lays out disclosure and advertising requirements, rights of rescission, and penalties for violation, as stated in this federal statue, as well as a detailed APR explanation.
TILA(THE TRUTH IN LENDING ACT)
The Truth in Lending Act (TILA)
is a statute that requires creditors to disclose key terms and costs to consumers for credit transactions (e.g. a mortgage loan) through statements and fair advertising practices. TILA is part of the Federal Consumer Credit Protection Act.
Disclosures Required by TILA are essential to a homebuyers success
Also Known As Regulation Z
Regulation Z Applies to each Individual business that offers or extends consumer credit if they are what
- The credit is offered to consumers.
- Credit is offered on a regular basis.
- The credit is subject to a finance charge (i.e. interest) or must be paid in more than four (4) installments according to a written agreement.
- The credit is primarily for personal, family or household purposes
is an arrangement where the mortgagor may draw additional funds on a line of credit (Home Equity Line of Credit HELOC) and-or is not required to pay the principal amount by a specific deadline. The borrower is charged interest periodically and is usually required to make a minimum monthly payment.
credit arrangement involves a loan that requires the borrower to pay the principal amount according to a set payment schedule
This is the actual cost of credit in the form of an annual interest rate the mortgage borrower will pay after all of the closing costs and other charges are taken into consideration. Along with the simple interest rate (aka note rate or periodic rate) the () related loan costs are totaled and averaged on an annualized basis over the life of the loan. This encompasses the rate, points, MIP, processing fees, and any other() related costs associated with the loan and is calculated to the nearest one-eighth (1/8) of a percent. The () is commonly referred to as “the cost of credit as a yearly rate” or “the cost of credit as a ratio”
APR(Annual Percentage Rate)
One of the most important disclosures made, this figure represents the amount the creditor charges the borrower for credit. This is commonly referred to as “the cost of credit in an exact dollar amount.”.
The finance charge includes but is not limited to the following types of charges:
- Loan discount fee
- Loan commitment fee
- Borrower paid mortgage broker fees Processing fees
- Underwriting fee
- Tax service fee
- Flood certification fee
- Escrow/ impound waiver fee
- Assumption fee
- Interest (pre-paid)
- Courier fees
- Mortgage insurance premiums
- Document preparation fee
- Credit life premiums
- Accident, health or LOI insurance
- Closing fees, including attorney’s fees Service, transaction, activity and carrying fee Loan fees, finder’s fees and similar charges
the following are examples of fees NOT included in the finance charge
- Points and fees paid by the seller
- Application fee charges to all applicants for credit
- Fees for preparing deeds and mortgages
- Fees for title examination , abstract of title, property survey -Notary or appraisal fees
- Recording fees
- Well and septic inspection fees
- Final inspection fee
- Flood hazard inspection
- Amounts required to be paid in escrow or trustee accounts -Any escrow fee or money on reserve for taxes and insurance Appraisal
the amount that is being borrowed in a consumer loan transaction
According to TILA what days are defined as business days
Monday through Saturday, excluding Federal holidays.
How many days does the Creditor need to provide the borrower a general , Preliminary disclosure, statement
three (3) business days after the consumer’s completed application is received
When the APR changes by more than .125% what should the lender do and how many days do they need to provide the statement to the borrower
efore the closing then the creditor must re-disclose by providing another truth in lending statement. This disclosure must be provided allowing the borrower three (3) full business days to review prior to the closing of the loan.
What is a variable credit rate plan
arrangement where the APR may increase or decrease (e.g. based on market rates) throughout the duration of the repayment period.
What is in the CHARM (Consumer Handbook on Adjustable Rate Mortgages) Booklet?
the CHARM booklet is a consumer friendly informational document describing the attributes of Adjustable Rate Mortgages (ARMS). Introducing terms to the consumer such as index, margin, etc.
What disclosures needs to be provided for each variable
- The fact that the interest rate, payment, or term of loan can change;
- The index or formula used in making adjustments, and a source of information
about the index or formula (where it can be obtained);
Where are the finance charges reported to the borrower initially?
On the Truth in Lending initial disclosure form
What is a Principal Dwelling?
the primary residence.
The transaction secured by what type of loan is not rescindable?
second or vacation home
If the required notice or material disclosures are not delivered, the right to rescind shall expire
To rescind a Loan the borrower must do what
he consumer must notify the creditor (by mail, telegram, e-mail, etc.) before midnight (12:00 AM) of the third (3rd) business day after one of the following (whichever comes last):
- The consummation of the loan.
- The delivery of the right to rescind notice.
- The delivery of all disclosures.
Waiving the right to Rescission for a financial emergency what do you need to provide in a written statement?
- Describes the emergency
- Specifically waives (or modifies) the right to rescind -Contains all of the concerned consumers’ signatures
What are Trigger terms ?
“Trigger terms” are phrases that represent the most attractive features of a credit plan in the context of an ad. I
If a consumer orally asks about a credit plan and the costs associated with it, the mortgage loan originator must do what ?
mortgage loan originator must state the APR!
For what type of plan (open ended or closed ended) can the creditor give the periodic rate, if he or she so chooses.?
What plan (open ended or closed ended) can the creditor offer the periodic or simple interest rate that is applicable to an unpaid balance—but only after the APR has been disclosed.
A broker or a creditor must keep evidence of compliance with TILA regulations for how long from disclosure date?
two (2) years
What are the penalties for violating regulation Z?
an be fined up to $5,000 dollars, be imprisoned for up to a year, or both
A consumer lawsuit must begin within what time frame of the actual violation to TILA
1 Year, but f a note holder sues a consumer more than one (1) year after the lender’s violation date, violations in the Truth in Lending Act can be used as a defense and a counterclaim by the consumer for up to three (3) years.
This Act was to amend the reporting rules for both Regulation X (RESPA), and Regulation Z (TILA)
Mortgage Disclosure Improvement Act
initial disclosures are due in three (3) business days; there must be seven (7) business days allowed to close the loan; and redisclosure requires a three (3) business days wait period before you can close , this is called ?
3/7/3 rule or July rule