Principals of Mortgage Banking - Compliance
Presented by
Danielle Barbato, Training & Development
Gregory Korn, VP Risk Management
Dan Pass, BSA Officer
Merrimack Mortgage Company, Inc.
1045 Elm Street, Suite 601
Manchester, NH 03101
Proprietary information, do not distribute
or use without permission of MBBA-NH
1
Principals of Mortgage Banking - Compliance
•
•
Federal Law Review
•
Dodd Frank Act
Laws requiring financial disclosures in real estate transactions:
• Truth in Lending Act and the Mortgage Disclosure Improvement Act
• Real Estate Settlement Procedures Act
• Homeowner’s Protection Act
Laws protecting privacy and consumer identification:
•
Laws/Rules prohibiting predatory lending:
•
Laws prohibiting discrimination:
• Fair Credit Reporting Act, Fair and Accurate Credit Transactions Act Red Flag
Rules
• Gramm-Leach-Bliley Act
• U.S. Patriot Act
• National Do Not Call Registry
• Anti Money Laundering & Suspicious Activity Reporting
• Home Ownership Equity Protection Act
• Dodd Frank Act 2013 Final Loan Originator Compensation Rule
• Unfair Deceptive Abusive Acts and Practices
•
•
•
•
•
Civil Rights Act of 1866
Fair Housing Act
ECOA
CRA
HMDA
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or use without permission of MBBA-NH
2
Principals of Mortgage Banking - Compliance
Dodd-Frank Act
• Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
• Title X created Consumer Financial Protection Bureau and transfers
rule-making and enforcement authority of the following:
• Truth in Lending Act
(TILA)
• Real Estate Settlement
Procedures Act
(RESPA)
• Homeowners
Protection Act (HPA)
• Fair Credit Reporting
Act (FCRA)
• Fair and Accurate
Credit Transactions Act
(FACTA)
• Portions of Gramm-Leach
Bliley Act (information privacy)
• Equal Credit Opportunity Act
(ECOA)
• Home Mortgage Disclosure Act
(HMDA)
• Home Ownership and Equity
Protection Act (HOEPA)
Proprietary information, do not distribute
or use without permission of MBBA-NH
3
Principals of Mortgage Banking - Compliance
QM/ATR Rule
In January 2013, the CFPB amended Reg Z
by issuing new regulations governing
mortgage lending requirements known as
the “Ability-to-Repay and Qualified
Mortgage Rule”
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or use without permission of MBBA-NH
4
Principals of Mortgage Banking - Compliance
QM/ATR Rule
 Reg Z currently prohibits lenders from making a higher-
priced or higher cost mortgage loans without regard for the
consumer’s ability to repay the loan
 The rule establishes minimum requirements for all lenders
to make an ability-to-repay determination prior to
extending a residential mortgage loan
 Many lenders will only accept Qualified Mortgages from all
borrowers.
Proprietary information, do not distribute
or use without permission of MBBA-NH
5
Principals of Mortgage Banking - Compliance
QM/ATR Rule
•
•
The ability-to-repay rules applies to all closed end
mortgage loans
It does not apply to open end credit plans, time
shares, reverse mortgages or temporary mortgages
(with terms of 12 mos or less)
Proprietary information, do not distribute
or use without permission of MBBA-NH
6
Principals of Mortgage Banking - Compliance
ATR Determinations
• At a minimum, lenders must consider 8
underwriting factors to determine a
borrower’s ability-to-repay
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or use without permission of MBBA-NH
7
Principals of Mortgage Banking - Compliance
8 Minimum Underwriting Factors
 Current or reasonably expected income and assets
 Current employment status
 The monthly payment on the current transaction
 The monthly payment on any simultaneous loans
 The monthly payment for mortgage-related obligations
 Current debt obligations including child support and


alimony
The monthly debt-to-income ratio or residual income
Credit history
Proprietary information, do not distribute
or use without permission of MBBA-NH
8
Principals of Mortgage Banking - Compliance
Stipulations for QM Loans
Qualified Mortgage: A residential mortgage that provides for regular,
substantially equal payments and does not carry any of the
following:
Negative amortization
Interest only
Balloon payments (some exceptions)
Loans with terms exceeding 30 years
ARM loans must be qualified using two tests methods. Clarification is
forthcoming.
“No doc” loans (where income and assets are not verified)
Points and fees are in excess of 3% for loans amounts over $100,000
While HPML loans do qualify for QM, they have stricter qualifications.
They fall under a rebuttable presumption of compliance
DTI limited to 43% (temporary exceptions for FNMA, FHLMC, FHA, VA and
RD)
All income, assets, debt, child support and alimony but be verified in
accordance with Appendix Q
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or use without permission of MBBA-NH
9
Principals of Mortgage Banking - Compliance
Debt to Income
• Under the general definition of QM, the
max allowable DTI is 43%. A temporary
waiver of the 43% DTI limit is allowed on
FNMA, FHLMC, FHA, VA and RD loans
receiving an AUS approval. The waiver
has an expiration date of January 10,
2021 at the latest
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or use without permission of MBBA-NH
10
Principals of Mortgage Banking - Compliance
Safe Harbor
•
By originating a Qualified Mortgage, the
creditor is given a presumption of
compliance, and for High Priced Mortgage
Loans (HPML) a rebuttable presumption of
compliance as long as the HPML loan meets
QM standards and/or Agency requirements
Proprietary information, do not distribute
or use without permission of MBBA-NH
11
Principals of Mortgage Banking - Compliance
Rebuttable Presumption
•
•
•
HPML transactions that meet the QM definition
APR exceeds APOR as of date rate is set by 1.5% for 1st lien, 3.5%
for subordinate lien
Under a rebuttable presumption, if a court finds that a mortgage
you originated was a higher-priced QM loan, a consumer can argue
that you violated the ATR rule. However, to prevail on that
argument, the consumer must show that based on the information
available to you at the time the mortgage was made, the
consumer did not have enough residual income left to meet living
expenses after paying their mortgage and other debts.
Proprietary information, do not distribute
or use without permission of MBBA-NH
12
Principals of Mortgage Banking - Compliance
Points and Fees Cap
 Amount financed $100,000 >: 3% of the amount




financed
Amount financed
Amount financed
amount financed
Amount financed
Amount financed
financed
$60,000 - $99,999: $3,000
$20,000 - $59,999: 5% of
$12,500 - $19,999: $1,000
$12,499 <: 8% of amount
Proprietary information, do not distribute
or use without permission of MBBA-NH
13
QM Disclosures
• Homeownership Counseling Notice
• A lender must provide a written list of housing counseling
agencies to all applicants for federally-related mortgages.
• Only HUD-approved counseling agencies may appear on the
list.
• http://www.consumerfinance.gov/find-a-housing-counselor/
• Disclosure of Right to Receive Copy of Appraisal
• Initial disclosure
• Acknowledgement of Receipt of Appraisal Report
• Signed by borrower at closing.
Proprietary information, do not distribute
or use without permission of MBBA-NH
14
Principals of Mortgage Banking - Compliance
QM/ATR Violations
• Statutory damages equal to sum of all finance charges
and fees paid by the consumer in addition to actual
damages, and court costs and attorney’s fees
• There is no statute of limitation when used as a
defense to foreclose
• Statute of limitation is 3 years from the date of the
violation
• A borrower in foreclosure may seek damages amounting
to 3 years of finance charges and fee paid as well as
actual damages, statutory damages, court costs and
attorney fees
Proprietary information, do not distribute
or use without permission of MBBA-NH
15
Principals of Mortgage Banking - Compliance
Truth in Lending Act (TILA)
• Enacted in 1968 to promote the informed use of
consumer credit and standardize how costs
were calculated – Use of APR
• Administered by Consumer Financial Protection
Bureau
• Implemented by Regulation Z
• Does not limit interest rates or finance charges
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or use without permission of MBBA-NH
16
Principals of Mortgage Banking - Compliance
TILA Disclosures
• When credit offered but before consummation
•
Clear and conspicuous, in writing
• When credit terms are advertised
•
•
Clear and conspicuous
Certain information required with triggering terms
• Specific disclosures
•
•
•
Truth in Lending Statement (TIL) and guide
Consumer Handbook on Adjustable Rate Mortgages (CHARM
booklet) and ARM program details (if applicable)
When Your Home is on the Line (home equity loans)
• Maintain evidence for at least 2 years
Proprietary information, do not distribute
or use without permission of MBBA-NH
17
Principals of Mortgage Banking - Compliance
TILA: APR and Finance Charges
• APR: Annual Percentage Rate
• Total cost of financing loan as %
• Includes interest rate on the note
• Reflects associated finance charges
• Finance charges
• Consumer credit as a dollar amount
• Spread out over life of loan
• Direct, indirect charges for extending credit
• Does not include charges payable in comparable cash transaction
Proprietary information, do not distribute
or use without permission of MBBA-NH
18
Principals of Mortgage Banking - Compliance
TILA: Finance Charges
• May include fees charged by someone other than
creditor if creditor:
•
•
Requires use of third party
Retains portion of third party charge
•
•
•
Requires those particular services
Requires imposition of charge
Retains portion of third-party charge (to the extent of portion
retained)
• Fees charged by closing agent are finance charges
only if creditor:
• Fees charged by mortgage broker are finance
charges
Proprietary information, do not distribute
or use without permission of MBBA-NH
19
Principals of Mortgage Banking - Compliance
TILA: Finance Charges-Included
• Interest, time price
differential, any amount
payable under add-on or
discount system of
additional charges
• Service, transaction,
activity, carrying charges
• Points, loan fees,
assumption fees, finder's
fees, similar charges
• Premiums for insurance
related to credit
transaction
• Charges imposed on
creditor by another for
purchasing or accepting
consumer's obligation
• Discounts to induce
payment by a means other
than use of credit
• Debt cancellation fee
Proprietary information, do not distribute
or use without permission of MBBA-NH
20
Principals of Mortgage Banking - Compliance
TILA: Finance Charges-Excluded
• Appraisal and credit report
• Application fees
• Charges for actual
unanticipated late payment,
over credit limit or
delinquency/default
• Charges imposed by financial
institution for paying items
that overdraw account
• Fees for participation in credit
plan
• Seller’s points
• Interest
forfeited
.
