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Best-Ever Consumer Compliance Checklists

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Tuesday, July 5, 2016 Presenter: Anne Lolley

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Best-Ever Consumer Compliance Checklists

July 5

2016 with Anne Lolley 877-778-5192 x4 [email protected]

Copyright © Anne Lolley Best‐Ever Checklists – July 5, 2016 For questions call 877‐778‐5192 x4 2

____________________

Checklist 1 – Secured by Real Estate & Dwelling ................................................................. 3

Checklist 1A – HPML Secured by Real Estate & Dwelling ..................................................... 5

Checklist 2 – Secured by Real Estate – No Dwelling ............................................................. 7

Checklist 3 – NOT Secured by Real Estate or Dwelling ......................................................... 9

Checklist 4 – Secured by Manufactured Home .................................................................. 10

Checklist 5 – Temporary Loan (Initial Construction) .......................................................... 12

Checklist 6 – Temporary Loan (Non‐Construction) ............................................................ 14

Checklist 7 – Bridge Loan (For New Principal Dwelling) ..................................................... 16

Checklist 8 – Home Equity Line of Credit (HELOC) ............................................................. 18

Checklist 9 – Ability to Repay and Qualified Mortgages .................................................... 20

EEXXPPLLAANNAATTOORRYY MMAATTEERRIIAALL .................................................................................................................................................................................................. 2211


Use this checklist for an original or refinanced loan that is:

Consumer purpose

Closed‐end

Secured by real estate and a dwelling

Not a HPML

AAPPPPLLIICCAANNTTSS

LLOOAANN NNUUMMBBEERR

AAPPPPLLIICCAATTIIOONN

DDAATTEE

1

LOAN TYPE 2

New loan

Refinancing ‐ new money

Refinancing – no new money

LIEN STATUS 3

First mortgage

Junior mortgage

DWELLING TYPE 4

Principal dwelling of applicant

Principal dwelling of non‐applicant

Not a principal dwelling

ENVIRONMENTAL RISK ANALYSIS 5

Past and present uses _________________________________

Government contacts__________________________________

RIGHT OF RESCISSION? 7

Yes No

HIGH‐COST MORTGAGE? 8

Yes No

HMDA REPORTABLE? 9A

Yes No

Generally, ROR will apply if loan is secured by a principal dwelling. But ROR will not apply if:

Loan is to buy applicant’s principal dwelling and issecured by same dwelling; or

Same‐lender refinancing with no new money

If secured by consumer’s principal dwelling, see if any of these triggers will make this a high‐cost mortgage:

High APR

High points & fees

Prepayment penalties

This loan is HMDA reportable if it is:

To purchase a dwelling and secured by a dwelling;

A home improvement loan; or

A refinancing (both loans secured by a dwelling)

WHEN APPLICATION FORM IS PROVIDED

If (i) adjustable rate, (ii) secured by borrower’s principal dwelling and 10 (iii) greater than one year, give ARM disclosures:

Consumer Handbook on Adjustable Rate Mortgages

Disclosure for each ARM program in which applicant is interested

If telephone application ‐ provide within 3 business days after application

AT APPLICATION

Obtain or prepare written application 11

Must contain bank/lender NMLSR

Determine and document whether joint/individual credit 12

IF HMDA REPORTABLE ‐ 13A

Obtain monitoring information (ethnicity, race, sex)

Inform applicant: Federal government requests information

Inform applicant: Lender is required to note ethnicity, race, sex

IF LENDER OFFERS CREDIT INSURANCE ‐ 14

Provide Federal Credit Application Insurance Disclosure

Both orally and in writing

Obtain acknowledgement


- CREDIT UNIONS ARE NOT SUBJECT TO THIS REQUIREMENT -

IF NEW CUSTOMER ‐ Follow institution’s CIP rules 15

AS SOON AS POSSIBLE

IF RISK‐BASED PRICING – 16

Provide Credit Score Notice

To each applicant

IF NO RISK‐BASED PRICING, BUT USED CREDIT SCORE – 16A

Provide Notice to Home Loan Applicant & Disclosure of Credit Score Info

To each applicant

WITHIN 3 BUSINESS DAYS AFTER APPLICATION

Provide Loan Estimate 17

Provide no later than 3rd business day after application

Provide no later than 7th business day before closing

Not required if denied/withdrawn within 3 business days

Provide list of settlement providers 18

Provide no later than 3rd business day after application

Provide no later than 7th business day before closing

Not required if denied/withdrawn within 3 business days

Provide Home Loan Toolkit 19

Provide no later than 3 business days after application

Only for purchase of dwelling ‐ not required if refinancing or junior lien

Provide Homeownership Counseling List 20

Provide Affiliated Business Disclosure 20

PRIOR TO CLOSING

INDICATE SELECTED ABILITY‐TO‐REPAY OPTION: 21

Using General ATR Requirements

Consider 8 factors

Verify with 3rd party data

Loan will be qualified mortgage (indicate which type):

General Qualified Mortgage

Temporary Qualified Mortgage

Balloon Payment Qualified Mortgage

Small‐Creditor Portfolio Qualified Mortgage

Before charging fees, obtain and document applicant's Intent to Proceed 51

IF HPML/TEMPORARY/BRIDGE LOAN USE SPECIAL CHECKLISTS

JULY 2016 – HMDA

INSURANCE NOT OFFERED


FLOOD INSURANCE ‐ 22

Obtain flood hazard determination

If in SFHA ‐ provide notice

At least 10 days before closing

Applicant must acknowledge receipt

IF in SFHA and community participates in NFIP ‐ require flood insurance

APPRAISAL OR EVALUATION ‐ 23

Order new appraisal Conduct new evaluation Use existing appraisal or evaluation (verify validity)

Review appraisal or evaluation

Obtain title insurance 24

IF FIRST MORTGAGE – Provide copy of appraisal 25

Must be received at least 3 business days before closing If mail/e‐mail ‐ allow 3 business days for delivery Timing waiver permitted – obtain at least 3 business days before closing

IF HIGH‐COST MORTGAGE ‐ 26

High‐cost‐mort disclosure (must be received 3 business days before closing)

If ROR applies ‐ provide disclosure to each consumer entitled to rescind

Obtain written certification of homeownership counseling

IF NEG AMORT/FIRST‐TIME BORROWER ‐ Require homeowner counseling 27

IF HMDA REPORTABLE ‐ Collect and document data for LAR 28

Provide revised Loan Estimate (if necessary) 29

Only if changed circumstances/consumer change/expired Loan Estimate

Only if tolerance is exceeded

Provide within 3 business days after receiving information

Must be received no later than 4 business days before closing

If mail/e‐mail ‐ allow 3 business days for delivery

Provide Closing Disclosure 30

Must be received no later than 3 business days before closing If mail/e‐mail ‐ allow 3 business days for delivery


Provide corrected Closing Disclosure (if necessary) 31

APR/loan product/prepay penalty – must receive 3 bus days before closing Otherwise – may provide at closing

ADVERSE ACTION (IF APPLICABLE)

Application denied ‐ Provide Notice of Action Taken 32

No decision within 30 days ‐ Provide Notice of Action Taken

Application withdrawn ‐ Indicate in initialed, dated note in file

WAITING PERIODS BEFORE CLOSING

Closing cannot occur until: 33

7th business day after delivering/mailing initial Loan Estimate

4th business day after consumer received revised Loan Estimate

3rd business day after applicant received high‐cost mortgage disclosure

3rd business day after applicant received copy of appraisal/evaluation

3rd business day after applicant received initial Closing Disclosure

3rd business day after applicant received corrected Closing Disclosure

(if correction deals with APR/loan product/prepayment penalty)

