting the borrower in understanding credit problems. Providing the following disclosures: o Mortgage Broker Disclosure o Servicing disclosure statements o Affiliated Business Arrangement (ABA) disclosures o GFE - Good Faith Estimate o HUD Settlement costs and Information Booklet Initiating the ordering of verifications: o Verification of Employment (VOE) o Verifications of Deposit (VOD) o Verifications of Mortgage (VOM) o Verification of Loan (VOL) o Informing the prospective borrower about the loan products available from a single lender. A Loan Solicitor is prohibited from accepting any funds from a loan applicant. This concludes lesson five. Wisconsin Mortgage Lending Regulations 50

51 Lesson 6: FEES AND REGISTRATION FOR MORTGAGE BANKERS, BROKERS AND ORIGINATORS AS COVERED IN DFI-BKG 41 OF THE WISCONSIN STATUTES This lesson focuses on the following topics: Chart of Fees and Charges for Licensees DFI-Bkg Registration and Renewal of Registration Fees DFI-Bkg Registration Periods Chart of Fees and Charges for Licensees License Type Renewal Price Notes Mortgage Banker $1, Mortgage Broker $ Loan Originator $ Late Fee $ Less than 31 days after expiration Transfer Fee $40.00 Change of Name and Address $ Only if department is not notified within 10 days Loan Originator competency examination $ DFI-Bkg Registration and Renewal of Registration Fees Renewal of Registration A registrant may renew a certificate of registration if the application for renewal and the fee required are received by the division before the expiration of the certificate. An application for renewal received by the division after the expiration of the certificate and prior to 31 days after the expiration of the certificate shall be accompanied by an additional fee of $100. Wisconsin Mortgage Lending Regulations 51

52 A registrant whose application for renewal is not received by the division within 30 days after the expiration of the certificate: Shall submit an application for a new certificate of registration, and no business for which the certificate is required shall be conducted after the certificate expires and before a new certificate is issued by the division. An application for renewal of a certificate of registration shall be in a form and manner prescribed by the division. Transfer A loan originator may be transferred to employment with another registered Mortgage Banker or Mortgage Broker by application for transfer in a form and manner prescribed by the division, and the payment of a transfer fee of $40. Change of Name and Address A registrant who changes his or her name or moves from the last address provided to the division shall notify the division in writing within 10 business days of the change. A registrant who fails to so notify the division shall pay a forfeiture of $100. Withdrawal No registration or renewal of registration fee shall be refunded unless a request to withdraw is received in writing by the division before the division begins its investigation of the applicant. DFI-Bkg Registration Periods The registration period is two years for Mortgage Banker, Mortgage Broker, and Loan Officer Certificates issued by the division. This concludes lesson six. Wisconsin Mortgage Lending Regulations 52

53 Lesson 7: MORTGAGE BANKING AUDIT REPORTS & TRUST ACCOUNTS AS COVERED IN DFI-BKG 42 OF THE WISCONSIN STATUTES This lesson focuses on the following topics: DFI-Bkg Annual Reports DFI-Bkg Trust Accounts DFI-Bkg Annual Reports Registered Mortgage Bankers and Mortgage Brokers shall submit to the division internally prepared financial statements by April 30 each year that include the following: Balance Sheet Income Statement Documentation shall be accompanied by a signed statement from an officer, partner, or member of the organization certifying that the statements are true and correct. DFI-Bkg Trust Accounts A registrant shall deposit all trust funds received by the registrant or the registrant's employees in a trust account in a depository institution authorized to do business in Wisconsin or that is federally chartered. The account shall be identified as a trust account. The division may prohibit a registrant from establishing or maintaining a trust account in a financial institution that the division determines is not stable. A registrant shall deposit all trust funds received by the registrant or the registrant's employees in a trust account within 24 hours of receipt of such trust funds. If funds are received on a day prior to a holiday or other day when the depository institution is closed, then the registrant shall deposit the funds on the next business day of the depository institution. Wisconsin Mortgage Lending Regulations 53