• Certain fees for residential
property transaction if bona
fide and reasonable
• Discounts to induce payment
for purchase by cash, check,
other
• Premiums for voluntary
insurance under some
conditions
• Property insurance premiums
under some conditions
• Some security interest
charges if disclosed
Proprietary information, do not distribute
or use without permission of MBBA-NH
21
Principals of Mortgage Banking - Compliance
TILA: Disclosing APR
• Must disclose APR when quoting interest rate
(including advertising)
• Loan Application
• Advertising in all forms
• Even when Verbally quoting an interest rate
Proprietary information, do not distribute
or use without permission of MBBA-NH
22
Principals of Mortgage Banking - Compliance
TILA: Truth in Lending Statement
• Required for mortgage loans subject to RESPA
secured by consumer’s dwelling (other than
HELOCs)
• Must be given (along with other required
disclosures) no later than 3 business days after
receipt of consumer’s completed application
• Earliest loan can close is 7th business day after
disclosures delivered or placed in mail
Proprietary information, do not distribute
or use without permission of MBBA-NH
23
Principals of Mortgage Banking - Compliance
TILA: Truth in Lending Statement
• No fee may be charged for preparation of TIL
• No fee, other than bona fide and reasonable
credit report fee, may be charged prior to
delivery of TIL and other required disclosures
• May be made in language other than English at
consumer’s request
Proprietary information, do not distribute
or use without permission of MBBA-NH
24
Principals of Mortgage Banking - Compliance
TILA: Truth in Lending Statement
• Required data in the “Federal Box”
• Mandatory statement
• You are not required to complete this agreement merely because
you have received these disclosures or signed a loan application.
Proprietary information, do not distribute
or use without permission of MBBA-NH
25
Principals of Mortgage Banking - Compliance
TILA: Truth in Lending Statement
• Other Data for Closed-End Transactions
•
•
•
•
•
•
•
•
Name of the lender/creditor
Notice of a right to receive itemization
Number of payments, amount, timing
New payment, late payment, prepayment provisions
Description and identification of the security
Loan assumption
Refinancing notice
Payment summary table (with additional data for adjustable or
step-rate mortgages)
Proprietary information, do not distribute
or use without permission of MBBA-NH
26
Principals of Mortgage Banking - Compliance
TILA: TIL Accuracy / Redisclosure
• Consumer must receive corrected disclosure at
least 3 business days prior to loan
consummation
• Cannot close loan until both waiting periods
pass
• May be able to waive if bona fide financial
emergency
Proprietary information, do not distribute
or use without permission of MBBA-NH
27
Principals of Mortgage Banking - Compliance
TILA: TIL Accuracy / Redisclosure
• APR accurate if no variance above or below
initial disclosure by more than:
•
•
1/8% (.125) for regular transaction
1/4% (.25) for irregular transaction (ARMs)
• Multiple advance
• Irregular payment periods
• Irregular amounts
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or use without permission of MBBA-NH
28
Principals of Mortgage Banking - Compliance
TILA: 3/7/3 Rule
• Initial disclosure within 3 business days of receipt
of completed application
• Earliest consummation on 7th business day after
disclosures delivered/mailed
• Consumer must receive corrected disclosure at
least 3 business days before loan can be
consummated
• Business day: All calendar days except Sundays
and legal public federal holidays
Proprietary information, do not distribute
or use without permission of MBBA-NH
29
TILA: 3/7/3 Rule
Example 1: The creditor takes an application for a fixed rate
loan on Tuesday, May 1 and mails the initial TIL the next day,
May 2. The earliest the loan can close—assuming the APR on
the final TIL is within the tolerance—is Thursday, May 10—the
seventh business day after mailing the initial disclosure.
Proprietary information, do not distribute
or use without permission of MBBA-NH
30
Principals of Mortgage Banking - Compliance
TILA: Rescission – AKA Right to Cancel
• Rescind: Withdraw from contract; void mortgage
• Right extends to security interest of existing principal residence only
(home equity, refinance, etc.)
• Exercise by one consumer is effective for all consumers
• Creditor has 20 calendar days to return collected money
• Relieves borrower of liability for the loan, finance charges
• Right extends until midnight of the third business day after whichever
of these is last:
•
•
•
Loan consummation
Delivery of required rescission notice
Delivery of all material disclosures
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or use without permission of MBBA-NH
31
Principals of Mortgage Banking - Compliance
TILA: Rescission Notice
• Creditors must provide 2 copies of notice of
right to rescind to each entitled consumer
• Must be in separate document and
conspicuously disclose:
•
•
•
•
•
Retention/acquisition of security interest in principal dwelling
Right to rescind
How to exercise right
Effects of rescission
Date on which rescission period ends
Proprietary information, do not distribute
or use without permission of MBBA-NH
32
Principals of Mortgage Banking - Compliance
TILA: Extended Rescission
• Possible extended three-year rescission period
if:
•
•
Creditors fails to properly notify of the right to rescind
Creditor fails to provide required material disclosures
•
•
•
Three years from occurrence
Transfer of interest in property
Sale of property
• Disclosed finance charge considered accurate if
it does not vary from the actual finance charge
by more than $100.00 – Overstatements are
not violations.
• Extended rescission right expires after:
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or use without permission of MBBA-NH
33
Principals of Mortgage Banking - Compliance
TILA: Advertising
• Requires clear and conspicuous disclosure of terms
• Any specific loan terms shown in an ad must be actually available
• Triggering terms include:
•
•
•
•
•
Amount of down payment
Amount of any payment
Number of payments
Period of repayment
Amount of any finance charge
• Required disclosures with triggering term include:
•
•
•
•
Amount or percentage of down payment
Terms of repayment
Annual percentage rate, using that term spelled out in full
Whether the note rate may increase
• If ad contains only APR, additional disclosures not required
Proprietary information, do not distribute
or use without permission of MBBA-NH
34
Principals of Mortgage Banking - Compliance
TILA: Advertising Triggering Terms
Triggering Terms
(require disclosure)
Non-Triggering Terms
(do not require disclosure)
20% down
Pay only $700 per month
Only 360 monthly payments
30-year financing available
1% finance charge
5% APR
Easy monthly payments
FHA financing available
100% VA financing available
Terms to fit your budget
Proprietary information, do not distribute
or use without permission of MBBA-NH
35
TILA: Advertising Closed-End
Balance expected to be repaid by specified future date
If Ad Includes:
Must Disclose:
Rate
•Each simple rate (current margin and index if more will apply)
•Period of time each rate applies
•APR for the loan
Payment
amount
•Amount of each over life of loan
•Period of time each payment will apply
*Payment and
•Prominent statement that payment/rate subject to adjustment
rate comparison •Time period when first adjustment occurs
Term “fixed”
when rate or
payment can
change
•Adjustable, variable, or ARM must appear before and as
large as term “fixed”
•Clear description of what’s fixed (payment and/or rate)
•Statement that rate/payment can increase as appropriate
* if variable rate based on index/margin
Proprietary information, do not distribute
or use without permission of MBBA-NH
36
Principals of Mortgage Banking - Compliance
TILA: Other Advertising Provisions
• Tax implications:
•
•
Cannot be misleading
Consumers must be advised to consult a tax adviser
•
Loan product being endorsed or sponsored by
government
Misleading use of the current lender’s name
Misleading claims of debt elimination
Use of “counselor” to reference for-profit mortgage
broker or mortgage creditor
Making some required disclosures only in English in
otherwise foreign language ads
• Misrepresentations are prohibited, for
example:
•
•
•
•
• Clear and conspicuous standard
Proprietary information, do not distribute
or use without permission of MBBA-NH
37
Principals of Mortgage Banking - Compliance
TILA: Appraisal on Closed-End
• Creditors, mortgage brokers, and affiliates
prohibited from coercing, influencing, or
encouraging appraiser to misstate value of
dwelling:
• Implying that current/future work depends appraised value
• Excluding appraiser from consideration for reporting value
that does not meet or exceed a minimum threshold
• Telling appraiser minimum value needed to approve loan
• Failing to compensate appraiser for not valuing at or above a
certain amount
• Conditioning appraiser compensation on loan consummation
Proprietary information, do not distribute
or use without permission of MBBA-NH
38
Principals of Mortgage Banking - Compliance
TILA: Appraisal on Closed-End
• Cannot extend credit if improper coercion has
occurred unless able to document appraisal did not
materially misrepresent value
• May ask appraiser to consider additional
information or correct errors
• May obtain multiple appraisals if selecting most
reliable
• May withhold compensation for breach or
substandard work
Proprietary information, do not distribute
or use without permission of MBBA-NH
39
Principals of Mortgage Banking - Compliance
TILA: Servicing on Closed-End
• Servicing: Receiving scheduled periodic payments
from borrower according to the terms of loan and
making payments to loan owner/other third parties
• Violations:
•
•
•
Failing to credit a payment as of the date of receipt (unless the delay
results in no adverse consequences to the borrower)
Pyramiding late fees by imposing late fee or delinquency charges in
connection with a payment under certain circumstances
Failing to provide statements showing payoff amounts
Proprietary information, do not distribute
or use without permission of MBBA-NH
40
Principals of Mortgage Banking - Compliance
TILA: True or False
Determine whether the following statements about the Truth
in Lending Act are true or false:
1. TILA is implemented by Regulation Z.
2. TILA applies to real estate loans extended to
consumers and to companies.
3. The APR is also known as the note rate.
4. A credit report fee is the only fee that may be
collected before providing the required
disclosures.
5. An ad stating “APR of 3.65%” would trigger
additional disclosures.
Proprietary information, do not distribute
or use without permission of MBBA-NH
41
Principals of Mortgage Banking - Compliance
TILA by the Numbers
1.
2.
3.
Initial disclosures must be given within
__________________ of receipt of a completed application.
A consumer who is not informed of the APR may have the right
to rescind a loan for up to _____________ .
The earliest a loan can close is the
__________________
after disclosures are delivered.
