CHANGES IN TRUTH IN LENDING JOE WALLACE ASSOCIATE FINANCIAL EXAMINER STATE OF CONNECTICUT [email protected] Phone 860 240-8181 State of Connecticut,

CHANGES IN TRUTH IN LENDING

JOE WALLACEASSOCIATE FINANCIAL EXAMINER

STATE OF [email protected]

Phone 860 240-8181

State of Connecticut, Department of Banking

mailto:[email protected]

MY BACKGROUND

• Started with the Department in 2007• Licensing of mortgage loan originators,

brokers, and lenders• Performed a variety of investigations and

examinations


SAFE ACT

• Regulation G, section 1007.101(b) - Purpose. This part implements the S.A.F.E. Act's Federal registration requirement for mortgage loan originators. The S.A.F.E. Act provides that the objectives of this registration include aggregating and improving the flow of information to and between regulators; providing increased accountability and tracking of mortgage loan originators; enhancing consumer protections; supporting anti-fraud measures; and providing consumers with easily accessible information at no charge regarding the employment history of, and publicly adjudicated disciplinary and enforcement actions against, mortgage loan originators.


SAFE ACT

• Keep NMLSR registration information up-to-date

• Renew registrations annually• Disclose individual actions as required on

NMLSR• Use of unique identifier• Policies and procedures


ABILITY TO REPAY & QUALIFIED MORTGAGES

• In 2008, higher-priced mortgages became subject to “ability to repay” standards

• In 2010, Dodd-Frank (Wall Street Reform and Consumer Protection Act) adopted the standard for most closed-end residential mortgages

• In 2013, CFPB adopted the rule• Rule became effective on 1/10/14


ABILITY TO REPAY & QUALIFIED MORTGAGES

• Applications taken on or after 1/10/14• Excludes open-end mortgages, timeshares,

reverse mortgages, construction loans for less than 12 months, and certain mortgages related to community wellness

• Most 1-4 family residential mortgages including co-ops, condos and secondary mortgages


ABILITY TO REPAY

• Must consider and verify 8 underwriting factors:1) Borrower’s income and assets2) Current employment3) Monthly payment for subject loan4) Monthly payment on other loans related to subject

property5) Taxes and Insurance on subject property6) Other debts7) Debt to Income (on gross monthly income)8) Credit History


ABILITY TO REPAY

• Must maintain documentation to demonstrate consideration and verification of the 8 items

• Records must be maintained for a minimum of 3 years

• No specific numeric threshold given for DTI (must be considered though)

• Special mention of monthly payment review for Negative-Amortization, Interest-Only, and Balloon Payment


ABILITY TO REPAY

• 3 year liability and exposure• Consumer finance charges, consumer fees

paid, consumer legal fees paid• After 3 years, may be disputed in foreclosure

proceedings


QUALIFED MORTGAGES

• A way of demonstrating Ability To Repay requirements have been met

• Better liability protection in the form of Safe Harbor Presumption

• Higher-Priced qualified mortgages have a Rebuttable Presumption with respect to liability protection

• 4 types of qualified mortgages


QUALIFED MORTGAGES

• Safe Harbor – consumer would have to demonstrate that creditor made an error in Safe Harbor designation; otherwise conclusively presumed that ATR standard was met

• Rebuttable Presumption – presumed to have met ATR standards, but it does allow the consumer to demonstrate why he/she could not have paid the loan back


QUALIFED MORTGAGES

• Points and Fees can’t exceed 3% of loan amount

• No interest-only or negative amortization feature

• Loan term can’t exceed 30 years


4 TYPES OF QM’S

• General QM• Agency/GSE QM• Small Creditor QM• Small Creditor Balloon Payment QM


GENERAL QM

• Debt to income of 43% or less• Consider consumer’s debt and income

obligations• Underwriting to a fully amortized payment

schedule with the maximum interest rate of the first 5 years of the loan


AGENCY QM

• Eligible for purchase by GSE, or insured or guaranteed by a federal agency

• 30 year or less term, 3% max in points and fees, no Neg-Am/Int-Only features

• No 43% DTI threshold• Valid recommendation from agency

automated UW system• Expires on 1/10/21


SMALL CREDITOR QM

• Less than $2 billion in assets as of the end of the last calendar year (to be adjusted)

• Entity (and affiliates) originated no more than 500 loans subject to ATR regs in the preceding calendar year

• Same standard requirement (term, risky features, points and fees)

• No 43% DTI threshold


SMALL CREDITOR QM continued

• Underwrite to fully amortized payment schedule with max rate in first 5 years

• Cannot have a forward commitment with a non-qualifying small creditor

• Lose small creditor QM status if sold within 3 years of consummation to a non-qualifying small creditor (keeps status if it’s the result of a merger or acquisition)


