FIRST COMMUNITY MORTGAGE, INC. REG Z & TRUTH IN LENDING ACT Background: On July 30, 2008 Congress enacted the Housing and Economic Recovery Act (HERA) which contained a section called the Mortgage Disclosure Improvement Act (MDIA). These new regulations are effective with loan applications for primary residence and second homes dated on or after 7/30/2009. New Definitions: General Business Day: A day on which the creditor s offices are open to the public for carrying on substantially all of its business functions. At FCM, this will be Monday Friday. Precise Business Day: All calendar days except Sundays and Federal legal holidays. These days are calculated the same as rescission days. New Fee Collection Restrictions: No lender (retail or third party originator) may collect a fee for any item associated with the loan application and transaction, other than a credit report, until the borrower has received the initial TIL disclosures. See Determining the TIL received date for further clarification. If the disclosures are given to the borrower in person, a fee may be assessed immediately, so long as the TIL and GFE has been signed and dated. If the disclosures are mailed to the borrower, the disclosures will be considered received on the 3 rd precise business day after they are mailed. Reasonable and customary application fees, other than the credit report, may not be charged until after midnight of the 3 rd precise business day. Post dated checks are not permitted. Example: APPLICATION TAKEN BY PHONE INITIAL TIL CONSIDERED RECEIVED Thursday, August 6 EARLIEST DAY ALLOWED TO COLLECT FEES * Friday, August 7
2 New Waiting Period Before Closing: The loan cannot close (document signing) until the seventh (7 th ) precise business day after the initial TIL and GFE disclosures are delivered or mailed to the borrower(s). Example: APPLICATION TAKEN BY PHONE INITIAL TIL CONSIDERED RECEIVED Thursday, August 6 EARLIEST DAY LOAN COULD CLOSE ** Tuesday, August 11 Re Disclosed TIL: If the APR has increased or decreased more than.125% from the most recently issued TIL on a fixed rate loan, or more than.25% on an ARM loan, a new TIL must be issued. The borrower must receive the revised TIL and GFE at least three (3) precise business days prior to signing loan documents. Please see section Determining the TIL received date for further clarification. The 3 day waiting period may not be waived. Recap: Borrowers cannot sign loan documents until the latter of: The 7 th precise business day after the initial TIL was signed and dated or mailed to the borrower. OR The 3 rd precise business day after the borrower received the most recent/the last amended TIL. Example: APPLICATION TAKEN BY PHONE TO BORROWER CORRECTED TIL GIVEN IN PERSON EARLIEST DAY LOAN COULD CLOSE Tuesday, August 4 Thursday, August 6 Wednesday, Aug 12 APPLICATION TAKEN BY PHONE TO BORROWER CORRECTED TIL MAILED TO BORROWER EARLIEST DAY LOAN COULD CLOSE Tuesday, August 4 Tuesday, August 11 Tuesday, August, 18
3 Determining the TIL received date: In Person: If the disclosures are delivered face to face, FCM will consider the TIL to be received by the borrower on the date they sign and date the TIL disclosure. Mail: If the disclosures are mailed to the borrower, they will be considered received three (3) precise business day from the date of mailing. The Loan Officer must provide certification in writing regarding the date the disclosures were mailed to the borrower. Fax, E mail, Other: If the disclosures are delivered any other way, i.e. email, fax, overnight delivery, etc. they will be considered received by the borrower on the date they sign and date the TIL disclosures. Other methods of documenting receipt, such as fax header, email delivery receipt, overnight confirmation, etc. are not acceptable forms of confirmation. The FCM TIL Delivery Disclosure (Rev. 10/09) is required on every loan submitted to FCM to certify the means by which the TIL and GFE were delivered and disclosed to the borrower. This disclosure is used to certify the lender did not collect any fees prior to the borrower s receipt of the TIL. GFE and TIL Compliance: First Community Mortgage will mail all RESPA and TIL disclosures to the borrower within 24 48 hours of loan finaled to FCM. A copy of the cover letter to the borrowers will receive is attached. If the loan is finaled after 3pm, it will be considered received the following business day. Once you have imported or created your loan application you must complete the Good Faith Estimate screen in Avista. Enter your estimated closing date and 1 st payment date in the information section. Verify all your fees are entered correctly and make sure all APR fees are marked YES in the PFC column (all default fees are preset correctly). Go to the TIL screen and complete any applicable required information such as MI and ARM details. Calculate the TIL, by clicking the calculate button on the top right hand corner. FCM will use your information to create the GFE and TIL that will be mailed to the borrower and used for TIL Compliance. When preparing a compliant GFE in Avista, be advised fees paid by the seller are not calculated in the APR. Therefore, you should not use a lump sum credit at the bottom of the GFE for any fees paid by the seller, broker or lender. This will adversely affect your APR tolerance if done incorrectly. TIL Verbiage Requirement The preliminary Truth in Lending disclosure must state, You are not required to complete this agreement merely because you have received these disclosures or signed a loan application. This statement must appear in the Fed Box on the TIL.