Proprietary information, do not distribute
or use without permission of MBBA-NH
42
Principals of Mortgage Banking - Compliance
RESPA
• Real Estate Settlement Procedures Act of 1974
• Implemented as Regulation X
• With the passage of the Dodd-Frank Wall
Street Reform and Consumer Protection Act of
2010, RESPA is under the regulatory authority
of the new Consumer Financial Protection
Bureau (formerly HUD)
• Helps consumers shop for settlement services
• Eliminates unnecessary increases in costs of
certain settlement services
Proprietary information, do not distribute
or use without permission of MBBA-NH
43
Principals of Mortgage Banking - Compliance
RESPA: Covered Transactions
• Covered:
•
•
•
One- to four-family residential property
Conventional and government agency
Most purchase loans, assumptions, refinances,
property improvement loans, HELOCs, some
construction loans
Proprietary information, do not distribute
or use without permission of MBBA-NH
44
Principals of Mortgage Banking - Compliance
RESPA: Section 8-Kickbacks
• Prohibits:
• Giving/accepting a fee, kickback, or anything of value in
exchange for referrals of settlement service business (allows
minimal value promotional items)
• Fee-splitting and receiving unearned fees
• “Required use” of specific settlement service providers
• Allows:
• Fees/salary for actual services performed/goods provided
• Payment between real estate agents and brokers
• Legitimate discounts if:
• Combination of services results in lower price
• Optional to consumer
• Lower price not countered elsewhere
• Fines up to $10,000, 1 year prison, 3x liability
Proprietary information, do not distribute
or use without permission of MBBA-NH
45
Principals of Mortgage Banking - Compliance
RESPA: AfBAs
• Affiliated business arrangements (ABAs or AfBAs)
recognized as legitimate
• Individual, entity, associate in position to refer
settlement services:
•
•
Has affiliate relationship or ownership interest of more than 1% in
settlement services provider AND
Refers business or in some way influences selection of provider
•
•
Legitimate fees, wages for actual services rendered, hours worked
Bona fide compensation from ownership interest
• Acceptable compensation:
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or use without permission of MBBA-NH
46
Principals of Mortgage Banking - Compliance
RESPA: Section 9-Title Insurance
• Prohibits seller from requiring use of particular
title insurance company as condition of sale
• Buyers may sue violators
•
Three times all charges made for title insurance
Proprietary information, do not distribute
or use without permission of MBBA-NH
47
Principals of Mortgage Banking - Compliance
RESPA: Section 10-Escrow
• Taxes, hazard insurance, other charges
• Does not mandate escrow accounts
• Some programs or lenders may require
•
•
Loan with mortgage insurance
TILA “higher-priced” loan for at least 12 months
• No more than 1/12 annual disbursement
• Allows cushion of 2 months
• Requires annual analysis
•
•
Inform consumer of any shortage
Return excess over $50 (if not delinquent)
Proprietary information, do not distribute
or use without permission of MBBA-NH
48
Principals of Mortgage Banking - Compliance
RESPA: Disclosures
• May not charge fee for preparing disclosures
mandated by TILA and RESPA
• Disclosures required at various times
throughout loan process
• With receipt of completed application:
• Submission of a borrower‘s financial information in
anticipation of a credit decision
• If not given at loan application, MLO must provide within 3
business days unless
• Applicant withdraws application
• Lender turns down the loan
Proprietary information, do not distribute
or use without permission of MBBA-NH
49
Principals of Mortgage Banking - Compliance
RESPA: Within 3 Business Days
• HUD Settlement Costs Booklet
• Good Faith Estimate (GFE) of Settlement Costs
• May only collect credit report fee prior to GFE and TIL
After the TIL and GFE are…
And borrower intends to proceed,
other fees may be collected…
Hand-delivered to the borrower
That day
Emailed to the borrower with
the borrower’s permission
Next day after send receipt is returned as
evidence email was received
Faxed to the borrower
Next day after signed TIL, GFE faxed
back
Mailed to the borrower
3 business days after TIL, GFE mailed
• Mortgage Servicing Disclosure Statement
• Lender’s intent to
service or transfer servicing
Proprietary information, do not distribute
or use without permission of MBBA-NH
50
Principals of Mortgage Banking - Compliance
RESPA: Other Disclosures
• Before Settlement Occurs
•
•
Affiliated Business Arrangement (AfBA or ABA) Disclosure (at or
prior to referral)
HUD-1 Settlement Statement (1 business day prior if requested)
• At Settlement
•
•
HUD-1 Settlement Statement
Initial Escrow Statement (no later than 45 days from settlement)
• After Settlement
•
•
Annual Escrow Statement
Servicing Transfer Statement (within 15 days of effective date)
• Does not include sale into secondary market unless servicing
rights also transferred
Proprietary information, do not distribute
or use without permission of MBBA-NH
51
Principals of Mortgage Banking - Compliance
RESPA: Good Faith Estimate
• Required by RESPA without charge
• Dollar amount of settlement charges the
borrower is likely to pay
• Required within 3 business days of receipt of
completed loan application
• May be provided by lender or MLO
• Requires used of HUD’s standardized GFE
• Will be replaced with integrated TIL and GFE 8/2015
Proprietary information, do not distribute
or use without permission of MBBA-NH
52
Principals of Mortgage Banking - Compliance
RESPA: GFE Page 1
• Explains the purpose of disclosure
• Summarizes critical data necessary to “shop”
for settlement services and the best loan
• Important dates
•
•
•
Date through which interest rate available
Estimate for all other settlement charges must be
available for at least ten (10) business days
Business day: Entity open to the public for business
• Loan summary
• Escrow account information
• Summary of settlement services
Proprietary information, do not distribute
or use without permission of MBBA-NH
53
Principals of Mortgage Banking - Compliance
RESPA: GFE Page 2
• Documents settlement charges
• Indicates acceptable tolerances
• If MLO permits borrower to shop for third party
settlement services, must give written list of
providers
• At time of GFE
• On separate paper
Proprietary information, do not distribute
or use without permission of MBBA-NH
54
Principals of Mortgage Banking - Compliance
RESPA: GFE Page 3
• Summarizes the categories of charges
• Tradeoff table
•
•
Shows relationship between total estimate settlement charges
and interest rate/monthly payment
Allows comparison of loan alternatives
• Shopping cart
•
Allows consumer to compare other GFEs
Proprietary information, do not distribute
or use without permission of MBBA-NH
55
Principals of Mortgage Banking - Compliance
GFE: Tolerances
• Charges that may not exceed GFE amount
•
•
•
Origination charge (e.g., fees associated with application, processing,
underwriting, administrative)
Credit or charge for interest rate chosen/adjusted origination charge
while interest rate locked
Transfer taxes
• Charges that cannot exceed 10% of GFE amount
•
•
•
Lender-required settlement services, where the lender selects
Lender-required services, title services and required title insurance,
and owner's title insurance, when borrower uses provider identified
by loan originator
Government recording charges
• Amounts charged for all other settlement services may change at
settlement
• MLO may cure tolerance violations at settlement or within 30
calendar days
Proprietary information, do not distribute
or use without permission of MBBA-NH
56
Principals of Mortgage Banking - Compliance
GFE: Binding
• Loan originator bound to terms unless new GFE provided
• Revised GFE required within 3 business days of learning of
changed circumstances
• Document reason for change and retain for at least 3 years
• Reasons for changing GFE:
•
•
•
•
Changed circumstances that increase settlement costs to exceed
tolerances
Changed circumstances affecting eligibility for specific loan terms
Borrower-requested changes affecting charges/terms
Changes if interest rate not locked or lock expires
Proprietary information, do not distribute
or use without permission of MBBA-NH
57
Principals of Mortgage Banking - Compliance
GFE: Changed Circumstances
• Includes:
• Acts of God, war, disaster, or other emergency
• Information relied on in providing the GFE that changes or
is found to be inaccurate
• New information not relied on in providing the GFE
• Other circumstances particular to borrower or transaction
(e.g. boundary dispute, flood insurance, environmental
issues)
• Does not include basic information relied on unless:
• Changed or inaccurate afterwards
• MLO did not rely on that information
• Market fluctuations by themselves are not changed
circumstance
• GFE expires in 10 business days if no intent to continue
Proprietary information, do not distribute
or use without permission of MBBA-NH
58
Principals of Mortgage Banking - Compliance
RESPA: HUD-1 Settlement Statement
• Completed by closing/settlement agent
• Itemizes all charges related to the transaction
•
•
Borrower: $ to bring to settlement
Sellers: $ to receive at settlement
• Lender/servicer must retain for 5 years after
settlement
Proprietary information, do not distribute
or use without permission of MBBA-NH
59
Principals of Mortgage Banking - Compliance
RESPA: HUD-1
• Should be compatible with GFE
•
•
Charges from GFE paid by seller:
• Credit to borrower and charge to seller
Charges from GFE paid by others:
• Credit to borrower and show identity of party
• Paid Outside of Closing (P.O.C.)
•
•
•
•
•
Must be included on HUD-1 and marked P.O.C.
Must not be included in computing totals
Indirect payments from lender to mortgage broker
may not be disclosed as P.O.C.
Party paying must be identified
Third party services covered by "no cost" provisions
must be itemized, listed in borrower column
• Must be offset with a negative adjusted origination
charge
Proprietary information, do not distribute
or use without permission of MBBA-NH
60
Principals of Mortgage Banking - Compliance
RESPA: HUD-1 Page 2
• Itemizes settlement charges paid by the
borrower and the seller:
•
•
•
•
•
•
Items paid in connection with the loan
Items required by the lender to be paid in advance
Reserves deposited with the lender
Title charges
Government recording and transfer charges
Any additional settlement charges
Proprietary information, do not distribute
or use without permission of MBBA-NH
61
Principals of Mortgage Banking - Compliance
RESPA: HUD-1 Page 3
• Compares exact amounts from GFE and
actual settlement charges on HUD-1
• Charges that cannot increase
• Charges that cannot increase more than 10%
• Charges that can change
• Summary of loan terms
Proprietary information, do not distribute
or use without permission of MBBA-NH
62
Principals of Mortgage Banking - Compliance
RESPA: True or False
Determine whether the following statements about the
Real Estate Settlement Procedures Act are true or false:
1. RESPA is implemented by Regulation X.
2. MLOs may not refer consumers to
settlement service providers with whom
they have an ownership interest.
3. Borrowers may request to see a completed
HUD-1 Settlement Statement 1 business
day prior to closing.
Proprietary information, do not distribute
or use without permission of MBBA-NH
63
Principals of Mortgage Banking - Compliance
RESPA by the Numbers
1. RESPA applies to most loans secured by a
mortgage placed on residential properties
designed for occupancy for ________ families.
2. When necessary, a revised GFE must be provided
within __________________ of receiving
information sufficient to establish changed
circumstances.