SEE BOOKLET FOR DEFINITION OF “BUSINESS DAY”

AT CLOSING

PROMISSORY NOTE/MORTGAGE ‐ 34

Both borrower and lender should sign

Unsigned pages should be initialed by borrower

Must contain bank and lender name/NMLSR

IF RIGHT OF RESCISSION APPLIES ‐ 35

Provide two notices to each consumer entitled to rescind

Provide Initial Escrow Disclosure (at closing or within 45 days) 36

IF NEW CUSTOMER OR NEW PRIVACY POLICY ‐ Provide Privacy Notice 37

IF LENDER SOLD CREDIT INSURANCE ‐ 38

Provide Federal Sale‐of‐Insurance Disclosure

Both orally and in writing (written portion could be on note)


- CREDIT UNIONS ARE NOT SUBJECT TO THIS REQUIREMENT –

AFTER CLOSING

IF RIGHT OF RESCISSION APPLIES ‐ Wait 3 business days before funding 39


If settlement event results in change to amount paid by consumer

Provide within 30 calendar days after receiving information

NOTES AND REMINDERS

If creditor requires private mortgage insurance: 41 Certain disclosures are required Insurance must be terminated when LTV reaches 80%

If creditor accepts a referral fee, consider using a checklist

If borrower is a servicemember, special rules exist

If creditor furnishes negative information to a consumer reporting agency, itmust provide a written notice to the customer

NOTES AND INSTRUCTIONS 42

SELECT ONE


Use this checklist for a loan that is:

Consumer purpose

Closed‐end

Secured by real estate and a dwelling

A higher‐priced mortgage loan (HPML)




DDAATTEE

1

LOAN TYPE 2

New loan



LIEN STATUS 3

First mortgage

Junior mortgage


Past and present uses _______________________________________________

Government contacts________________________________________________


Yes No

HIGH-COST MORTGAGE? 8

Yes No

HMDA REPORTING? 9A

Yes No

ROR will apply unless:

Loan is to buy applicant’s principal dwelling and is secured by same dwelling; or

Same‐lender refi with no new money.

Determine whether any of these triggers will make this loan a high‐cost mortgage:

High APR High points and fees Prepayment penalties

This loan is HMDA reportable if it is:

To purchase a dwelling & secured by a dwelling

A home improvement loan

A refinancing (both loans secured by dwelling)






AT APPLICATION









Provide Federal Credit Application Insurance Disclosure Both orally and in writing Obtain acknowledgement



IF NEW CUSTOMER ‐ Follow institution's CIP rules 15

AS SOON AS POSSIBLE


Provide Credit Score Notice To each applicant



To each applicant



Provide no later than 3rd business day after application Provide no later than 7th business day before closing Not required if denied/withdrawn within 3 business days




Provide no later than 3 business days after application Only for purchase of dwelling ‐ not required if refinancing or junior lien

Provide Homeownership Counseling List 20

Provide Affiliated Business Disclosure 20

PRIOR TO CLOSING



Consider 8 factors Verify with 3rd party data









At least 10 days before closing Applicant must acknowledge receipt

If in SFHA and community participates in NFIP ‐ require flood insurance


IF TEMPORARY OR BRIDGE LOANUSE SPECIAL CHECKLISTS

JULY 2016 – HMDA



43

SPECIAL APPRAISAL RULES FOR HPMLS ‐

Order new appraisal (evaluations and existing appraisals not permitted)

Review appraisal

Provide copy of appraisal

Must be received at least 3 business days before closing

If mail/e‐mail allow 3 business days for delivery

Timing waiver not permitted

Additional appraisal for some flipped properties (exempt if in rural area)

APPRAISAL OR EVALUATION (SKIP IF BLOCK 43 APPLIES) ‐ 23

Order new appraisal

Conduct new evaluation

Use existing appraisal or evaluation (verify validity)



IF FIRST MORTGAGE (SKIP IF BLOCK 43 APPLIES) 25




High‐cost mort disclosure (must be received 3 business days before closing)



IF FIRST MORTGAGE – 44

Establish escrow for taxes/insurance (many small institutions are exempt)













APR/loan product/prepay penalty – receive 3 business days before closing Otherwise – may provide at closing















AT CLOSING







Provide Initial Escrow Disclosure (at closing or within 45 days) 36







AFTER CLOSING





NOTES AND REMINDERS






THE SPECIAL HPML APPRAISAL RULES IN THIS BLOCK DO NOT APPLY TO THE FOLLOWING TYPES OF LOANS, EVEN IF THEY ARE HPMLS:

Qualified mortgages Streamlined refinancings Loans of $25,500 or less

IF THESE RULES DO NOT APPLY, SKIP TO BLOCK 23 BELOW AND CONTINUE

SELECT ONE


Use this checklist for original and refinanced loans that are:

Consumer purpose Closed‐end Secured by real estate on which there is no dwelling



1


DDAATTEE

NO DWELLING . . . SO THESE RULES DO NOT APPLY:

Ability‐to‐Repay ARM Disclosures

Copy‐of‐Appraisal Requirements

Credit Score Disclosures High‐Cost Mortgage Rules

Homeownership Counseling HPML Rules

NMLSR Documentation Requirements

RESPA Right of Rescission ________________

BBUUTT TTRRIIDD WWIILLLL AAPPPPLLYY!!

LOAN TYPE 2

New loan


Refinancing ‐ no new money

HMDA REPORTING? 9A

Yes No


Past and present uses ____________________

______________________________________

Government contacts____________________

______________________________________

HMDA applies if:

Proceeds will be used for home improvement; and

Bank classifies the loan as “home improvement”

LIEN STATUS 3

First mortgage

Junior mortgage

AT APPLICATION











IF NEW CUSTOMER ‐ Follow Institution's CIP rules 15

AS SOON AS POSSIBLE

IF RISK‐BASED PRICING ‐ Provide Credit Score Notice to each applicant 16






PRIOR TO CLOSING








Order new appraisal

Conduct new evaluation

Use existing appraisal or evaluation (verify validity)














APR/loan product/prepay penalty – must receive 3 bus days before closing

Otherwise – may provide at closing

USE THIS CHECKLIST IF THE LOAN IS SECURED BY VACANT LOTS, BARE GROUND, FARM BUILDINGS OR COMMERCIAL BUILDINGS.

JULY 2016 – HMDA


SELECT ONE














AT CLOSING

PROMISSORY NOTE/MORTGAGE‐ 34









AFTER CLOSING




NOTES AND REMINDERS

If borrower is a servicemember, special rules exist 41





Consumer purpose Closed‐end NOT secured by real estate or dwelling



1


DDAATTEE

THIS LOAN IS NOT SECURED BY REAL ESTATE OR A DWELLING,

SO THE FOLLOWING RULES WILL NOT APPLY:

Ability‐to‐Repay Appraisal/Evaluation Rules ARM Disclosures

Copy‐of‐Appraisal Requirements Environmental Risk Analysis

Credit Score Disclosures Flood Insurance

High‐Cost Mortgage Rules Homeownership Counseling

HPML Rules TRID Disclosures NMLSR Requirements

RESPA Right of Rescission Waiting Periods

LOAN TYPE 2

New loan



HMDA REPORTING? 9A

Yes No

HMDA applies if:

Proceeds will be used for home improvement; and

Bank classifies the loan as home improvement

LIEN STATUS 3

First mortgage

Junior mortgage

AT APPLICATION



IF HMDA APPLIES ‐ 13A









AS SOON AS POSSIBLE


PRIOR TO CLOSING






AT CLOSING




If over $10,000, note (or other record) must show purpose of loan 45

Provide "old" Truth‐in‐Lending disclosures 50



Provide Federal Sale‐of‐Insurance Disclosure Both orally and in writing (written portion could be on note) Obtain acknowledgement


