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Chapter 3 Flashcards

Introduction to Federal Law

1
Q

What is the purpose off the Dodd-Frank Wall Street Reform Act?

A

“To promote the financial stability of the United States by improving accountability
and transparency in the financial system, to end ``too big to fail’’, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.”

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2
Q

Real Estate Settlement Procedures Act (RESPA,
Regulation X)

Regulation:

Acronym:

Year Created:

Main Purpose:

Disclosures/Notice Required:

Important Terms Related to this Law:

A

Regulation: Regulation X

Acronym: RESPA

Year Created: 1974

Main Purpose: Educate borrowers on the cost of their loans

Disclosures/Notice Required: Escrow notices, notice of transfer of loan
servicing, ABA

Important Terms Related to this Law: Kickbacks, referral fees, escrow
requirements, transfer of

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3
Q

Name the purpose of RESPA.

A

RESPA was enacted to protect borrowers in purchases, refinances, home improvement and home equity lines of credit, and any other federally related mortgage loans. RESPA covers properties that are one to four family dwellings, condominiums, or manufactured homes.

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4
Q

RESPA does not cover:
(five)

A
  • Vacant Land
  • Large Tracts of Land (25 acres or more – even if there is a dwelling on it)
  • Commercial or business loans
  • The government, its agencies, or instrumentalities
  • Temporary financing (bridge loans or swing loans)
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5
Q

The maximum a lender can collect at closing is?

A

14 months of escrow
payments.

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6
Q

Before establishing an escrow account, according to RESPA, a servicer is?

A

required to analyze to determine the periodic payment and the amount to be deposited
into the account.

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7
Q

The servicer must use an escrow disbursement date that is on or before the deadline to?

A

avoid a penalty and may make annual lump sum payments to take advantage of a discount

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8
Q

According to RESPA, a servicer is required to?

A

disclose an initial escrow account statement
within 45 calendar days of settlement for escrow accounts that are established as a
condition of the loan.

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9
Q

What are two things required to be included on the initial escrow account statement?

A
  • The monthly mortgage payment
  • The portion going to escrow
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10
Q

What are three things that must be included in the annual escrow statement?

A
  • Account history
  • Projections for the current year
  • Current mortgage payment
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10
Q

The servicer is required to submit to the borrower an annual statement for each escrow account within?

A

30 days of completion of the computation year. The servicer is required
to conduct an escrow account analysis before submitting an annual statement to the
borrower.

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11
Q

RESPA, Reg X, Section 6, requires that if mortgage lender anticipates that they may sell the
servicing rights of a loan, they are required to ?

A

let the borrower know.

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12
Q

The lender must notify the borrower that this may occur within?

A

three days after the receipt of the application.

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13
Q

Goodbye Letter

A

When a mortgage loan is assigned, sold, or transferred, the former servicer must provide a
disclosure at least 15 days before the effective date of the transfer

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13
Q

Hello Letter

A

A letter from the new servicer must also be sent within 15 days after the effective date of
the transfer.

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14
Q

What are three things that must be included in both the Goodbye and Hello Letter?

A
  • The effective date of the transfer.
  • The name, address, and toll-free or collect call telephone number for an
    employee or department of the first servicer that can be contacted by the
    borrower to obtain answers to servicing transfer inquiries.
  • The name, address, and toll-free or collect call telephone number for an
    employee or department of the new servicer that can be contacted by the
    borrower to obtain answers to servicing transfer inquiries.
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15
Q

During the 60 days, beginning on the date of the transfer, no late fee or another penalty
can be imposed on a borrower who has?

A

made a timely payment to the former servicer.

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16
Q

If the former servicer receives an incorrect payment on or
after the effective date of the transfer, the former servicer must ?

A

either transfer the payment to the new servicer or return the payment and inform the borrower of the proper recipient of the payment

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17
Q

Section 8 of RESPA was created to?

A

eliminate the payment of referral fees and kickbacks between parties in a real estate transaction.

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18
Q

RESPA reconsidered legitimate business relationships and established the term and
documentation required for?

A

Affiliated Business Arrangements (AfBA)

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19
Q

Define an AfBA:

A
  • A person who may refer business to a settlement service for a federally related mortgage loan, or an associate of such person, and has either an
    affiliate relationship with or a direct beneficial ownership interest of more than 1% in the provider of the settlement service.
  • Either person directly or indirectly who refers business to that provider or influences the selection of that provider.
20
Q

When must the AfBA disclosure be delivered to the borrower?

A

at the time of the referral

21
Q

What else does Section 8 state?

A

Section 8 also states that no person may give or receive a fee, kickback, or any other form of valuable compensation (a thing of value) or arrange to do so for referring a
potential borrower to a certain lender or service provider for a federally-related mortgage loan

21
Q

If someone violates Section 8 of RESPA, they?

A

could be fined up to
$10,000, up to one year in prison, or both.

22
Q

Name three things that constitute a thing of value under RESPA Section 8

A
  • Monies
  • Things
  • Discounts
23
Q

A referral includes?

A referral also occurs whenever?

A

any oral or written action directed to a person which has the effect of
affirmatively influencing the selection by any person of a provider of a settlement service
or business, incident to, or part of, a settlement service when such person will pay for such
settlement service or pay a charge attributable in whole or in part to such settlement
service.

a person paying for a settlement service is
required to use a particular provider of a settlement service.