Proprietary information, do not distribute
or use without permission of MBBA-NH
64
Principals of Mortgage Banking - Compliance
RESPA by the Numbers
3. Estimate for all settlement charges on the GFE
must be available for at least
_________________ .
4. To cure tolerance violations, borrowers must
be reimbursed at settlement or within
__________________ after settlement.
Proprietary information, do not distribute
or use without permission of MBBA-NH
65
Principals of Mortgage Banking - Compliance
Homeowners Protection Act
• Lenders / servicers must notify borrower of rights related
to private mortgage insurance (PMI)
•
•
Initial written disclosure
Annual reminder
•
Does not apply to VA, FHA, or loans with no PMI
•
•
•
Good history of payment
Not taken out any other loans on the property
Not experienced a decline in the value of the home
• Applies to mortgages on single-family, primary residences
• Borrower may request PMI cancellation at 80% LTV if
borrower has
• PMI automatically canceled at 78% LTV if borrower is
current
• Borrower may accelerate cancellation date with additional
payments
Proprietary information, do not distribute
or use without permission of MBBA-NH
66
Principals of Mortgage Banking - Compliance
HPA: Disclosure Requirements
• Fixed rate mortgages
•
Initial amortization schedule at closing
• Cancellation date borrower may seek to cancel PMI
• Automatic termination date
• Adjustable rate mortgages (ARMs)
•
•
No amortization schedule at closing
Lender must inform the borrower when the LTV reaches 80%
• Final disclosure required after PMI coverage
terminated or cancelled
Proprietary information, do not distribute
or use without permission of MBBA-NH
67
Principals of Mortgage Banking - Compliance
HPA: Changing Property Values
• HPA does not require servicers to consider
current property value
• Some lenders/servicers may allow early PMI
cancellation if property values increase under
certain circumstances, e.g.:
•
•
•
Minimum amount of time passes
Good payment history for minimum amount of time
Documentation of home improvements to demonstrate the
higher property value
Proprietary information, do not distribute
or use without permission of MBBA-NH
68
Principals of Mortgage Banking - Compliance
HPA: True or False
Determine whether the following statements about the
Homeowners Protection Act are true or false:
1. The Homeowners Protection Act does not
apply to FHA or VA loans.
2. Lenders are required only to provide an
initial written disclosure about PMI
cancellation rights.
3. Borrower-requested cancellation and
automatic termination of PMI does not
apply to high-risk loans.
Proprietary information, do not distribute
or use without permission of MBBA-NH
69
Principals of Mortgage Banking - Compliance
HPA: True or False
Determine whether the following statements about the
Homeowners Protection Act are true or false:
1. The Homeowners Protection Act does not
apply to FHA or VA loans.
FALSE 2. Lenders are required only to provide an
initial written disclosure about PMI
cancellation rights.
TRUE 3. Borrower-requested cancellation and
automatic termination of PMI does not
apply to high-risk loans.
TRUE
Proprietary information, do not distribute
or use without permission of MBBA-NH
70
Principals of Mortgage Banking - Compliance
HPA by the Numbers
1. HPA generally does not apply to residential
loans made prior to ______.
2. If a borrower is current with payments, PMI is
automatically terminated when a mortgage
has been paid down to ______ of the
property’s original appraised value.
3. Borrowers may request cancellation of PMI
when a mortgage has been paid down to
______ of the property’s original appraised
value.
Proprietary information, do not distribute
or use without permission of MBBA-NH
71
Principals of Mortgage Banking - Compliance
Privacy and Consumer ID Laws
• Maintain integrity of relationship by
protecting consumer financial information
• In this section:
•
•
•
•
•
Fair Credit Reporting Act (FCRA)
Fair and Accurate Credit Transactions Act (FACTA)
Gramm-Leach-Bliley Act
U.S. Patriot Act
National Do Not Call Registry
Proprietary information, do not distribute
or use without permission of MBBA-NH
72
Principals of Mortgage Banking - Compliance
Fair Credit Reporting Act (FCRA)
• Regulation V, supervised by Consumer
Financial Protection Bureau
• Deals with
•
•
•
Access to credit information
Rights of debtors to seek damages
Responsibilities of creditors to protect against identity theft
• If adverse action based on credit report, must
provide consumer with agency’s name,
address, phone number
Proprietary information, do not distribute
or use without permission of MBBA-NH
73
Principals of Mortgage Banking - Compliance
FCRA: Consumer Rights
• Free copy of credit report annually and if:
•
•
•
•
Information resulted in adverse action
Victim of identity theft (with fraud alert)
Inaccurate information resulting from fraud
Public assistance or unemployed
• Other rights:
•
•
•
•
Request credit score (not free) *
Dispute incomplete/inaccurate information
Limit prescreened offers
* Will be allowed for adverse action
Proprietary information, do not distribute
or use without permission of MBBA-NH
74
Principals of Mortgage Banking - Compliance
FCRA: Credit Agency Obligations
• May not report negative credit information:
•
•
•
More than 7 years
Bankruptcies more than 10 years
Most credit reporting agencies maintain:
• Chapter 11 bankruptcy for 7 years
• Chapter 7 bankruptcy for 10 years
• Must limit access to a credit file to those with
legitimate business need
• May not give out consumer credit information
to an employer, or a potential employer,
without written consent
Proprietary information, do not distribute
or use without permission of MBBA-NH
75
Principals of Mortgage Banking - Compliance
FCRA: True or False
Determine whether the following statements about the
Fair Credit Reporting Act are true or false:
1. FCRA is implemented by Regulation V.
2. Disclosure provisions of both the ECOA and
the FCRA can be satisfied with one adverse
action notice.
3. Consumers are entitled to a free copy of their
credit report used in taking any adverse
action.
Proprietary information, do not distribute
or use without permission of MBBA-NH
76
Principals of Mortgage Banking - Compliance
FCRA by the Numbers
1. Consumer reporting agencies may not report
negative credit information that is more than
___________ old or bankruptcies that are
more than ___________ old.
Proprietary information, do not distribute
or use without permission of MBBA-NH
77
Principals of Mortgage Banking - Compliance
FACT Act (or FACTA)
• Fair and Accurate Credit Transaction Act of 2003
• Amends Fair Credit Reporting Act
• Provides for free copy of credit report annually from three
national credit bureaus
• Allows consumer to place fraud alerts and credit freezes
• Requires creditor to make reasonable effort to confirm
identity
• Requires businesses to truncate credit/debit card
information on receipts
• Requires measures to secure and dispose of sensitive
consumer credit information
Proprietary information, do not distribute
or use without permission of MBBA-NH
78
Principals of Mortgage Banking - Compliance
FACTA: Red Flag Rules
• Section 114 of the FACTA requires:
•
•
•
Financial institutions and creditors to implement written
identity theft protection program
Card issuers to assess the validity of change of address
requests
Users of credit reports to reasonably verify the identity of
subject in case of address discrepancy
• Applies to any person/entity participating in
credit decision
Proprietary information, do not distribute
or use without permission of MBBA-NH
79
Principals of Mortgage Banking - Compliance
FACTA: Red Flags
• Alerts, notifications, or warnings from consumer
reporting agency
• Suspicious documents
• Suspicious personally identifying information
• Unusual use of, or suspicious activity relating to, a
covered account
• Notices from customers, victims of identity theft,
law enforcement authorities, or other businesses
about possible identity theft in connection with
covered accounts
Proprietary information, do not distribute
or use without permission of MBBA-NH
80
Principals of Mortgage Banking - Compliance
FACTA: True or False
Determine whether the following statements about the Fair
and Accurate Credit Transaction Act are true or false:
1. FACTA amends the Equal Credit Opportunity
Act.
2. FACTA is primarily concerned with security of
consumer financial information.
3. The Red Flags Rules defines specific steps
that lenders must follow in order to secure
consumer financial data.
Proprietary information, do not distribute
or use without permission of MBBA-NH
81
Principals of Mortgage Banking - Compliance
Gramm-Leach-Bliley Act
• Financial Services Modernization Act of 1999
• Provisions in Title V - Privacy to protect and regulate disclosure of
consumer financial information
• Gives enforcement authority to federal agencies and states
• Applies to financial institutions and other providers of financial
services
• Lending, brokering, or servicing any type of consumer loan
• Transferring or safeguarding money
• Preparing individual tax returns
• Providing financial advice or credit counseling
• Providing residential real estate settlement services
• Collecting consumer debts
Proprietary information, do not distribute
or use without permission of MBBA-NH
82
Principals of Mortgage Banking - Compliance
GLBA: Financial Privacy Rule
• Governs collection of nonpublic personal
information, for example, from
•
•
•
Application
Credit bureau or other source
Transactions, such as balance, purchases
• Restricts when information may be disclosed to
affiliates and nonaffiliated third parties
• Requires Consumer Privacy Notice
• Provides opt-out opportunity
Proprietary information, do not distribute
or use without permission of MBBA-NH
83
Principals of Mortgage Banking - Compliance
GLBA: Consumer or Customer
• Consumer: Individual who obtains or has
obtained a financial product or service
•
Consumer Privacy Notice before personal data is disclosed to
nonaffiliated third party
• Customer: Consumer with a continuing
relationship with a financial institution
•
Consumers Privacy Notice annually during financial relationship
Proprietary information, do not distribute
or use without permission of MBBA-NH
84
Principals of Mortgage Banking - Compliance
GLBA: Safeguards, Pretexting
• Requires financial institutions to design, implement, and maintain
safeguards to protect and control consumer data
• Written Safeguards Policy:
• Ensure security and confidentiality
• Protect against anticipated threats or hazards
• Protect against unauthorized access that could harm or
inconvenience consumers
• Pretexting provisions
•
Protects consumers from individuals and companies that
obtain their personal financial information under false,
fictitious, or fraudulent pretenses
Proprietary information, do not distribute
or use without permission of MBBA-NH
85
Principals of Mortgage Banking - Compliance
GLBA: True or False
Determine whether the following statements about the
Graham-Leach-Bliley Act are true or false:
1. GLBA allows you to share NPI with your
spouse.
2. A consumer is someone who has a continuing
relationship with a financial institution.
3. The Privacy Rule allows consumers to opt out
of having their financial information shared.
Proprietary information, do not distribute
or use without permission of MBBA-NH
86
Principals of Mortgage Banking - Compliance
GLBA: True or False
Determine whether the following statements about the
Graham-Leach-Bliley Act are true or false:
4. A credit score would be considered nonpublic
personal information.
5. Customers must receive a financial
institution's privacy notice every two years
for as long as the relationship lasts.
6. Consumers must receive a financial
institution's privacy notice annually.
Proprietary information, do not distribute
or use without permission of MBBA-NH
87
Principals of Mortgage Banking - Compliance
U.S. Patriot Act
• Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act (2001)
• Eases restrictions on law enforcement for information gathering
• Requires lenders and banks to create and maintain customer
identification programs (CIPs)
• Prevent financing of terrorist operations/money laundering
• Institutions must verify ID customers entering into formal
relationship
• Minimum information required when opening new account:
•
•
•
•
Name
Date of birth
Address
Tax ID number or similar verification
Proprietary information, do not distribute
or use without permission of MBBA-NH
88
Principals of Mortgage Banking - Compliance
National Do Not Call Registry
•
•
•
•
Limits phone calls to consumers who request to be on list
Managed by the FTC, the FCC, and states
Applies to marketing via interstate phone calls
Required maintenance:
• National list updated every 3 months
• Internal list updated every 30 days
• Allows consumers to file complaints with FTC
• Fines up to $16,000 per incident
• Established business relationship (EBR)
• Allows calls for up to 18 months from last transaction
• Allows calls up to 3 months from inquiry or application
• Consumer on internal list cannot be called even if EBR
(unless in reference to current relationship)
Proprietary information, do not distribute
or use without permission of MBBA-NH
89
Principals of Mortgage Banking - Compliance
Do Not Call by the Numbers
1. When there is an established business
relationship, calls may be made for up to
____________ after the last purchase or payment.
2. After an inquiry or application, calls may be made
for up to _____________.