OTHER NOTES AND REMINDERS

If borrower is service member ‐ special rules 41

Negative information to consumer reporting agency ‐ notice to customer

NOTES AND INSTRUCTIONS

42

USE THIS CHECKLIST FOR UNSECURED LOANS AND LOANS SECURED BY PERSONAL PROPERTY USE CHECKLIST 4 FOR LOANS SECURED BY MANUFACTURED HOMES

JULY 2016 – HMDA



Use this checklist for original and refinanced loans that are: Consumer purpose Closed‐end Secured by manufactured home used as dwelling Not secured by real estate



1


DDAATTEE

THE FOLLOWING RULES WILL NOT APPLY TO THIS LOAN:

Appraisal/Evaluation Rules Environmental Risk Analysis

HPML Appraisal Rules TRID Disclosures

RESPA

BUT SINCE THIS LOAN INVOLVES A DWELLING, IT COULD TRIGGER:

Ability‐to‐Repay ARM Disclosures ECOA Copy‐of‐Valuation Requirements Flood Insurance (if permanently affixed)

High‐Cost Mortgage Rules HMDA HPML Escrow Requirements NMLSR Requirements

Right of Rescission Waiting Periods

LOAN TYPE 2

New loan



DWELLING TYPE 4




LIEN STATUS 3

First mortgage

Junior mortgage

FLOOD? 22

Yes No


Yes No


Yes No

HPML? 49

Yes No

HMDA REPORTING? 9A

Yes No

Flood insurance rules apply if the manufactured home cannot be quickly hauled away from encroaching flood waters

ROR will apply unless:

Loan is to buy applicant’s principal dwelling and is secured by same dwelling; or

Same‐lender refinancing with no new money

If manufactured home is consumer’s principal dwelling, determine whether any of these triggers make this a high‐cost mortgage:


If manufactured home is consumer’s principal dwelling, determine whether the APR exceeds the APOR by:

1.5% ‐ first mortgage 2.5% ‐ jumbo mortgage 3.5% ‐ junior mortgage

HMDA applies if loan is:

To purchase a dwelling and secured by a dwelling

A home improvement loan

A refinancing (old and new loan secured by a dwelling)






AT APPLICATION













AS SOON AS POSSIBLE



____ IF FIRST LIEN ‐ provide ECOA copy of appraisal notice 48

PRIOR TO CLOSING



Use 8 factors Verify with 3rd party data






Before charging fees, obtain applicant's Intent to Proceed and document 51

FLOOD INSURANCE (IF PERMANENTLY ATTACHED) ‐ 22





JULY 2016 – HMDA

MANUFACTURED HOMES LOCATED IN MOBILE HOME PARKS



APPRAISAL/EVALUATION ‐ Not subject to Interagency Guidelines

IF FIRST LIEN – Provide copy of valuation 25




If ROR, provide copy to each consumer entitled to rescind


IF HPML ‐ Establish escrow for taxes/insurance 44

Only if first lien and secured by consumer's principal dwelling

Many small institutions are exempt


IF HMDA REPORTABLE ‐ Collect and document required data 28








3rd business day after applicant received copy of valuation


AT CLOSING





If over $10,000, note (or other record) must show purpose of loan 45

Provide "old" Truth‐in‐Lending disclosures 50



Provide TIL disclosure to each consumer entitled to rescind





AFTER CLOSING


NOTES AND REMINDERS



If creditor furnishes negative information to a consumer reporting agency, it must provide a written notice to the customer


42


Use this checklist for temporary construction loans:

Consumer‐purpose (applicant is a consumer, not a contractor)

Closed‐end (but may have multiple advances)

Initial construction of applicant’s principal dwelling

Temporary (anticipating permanent loan)

Secured by dwelling being constructed, by current dwelling . . . or both




DDAATTEE

1

THESE RULES WILL NNOOTT APPLY:

Ability to Repay (if 12 months or less) High‐Cost Mortgage Rules HMDA HPML Appraisal/Escrow Rules

BUT THESE RULES CCOOUULLDD APPLY:

Ability to Repay (if more than 12 months) RESPA

LOAN TYPE 2

New loan

Refinancing ‐ new money Refinancing – no new money

DWELLING TYPE 4





Past and present uses _________________

___________________________________

Government contacts_________________

___________________________________

LIEN STATUS 3

First mortgage Junior mortgage

RESPA? 6 Yes No

MULTIPLE ADVANCE LOANS 46

USE APPENDIX D


Yes No

Generally, temporary construction loans are exempt from RESPA. RESPA will apply, however, if:

The term is two years or more; or

Some proceeds used (by first user) to buy the property.

When a closed‐end loan provides for multiple advances, banks must comply with TIL’s Appendix D when estimating disclosures. Under Appendix D, the lender must assume that one‐half of the commitment amount is outstanding for the term of the loan.

If this loan is secured by the dwelling being constructed, the loan is a "residential mortgage transaction" and is exempt from ROR. On the other hand, if the loan is secured by the applicant’s current dwelling, ROR will apply, even if it is also secured by the dwelling being constructed.






AT APPLICATION









AS SOON AS POSSIBLE





To each applicant






IF RESPA APPLIES ‐ Provide Homeownership Counseling List 20

IF RESPA APPLIES ‐ Provide Affiliated Business Disclosure 20

PRIOR TO CLOSING

INDICATE ABILITY‐TO‐REPAY OPTION (ONLY IF LOAN EXCEEDS 12 MONTHS) 21









JULY 2016 – HMDA












IF FIRST MORTGAGE – Provide copy of appraisal 25











If ROR applies ‐provide disclosure to each consumer entitled to rescind


APR/loan product/prepay penalty – must receive 3 bus days before closing

Otherwise – may provide at closing














AT CLOSING







IF RESPA APPLIES – Initial Escrow Disclosure (at closing or within 45 days) 36





AFTER CLOSING





NOTES AND REMINDERS






42

SELECT ONE


Use this checklist for:

Consumer-purpose Closed-end Non-construction temporary loan Secured by real estate and old/new dwelling Examples: HHoommee iimmpprroovveemmeenntt llooaannss and "sseeaassoonniinngg" loans




DDAATTEE

1

WILL NNOOTT APPLY

Ability to Repay (if 12 months or less)

HMDA

HPML Escrow (if 12 months or less)

RESPA

LOAN TYPE 2

New loan

Refinancing ‐ new money Refinancing – no new money

DWELLING TYPE 4





Past and present uses ____________________

______________________________________

Government contacts____________________

______________________________________

LIEN STATUS 3


RIGHT OF RESCISSION? 7 Yes No


Yes No

HPML? 49

Yes No

MULTIPLE ADVANCE LOANS 46 USE APPENDIX D

If secured by a principal dwelling, ROR will generally apply. ROR will not apply, however, if the proceeds are used to buy applicant’s principal dwelling and the loan is secured by same dwelling.


High APR High points & fees Prepayment penalties

If secured by consumer’s principal dwelling, determine whether the APR exceeds the APOR by:


Some home improvement loans provide for multiple advances. In such a case, lenders must comply with TIL’s Appendix D when estimating disclosures. Under Appendix D, the lender will assume that one‐half of the commitment amount is outstanding for the term of the loan.