54 A registrant may satisfy this requirement by mailing trust funds to the depository institution within 48 hours after receipt of the trust funds. A registered Mortgage Broker who receives a loan application fee from an applicant for a loan shall make a good faith estimate of that portion of the loan application fee that will be needed to pay for services rendered by a third party incident to the processing of the loan application, such as a fee or a charge for a credit report or a real estate appraisal. The mortgage Broker shall follow either one of the following two procedures relating to that portion of the loan application fee that is needed to pay for the services rendered by a third party or that is imposed on behalf of any other person. 1. Deposit that portion of the loan application fee in a trust account and disburse it from the trust account to pay for the services rendered by a third party. 2. Direct the applicant to make payment directly to the third party. Statement of Account - Upon reasonable notice, a registrant shall promptly provide a statement of account to all parties to a mortgage transaction. Commingling Funds - A registrant may deposit only trust funds in the registrant's trust account and may not commingle personal funds in a trust account, except that a registrant may deposit and keep in account personal funds in an amount necessary to cover customary advances or service charges relating to the account. Responsibility of Employees - An employee of a registrant who receives trust funds shall promptly submit the funds to the registrant. Duty to notify the division about trust accounts - Upon request by the division, the registrant shall provide the division with the name and number of every trust account maintained by the registrant in a depository institution and the name and address of the depository institution in which the registrant holds each account. Authorization to examine trust accounts - Upon the division's request, a registrant shall obtain the certification of every depository institution in which a registrant maintains a trust account, attesting to the existence of the account and consenting to the examination and audit of the account by a duly authorized representative of the division. o The registrant shall have sufficient documentation from the trust account available to make an adequate examination. Disbursement of trust funds - Withdrawal of fees and commissions. Wisconsin Mortgage Lending Regulations 54

55 o A registrant shall withdraw fees or commissions from trust accounts maintained by the registrant within 24 hours after the fees or commissions are payable or in accordance with any written agreement or contract, except that fees relating to the servicing of monthly mortgage payments shall be withdrawn from trust accounts within 60 days after monthly payments are received. Release of trust funds - A registrant shall release trust funds: o Within 10 calendar days after payment of the loan in full. o If a loan or the transfer thereof is not consummated (closed), within 10 calendar days after such determination to the person who furnished the money held in trust. After closing escrow agreements - If a registrant requires or permits funds to be placed in escrow until some future occurrence, such as repair or completion escrows, and the parties request that the registrant hold these funds, then a written agreement to that effect shall be prepared by the parties or an attorney. If the registrant holds these funds, then the registrant shall place the funds in the registrant's trust account. This concludes lesson seven. Wisconsin Mortgage Lending Regulations 55

56 Lesson 8: ETHICAL & COMPETENT PRACTICE FOR MORTGAGE BANKERS, ORIGINATORS & SOLICITORS AS COVERED IN DFI-BKG 43 OF THE WISCONSIN STATUTES This lesson focuses on the following topics: DFI-Bkg Authority and Intent DFI-Bkg Improper, Fraudulent or Dishonest Dealing DFI-Bkg Incompetency to Act as a Mortgage Banker, Mortgage Broker, or Loan Originator DFI-Bkg Authority and Intent The intent of the division in adopting the rules in this chapter is to establish minimum standards of conduct for Mortgage Bankers, Mortgage Brokers, and Loan Originators and to define that conduct which may result in disciplinary action by the division. DFI-Bkg Improper, Fraudulent or Dishonest Dealing The following conduct constitutes improper, fraudulent, or dishonest dealing by a Mortgage Banker, Mortgage Broker, or Loan Originator: Using or permitting the use of any document that a registrant knows contains erroneous or false information concerning a prospective borrower's eligibility for a loan. Making or causing to be made any false, deceptive, or misleading statement or representation in regard to services being offered by the registrant. Wisconsin Mortgage Lending Regulations 56