3. Violations of Do Not Call could result in fines up to
____________ per incident.
4. An organization’s federal DNC list must be
updated every ____________.
Proprietary information, do not distribute
or use without permission of MBBA-NH
90
Principals of Mortgage Banking - Compliance
Anti-Money Laundering Laws
Minimum requirements consist of:
• Detecting Fraud
• Filing SARs
• Development of internal policies, procedures,
and controls.
• Designation of a compliance officer.
• Ongoing employee training program.
• Independent audit function to test for
compliance.
Proprietary information, do not distribute
or use without permission of MBBA-NH
91
What is Anti-Money Laundering?
• Anti-Money Laundering Program and Suspicious Activity
– The Currency and Foreign Transactions Reporting Act of 1970 (commonly referred to as the
“Bank Secrecy Act” or “BSA”) requires U.S. financial institutions to assist U.S. government
agencies to detect and prevent money laundering. Report suspicious activity that might signify
money laundering, tax evasion, or other criminal activities. The BSA is sometimes referred to
as an “anti-money laundering” law (“AML”) or jointly as “BSA/AML.” Several AML acts,
including provisions in Title III of the USA PATRIOT Act of 2001, have been enacted up to the
present to amend the BSA.
– Originally the rule did not apply to Non-bank residential mortgage lenders and originators
RMLOs, mortgage companies and mortgage brokers in the residential mortgage business
sector. Compliance Date was August 13, 2012.
• The Internal Revenue Service (‘‘IRS’’) has been delegated the
authority, under this regulation, to examine for compliance with
FinCEN’s regulations those financial institutions that are not
examined by a Federal functional regulator.
• FinCEN may delegate exam authority to the CFPB by giving public
notice of that fact.
92
Detecting Fraud…
• Red flags are signals of potentially unusual or suspicious
transactions or other activities that should raise the level of
suspicion and may call for further escalation.
• The mere presence of a red flag is not necessarily evidence
of money laundering or terrorist financing activity.
However, it does indicate that further review should be
performed before proceeding to determine if the activity in
question has a reasonable or legitimate purpose.
• If a reasonable explanation is not determined, the
suspicious transactions or other activities should be
escalated for further investigation
93
Detecting Fraud – 3 Stages of Money
Laundering
• 1st Stage –
The first and most vulnerable stage of
laundering money is placement. The goal is to
introduce the unlawful proceeds into the
financial system without attracting the attention
of financial institutions or law enforcement.
94
Detecting Fraud – 3 Stages of Money
Laundering
• 2nd Stage –
The second stage of the money laundering process is
layering, which involves moving funds around the
financial system, often in a complex series of transactions
to create confusion and complicate the paper trail.
Examples of layering include exchanging monetary
instruments for larger or smaller amounts, or wiring or
transferring funds to and through numerous accounts in
one or more financial institutions.
95
Detecting Fraud – 3 Stages of Money
Laundering
• 3rd Stage –
The ultimate goal of the money laundering process is
integration. Once the funds are in the financial
system and insulated through the layering stage, the
integration stage is used to create the appearance of
legality through additional transactions.
96
Penalties for Noncompliance
• Violations of BSA requirements may result in civil penalties:
• Civil penalties of $1,000 per day for each day of
noncompliance.
• Willful violations may result in civil penalties for the RMLO
or its employees, officers, or owners in an amount of the
transaction (up to $100,000) or $25,000, whichever is
greater.
• Civil penalties of up to $500 may be imposed for negligent
violations, but if the RMLO engages in a pattern of
negligent violations, then civil penalty could go up to
$50,000.
• Criminal penalties also are possible.
97
When SAR Filing is Required
• A SAR must be reported if a transaction involves funds or
other assets of at least $5,000, and the RMLO knows,
suspects, or has reason to suspect that the transaction:
• Involves funds derived from illegal activity or is intended or
conducted in order to hide or disguise funds or assets
derived from illegal activity as part of a plan to violate or
evade any federal law or regulation;
• Is designed to evade BSA requirements;
• Has no business or apparent lawful purpose or is not the
sort in which the particular customer would normally be
expected to engage; or
• Involves use of the RMLO to facilitate criminal activity.
98
SAR Filing
• A SAR must be filed no later than 30 days after
initial detection by the RMLO of facts that may
constitute a basis for filing a SAR.
If no suspect is identified on the date of such
initial detection, RMLO may delay filing a SAR
for an additional 30 days to identify a suspect,
but in no case may reporting be delayed more
than 60 days after the date of initial detection
 A SAR filing must not be disclosed
99
Confidentiality of SARs
• A SAR, and any information that would reveal
the existence of a SAR, are confidential and
shall not be disclosed except to FinCEN,
federal, State, or local law enforcement
agencies, and regulatory agencies.
100
Examinations
• Overall authority for enforcement and compliance of
the rule is with FinCEN.
• FinCEN can further delegate this authority, and it plans
to work with “relevant regulatory agencies” to develop
consistent compliance exam procedures. So, who will
conduct examinations of RMLOs? It could include:
 FinCEN
 IRS
 State regulatory agencies
 CFPB
 Federal banking agencies
101
Types of Reportable Activity






Bribery
Check Fraud
Check Kiting
Computer Intrusion
Counterfeit Check
Counterfeit Credit/Debitcard
 Credit/Debit Card Fraud
 Embezzlement
 Mortgage Fraud
 False Statement
 Loan Fraud
 Misuse of Position
 Mysterious-Disappearance
 Wire Transfer Fraud
 Tax Evasion
 Terrorist Financing
 Identity Theft
102
AML BSA Regulations
• The Regulations require RMLOs to develop and implement a risk-based
AML program reasonably designed to prevent their being used to facilitate
money laundering or the financing of terrorist activities.
• Policies, procedures and internal controls based on the company’s
assessment of the money laundering and terrorist financing risks
associated with its products and services. The policies, procedures and
controls must include provisions for complying with integrating the
company’s agents and brokers into the AML program, and obtaining all
relevant customer-related information necessary for an affective AML
program. The policy must be approved by senior management and be in
writing.
• This isn’t just about catching the bad guys. Mortgage fraud is also an
operational risk and FinCEN has said that preventing fraud should be a
result of an AML program.
103
Each AML program must include the following
“4 Pillars”
• Designation of a BSA Compliance Officer
• Policies, procedures and internal controls based
on the company’s assessment of the money
laundering and terrorist financing risks associated
with its products and services.
• Provisions for ongoing training of staff concerning
their responsibilities under the AML program..
• Independent testing of the AML program, to
monitor its structure and effectiveness.
104
Four Pillars of an AML Program—
Designation of a BSA Compliance Officer
• The FFIEC Manual laid out certain “musts” with respect to the
designation of a BSA Compliance Officer:
• Board of Directors must appoint the individual.
• The BSA Officer must be charged with managing the institution’s
BSA/AML
• Compliance and is ultimately responsible to the Board of Directors.
• The BSA Officer must be knowledgeable of all applicable AML
regulations and have a working understanding of the businesses
product and service offerings.
• The BSA Officer must have a direct line of communication into the
Board of Directors and Senior Management.
• The BSA Officer will be responsible for managing communication
with regulatory authorities for all AML-related issues and reporting
105
Four Pillars of an AML Program—
Development of Internal Policies, Procedures, and Controls
Internal controls are comprised of policies, procedures, and controls. The FFIEC Manual breaks down
the level of sophistication of internal controls to depend on the size and scale of the institution;
however, internal controls should:
• Ensure that a business-specific risk assessment is developed and updated, taking into consideration:
products, services, customers, geographic locations, and controls.
• Inform the Board of Directors and Senior Management of compliance initiatives, deficiencies, and
corrective actions taken.
• Identify a person responsible for BSA/AML Compliance.
• Meet all regulatory recordkeeping and reporting requirements.
• Identify reportable transactions and accurately file all required reports, including SARs and CTRs.
• Provide sufficient controls and systems for filing SARs. Incorporate BSA compliance into the job
description and performance evaluation of personnel, as appropriate.
• Train employees to be aware of their responsibilities under the BSA regulations and internal policy
guidelines
This pillar in particular covers all internal controls including risk assessment, policies
and procedures, transaction monitoring, and reporting.
106
Four Pillars of an AML Program—
Ongoing, Relevant Training of Employees
Training is the third of the Pillars of an AML Compliance Program. Without
proper training, staff might leave an institution too exposed to significant
money laundering risk. There are several components of a training program
that the FFIEC Manual dictates:
• At a minimum, the bank’s training program must provide training for all
personnel whose duties require knowledge of the BSA.
• The training should be tailored to the person’s specific responsibilities.
• An overview of the BSA/AML requirements typically should be given to new
staff during employee orientation.
• Changes to internal policies, procedures, processes, and monitoring systems
should also be covered during training.
• Examples of money laundering activity and suspicious activity monitoring
and reporting can and should be tailored to each individual audience.
• Training programs and staff completion should be documented for examiner
review.
107
Four Pillars of an AML Program—
Independent Testing and Review
Independent testing is the fourth pillar of an effective AML program. Independent testing provides verification as to
whether your compliance program is operating as effectively as possible and is compliant with the law.
Independent testing should:
• Be conducted by Internal Audit, outside auditors, consultants, or other qualified independent parties.
• Be conducted every 12–18 months commensurate with the institution’s risk profile.
• Have the testers reporting directly to Board of Directors or to a designated Board committee.
The scope of the independent test should, at a minimum, include:
• An evaluation of the overall adequacy and effectiveness of the BSA/AML
compliance program, including policies, procedures, and processes
• A review of the institution’s risk assessment for reasonableness given its risk profile (i.e., products, services,
customers, entities, and geographic locations)
• Appropriate risk-based transaction testing to verify adherence to BSA recordkeeping and reporting requirements
• An evaluation of management’s efforts to resolve violations and deficiencies noted in previous audits and regulatory
examinations, including progress in addressing outstanding supervisory actions, if applicable
• A review of staff training for adequacy, accuracy, and completeness
• A review of the effectiveness of the suspicious activity monitoring systems (i.e. manual, automated, or a combination)
used for BSA/AML compliance. Related reports may include, but are not limited to, SARs, CMIRs, CTRs, etc.