AT APPLICATION









AS SOON AS POSSIBLE





To each applicant








PRIOR TO CLOSING














JULY 2016 – HMDA




43



Review appraisal





Additional appraisal for some flipped properties (exempt if in rural county





IF FIRST MORTGAGE (SKIP IF BLOCK 43 APPLIES) ‐ 25



IF HPML AND OVER 12 MONTHS ‐ Establish escrow account 44

For taxes/insurance Only if first lien and secured by consumer's principal dwelling




If ROR applies – provide disclosure to each consumer entitled to rescind Obtain written certification of homeownership counseling



Only if changed circumstances/consumer change/Loan Estimate expired Only if tolerance is exceeded Provide within 3 business days after receiving information Must be received no later than 4 business days before closing If mail/e‐mail ‐ allow 3 business days for delivery



If ROR applies – provide disclosure to each consumer entitled to rescind

















AT CLOSING











AFTER CLOSING



If settlement event results in change to amount paid by consumer Provide within 30 calendar days after receiving information

NOTES AND REMINDERS





42

THE SPECIAL APPRAISAL RULES IN THIS BLOCK DO NOT APPLY TO THE FOLLOWING TYPES OF LOANS, EVEN IF THEY ARE HPMLS:

Qualified mortgages Streamlined refinancings Loans of $25,500 or less

IF THESE RULES DO NOT APPLY, SKIP TO BLOCK 23 AND CONTINUE

SELECT ONE


Use this checklist for:

Consumer-purpose Closed-end Bridge loan for new principal dwelling Secured by real estate and old and/or new dwelling




DDAATTEE

1

THESE RULES WILL NOT APPLY:

Ability to Repay (if 12 months or less)

HMDA

HPML Appraisal Rules (if 12 months or less)

HPML Escrow Rules (if 12 months or less)

RESPA

LOAN TYPE 2

New loan

Refinancing ‐ new money Refinancing ‐ no new money

DWELLING TYPE 4





Past and present uses __________________

____________________________________

Government contacts___________________

____________________________________

LIEN STATUS 3


RIGHT OF RESCISSION? 7 Yes No


Yes No

HPML? 49

Yes No

If secured by the dwelling being purchased, the loan is a "residential mortgage transaction" and is exempt from ROR. But if the loan is secured by the applicant’s current dwelling, ROR will apply, even if it is also secured by the dwelling being purchased.


High APR High points & fees Prepayment penalties

If secured by consumer’s principal dwelling, determine whether the APR exceeds the APOR by:







AT APPLICATION









AS SOON AS POSSIBLE





To each applicant








PRIOR TO CLOSING





General Qualified Mortgage Temporary Qualified Mortgage Balloon Payment Qualified Mortgage Small‐Creditor Portfolio Qualified Mortgage







JULY 2016 – HMDA



43



Review appraisal





Additional appraisal for some flipped properties (exempt if in rural county





IF FIRST MORTGAGE (SKIP IF BLOCK 43 APPLIES) ‐ 25



IF HPML AND OVER 12 MONTHS ‐ Establish escrow account 44

For taxes/insurance Only if first lien and secured by consumer's principal dwelling




If ROR applies – provide disclosure to each consumer entitled to rescind Obtain written certification of homeownership counseling



























AT CLOSING











AFTER CLOSING





NOTES AND REMINDERS





42

THE SPECIAL HPML APPRAISAL RULES IN THIS BLOCK DO NOT APPLY TO THE FOLLOWING TYPES OF LOANS, EVEN IF THEY ARE HPMLS:

Bridge Loans of 12 months of less Qualified mortgages Streamlined refinancings Loans of $25,500 or less

IF THESE RULES DO NOT APPLY, SKIP TO BLOCK 23 AND CONTINUE

SELECT ONE



Consumer purpose Open-ended (a revolving line of credit) Secured by the applicant’s dwelling (not necessarily principal dwelling)



AAPPPPLLIICCAATTIIOONN DDAATTEE

1

FOR RESPA

WILL NOT APPLY

Ability to Repay

ARM Disclosures

HPML Rules

TRID Disclosures

NMLSR Documentation

HELOC 47 DISCLOSURES

HELOC Disclosures

Brochure

Statement of Billing Rights

LOAN TYPE 2

New loan

Refinancing ‐ new money Refinancing ‐ no new money

DWELLING TYPE 4




Past and present uses ________________

___________________________________

Government contacts_________________

___________________________________

LIEN STATUS 3



Yes No


Yes No

HMDA REPORTING? 9A

Yes No

If this loan is secured by the applicant’s principal dwelling, ROR will apply. ROR will not apply, however, if the loan is secured by a dwelling which is not a principal dwelling (such as a vacation home).

Note that HELOC refinancings are not exempt.

If loan is secured by consumer’s principal dwelling . . . determine whether any of these triggers will make this a high‐cost mortgage:


If a HELOC is in whole or in part for home improvement or home purchase, the bank is permitted—but not required—to report. HELOCs for other purposes are not subject to HMDA.


Provide the following two HELOC disclosures: 47

What You Should Know About Home Equity Lines of Credit brochure

Creditor's HELOC disclosures

If telephone application ‐ provide within 3 business days after application.

AT APPLICATION



IF HMDA APPLIES AND BANK CHOOSES TO REPORT ‐ 13A









Provide Affiliated Business Statement (if necessary) 20

AS SOON AS POSSIBLE





To each applicant


IF FIRST MORTGAGE ‐ Provide ECOA copy‐of‐appraisal notice 48

Provide RESPA'S homeownership counseling list 20

PRIOR TO CLOSING










IF FIRST MORTGAGE ‐ Provide copy of appraisal 25






IF HMDA REPORTABLE AND BANK CHOOSES TO REPORT ‐ Collect data 28

JULY 2016 – HMDA


SELECT ONE








3rd business day after applicant receives high‐cost mortgage disclosure

3rd business day after applicant receives copy of appraisal/evaluation


AT CLOSING

PROMISSORY NOTE ‐ 34



Provide Truth‐in‐Lending account opening disclosures 50

Provide Statement of Billing Rights (might be preprinted on note) 47



Provide Statement of Billing Rights to each consumer entitled to rescind





AFTER CLOSING


NOTES AND REMINDERS

Private mortgage insurance – disclosure/termination requirements 41

Referral fee ‐ consider checklist

If borrower is service member ‐ special rules

Negative information to consumer reporting agency ‐ notice to customer


42


On closed‐end consumer loans secured by a dwelling, the lender must make a reasonable, good‐faith determination that the consumer has a reasonable ability to repay the loan. Unless the lender opts for a qualified mortgage, it must consider and verify eight factors (indicated below).

Rather than considering and verifying the required eight ATR factors, a lender may opt to write the loan as a “qualified mortgage.” Qualified mortgages have eased ability‐to‐repay requirements, but are subject to certain limitations.

You can use this checklist to indicate: (i) Loan type, (ii) compliance with the eight basic ATR factors, and (iii) in the case of a qualified mortgage, whether the bank has met the basic limitations of that qualified mortgage.

