Chapter 3 TILA (Truth in Lending Act) Flashcards
Truth in Lending ACT (TILA/Reg Z)
Enacted in 1968 to protect consumers. Applies to any individual or business that offers or extends credit under 4 conditions.
-Credit is offered to consumers
-Credit is offered regularly
Credit is subject to a finance charge (interest) or must be paid in more than 4 installments per written agreement.
Does not apply to business, commercial, or agriculture purposes. Only applies to 1-4 unit homes.
Rules that fall under TILA
HOEPA, HPML, QM, ATR, LO Compensation, advertising, right of recession, consumer handbook on adjustable rate mortgages (CHARM booklet) and TILA_RESPA Integrated Disclosure Rule
TILA and Dodd-Frank both regulate
QM, ATR, LO Comp.
TILA/Reg Z Requires records of compliance for how long?
2 Years. Violations consist of up to $5,000, up to 1 year in prison, or both.
Annual Percentage Rate (ARP)
The total cost of the loan over the life of the loan expressed as a rate. (It is not the interest rate. It is the cost of the credit expressed as a rate.)
APR = Total Interest (over the term of the loan) + APR Closing Costs)
APR Closing costs
Fees associated with the closing costs of a loan. Can include but not limited to:
-Loan Origination Fee, Application, Underwriting, Processing, Admin
-Any lender fee or charge
-Discount Points
-Credit report
-Flood determination certification
-document preparation Fee
-Prepaid interest
-Lender’s title insurance policy
-Escrow, closing, settlement fee
-PMI, UFMIP, and FHA annual premium
Advertising to borrower requirements
-Advertise only terms that are the specific terms that the lender will offer in credit plans.
-State the finance charge rate using the term Annual Percentage Rate or APR.
-Specify that the APR might increase after consummation of the loan; the ad must be specific on this detail
-Advertise the APR in conjunction with the simple annual or periodic rate applied to an unpaid balance, but the APR must be advertised as conspicuously as the simple annual or period rate.
APR Trigger Terms
Trigger terms include but are not limited to;
-% down payment
$ amount down
% financing
Monthly payment $$ amount
(general rule, if a number is included it triggers an APR disclosure on the ad.)
Trigger Terms Must Disclose
-Price of the home
-Amount of the down payment required or if none is required.
-Number of payments necessary to repay the loan.
-Amount of the monthly payment for the entire term of the loan.
-Due dates or period of payments scheduled to repay
-APR
Non-Trigger Terms
-Easy monthly payment
-Low down payment
-Pay bi-weekly
-Terms to fit any budget
-Financing available
-FHA or VA loans available
Requirement for advertising ARMs
Must say that the APR may increase or is subject to change.
Oral Disclosure
If a borrower asks about a credit plan and the costs associated with it, the MLO must disclose the APR first.
False or wrong information is subject to $5K in fines, 1 year in jail time, or both.
Right of Rescission
Allows anyone with an ownership interest in an owner-occupied refinance transition to cancel the loan. The borrower must notify the creditor before midnight on the 3rd business day after one of the following. (whichever comes last)
-The signing of the loan documents.
-The delivery of the right to rescind notice.
-The delivery of all disclosures.
LO Comp
Prohibits compensation based on terms or fees.
For example, a mortgage broker cannot receive compensation based on the interest rate of a loan or the purchasing of title insurance.
It also prohibits loan officer compensation from being reduced to offset the cost of a charge in terms. However, a loan originator can reduce compensation in specific situations to defray specific unexpected increases in estimated settlement costs.
It also prohibits compensation from being raised based on the profitability of the transaction. However certain bonuses, retirement, and profit-sharing benefits can be based on the terms of multiple loan originators’ transactions. Bonuses cannot exceed 10% of the LO’s total compensations.)
Safe Harbor Compensations (Allowed types of compensations)
-LO’s overall dollar volume
-Long-term performance of the originator’s loan.
-An hour pay rate based on the actual number of hours worked.
-Loans made to new customers vs loans to existing customers
-A payment that is fixed in advance for every loan the originator arranges.
-The percent of the loan originator’s applications that close.
-The quality of the loan originator’s files submitted.