• An assessment of the overall process for identifying and reporting suspicious activity
108
• Failure to comply with the AML Requirements
is a violation of the regulations and of the
Bank Secrecy Act and could lead to criminal
penalties and large fines.
• FinCEN has designated the IRS to perform
audits to check for compliance – this designee
may change in the future.
109
Principals of Mortgage Banking - Compliance
Laws Against Predatory Lending
• Taking advantage of ill-informed consumers
through:
•
•
•
•
Excessively high fees
Misrepresented loan terms
Frequent refinancing that does not benefit the borrower
Other prohibited acts
• In this section:
• Home Ownership and Equity Protection Act of 1994
(HOEPA)
• Higher-priced loans as defined by amendments to the
Truth in Lending Act
• Some provisions of the Mortgage Reform and AntiPredatory Lending Act (Title XIV of Dodd-Frank)
Proprietary information, do not distribute
or use without permission of MBBA-NH
110
Principals of Mortgage Banking - Compliance
Home Ownership and Equity Protection Act
• HOEPA, 2002 amendment to the Truth in Lending Act,
Section 32 of Regulation Z
• Establishes disclosure requirements, prohibits
deceptive practices for high interest rate/fee loans
• Enforced by FTC for non-depository lenders and by
each state’s attorney general
• Allows Fed to prohibit additional practices it finds to
be unfair or deceptive
• Consumers can sue for recovery of statutory and
actual damages, court costs, attorney fees
• May allow three-year right of rescission
Proprietary information, do not distribute
or use without permission of MBBA-NH
111
Principals of Mortgage Banking - Compliance
HOEPA: High Cost Triggers
• Updated by QM regulations
• APR exceeds rates in Treasury securities:
• For a first mortgage, by more than 6.5%
• For a second mortgage, by more than 8.5%
• Total finance charge paid by the consumer exceeds
the larger of:
• 5% of loan amount
• Redisclosure of APR triggers 3 business-day waiting
period
Proprietary information, do not distribute
or use without permission of MBBA-NH
112
Principals of Mortgage Banking - Compliance
HOEPA: Prohibited Terms
• Balloon payments if less than 5 year-term unless
bridge
• Negative amortization
• Repayment schedule consolidating more than 2
periodic payments
• Higher default interest rates
• Prepayment penalties prohibited unless:
•
•
•
•
Limited to first 2 years
Prepayment penalty paid by refinancing lender
PITI does not change in first 4 years
DTI does not exceed 50%
• Due on demand clauses
Proprietary information, do not distribute
or use without permission of MBBA-NH
113
Principals of Mortgage Banking - Compliance
HOEPA: Prohibited Practices
• Grant loans on the collateral without regarding
borrower’s ability to repay
• Disburse proceeds from home improvement
loans to anyone other than the borrower
• Refinance a HOEPA loan into another HOEPA loan
within the first year
• Wrongfully document a closed-end, high cost
loan as an open-end loan
Proprietary information, do not distribute
or use without permission of MBBA-NH
114
Principals of Mortgage Banking - Compliance
HOEPA: Required Disclosures
Disclosure Form
You are not required to complete this agreement merely because you
have received these disclosures or signed a loan application.
If you obtain this loan, the lender will have a mortgage on your home.
You could lose your home, and any money you have put into it, if you do
not meet your obligations under the loan.
You are borrowing $ _________ . [Optional credit insurance  is  is
not included in this amount.]
The annual percentage rate on your loan will be ________ %.
Your regular frequency payment will be $________ .
[At the end of the loan, you will still owe us $ balloon amount .]
[Your interest rate may rise. Increases in the interest rate could raise
your payment. The highest amount your payment could increase is to
$ __________ .]
Proprietary information, do not distribute
or use without permission of MBBA-NH
115
Principals of Mortgage Banking - Compliance
HOEPA: True or False
Determine whether the following statements about the
Home Ownership and Equity Protection Act are true or
false:
1. HOEPA rules apply to loans used to
purchase or refinance residential
properties.
2. HOEPA requires lenders to verify the
borrower’s ability to repay a high cost loan.
3. Under HOEPA, lenders must disclose that a
borrower could lose the home and any
equity if in default.
Proprietary information, do not distribute
or use without permission of MBBA-NH
116
Principals of Mortgage Banking - Compliance
HOEPA by the Numbers
1. The rules for HOEPA loans are contained in Section
_____ of Regulation Z.
2. HOEPA loans require additional disclosure at least
_________________ prior to loan consummation.
Proprietary information, do not distribute
or use without permission of MBBA-NH
117
Principals of Mortgage Banking - Compliance
Higher-Priced Mortgage Loans
• Defined by Housing and Economic Recovery Act of 2008,
amending Truth in Lending Act
• Closed-end loans secured by borrower’s principal dwelling
where APR exceeds average prime offer rate by at least:
• 1.5 percentage points for first lien loans, or
• 3.5 percentage points for junior lien loans
• Excludes
• Initial construction of a dwelling
• Temporary or "bridge" loan with a term of 12 months or less
• Reverse mortgage transaction
• Home equity line of credit
• APR measured against the applicable average prime offer rate
Proprietary information, do not distribute
or use without permission of MBBA-NH
118
Principals of Mortgage Banking - Compliance
Higher-Priced Mortgage Loans
• Creditors must verify repayment ability
• Prepayment penalties generally prohibited unless limited to first 2
years of loan. Prohibited if:
• Amount of the periodic payment of principal, interest, or both
can change at any time during first 4 years of loan
• The source of prepayment funds is a refinance by the lender or
its affiliate
• Escrow account
• Hazard insurance, PMI, property tax
• Required for 1st lien securing borrower’s principal dwelling
• Hazard insurance escrow may not required if HOA maintains
master insurance policy
• Property tax escrow may not be required if HOA pays
Proprietary information, do not distribute
or use without permission of MBBA-NH
119
Principals of Mortgage Banking - Compliance
Higher-Priced Loans by the Numbers
1. A higher-priced loan has an APR that exceeds the
applicable average prime offer rate by ______ for
first lien loans or _____ for junior lien loans.
2. Provisions related to higher-priced loans do not
apply if the borrower intends to sell the home via
bridge loan, within _____________.
Proprietary information, do not distribute
or use without permission of MBBA-NH
120
Principals of Mortgage Banking - Compliance
Loan Originator Compensation Rule
•
•
•
•
2013 Final LO Compensation Rule (Dodd Frank Act/CFPB)
Amendment to Regulation Z
Applies to closed-end credit on principal dwelling
Applies to all “loan originators,” including mortgage brokers,
employees, and those employed by depository institutions
• “Loan originator:” includes individuals and entities that
perform loan origination activities for compensation, such as
taking an application, offering credit terms, negotiating
credit terms on behalf of a consumer, obtaining an extension
of credit for a consumer, or referring a consumer to a loan
originator or creditor.
• Prohibits creditors from compensating MLOs based on loan’s
interest rate or other loan terms
• Allows other types of compensation, such as hourly, flat fee
• Anti-Steering provisions
Proprietary information, do not distribute
or use without permission of MBBA-NH
121
Principals of Mortgage Banking - Compliance
SAFE Act
• Title V, Secure and Fair Enforcement for Mortgage
Licensing Act
• Key component of the Housing and Economic
Recovery Act of 2008 (HERA)
• Establishes minimum standards for the licensing and
registration of mortgage loan originators (MLOs)
• Nationwide Mortgage Licensing System & Registry
(NMLS)
• Centralized and standardized system for mortgage licensing
Proprietary information, do not distribute
or use without permission of MBBA-NH
122
Principals of Mortgage Banking - Compliance
SAFE Act Objectives
• License applications and reporting
requirements
• Licensing and supervisory database
• Information flow among regulators
• Increased accountability and tracking
• Streamlined licensing process
• Enhanced consumer protections and anti-fraud
measures
Proprietary information, do not distribute
or use without permission of MBBA-NH
123
Principals of Mortgage Banking - Compliance
SAFE Act Objectives
• Access to free MLO employment and
disciplinary and enforcement actions
• Require MLOs to act in consumer’s best
interests, to greatest extent possible
• Facilitate responsible behavior/training in
subprime mortgage market
• Provide comprehensive training related to
nontraditional mortgage products
• Manage consumer complaints
Proprietary information, do not distribute
or use without permission of MBBA-NH
124
Principals of Mortgage Banking - Compliance
SAFE Act: MLO Defined
• Individual who, for compensation or gain or in
the expectation of compensation or gain:
•
•
(A)Takes a residential mortgage loan application, or
(B)Offers or negotiates terms of a residential mortgage
loan.
• “Assists” in obtaining or applying includes:
•
•
•
Advising on loan terms (including rates, fees, other costs)
Preparing loan packages
Collecting information on behalf of the consumer
Proprietary information, do not distribute
or use without permission of MBBA-NH
125
Principals of Mortgage Banking - Compliance
SAFE Act: MLO Defined
• Mortgage loan originator exclusions:
• Purely administrative or clerical tasks
• Licensed real estate broker activities unless compensated
by lender, broker, MLO
• Extending credit on timeshare plans
• Loan processors and underwriters who don’t represent to
public to conduct loan origination activities
• Independent contractor must be state-licensed MLO to engage
in loan origination activities as loan processor or underwriter
• Unique identifier from NMLS:
• Federally registered – MLOs employed by depository
institution
• State-licensed – all other MLOs
Proprietary information, do not distribute
or use without permission of MBBA-NH
126
Principals of Mortgage Banking - Compliance
SAFE Act: Licensing
• Background check (fingerprints, criminal check)
• Personal history and experience
• Authorization to obtain an independent credit
report, and information relative to any
administrative, civil, or criminal findings
• Never had a mortgage loan originator license
revoked in any government jurisdiction
• Not convicted of or pled guilty or nolo
contendere to
•
•
Felony in in the past 7 years
Any felony involved an act of fraud, dishonesty, or a breach of
trust, or money laundering
Proprietary information, do not distribute
or use without permission of MBBA-NH
127
Principals of Mortgage Banking - Compliance
SAFE Act: Character & Fitness
• Must exhibit character and fitness
• Must operate honestly, fairly, and efficiently
• Must not show lack of financial responsibility, such
as:
•
•
•
•
Current outstanding judgments (except medical expenses)
Current outstanding tax/government liens or filings
Foreclosures within past 3 years
Pattern of seriously delinquent accounts within past 3 years
Proprietary information, do not distribute
or use without permission of MBBA-NH
128
Principals of Mortgage Banking - Compliance
SAFE Act: Prelicensing Education
• Minimum 20 hours of NMLS-approved
prelicensing education on national topics:
•
•
•
•
Federal law and regulation (3 hours)
Ethics, including fraud, consumer protection, and fair
lending (3 hours)
Lending standards for nontraditional mortgage products (2
hours)
Electives (12 hours)
• States may impose additional requirements,
specific topics
Proprietary information, do not distribute
or use without permission of MBBA-NH
129
Principals of Mortgage Banking - Compliance
SAFE Act: National MLO Exam
• State-licensed MLOs must pass national NMLS exam
•
•
•
•
Federal mortgage-related laws (35%)
General mortgage knowledge (25%)
Mortgage loan origination activities (25%)
Ethics (15%)
• May include a state/territory-specific component
• Can fail only 3 consecutive times, then must wait 6
months before retaking exam.