BALLOON PAYMENT QM

• Open to all “small creditors” up to 1/10/16• After that, only small creditors operating in rural

or underserved counties• Same standard requirements (term, risky

features, points and fees)• Fixed rate• 5 year term or longer• Same requirement for commitment/sale of loan


OTHER TALKING POINTS ON QM’s

• Point and Fee Cap for QM’s – Check regulation for loan amounts under $100,000; Mortgage insurance premiums and fees not retained by broker/creditor are not included; Maximum on any pre-payment penalty fee is included

• Prepayment Penalty and QM’s – Only on non higher-priced QM’s with a fixed or step interest rate; 2% first 2 years and 1% for year 3; Must offer consumer a comparable product without the penalty


NON-STANDARD TO STANDARD REFINANCE

• Do not have to meet ATR criteria• Only for those mortgages currently held or

serviced by the entity• Check guidance on criteria


POINT & FEE CURE FOR QM’S

• Payment within 210 days of consummation• Consumer not 60 days past due on the

transaction• Creditor, assignee or servicer have not been

notified by the consumer about overage• Pay the overage and interest on the overage

using the contract interest rate


TILA-RESPA INTEGRATED DISCLOSURE

• 2 New Forms• Loan Estimate Disclosure - combine the Initial

TIL and GFE• Closing Disclosure - combine final TIL and HUD

settlement statement• Applications taken on or after 8/1/15



• Includes most closed-end residential mortgages

• Does not include HELOCs, Reverse Mortgages, Mobile Homes, or lenders making 5 or fewer loans in a calendar year



• Closing Document required to be retained for 5 years by creditor and investors, if loan is sold

• Loan Estimate form, and other relevant documentation related to the Loan Estimate form, must be maintained for 3 years

• Form is not to be used prior to 8/1/15


DEFINITION OF APPLICATION

• Name• Property Address• Income• Property Value• Social Security Number• Loan Amount


LOAN ESTIMATE DISCLOSURE

• Must be provided once broker or creditor has the 6 pieces of information

• Must be provided within 3 business days• Business Day is any day in which the creditor is

open for most of its business activities• Use best information available



• Fees cannot be imposed until consumer has provided an intent to proceed (this excludes a bona fide credit report fee)

• Requesting documentation of the consumer to verify information cannot be done until the disclosure has been provided



• Must be provided 7 business days prior to consummation

• Borrower may waive this under certain circumstances

• Does not have to be provided if withdrawn or denied within 3 business days



• The disclosure may be revised only when changed circumstances have occurred resulting in an increase in charges

• Not intended for miscalculation, technical errors, or underestimate of charges

• 3 business days to revise when becoming aware of the change


TOLERANCES

• No tolerance requirements – examples would be prepaid interest, amounts going into escrow, 3rd parties selected by the consumer not on the creditor’s provider list

• 10% cumulative tolerance – 3rd parties on the creditors provider list

• Zero Tolerance – fees to the broker, lender, 3rd parties where consumer could not choose


LOAN ESTIMATE REVISIONS

• Changed Circumstances causing tolerance violations

• Changed Circumstances affecting consumer’s eligibility

• Revisions/changes requested by the consumer• “Rate Locking” when it causes a change to

points/credits• Intent to Proceed occurs after 10 business days

from mailing out the disclosureState of Connecticut, Department of Banking

CLOSING DISCLOSURE

• Contain actual costs and terms of the transaction

• Estimate of good faith may be provided on certain charges

• Consumer should receive the disclosure 3 business day before consummation

• A corrected disclosure may be provided at or before consummation


CLOSING DISCLOSURE

• Settlement Agent may provide the disclosure, but the creditor is responsible

• Borrower may waive the 3 day waiting period• A Loan Estimate Disclosure cannot be

provided after a Closing Disclosure has been provided

• Any changes at that point must be done through a revised Closing Disclosure


CHANGES THAT REQUIRE 3 DAY WAIT PERIOD

• Changes that result in an inaccurate APR, in accordance with TIL APR tolerance

• Change in loan product• Addition of a pre-payment penalty• 3 day wait period required unless waived by

the borrower(s) due to a financial emergency


POST CONSUMMATION

• Should the disclosure become inaccurate due to events occurring after settlement, a new disclosure may be required

• Depending upon the inaccurate information, it would be required to be provided to the consumer either within 30 days or 60 days

• Tolerance cures also require a new disclosure


INFORMATION SOURCE

• Disclaimer: the law itself should always be consulted

• CFPB – guidance material and sample forms, from the perspective of a non-CFPB examiner

• Another CFPB source for Truth in Lending – consumerfinance.gov/eregulations


Documents

CHANGES IN TRUTH IN LENDING JOE WALLACE ASSOCIATE FINANCIAL EXAMINER STATE OF CONNECTICUT [email protected] Phone 860 240-8181 State of Connecticut,