General

Ability-to-Repay Requirements

If the creditor elects to use the general ATR rules, it must consider and verify the following eight factors:

Income or assets

Employment status

Monthly mortgage payment

Monthly payment on simultaneous loans secured by same property

Monthly payments for property taxes and insurance

Debts, alimony, and child support obligations

Monthly debt‐to‐income (DTI) ratio

Credit history

QQ QUU U

AA ALL L

II I FF FII I EE E

DD D MM M

OO ORR R

TT TGG G

AA AGG G

EE ESS S

GGeenneerraall Qualified Mortgage

Prohibited terms: Negative amortization, Interest‐only, balloon payment

Loan term: Maximum 30 years

Points and fees: Cannot exceed 3% of total loan amount (more for loans under $100,000)

Underwriting: Base on maximum payment in first five years after first periodic payment Consider and verify income, assets, debts, obligations (use Appendix Q)

Debt‐to‐income ratio: Cannot exceed 43%

TTeemmppoorraarryy Qualified Mortgage

Loan eligibility: Loan must be eligible for purchase/guarantee by GSE




Underwriting: Use GSE guidelines

Debt‐to‐income ratio: Use GSE limits

BBaalllloooonn‐‐

PPaayymmeenntt Qualified Mortgage

Eligibility: Assets under $2.052 billion; at least 1 covered loan in rural area; no more than 2,000 loans sold

Prohibited terms: Negative amortization, interest‐only

Loan term: Minimum 5 years


Underwriting: Base on periodic payments other than the balloon payment Consider and verify income, assets, debts, obligations (Appendix Q not required)

Debt‐to‐income ratio: No limit

Special rules: Fixed‐rate; 30‐year amortization; no forward commitment; no sale/transfer within 3 years

SSmmaallll‐‐CCrreeddiittoorr

PPoorrttffoolliioo

LLooaannss Qualified Mortgage

Creditor eligibility: Assets under $2.052 billion; no more than 2,000 loans sold

Loan eligibility: Held in bank portfolio for 3 years




Underwriting: Base on maximum payment in first five years after first periodic payment Consider and verify income, assets, debts, obligations (Appendix Q not required)

Debt‐to‐income ratio: No limit

AAPPPPLLIICCAANNTTSS LLOOAANN NNUUMMBBEERR

OR SELECT ONE OF THE FOLLOWING QUALIFIED MORTGAGES


1

APPLICATION DATES

Because the timing of several disclosures is tied to the application date, it is essential that the date be accurately determined and recorded. In addition, HMDA or non‐HMDA monitoring rules may require the institution to report the application date. The application date will be readily apparent to the lender and the lender can use this checklist to record the date. As reviewers, auditors and processors already know, it can be extremely difficult to determine or remember the application date at a later time.

Traditionally, the "application date" is the date the applicant asks for the loan, but more recent regulatory wording makes it clear that—for disclosure purposes—the term takes on a more specific meaning:

RESPA Disclosures. For RESPA disclosures, an “application” only occurs when the lender has collected the following information:

Applicant’s name;

Applicant’s social security number;

Property address;

Monthly income;

Estimate of property value;

Loan amount requested; and

Any other information deemed necessary by the lender.

TRID Disclosures. For TRID disclosures, Truth in Lending instructs us to use the RESPA definition (above), but eliminates the "any‐other‐information" requirement. Accordingly, for TRID disclosures, an "application" occurs when the applicant has provided the following six pieces or information:

Applicant’s name;

Applicant’s social security number;

Property address;

Monthly income;

Estimate of property value; and

Loan amount requested.

2

LOAN TYPE

The checklist asks the lender to indicate whether the loan will be a new loan or a refinancing while the information is fresh in the lender’s mind. If the loan will be a refinancing, it’s also important to indicate whether the loan proceeds will include new money. Compliance requirements will depend on these details and the information can be difficult to determine at a later time. By noting the information on the checklist at the time of the application, the lender can save a subsequent person (reviewer, examiner, auditor, processor) countless hours.

3

LIEN STATUS

As with the loan‐type information (Block 2), the details about the mortgage’s status (whether the creditor has a first or second mortgage) can alter the compliance requirements. This information will be clear to the lender at the start of the loan, but may be difficult to unearth at a later time. The lender can save hours by clearly providing this information on the checklist.

4

DWELLING TYPE

Like the loan‐type and lien‐status information (Blocks 2 and 3), details about the secured dwelling can alter compliance requirements. Is the dwelling the applicant’s principal dwelling? Or a vacation home? This information will be clear to the lender at the start of the loan, but may be difficult to unearth at a later time. The lender can save hours by clearly providing this information on the checklist.

Reg X §1024.2(b)

Reg Z §1026.2(a)(3)(ii)


FDIC: 1993 Financial Institution Letter – FIL‐14‐93FED: 1991 Supervision and Regulation Letter – SR 91‐20

5

ENVIRONMENTAL RISK ANALYSIS

When a loan is secured by real property, the lender must consider the risk of environmental liability and conduct a brief analysis of that risk. This checklist enables the lender to conduct a simple environment risk analysis by asking two simple questions and documenting the responses right on the checklist. Usually the responses will not indicate a potential problem and the analysis will be complete. If the responses indicate an environment concern, the lender should turn to the institution’s environmental policy for additional guidance.

6

RESPA APPLICABILITY

Applicability. RESPA applies to any consumer‐purpose loan secured by real property upon which there is, or will be, a one‐to‐four family dwelling or a manufactured home.

Exempt loans. The following loans are exempt from RESPA requirements:

Bridge loans; and Temporary loans.

[In the past, loans secured by 25 acres or more were exempt, but that exemption has been removed.]

Also note that while a temporary construction loan is generally exempt, that loan will not be exempt (will be subject to RESPA) in either of the following situations: if:

The loan has a term of two years or more; or The loan proceeds are used to buy the property.

The RESPA Disclosures. In the past, RESPA required us to provide a Good Faith Estimate, Servicing Disclosure Statement and HUD‐1 Settlement Statement. Under the Integrated Disclosure rule, however, those disclosures have all been moved to Truth in Lending and incorporated into either the Loan Estimate or Closing Disclosure. Similarly, requirements for the Settlement Cost Booklet and List of Providers have been moved to Truth in Lending. Because of these changes, RESPA now only requires the following disclosures:

List of Homeownership Counseling Organizations;

Affiliated Business Arrangement Disclosure Statement; and

Escrow disclosures.

7

RIGHT OF

RESCISSION

Applicability. If a loan is secured by a consumer's principal dwelling the applicant has the right to rescind the loan within three business days. For the purposes of right of rescission, the term "consumer" includes a natural person in whose principal dwelling a security interest will be retained.

Exempt Refinancings. Same‐creditor refinancings are generally not subject to right of rescission, but if new money is advanced, the borrower has the right to rescind the new‐money portion of the refinancing. Also note that, unlike closed‐end refinancings, there is no exemption for HELOC refinancings.

Exempt Residential Mortgage Transactions. Residential mortgage transactions are generally exempt from the right‐of‐ rescission rules. A residential mortgage transaction is defined as a loan in which a mortgage retained in the consumer's principal dwelling to finance the acquisition or initial construction of that dwelling. Note, however, that while a residential mortgage transaction is typically exempt from right‐of‐rescission rules, right of rescission will apply if the loan is secured by the borrower’s current dwelling . . . even if the loan is also secured by the dwelling under construction.

Reg Z §1026.23

Scope ‐ Reg X § 1024.5(a)Exemptions ‐ Reg X § 1024.5(b)(3)

Reg Z §1026.23(f)(1)Reg Z §1026.2(a)(24) Reg Z Comm. §1026.23(a)(1)‐ ¶4

Reg Z §1026.23(f)(2)


8

HIGH‐COST MORTGAGE LOAN (HOEPA LOAN)

Applicability. If the creditor charges high rates or fees on a consumer‐purpose loan secured by the consumer’s principal dwelling, the loan is a high‐cost mortgage subject to special restrictions and disclosure requirements.

The Triggers. A loan is a high‐cost mortgage if it meets any of the following triggers:

APR exceeds the APOR by more than:

6.5 % ‐ 1st mortgage (generally)

8.5% ‐ 1st mortgage less than $50,000 and secured by personal property

8.5 % ‐ junior mortgages

Points and fees exceed: Loan ≥ $20,350 ‐ 5% of total loan amount

Loan < $20,350 ‐ 8% of total loan amount or $1,017, whichever is less

Prepayment penalty:

More than 36 months after closing, or

In an amount more than 2% of prepaid amount.

9A

HHMMDDAA MONITORING APPLICABILITY

Applicability. A financial institution is subject to HMDA’s monitoring and reporting requirements if it (i) has assets in excess of $44 million and (ii) has a home or branch office in a metropolitan statistical area (MSA). [$44 million is the threshold for both 2015 and 2016—it is tied to the Consumer Price Index and changes annually.]