4 APR Fees: The following are just a few examples of APR Fees. For a complete list see Exhibit A. Origination & Discount Fee Closing Fee Underwriting Fee Monthly MI Processing Fee FHA Upfront MIP Broker Fee VA Funding Fee Admin Fee RD Fee Interim Interest NOTE: Interim Interest is used to calculate the APR, unless the interest is a credit. RESPA Requirements: All initial disclosures must be sent to the borrower (mail, fax, email, in person, etc.) within 3 general business days of taking a loan application. The current definition of a loan application is: Submission of an application in anticipation of a credit decision. A property address is also required to qualify as a loan application. As of January 1, 2010 several changes will be made to RESPA including the definition of a loan application. The new definition of a loan application is: The submission of a borrowers financial information in anticipation of a credit decision relating to a federally regulated mortgage loan, which shall include: Borrower s name, monthly income, social security number, property address, property value estimate, loan amount, and any other Information deemed necessary by the lender (cannot include verification information). Authorization to pull credit: All credit reports pulled on a borrower must be specifically authorized by the borrower with written or verbal permission. Since a percentage of credit reports are pulled prior to the borrower having a property address, therefore not triggering RESPA as a true loan application, it is required to document the authorization the originator received prior to the credit check. The authorization for a credit check may be documented by a Borrower s Authorization signed and dated on or before the date of the credit report. If this is not possible, FCM has created a Verbal Authorization form that will be required to be completed and signed by the Loan Officer.
5 Higher Priced Mortgage Loans: A Higher Priced Mortgage (HPML) loan is any loan secured by the borrower s principle residence where the APR is greater than or equal to the Average Prime Offer Rate (APOR); plus a margin of 1.5% for first lien loans and 3.5% for second lien loans. This comparison is based on the effective APOR on the date the loan was locked. These new loan types are effective for applications taken on or after October 1, 2009. The APOR is tracked, maintained, and published on a weekly basis by the FFIEC. The link to the APOR is: http://www.ffiec.gov/ratespread/newcalc.aspx. Any loan considered a HPML will be subject to additional provisions and restrictions. A few examples of the increased restrictions are noted below: Income, assets and obligations must be verified and documented, including third party written verifications. Approval must be based on verified and documented repayment ability. Qualifying ratios must use the fully indexed rate and fully amortized payments. Qualifying ratios must include all property taxes, insurance, HOA dues, assessments, etc. An escrow account must be established at closing (Effective April 1, 2010) If P&I payments vary, applicants are qualified on the largest payment scheduled during the first seven years. A tangible net benefit must be documented on all HPML refinance transactions. The following programs and products are not eligible for approval at First Community Mortgage if they are considered Higher Priced: FHA Streamline non credit qualifying streamline refinance VA IRRRL Conventional and Government ARMS Additional Programs may be added based on restrictions.
6 10/5/2009 Sample Cover Letter Borrower 123 Sunshine Street Nashville, TN 37211 Dear Borrower, Enclosed you will find a Good Faith Estimate (GFE), a Truth in Lending disclosure (TIL) and a Servicing disclosure. These forms have already been provided to you by your mortgage loan consultant at ABC Broker. Even though your mortgage loan consultant has already provided you with these forms First Community Mortgage, Inc. is required to redisclose these forms to you as the lender. If you have any questions please do not hesitate to contact your mortgage loan consultant directly and they will be more than happy to answer any questions you may have. Sincerely, First Community Mortgage