24
Q

Name three things Section 8 of RESPA permits:

A
  • A payment to an attorney at law for services actually rendered.
  • A payment by a title company to its duly appointed agent for services
    actually performed in the issuance of a policy of title insurance.
  • A payment by a lender to its duly appointed agent or contractor for
    services actually performed in the origination, processing, or funding of a
    loan.
25
Q

Name two exceptions under RESPA’s referral restriction

A
  • Educational activities: These activities must not defray the expenses that
    the real estate broker/agent otherwise would have had to pay. In other words, an MLO can’t pay for the real estate agent’s CE or renewal fees, and
    it cannot be in exchange for, or tied in any way, to referrals.
  • Payments for Goods or Services Actually Provided: The fee has to be equal to market value for the service provided. If it’s in excess of that market value, it would be a violation of RESPA Section 8.
26
Q

Truth in Lending Act (TILA, Regulation Z)

Regulation:

Acronym:

Year Created:

Main Purpose:

Disclosures/Notice Required:

Important Terms Related to this Law:

Entity Responsible for Enforcement:

Other Laws that have influenced it:

A

Regulation: Regulation Z (think TILA-ZILA)

Acronym: TILA

Year Created: 1968

Main Purpose: Protect consumers from predatory lending
practices

Disclosures/Notice Required: HOEPA notice, homeownership counseling
notice, TRID

Important Terms Related to this Law: High-cost loans, ability to repay, higher priced loans, qualified mortgage,
advertising, right of rescission, CHARM
Booklet, Loan Estimate Annual Percentage
Rate

Entity Responsible for Enforcement: CFPB

Other Laws that have influenced it: Dodd-Frank

27
Q

Who does TILA apply to?

A

Reg. Z applies to any individual or business that offers or extends credit if the
following four conditions are met:
* The credit is offered to consumers
* Credit is offered regularly
* The credit is subject to a finance charge (interest) or must be paid in more
than four installments according to a written agreement
* The credit is for personal, family, or household purposes

28
Q

Reg. Z does not apply to?

A

loans made for business, commercial, or
agriculture purposes, and it only applies to one to four-unit properties

29
Q

Dodd-Frank is its own separate law, but it appears in this hierarchy
because?

A

Dodd-Frank mandated Qualified Mortgage, Ability to Repay, and LO Compensation.

TILA is the law that these three now fall under because of their creation.

30
Q

Anyone who gives false or inaccurate disclosure information, consistently understates the APR, or otherwise fails to comply with Reg. Z, can be?

A

fined up to $5,000 and be imprisoned for up to one year, or both.

31
Q

Name three typical APR fees.

A
  • Loan Origination Fee, Application, Underwriting, Processing, Admin
  • Any Lender Fee or Charge
  • Points (Discount Points), Interest Rate Dependent Fees
31
Q

Define APR or Annual Percentage Rate

A

the 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 credit expressed as a rate.

32
Q

Name three fees that are typically non-APR fees.

A
  • Escrows / Impounds – Taxes, Insurance
  • Appraisal
  • Inspection, Home Warranty, Survey (unless required by lender or loan program)
33
Q

APR is used to identify ?

A

Whether loans have higher costs and fees.

This allows the borrower to compare loan options using the APR as an indicator as to which
lender may have higher fees.

34
Q

Name three things considered advertising under TILA.

A
  • Newspapers and magazine ads
  • Leaflets and flyers
  • Catalogs
35
Q

Rate sheets use for internal purposes, education, and state-required material (unless combined with a sales offer), and brochures that explain details about a
mortgage, are not considered

A

advertisements

36
Q

If a lender advertises directly to a borrower, they are required to:

A
  • 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 periodic rate.
37
Q

If the rate is present in the advertisement..

A

the APR must be disclosed.

38
Q

Define a trigger term.

A

A trigger term is a phrase that represents the attractive features of the credit plan within the advertisement.

39
Q

What are two examples of trigger terms?

A
  • 10% down payment
  • $1,000 down
40
Q

What is one example of a phrase that would not be considered a trigger term?

A

● Easy monthly payments
* The price of the home
* The amount of the down payment required, or that none is required

41
Q

An advertisement for an ARM must say

A

that the APR may increase or is subject to change.

42
Q

If a borrower asks about a credit plan and the costs associated with it, the MLO must

A

disclose the APR

43
Q

The right of rescission is

A

a special protection provided by TILA (Reg Z) on owner-occupied
refinance transactions

(this does not apply to purchases or refinance transactions on
second or investment properties).

44
Q

The right of rescission allows

A

anyone with an ownership interest to
rescind (cancel) the loan

45
Q

The borrower must notify the creditor of their wish to rescind the loan before midnight
on the third business day after one of the following, whichever comes last:

A
  • The signing of the loan documents
  • The delivery of the right to rescind notice
  • The delivery of all disclosures

Borrowers have 3 FULL business days to decide, which does include Saturday, but it does
not include Sundays or holidays.

The two copies of the right to rescind notice must be provided to the borrower along with
one copy of the disclosure statement.

46
Q

A loan can be rescinded by

A

just one person on the title of the property,
regardless of whether that person is on the loan or not.

MLO first (5 decks)

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