If an institution is subject to HMDA, it must obtain monitoring information and report loan data on the following types of loans (including business loans):

Home‐purchase loan. Loan proceeds are used to purchase a dwelling and the loan is secured by a dwelling.

Home‐improvement loan. Loan proceeds are used to improve a dwelling (or property on which a dwelling is located) and that loan is either: (i) Classified as a home improvement loan or (ii) secured by a dwelling.

Refinancing. Both the old and new loans are secured by a dwelling.

Temporary Loans. Temporary loans (regardless of purpose) are exempt from HMDA reporting requirements.

Home Equity Lines of Credit. Reporting is optional for HELOCs made for home improvement or home purchase.

9B

NNOONN‐‐HHMMDDAA MONITORING APPLICABILITY

Applicability. The Equal Credit Opportunity Act (Regulation B) requires non‐HMDA creditors to collect monitoring data (eetthhnniicciittyy,, rraaccee,, sseexx,, mmaarriittaall ssttaattuuss aanndd aaggee) when:

The lender receives an application for a loan primarily for the purchase or refinancing of a dwelling occupied or to be occupied by the applicant as a principal dwelling; and

The loan will be secured by the dwelling.

Temporary Construction Loans. An application for temporary financing to construct a dwelling is exempt and will not be subject to the ECOA monitoring requirements.

Home Equity Lines of Credit. An application for a HELOC is not subject to the monitoring requirements unless it is readily apparent that the primary purpose is for the purchase or refinancing of a principal dwelling.

Refinancings. A creditor who receives an application to refinance an existing loan made by the same creditor to purchase the applicant's dwelling may request the monitoring information again, but is not required to do so if it was obtained in the earlier transaction.

Reg Z §1026.32(a)

THESE DOLLAR AMOUNTS ARE

ADJUSTED ANNUALLY

FOR INFLATION.

Regulation C

Reg B §1002.13


Reg X § 1024.2(b) Reg Z § 1026.19(a)

Reg Z § 1026.36(g)

Reg Z §1026.19(b)

Reg B § 1002.4(c)

Reg B Commentary 7(d)(1) ‐ 3

10

ARM DISCLOSURES

If the loan will (i) have an adjustable rate, (ii) be secured by the borrower’s principal dwelling and (iii) have a term of more than one year, Truth in Lending (Reg Z ) requires the lender to provide special ARM disclosures when the application form is provided to the applicant. The special disclosures include:

The Consumer Handbook on Adjustable Rate Mortgages; and

A loan program disclosure for each ARM program in which the applicant expresses an interest.

In the case of a telephone application, the disclosures may be delivered or placed in the mail not later than three business days after application.

11

WRITTEN APPLICATION

Under the Equal Credit Opportunity Act (Regulation B), a written application is required when:

The loan will be primarily for the purchase or refinancing of a dwelling;

The dwelling will be occupied by the applicant as a principal dwelling; and

The loan will be secured by that dwelling.

in addition, a written application is simply good documentation. Not only does the application provide information about the applicant, it typically contains the wording necessary to collect monitoring data and joint‐application information.

Further, the CFPB has revised Reg Z to require the name and NMLSR of both the institution and the lender on applications for consumer‐purpose loans secured by dwellings. The NMLSR requirement became effective January 1, 2014.

12

INTENT TO APPLY FOR JOINT‐CREDIT

Under the Equal Credit Opportunity Act (Reg B), applicants must indicate—at the time of application—whether they are applying for joint credit. This requirement is found in the Regulation B Commentary, which states as follows:

Evidence of joint application. A person's intent to be a joint applicant must be evidenced at the time of application. Signatures on a promissory note may not be used to show intent to apply for joint credit. On the other hand, signatures or initials on a credit application affirming applicants' intent to apply for joint credit may be used to establish intent to apply for joint credit.

13A

HMDA MONITORING

DATA

If a loan is HHMMDDAA rreeppoorrttaabbllee (see Block 9A), the lender must obtain monitoring date (eetthhnniicciittyy,,

rraaccee aanndd sseexx) about the applicant(s) at the time of application.

When requesting the date, the lender is required to inform the applicant:

That the federal government requires the information in order to monitor compliance with federal discrimination laws; and

For in‐person applications, that if the applicant does not provide the data, the lender is required to note the data on the basis of visual observation or surname.

13B

NON‐HMDA MONITORING

DATA

If a nnoonn‐‐HHMMDDAA bbaannkk is required to obtain monitoring data (see Block 9B) , the lender must obtain the applicant's (eetthhnniicciittyy,, rraaccee,, sseexx,, mmaarriittaall ssttaattuuss aanndd aaggee) at the time of application.

When requesting the monitoring data, the lender is required to inform the applicant:

That the federal government requires the information in order to monitor compliance with federal discrimination laws; and

For in‐person applications, that if the applicant does not provide the data, the lender is required to note the data on the basis of visual observation or surname.

Regulation C

Reg B §1002.13


31 CFR §1020.220

Reg V – Subpart H

Fair Credit Reporting Act ‐ §609(g)

14

FEDERAL CREDIT INSURANCE

DISCLOSURES

IF CREDIT INSURANCE IS OFFERED

In 2000, the banking regulatory agencies jointly adopted a rule entitled Consumer Protections for Bank Sales of Insurance. Under the rule, if a lender solicits, offers or sells credit insurance, the bank must provide a disclosure stating that the bank cannot condition a loan on:

The consumer’s purchase of insurance from the bank; or

A prohibition keeping the consumer from obtaining insurance from someone else.

This disclosure must be made orally and in writing at the time the consumer applies for the loan, and the bank must obtain a written acknowledgement that the consumer received the disclosure.

A person reviewing the loan documents “after the fact” may not be able to determine whether the lender solicited, offered or sold credit insurance. For that reason, the checklist contains a space where the lender can indicate whether insurance was offered.

15

CIP RULES

The Bank Secrecy Act requires financial institutions to develop a Customer Identification Program (CIP). At minimum, the lender must:

Identify the customer by obtaining the following customer information prior to closing:

o Name, o Date of birth, o Address, and o Social security number.

Verify the customer’s identity within a reasonable time after the loan is closed.

Verification typically requires a photo driver’s license, but the creditor's CIP may require additional verification. Note that this CIP requirement will only apply to a new customer, because existing customers will have already been identified.

16

RISK‐BASED‐PRICING

DISCLOSURES

(Credit Score Notice)

In 2003, the FACT Act (or FACTA) added new section 615(h) to the Fair Credit Reporting Act to address risk‐based pricing. The new section was not implemented until 2011, when the Fed added new subpart H to Regulation V. Under the new rules, risk‐based pricing can be addressed in two different ways, but most community‐based financial institutions have elected to use the “exception” option. Under this option, the institution must provide a Credit Score Notice to any consumer subject to risk‐based pricing. There are two notices: (i) one notice for loans secured by residential real property and (ii) another notice for loans not secured by residential real property. The required notice must be provided as soon as possible, but not later than closing.

NOTE: Risk‐based pricing can occur even if the institution does not pull a credit report. But if the institution uses risk‐based pricing, it will have to pull the credit report to get the credit score needed to complete the Credit Score Notice.

16A

CREDIT SCORE DISCLOSURE

USE WHEN THERE IS NO

RISK‐BASED PRICING

Like the above‐described risk‐based pricing disclosures, this requirement stems from the 2003 FACT Act. Under this requirement—which became effective in 2003—banks are required to provide two disclosures whenever they use a credit score in connection with a residential real estate loan:

Disclosure of Credit Score Information; and

Notice to Home Loan Applicant.

