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8/9/2019 TILA presentation slides from the Mortgage Bankers Association
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Truth In Lending
Old Dog, New Tricks
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TILA Newcomer Workshop
Truth In Lending
Consumer Credit Protection Act (1968)
Truth In Lending Act (Title 1)
Regulation Z (1969)
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TILA Newcomer Workshop
The Basics
Finance ChargeAPR
Tolerance for Accuracy Rescission
DisclosureAdvertising
HOEPA
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TILA Newcomer Workshop
Finance Charge
Section 226.4
(a) Definition
(b) Examples of F/C
(c) Exclusions from F/C(c) (7) Real Estate Exclusions
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TILA Newcomer WorkshopDefinition
The FINANCE CHARGE is the cost of consumer credit expressed as a dollar amount. It includes
any charge payable directly or indirectly by theconsumer and imposed directly or indirectly by thecreditor as an incident to or a condition of theextension of credit. It does not include any chargeof a type payable in a comparable cashtransaction.
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TILA Newcomer Workshop
Any Fee not specifically excluded from the Finance
Charge in 226.4(c)(7) is, in fact,a Finance Charge.
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8/9/2019 TILA presentation slides from the Mortgage Bankers Association
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TILA Newcomer Workshop
Tolerance for Accuracy (Fin. Chg)
Lender open to civil liability if Finance Charge isunderstated by $100.00 or more.
Lender open to Rescission liability if FinanceCharge is understated by $35.00 or more.
No Liability if Finance Charge is Overstated onDisclosure.
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TILA Newcomer Workshop
Tolerance for Accuracy (APR)
Accurate if within .00125 for Regular
Transaction.
Accurate if within .00250 for Irregular Transaction.
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TILA Newcomer Workshop
Borrowers Right to Rescind
Borrower is given 3 Business Days after closing to reconsider the loan and cancel
the transaction.
Applies to Refinance & Subordinate Lien Loans Owner Occupied Primary Residence
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TILA Newcomer Workshop
TILAs Disclosures
Truth In Lending Disclosure
Adjustable Rate Disclosure Right to Cancel Disclosure
HOEPA Disclosure
New Disclosures
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TILA Newcomer Workshop Advertising Guidelines
FTCs How to Advertise Consumer Credit &Lease Terms
http://www.ftc.gov/bcp/conline/pubs/buspubs/creditad.htm
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TILA Newcomer Workshop
HOEPA
Section 32 of Reg Z added in 1994 to addressabusive lending practices.
Under HOEPA, a mortgage is considered to be a HighCost Loan if it includes terms that exceed certainthresholds established for the Points & Fees andAnnual Percentage Rate.
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TILA Newcomer Workshop
Read the Regs
TILA (Reg Z) is best understood, ultimately, by
taking the time to read the regulation andcommentary.
http://www.fdic.gov/regulations/laws/rules/6500-1
http://www.fdic.gov/regulations/laws/rules/6500-1400.htmlhttp://www.fdic.gov/regulations/laws/rules/6500-1400.html8/9/2019 TILA presentation slides from the Mortgage Bankers Association
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TILA Newcomer Workshop Upcoming Regulatory Changes
TILA will be impacted by two significant regulatory changes in 2009.
- HERA - the Housing & Economic Recovery Act of 2008; and,
- New Update to HOEPA
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TILA Newcomer Workshop
HERA The Housing & Economic
Recovery Act
Final Rule Still Pending, But Law is to be
effective before the end of July 2009.
Early Disclosure Requirements all mortgageloans subject to TILA.
New Pre Closing Requirements
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TILA Newcomer WorkshopEarly Disclosure Requirements
Before the Consumer can be required to pay any fee,they must receive a copy of the Preliminary Truth InLending Disclosure.
If the Disclosure is delivered by regular mail, it will be presumed to have been delivered to the consumer onthe third business day after mailing.
Cannot close loan until at least Seven (7) businessdays after early disclosures have been received.
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TILA Newcomer Workshop New Pre Closing Disclosures
If the APR has changed beyond TOLERANCE since the previousdisclosure, a New TILA Disclosure must be delivered to theapplicant at least three business days prior to closing.
APR Tolerance is affected regardless of whether the change is inthe form of an Increase or a Decrease.
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TILA Newcomer Workshop New Pre Closing Disclosures
The APR Tolerance is different that the test that would beapplied to the TILA Disclosure for purposes of accuracy.
Disclosure is considered accurate if Finance Charge iswithin tolerance.
Pre Closing redisclosure requirement is only based on APR accuracy, which has only secondary importance inconsideration of overall accuracy of the disclosure.
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TILA Newcomer Workshop
New HOEPA Regulations
Most changes become effective on Oct 1, 2009
Amends Old Rules & Creates New Rules
Designed to Address Subprime Lending Concerns
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TILA Newcomer Workshop
HPML Higher Priced Mortgage Loan
First there was just plain PRICING.
Then with HOEPA in 1994, we got HIGH COST PRICING.
Now, HOEPA 2009 brings us HIGHER COST PRICING.
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TILA Newcomer Workshop
HPML Higher Priced Mortgage Loan
- Grammatically Incorrect.
- One might surmise that, as superlatives go,rates for HIGHER Priced loans would begreater than those for HIGH Priced Loans.
- One would be wrong.
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TILA Newcomer Workshop
HPML Higher Priced Mortgage Loan
Old HOEPA
If APR for First Lien loan is greater than 8 points above applicable Treasury Index,then loan would be considered to be aHigh Cost Loan, and subject to HOEPArestrictions.
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HPML Higher Priced Mortgage Loan
Old HOEPA
Treasury Index = 4.50 % APR = 12.51%
Loan is a High Cost Loan per HOEPA because
the APR exceeds the Applicable Index by morethan 8 pts.
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TILA Newcomer Workshop
HPML Higher Priced Mortgage Loan
New HOEPA If APR for First Lien Loan is greater than
1.50 % above the Prime Offer Rate, then it is a Higher Priced Mortgage Loan, and subject to all the restrictions implied.
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HPML Higher Priced Mortgage Loan
New HOEPA
Prime Offer Rate = 4.50% APR = 6.50%
Loan is a HPML because the APR exceedsthe Prime Offer Rate by more than 1.50%.
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TILA Newcomer Workshop
HPML Higher Priced Mortgage Loan
HPML Restrictions
Ability to Repay
Prepayment Penalties
Escrow Accounts
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TILA Newcomer Workshop
Ability to Repay
Applies to HPMLs only, but likely to wield abroader brush.
- Verify & Document Repayment Ability.- Use Highest Scheduled Payment for first seven
years of the loan.- Stated Income loans prohibited
- No Doc loans prohibited.
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TILA Newcomer Workshop
HPML Higher Priced MortgageLoan
Prepayment Penalties
No Prepayment Penalties if monthly payment amount can change during the first 4 yrs of theloan.
No Prepayment Penalties when refinanced by same creditor.
Otherwise, 2 yr maximum Prepay period.
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TILA Newcomer Workshop Escrow Accounts (for HPMLs)
Escrow Accounts required for all new loansthat meet HPML threshold.
Cannot be waived by borrower.
Borrower can discontinue after one year.
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TILA Newcomer WorkshopTILA NEWCOMERS
In a way, were all newcomers to this revised TILA.The game has fundamentally changed, and the
old rules and requirements have been tweaked for a new paradigm, that may in fact already be Old.