Proprietary information, do not distribute
or use without permission of MBBA-NH
130
Principals of Mortgage Banking - Compliance
SAFE Act: License Renewal
• Minimum 8 hours of annual continuing education:
•
•
•
•
Federal Law and Regulation (3 hours)
Ethics, including fraud, consumer protection, and fair lending (2
hours)
Nontraditional mortgage products (2 hours)
Elective (1 hour)
• States/territories may impose additional
requirements
• No credit for the same CE class in consecutive years
Proprietary information, do not distribute
or use without permission of MBBA-NH
131
Principals of Mortgage Banking - Compliance
SAFE Act: True or False
Determine whether the following statements about the
Secure and Fair Enforcement Mortgage Licensing Act are
true or false:
TRUE 1. The SAFE definition of loan originator does not include
someone who extends credit for timeshare plans.
TRUE 2. Independent contractors underwriting residential
mortgage loans must be state-licensed as a MLO.
FALSE 3. MLOs employed by depository institutions must be statelicensed.
TRUE 4. MLOs must include their NMLS unique identifiers on
business cards.
Proprietary information, do not distribute
or use without permission of MBBA-NH
132
Principals of Mortgage Banking - Compliance
SAFE Act by the Numbers
1. State-licensed mortgage loan originators must
complete at least ___________ of prelicensing
education, then at least ___________ of annual
continuing education.
2. Approved prelicensing and CE courses must
include at least _________ on federal law and
regulation.
3. Candidates for licensure may only take and fail a
component of the SAFE MLO Test ____
consecutive times.
4. After a third failure, candidates must wait at least
___________ before taking the test again.
Proprietary information, do not distribute
or use without permission of MBBA-NH
133
Principals of Mortgage Banking - Compliance
Laws Prohibiting Discrimination
•
•
Fair and equitable treatment in housing and real estate
transactions is a right by law
Federal anti-discrimination statutes related to housing
and lending include:
–
–
–
–
–
Civil Rights Act of 1866
Title VII of the Civil Rights Act of 1968 (Fair Housing Act)
The Equal Credit Opportunity Act (ECOA)
The Community Reinvestment Act (CRA)
The Home Mortgage Disclosure Act (HMDA)
Proprietary information, do not distribute or use without
permission of MBBA-NH
Proprietary information, do not distribute
or use without permission of MBBA-NH
134
Principals of Mortgage Banking - Compliance
Discriminatory Practices
• Blockbusting: Inducing owners to sell homes by
suggesting the ethnic or racial composition of the
neighborhood is changing, implying property values will
decline (also called panic selling)
• Steering: Channeling prospective buyers/tenants to
neighborhoods based on race, religion, or ethnic
background
• Redlining: Refusing to make loans on property located
in a particular neighborhood for discriminatory reasons
Proprietary information, do not distribute
or use without permission of MBBA-NH
135
Principals of Mortgage Banking - Compliance
Civil Rights Act of 1866
• Prohibits public and private discrimination based on
race or ancestry in any property transaction in the
United States
• Applies to all property—real or personal, residential or
commercial, improved or unimproved
• Person unlawfully discriminated against can sue only in
federal district court
• Remedies include injunctions, compensatory or
punitive damages
Proprietary information, do not distribute
or use without permission of MBBA-NH
136
Principals of Mortgage Banking - Compliance
Fair Housing Act
• Federal Fair Housing Act or Title VIII of the
Civil Rights Act of 1968
• Prohibits discrimination in the sale or lease of
residential property, including vacant land intended for
residential housing, based on:
• Race
• Color
• Religion
• Sex
• National Origin
• Disability
• Familial Status
Proprietary information, do not distribute
or use without permission of MBBA-NH
137
Principals of Mortgage Banking - Compliance
Fair Housing Act
• Prohibits discrimination in advertising, real estate
brokerage, lending, and other services associated with
residential transactions
• Requires Lender:
• “Equal housing lender” slogan in any broadcast
advertisement
• Equal Housing Opportunity poster in every branch
where mortgage loans are made
• Equal Housing Opportunity logo on all printed
promotional material
Proprietary information, do not distribute
or use without permission of MBBA-NH
138
Principals of Mortgage Banking - Compliance
Fair Housing Act Violations
• Refusing to rent or sell residential property after receiving a good faith offer.
• Refusing to negotiate for the sale or rental of residential property.
• Taking any action that would otherwise make residential property
unavailable or deny it to any person.
• Using discriminatory advertising or any other notice that indicates a
limitation or preference or intent to make any limitation, preference, or
discrimination.
• Making any representation that property is not available for inspection, sale,
or rent when it is, in fact, available.
• Coercing, intimidating, threatening, or interfering with anyone because of his
enjoyment, attempt to enjoy, or encouragement and assistance to others in
their enjoyment of the rights granted by the Fair Housing Act.
• Discriminating in the terms or conditions of any sale or rental of residential
property or in providing any services or facilities in connection with such
property.
Proprietary information, do not distribute
or use without permission of MBBA-NH
139
Principals of Mortgage Banking - Compliance
Equal Credit Opportunity
Act of 1974 (ECOA)
• Ensures all consumers (individuals and businesses) are
given an equal chance to obtain credit
• Also known as Regulation B
• Prohibits discrimination in granting credit/prohibits
discouraging credit application to people based on:
•Sex
•Age
•Marital status
•Race
•Color
•Religion
•National origin
•Receipt of public assistance
•Rights exercised rights under Consumer
Credit Protection Act
Proprietary information, do not distribute
or use without permission of MBBA-NH
140
Principals of Mortgage Banking - Compliance
Equal Credit Opportunity
Act of 1974 (ECOA)
• Applies to anyone who grants credit or arranges financing,
including bankers and mortgage brokers
• Requires credit bureaus to maintain separate credit files on
married spouses, if requested
• May not ask about spouse unless:
– Joint application and spouse will use account or be liable
– Relying on spouse’s income, child support, alimony to qualify
– In a community property state
• Can use only these terms: Married, unmarried, separated
Proprietary information, do not distribute
or use without permission of MBBA-NH
141
Principals of Mortgage Banking - Compliance
ECOA: Loan Application
• Section X of Uniform Residential Loan Application:
– Ethnicity (Hispanic or Latino/Not Hispanic or Latino)
– Race (American Indian or Alaska Native, Native Hawaiian or
Other Pacific Islander, Asian, White, Black or African
American)
– Sex (Male or Female)
• Applicant may refuse to supply; lender cannot
discriminate
• Interviewer required to note data based on visual
observation and surname if application made in person
Proprietary information, do not distribute
or use without permission of MBBA-NH
142
Principals of Mortgage Banking - Compliance
ECOA: Considering Age
• The applicant is too young to sign contracts, generally
under age 18.
• The creditor would favor applicants age 62 and older.
• It is used to determine the meaning of other factors
important to creditworthiness, such as to determine if
an applicant’s income might drop because of impending
retirement.
• It may be used in a valid credit scoring system that
favors applicants depending on their age.
Proprietary information, do not distribute
or use without permission of MBBA-NH
143
Principals of Mortgage Banking - Compliance
ECOA: Appraisal Rule
• Lenders are required to provide copies of all valuations
to the borrower at no cost to the borrower.
• Notice at the time of application advising the borrower
that they have the right to receive copies.
• Acknowledgement must be signed by borrower at
closing confirming they received appraisals.
• Three day waiting period to close after borrower has
received appraisal.
Proprietary information, do not distribute
or use without permission of MBBA-NH
144
Principals of Mortgage Banking - Compliance
ECOA: Required Disclosures
• Notify applicants of lending decision within 30 days of
filing a complete application
– If approved, may provide a Commitment Letter
– If incomplete, send a Notice of Incomplete
Application
– When adverse action is taken, send a Statement of
Adverse Action, in writing
• Disclose customer’s rights, including right to appraisal
report used in the decision process
Proprietary information, do not distribute
or use without permission of MBBA-NH
145
Principals of Mortgage Banking - Compliance
ECOA: Enforcement
• Enforced by the CFPB
• Creditors subject to civil liability for actual and punitive
damages in individual or class actions
• Punitive liability applies only to nongovernmental
entities
• Damages limited to $10,000 in individual actions; lesser of
$500,000 or 1% of the creditor's net worth in class actions
• Civil action must be brought within 2 years of alleged
violation
Proprietary information, do not distribute
or use without permission of MBBA-NH
146
Principals of Mortgage Banking - Compliance
Community
Reinvestment Act (CRA)
• Enacted by Congress in 1977 to encourage
financial institutions to help meet the credit needs
of their respective communities
• Requires each insured depository institution’s
record be evaluated periodically
• In some states, these requirements have been
extended to mortgage lenders
Proprietary information, do not distribute
or use without permission of MBBA-NH
147
Principals of Mortgage Banking - Compliance
Home Mortgage Disclosure
Act of 1975 (HMDA)
• Enforced by the Fed's Regulation C
• Provides loan data from certain financial institutions
to be used by the public to:
− Determine if financial institutions are serving
community housing needs
− Aid public officials in distributing public funds in
order to attract private investment where needed
− Identify possible discriminatory lending patterns
• Relies on public scrutiny for effectiveness
• Does not establish quota system
Proprietary information, do not distribute
or use without permission of MBBA-NH
148
Principals of Mortgage Banking - Compliance
HMDA: Covered Properties
• Affects applications for residential loans,
including:
– Home purchase
– Home improvement
– Refinancing
– Subordinate financing
Proprietary information, do not distribute
or use without permission of MBBA-NH
149
Principals of Mortgage Banking - Compliance
HMDA: Data Reporting
• Requires financial institutions to submit a
Loan/Application Register (or LAR) to their
supervisory agency every March
• Data for LAR is collected on loan originations,
applications, loan purchases, requests under a preapproval program
• LARs may be used to discover discriminatory
practices, including redlining
• LAR data must be maintained and made available
upon request for 3 years
Proprietary information, do not distribute
or use without permission of MBBA-NH
150
Principals of Mortgage Banking - Compliance
HMDA: Role of the FFIEC
• Supervisory agencies, through the Federal
Financial Institutions Examination Council
(FFIEC), compile HMDA data for each institution
• Produces other aggregate reports that show
lending patterns by home age and property
location
• Data analysis helps determine compliance of with
ECOA, fair lending laws
• Reg C requires notice about availability of HMDA
data to be posted in lobbies of lending
institutions
Proprietary information, do not distribute
or use without permission of MBBA-NH
151
Principals of Mortgage Banking - Compliance
ECOA by the Numbers
1. Creditors must notify applicants of their
lending decision within ___________ of the
filing of a complete application.