These two disclosures are commonly combined into one notice and banks typically provide a combined form prepared by a consumer reporting agency. Like the disclosure addressed in Block 16, this disclosure must be provided as soon as possible.

NOTE: Together, these two disclosures contain the same information as the Block 16 Credit Score Notice. For that reason, it is not necessary to provide the Block 16A disclosures if the bank uses risk‐based pricing and provides the Credit Score Notice required in Block 16.

NNOOTT AAPPPPLLIICCAABBLLEE

TTOO CCRREEDDIITT UUNNIIOONNSS


Counseling List – Reg X § 1024.20Affiliated Business ‐ Reg X §1024.15

17

LOAN ESTIMATE

The Loan Estimate replaces both the ELYTIL and the RESPA Good Faith Estimate. It must be delivered, e‐mailed or placed in the mail no later than (i) the third business day after application and (ii) no later than the seventh business day before closing. The Loan Estimate is not required if the loan is denied or withdrawn within the three‐day period

Note that the Loan Estimate automatically includes the Copy‐of‐Appraisal Notice. Accordingly, when the Loan Estimate is provided, a separate Copy‐of‐Appraisal Notice is no longer required.

18

LIST OF SETTLEMENT PROVIDERS

If the consumer is permitted to shop for a settlement service, the creditor must provide the consumer with a written list of services for which the consumer can shop. This written list of providers is separate from the Loan Estimate, but must be provided within the same time frame—that is, it must be provided to the consumer no later than three business days after the creditor receives the consumer’s application—and the list must:

Identify at least one available settlement service provider for each service; and

State that the consumer may choose a different provider of that service.

The settlement service providers identified on the written list must correspond to the settlement services for which the consumer can shop as disclosed on the Loan Estimate.

19

HOME LOAN TOOLKIT

When integrated disclosures are required (applications for loans secured by real property), creditors must provide a copy of the CFPB'S Home Loan Toolkit. This booklet replaces the long‐used Settlement Cost Booklet. Note, however, that the booklet is only required if the loan is for the purpose of purchasing a one‐to‐four family residential property. The booklet is not required, for example, on refinancings, subordinate liens or reverse mortgages.

Creditors must deliver or place in the mail the booklet not later than three business days after receiving the application.

20

EARLY RESPA

DISCLOSURES

In the past, a financial institutions with RESPA loans had to provide the following RESPA disclosures within 3 business days after application:

Settlement Cost Booklet (not required on refinancings or subordinate mortgages);

Good Faith Estimate;

A list of service providers (f the borrower can shop for a required third‐party provider);

Mortgage Servicing Statement (only on first mortgages);

List of homeownership counseling organizations; and

Affiliated Business Arrangement Disclosure Statement.

TRID changes those long‐standing RESPA requirements, however, and now requires only the following two RESPA disclosures within the 3 business day period:

List homeownership counseling organizations; and

Affiliated Business Arrangement Disclosure Statement.*

As before, if the application is denied or withdrawn within the three‐business‐day period, early disclosures are not required. _____________________ * The Affiliated Business Disclosure must be provided (i) at the time of application or (ii) when the [Loan Estimate]

is provided. Accordingly, when no Loan Estimate is provided (as is the case with a HELOC), the disclosure must be provided at application.

Reg Z §1026.19(e)

Reg Z §1026.19(e)(1)(vi)

Reg Z §1026.19(g)


21

ABILITY TO REPAY

General Ability‐to‐Repay Rule. Under the new CFPB rules, a financial institution making a closed‐end consumer loan secured by a dwelling must make a reasonable, good‐faith determination that the consumer has a reasonable ability to repay the loan. To make a reasonable, good‐faith determination, the institution must consider and verify these eight factors:

Income or assets Employment status Monthly mortgage payment Monthly payment on simultaneous loans secured by same property Monthly payments for property taxes and insurance Debts, alimony, and child support obligations Monthly debt‐to‐income (DTI) ratio Credit history

Qualified Mortgage Options. Rather than comply with the general ability‐to‐repay rules, financial institutions can choose to make a loan under the qualified mortgage rules. Qualified mortgages are designed to be consumer friendly and protect consumers from default at the time of harsh rate adjustments. Generally, for example, qualified mortgages cannot have:

Negative amortization;

Interest‐only payments;

Balloon payments (although one type of qualified mortgage is designed for balloon payments);

A debt‐to‐income ratio exceeding 43%; or

Points and fees exceeding 3% of the total loan amount.

In return for offering these consumer‐friendly loans, financial institutions can take advantage of certain benefits:

Presumption of Compliance. In the case of a qualified mortgage, if the consumer sues the institution for failing to conduct appropriate "ability‐to‐pay" screening, the institution can claim a "rebuttable presumption" that it complied with the ability‐to‐repay rules. The type of presumption will depend on whether the loan is a HPML or a non‐HPML.

Exemption from HPML Appraisal Rules. Qualified mortgages are exempt from the special HPML appraisal rules.

Eased Underwriting Requirements. Qualified mortgages are still subject to certain ability‐to‐repay requirements, but those requirements are less stringent.

There are four types of qualified mortgages and each one has its own ability‐to‐repay rules:




Small‐Creditor Portfolio Loans Qualified Mortgage.

BANKS MAY WANT TO USE CCHHEECCKKLLIISSTT 99 TO KEEP TRACK OF THE GENERAL ABILITY‐TO‐REPAY REQUIREMENTS, AS WELL AS THE VARIOUS RESTRICTIONS ASSOCIATED WITH EACH TYPE OF QUALIFIED MORTGAGE.

Reg Z §1026.43

EXEMPT FROM ATR AND QM RULES

HELOCs

Temporary loan of 12 months or less

Bridge loan of 12 months or less


FDIC: 12 CFR 339 FED: 12 CFR 208.25 OCC: 12 CFR 22

22

FLOOD INSURANCE

A financial institution must initiate flood insurance procedures when it makes, increases, extends or renews a loan secured by a building or manufactured home. The checklist shows the key requirements:

Determine whether the building is in a Special Flood Hazard Area (SFHA);

If the building is in a SFHA, provide the borrower with a notice; and

If the building is in a SFHA and the community participates in the National Flood Insurance Program, require flood insurance to be in place before closing.

If the lender is increasing or extending a loan, it can rely on a previous determination if:

The determination is no more than seven years old; and

There have been no map changes.

Previous determinations cannot, however, be used for new loans or other‐lender refinancings.

In 2009 the federal banking agencies released a detailed document titled Interagency Questions and Answers Regarding Flood Insurance. This detailed and instructive document is available on the website of each agency.

Under the Homeowner Flood Insurance Affordability Act of 2014, flood insurance is not required for any structure that is part of a residential property, but detached from the primary residence and does not serve as a residence. It is clear, however, that a lender may require flood insurance to protect the collateral securing the loan. This provision became effective upon the Act's enactment (March 21, 2014).

23

GENERAL APPRAISAL RULES

If a loan is secured by real property, the value of the secured property must be determined in one of the following ways:

A new appraisal; A new evaluation; or An existing appraisal/evaluation.

Note, however, that no appraisal or evaluation is required when the real property is taken only as an abundance of caution.

Appraisals. If the amount of the loan exceeds $250,000, the institution must hire certified appraiser to conduct an appraisal of the secured property. Note, however, there are certain exceptions for (i) business loans, (ii) same‐lender refinancings with no new money and (iii) same‐lender refinancings with no material change in the market or property. In these cases, an evaluation may be permitted.

Evaluations. If the amount of the loan is $250,000 or less, the institution can value the secured property by conducting an in‐house evaluation. An in‐house evaluation can be based on a county tax assessment, but the institution must (i) review the assessment, (ii) determine whether the assessment is valid and (iii) prepare a written review that includes a reconciliation of the value.