57 DFI-Bkg Incompetency to Act as a Mortgage Banker, Mortgage Broker or Loan Originator The following conduct demonstrates a lack of competency to act as a Mortgage Banker, Loan Originator, or Mortgage Broker in a way that safeguards the interest of the public: Failing to make reasonable efforts to process loan applications promptly. Failing to promptly advise applicants of approval or disapproval of loan applications. Failing to close loans and disburse monies in a timely manner. Failing to notify the division in writing of the use of a trade name prior to doing business under the trade name. Failing to ensure that all agreements, disclosures, representations and promises to perform services are in writing. Failing to deliver promptly copies of all agreements, disclosures, representations and promises to perform services to all parties directly affected. Issuing checks upon business or trust accounts that contain insufficient funds. Being convicted of a crime, the circumstances of which substantially relate to the practice of a Mortgage Banker, Loan Originator, or Mortgage Broker. Failing to notify the division of any criminal conviction. Rendering services while the ability of the registrant is impaired. Giving or receiving referral fees other than allowed by law. Failing to notify the division that a federal agency has withdrawn its approval of the applicant as a mortgagee. Failing to maintain the requirements listed in for Mortgage Bankers and Mortgage Brokers with or without a bona fide office. Regarding Loan Application Fees In any transaction in which a loan will be secured by a lien on residential property designed for the occupancy of from one to four families, failing to disclose in writing the following information to an applicant before the acceptance of a loan application fee: Wisconsin Mortgage Lending Regulations 57

58 The amount of any such fee, labeled to indicate the general purpose of the fee. Whether all or any part of the application fee or related charges are refundable. The terms and conditions for a refund, if all or any part of the fee or related charges, are refundable. Whether the fee, terms and conditions of the application, including the rate of interest, will remain constant or are subject to change prior to or at closing. Regarding Commitment Fees In any transaction in which a loan will be secured by a lien on residential property for the occupancy of from one to four families, failing to disclose in writing the following information to a prospective borrower before the acceptance of a loan commitment fee: The amount of any commitment fee charged as a separate fee. Whether all or any part of the commitment fee is refundable. The terms and conditions of the refund, if all or any part of the commitment fee is refundable. Failing to provide or disclose in writing to the prospective borrower a good faith estimate of all charges, at the time of or prior to the issuance of a loan commitment. Failing to disclose in writing to the borrower any time period for the borrower to accept a loan commitment. Failing to clearly state in all commitments which terms and conditions of the commitment, including the rate of interest and fees, will remain the same as represented in the commitment or are subject to change prior to or at closing. Any transaction in which a registrant enters into an agreement or contract with a prospective borrower for the purpose of finding a loan or negotiating a land contract, loan or commitment for a loan, including a provision or otherwise disclosing that either of the following are nonrefundable: A fee or charge imposed on behalf of a third party for services rendered by the third party incident to the processing of an application, such as a charge for a credit report or appraisal. A fee or deposit in whole or in part imposed on behalf of any other registrant for that person's services rendered in connection with a loan application. Wisconsin Mortgage Lending Regulations 58

59 This does not apply to a Mortgage Banker or Loan Originator who finds a loan or negotiates a land contract, loan or commitment for a loan which will be originated by the Mortgage Banker or the Loan Originator's Mortgage Banker employer. This concludes lesson eight.. Wisconsin Mortgage Lending Regulations 59