2. When adverse action is taken, an applicant has
the right to request specific reasons for the
decision within ___________.
3. After a creditor notifies an applicant of an
action taken, the creditor is required to
maintain pertinent documentation for
___________.
Proprietary information, do not distribute
or use without permission of MBBA-NH
152
Principals of Mortgage Banking - Compliance
Questions
1. Which law requires mortgage loan
originators to provide borrowers with a
Good Faith Estimate of closing costs?
A. FCRA
B. HMDA
C. RESPA
D. TILA
Proprietary information, do not distribute
or use without permission of MBBA-NH
153
Principals of Mortgage Banking - Compliance
2. The most important disclosure
requirement under the Truth in Lending
Act is the
A. amount of index.
B. amount of the loan origination fee.
C. APR.
D. name of the secondary market
purchaser.
Proprietary information, do not distribute
or use without permission of MBBA-NH
154
Principals of Mortgage Banking - Compliance
3. How many business days after closing does
the consumer have the right to rescind a
refinance of his personal residence?
A. 2
B. 3
C. 5
D. There is no right of rescission.
Proprietary information, do not distribute
or use without permission of MBBA-NH
155
Principals of Mortgage Banking - Compliance
4. Which will trigger the required disclosures
of the Truth in Lending Act if included in an
advertisement for credit?
A. “Affordable Financing”
B. “Easy Monthly Payments”
C. “FHA Financing Available”
D. “Only 360 Monthly Payments”
Proprietary information, do not distribute
or use without permission of MBBA-NH
156
Principals of Mortgage Banking - Compliance
5. If an advertisement discloses only the APR,
what additional disclosures are required?
A. amount of any finance charges
B. percentage of down payment
C. terms of repayment
D. no additional disclosures are required
Proprietary information, do not distribute
or use without permission of MBBA-NH
157
Principals of Mortgage Banking - Compliance
6. Which act requires mortgage lenders to give
consumers information about obtaining
their credit report when they are turned
down for a loan?
A. ECOA
B. FCRA
C. RESPA
D. TILA
Proprietary information, do not distribute
or use without permission of MBBA-NH
158
Principals of Mortgage Banking - Compliance
7. Under what circumstances does RESPA
allow a sale to be conditioned on the use of
a particular escrow company chosen by the
seller?
A. if full disclosure is made
B. if no kickbacks are involved
C. if no unearned fees are involved
D. under no circumstances
Proprietary information, do not distribute
or use without permission of MBBA-NH
159
Principals of Mortgage Banking - Compliance
8. Which regulation mandates the use of
the HUD-1 Settlement Statement?
A. Regulation B
B. Regulation C
C. Regulation X
D. Regulation Z
Proprietary information, do not distribute
or use without permission of MBBA-NH
160
Principals of Mortgage Banking - Compliance
9. For how many months after a loan closes
may a mortgage loan originator call a
customer whose phone number is on the
National Do Not Call Registry to solicit new
business?
A. 3 months
B. 6 months
C. 18 months
D. No calls can be made to a number on
the registry.
Proprietary information, do not distribute
or use without permission of MBBA-NH
161
Principals of Mortgage Banking - Compliance
10. Which law includes Red Flag Rules that
require financial institutions and creditors
to implement procedures to protect
customer identity?
A. Fair and Accurate Credit Transaction Act
B. Fair Credit Reporting Act
C. Gramm-Leach-Bliley Act (The Privacy
Act)
D. Homeowners Protection Act
Proprietary information, do not distribute
or use without permission of MBBA-NH
162
Principals of Mortgage Banking - Compliance
11. The SAFE Act requires state-licensed
originators to have a minimum of how
many hours of approved prelicensing
education?
A. 8
B. 12
C. 20
D. 24
Proprietary information, do not distribute
or use without permission of MBBA-NH
163
Principals of Mortgage Banking - Compliance
12. The Home Ownership and Equity Protection
Act
A. amends the Homeowners Protection Act.
B. does not consider optional credit insurance as
a finance charge.
C. gives borrowers with high cost loans three
business days to rescind the loan.
D. permits negative amortization only for the
first five years of a loan.
Proprietary information, do not distribute
or use without permission of MBBA-NH
164
Principals of Mortgage Banking - Compliance
13. According to the Homeowners Protection
Act, borrowers may request cancellation of
their mortgage insurance premiums when
the LTV reaches
A. 75%.
B. 78%.
C. 80%.
D. 82%.
Proprietary information, do not distribute
or use without permission of MBBA-NH
165
Principals of Mortgage Banking - Compliance
14. As a result of the Mortgage Disclosure
Improvement Act, how soon can a
residential loan close?
A. the next business day
B. after three business days for a refinance or
home equity loan
C. within three business days of applying
D. on the seventh business day after delivery of
required disclosures
Proprietary information, do not distribute
or use without permission of MBBA-NH
166
Principals of Mortgage Banking - Compliance
15. Which fee can be collected prior to delivery
of a Truth in Lending Statement and a Good
Faith Estimate?
A. appraisal fee
B. credit report fee
C. origination fee
D. No fees can be collected prior to
delivery of these disclosures.
Proprietary information, do not distribute
or use without permission of MBBA-NH
167
Principals of Mortgage Banking - Compliance
16. A mortgage broker rents office space from a
title company at a discount in exchange for
referring customers for settlement services.
Which federal law does this arrangement
violate?
A. RESPA
B. SAFE Act
C. TILA
D. It does not violate any federal law.
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17. The APR on an initial TIL for a 30-year fixed
rate loan is 6.25%, and the APR on the final
TIL is 6.5%. After redisclosure, how long
must the borrower wait to close the loan?
A.
B.
C.
D.
1 business day
three business days after redisclosure
seven business days after redislcosure
There is no waiting required since the
difference is within the acceptable tolerance.
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18. A “higher-priced mortgage loan” is one that
has
A. an APR that exceeds the applicable average prime
offer rate by at least 1.5% for a first lien loan.
B. an APR that exceeds the rates on Treasury
securities of comparable maturity by more than
8%.
C. total points and fees greater than 8% of the loan
amount.
D. total points and fees greater than 10% of the loan
amount for junior liens.
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19. According to the SAFE Act, which incident from
10 years ago would NOT automatically
disqualify an applicant for a loan originator
license?
A. conviction for felony assault
B. conviction for felony fraud
C. conviction for felony money laundering
D. revocation by the state of a mortgage
broker’s license
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Principals of Mortgage Banking - Compliance
20. Which of these circumstances would NOT be
an acceptable reason to provide a revised GFE
to a borrower?
A. The borrower lost the income from a part-time job and so
was no longer eligible for the specific loan terms identified
in the GFE.
B. The borrower requested to change the loan term from 15
to 30 years.
C. The mortgage loan originator regretted overlooking
certain liabilities in order to qualify the borrower for a
better interest rate.
D. The title company discovered a junior lien on the property
that was not considered when preparing the GFE.
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21. Initial Disclosures must be given within ______
Business days of receipt of a completed
application.
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True or False?
22. A consumer that closes on a loan that
meets the requirements of Safe Harbor
has no recourse against the lender?
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Principals of Mortgage Banking - Compliance
True or False
23. A mortgage broker can advertise an
interest rate that will be available once
the market improves?
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Principals of Mortgage Banking - Compliance
24. TILA is implemented by:
A. Regulation B
B. Regulation C
C. Regulation X
D. Regulation Z
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Principals of Mortgage Banking - Compliance
True or False
25. A credit report fee is the only fee that
can be collected before providing the
required disclosures.
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Principals of Mortgage Banking - Compliance
26. RESPA is implemented by:
A. Regulation B
B. Regulation C
C. Regulation X
D. Regulation Z
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True or False
27. Referral Fee’s are allowed if paid to a
licensed Realtor?
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28. When necessary, a revised GFE must
be provided within _____ business
days of receiving information sufficient
to establish a changed circumstance.
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29. To cure a tolerance violation,
Borrowers must be reimbursed at
settlement or within ______ calendar
days after settlement.
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30. The Fair Housing Act is regulated by
_____________________________.
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Principals of Mortgage Banking - Compliance
True or False
31. Underwriters are responsible to
determine the value of the subject
property?
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Principals of Mortgage Banking - Compliance
True or False
32. The Fair Housing Act prohibits
discrimination in the sale of residential
property based on:
–
–
–
–
–
–
–
Race
Color
Religion
Sex
National Origin
Disability
Familial Status
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Principals of Mortgage Banking - Compliance
33. ECOA is implemented by:
A. Regulation B
B. Regulation C
C. Regulation X
D. Regulation Z
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34. ECOA is regulated by the
____________.
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Principals of Mortgage Banking - Compliance
What item below doesn’t belong?
35. ECOA Prohibits discrimination in
granting credit based upon:
–
–
–
–
–
–
–
–
–
Race
Color
Religion
Sex
National Origin
Age
FICO Score
Marital Status
Rights exercised under the Consumer Credit Protection Act
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Principals of Mortgage Banking - Compliance
True or False
36. The Community Reinvestment Act
(CRA) was established in 1977 to ensure
financial institutions meet the needs of
their respective communities.
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37. HMDA, establishes in 1975, was
implemented under:
A. Regulation B
B. Regulation C
C. Regulation X
D. Regulation Z
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38. True or False
You can charge a borrower a reasonable fee
to provide them a copy of their appraisal?
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True or False
39. Equity in the property should be
considered when determining a borrowers
ability to repay.
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Principals of Mortgage Banking - Compliance
True or False
40. It is against the law to fund a non QM
mortgage.
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Chapter
4
QUESTIONS
Please complete module evaluation
Merrimack Mortgage Company, Inc.
1045 Elm Street, Suite 601
Manchester, NH 03101
Danielle Barbato, Training & Development
Gregory Korn, VP Risk Management
Dan Pass, BSA Officer
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193