60 Lesson 9: MORTGAGE BROKER AGREEMENTS & CONSUMER DISCLOSURE STATEMENTS AS COVERED IN DFI-BKG 44 OF THE WISCONSIN STATUTES This lesson focuses on the following topics: DFI-Bkg Mortgage Broker Agreement DFI-Bkg Consumer Disclosure Statement DFI-Bkg Mortgage Broker Agreement The Mortgage Broker Agreement must contain the following: The name, addresses, telephone number, and license number of the Mortgage Broker. A list of all terms and conditions of the agreement. A list of services to be provided by the Mortgage Broker. A disclosure of Mortgage Broker fees. A disclosure of application fees The signatures of the applicant and interviewer, the title of the interviewer, and the date the agreement was signed. A Mortgage Broker agreement shall be on white paper sized 8 ½" x 11" and in Times New Roman font style 12 or greater. A Mortgage Broker agreement shall be on a form prescribed by the department. DFI-Bkg Consumer Disclosure Statement The Consumer Disclosure Statement must contain the following: The name, address, telephone number, and license number of the Mortgage Broker. A statement of duties A statement of the nature of relationship Wisconsin Mortgage Lending Regulations 60

61 A disclosure of compensation The signature of the applicant and the date the agreement was signed. A consumer disclosure statement shall be on white paper sized 8 ½" x 11" and in Times New Roman font style 12 or greater. A consumer disclosure statement shall be on a form prescribed by the department. A copy of the form and instructions for using the form may be obtained by writing to the Department of Financial Institutions, Division of Banking, Mortgage Banking Section, 345 W. Washington Avenue, 4 th Floor, P.O. Box 7876, Madison, WI , or may be downloaded from the department's Web site, This concludes lesson nine. Wisconsin Mortgage Lending Regulations 61

62 Lesson 10: RESPONSIBLE HIGH COST MORTGAGE LENDING AS COVERED IN DFI-BKG 46 OF THE WISCONSIN STATUTES This lesson focuses on the following topics: DFI-Bkg Definitions DFI-Bkg Ability to Repay DFI-Bkg Disclosure Forms This is another statute that deals exclusively with high cost loans and does not apply to other loan types. DFI-Bkg Definitions Interest of the Customer What is proper and prudent for the customer under the circumstances? Factors to be considered in determining the interest of the customer shall include: The terms of the refinanced loan The borrower's economic and non-economic circumstances The purpose of the refinanced loan The cost of the refinanced loan Any other similar factors DFI-Bkg Ability to Repay Guidelines for Ability to Repay Based Upon Debt-to-Income Ratio Acceptable debt-to-income ratio tests include, but are not limited to, any of the following: The debt-to-income ratio of the loan is 50 percent or less, and the customer has adequate monthly residual income. The debt-to-income ratio requirement but not the monthly residual income requirement is satisfied, and the lender fully justifies in writing that the applicant is a satisfactory credit risk when considering the compensating factors. Wisconsin Mortgage Lending Regulations 62

63 The monthly residual income requirement but not the debt-to-income ratio requirement is satisfied, and the lender fully justifies in writing that the applicant is a satisfactory credit risk when considering the compensating factors. Verification of Ability to Repay The lender shall verify a borrower's ability to repay a (high cost) covered loan by all of the following: Having the borrower prepare and submit to the lender a personal income and expense statement. Note: Acceptable personal income and expense statements include a Fannie Mae uniform residential loan application. Having the borrower submit to the lender a tax return, pay stub, accounting statement, or other similar documents. Obtaining the borrower's credit report, if available. DFI-Bkg Disclosure Forms A disclosure form shall be designed to call attention to the nature and significance of the information provided, and shall use a typeface and type size that is easy to read. A disclosure form shall contain an acknowledgment provision. The acknowledgement provision shall indicate that the borrower has read and understood the terms of the disclosure. No disclosure is valid unless a borrower has initialed or signed the acknowledgement provision. At the time the borrower initials or signs the acknowledgement provision, the borrower shall also date the acknowledgement provision. A disclosure shall include the following statement: "A list of adjustment services companies (companies that help consumer s budget money) licensed to do business in the state of Wisconsin is available at the Wisconsin Department of Financial Institutions' website, This concludes the course. Return to your online course player to take the Final Exam. Wisconsin Mortgage Lending Regulations 63