Existing Valuations. If the institution has an existing appraisal/evaluation, it can use that existing valuation to support a new loan—but only if it documents that the existing appraisal/evaluation is still valid.

Reviewing Appraisals and Evaluations. As part of an institution's credit approval process—and prior to the final credit decision—the institution should review appraisals and evaluations to ensure that they comply with the federal appraisal regulations and the institution’s internal policies.

Fed: 2010 Supervision and Regulation (SR) Letter – SR 10‐16OCC: 2010 Bulletin – OCC 2010‐42 FDIC: 2010 Financial Institution Letter – FIL‐82‐2010


Reg Z Comm. §1026.35(c)(6)(ii) ¶1

24

TITLE INSURANCE

Creditors typically require title insurance (or some similar method of title protection) even if they are not required to do so by law or regulation. For that reason, this checklist includes the title insurance "requirement."

25

COPY OF APPRAISAL

■ ECOA Requirement

The ECOA copy‐of‐appraisal rule applies to all loans secured by a ffiirrsstt lliieenn on a aannyy dwelling. Under this rule, the lender must provide the applicant with a copy of any appraisal (or other valuation) developed in connection with the application. The copy must be provided “promptly upon completion” . . . and must be received by the consumer at least three business days before closing. If the copy is mailed or e‐mailed, the copy is "received" three business days after mailing/e‐mailing (unless the lender has evidence of earlier receipt).

An applicant can waive the three‐day timing requirement, but even with the waiver, the copy must be provided at or before closing. The waiver can be written or oral, but must be obtained at least three business days before closing. If the applicant provides a waiver and the loan is not closed, lender must provide the copy no later than 30 days after it determines that closing will not occur.

■ HPML Requirement

If a loan is a HPML, special appraisal rules apply. Here, the lender must provide the applicant with a copy of any appraisal developed in connection with the application of that loan. The copy must be received by the consumer no later than three business days before closing, and if the copy is mailed or e‐mailed, the copy is considered "received" three business days after mailing/e‐mailing (unless the lender has evidence of earlier receipt). Under the HPML rules, there is no requirement that it be provided “promptly upon completion” (as is the case for the ECOA requirement) and no waiver is permitted.

While the ECOA rule only applies to loans secured by first liens on dwellings, the HPML requirement applies to both first and second liens. And note that the following types of HPMLs are eexxeemmpptt from the HPML copy‐of‐appraisal requirement:

Qualified mortgage

Bridge loan for new principal dwelling of 12 months or less

Initial construction of a dwelling

Loan of $25,500 or less (amount for 2015)

Loan secured by manufactured home

Streamlined refinancing

Reg Z §1026.35(c)(2)

IF COPY-OF-APPRAISAL REQUIREMENTS OVERLAP

If a loan is both a HPML and a first lien, both the HPML and ECOA copy‐of‐appraisal requirements apply. In this case, the lender must comply with the earliest deadline. In effect, this would eliminate the possibility of any waiver.

"Streamlined refinancing" occurs when:

Creditor is the same;

No negative amortization, interest‐only payments, balloon payments; AND

Proceeds are used only to pay the existing loan (and closing costs).

Reg B §1002.14


26

HIGH‐COST MORTGAGE LOANS (HOEPA LOANS)

Background. In 1997, Congress passed the Home Ownership Equity Protection Act (HOEPA). That act (which added a new provision to Truth in Lending) gives consumers special protections on high‐cost loans secured by the consumer’s principal dwelling. Originally, the act only applied to non‐purchase‐money loans and its coverage was somewhat limited.

New Rules. The Dodd‐Frank Act made several significant changes to the HOEPA rules:

We now call these loans “high‐cost mortgages” instead of HOEPA loans;

The “triggers” have been revised;

Purchase‐money loans and HELOCs are now covered;

There are new restrictions (not discussed here); and

Homeownership counseling is now required.

New HOEPA Triggers.

High APR. A loan is a high‐cost mortgage if its APR exceeds the APOR by more than:

6.5 % ‐ first‐mortgages (generally) 8.5% ‐ first mortgages less than $50,000 and secured by personal property 8.5 % ‐ junior mortgages

High Points and Fees. A loan is a high‐cost mortgage if its ppooiinnttss aanndd ffeeeess exceed the following:

Loan ≥ $20,350 ‐ 55%% of the total loan amount Loan < $20,350 ‐ 88%% of the total loan amount or $$11,,001177, whichever is less

Prepayment Penalty. A loan is a high‐cost mortgage if the creditor charges a pprreeppaayymmeenntt

ppeennaallttyy:

MMoorree tthhaann 3366 mmoonntthhss after closing, or In an amount mmoorree tthhaann 22%% of the prepaid amount.

Disclosure. If a loan is a high‐cost mortgage, the high‐cost mortgage notice must be provided at last three business days before closing. The text of the disclosure follows: Homeownership Counseling. Prior to making a high‐cost mortgage, the creditor must obtain written certification that the consumer has received homeownership counseling from a HUD‐approved counselor. For closed‐end credit, the counseling must occur after the consumer receives the RESPA good faith estimate. For open‐end credit, counseling must occur after the consumer receives the HELOC disclosures required by Truth in Lending. The homeownership counselor cannot be affiliated with or employed by the creditor, and the creditor cannot steer the consumer to a particular counseling agency.

Exemptions. The following loans are exempt from the high‐cost mortgage requirements:

Reverse mortgages

Construction loans

Loans originated and directly finance by a Housing Finance Agency

Loans originated under USDA’s Rural Development Section 502 Program

Reg Z §1026.31, 32 and 34

ADJUSTED ANNUALLY

Reg Z §1026.32(c)

Reg Z §1026.34(a)(5)

You are not required to complete this agreement merely because you have received these disclosures or have 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.


27

HOMEOWNERSHIP COUNSELING

NEGATIVE AMORTIZATION FIRST‐TIME BORROWER

If a closed‐end, dwelling‐secured loan permits negative amortization and the consumer is a first‐time home borrower, the financial institution must obtain documentation showing the borrower has received homeownership counseling prior to making the loan. The lender is prohibited from steering the consumer to a particular counselor or counseling agency.

28

COLLECT HMDA DATA

HMDA Banks. If the loan is HMDA reportable (see Blocks 9A and 13A), data about the loan and the applicant must be collected. Typically this data is handwritten on a data input sheet and later transferred to the computerized Loan Application Register (LAR). Required data includes:

Monitoring data (ethnicity, race and sex of each applicant)

Application or loan number

Application date

Loan type

Property type

Purpose of loan

Owner occupancy

Loan amount

Preapproval

Action taken

Date of action taken

Property location

Income

Reasons for denial

Rate spread

HOEPA status

Lien status

Whether loan was sold

Non‐HMDA Banks. Even if a non‐HMDA bank is required to obtain monitoring data under Regulation B (see Blocks 9B and 13B), they are not required to formally report that data or obtain additional data about the loan or the applicant.

29

REVISED LOAN ESTIMATE

The Loan Estimate can be revised, but only if:

There are changed circumstances;

The consumer requests a change; or

The Loan Estimate expires.

In addition, the lender cannot provide a revised Loan Estimate unless the changed event would cause the estimated charges to increase beyond the tolerance.

The revised Loan Estimate must be delivered, mailed or e‐mailed no later than three business days after the lender receives the information and it must be received no later than four business days before closing. If the revised Loan Estimate is mailed or e‐mailed, it is considered received by the consumer three business days after mailing or e‐mailing (unless there is evidence that the disclosure was actually received at an earlier date). The definition of "business day" depends on the requirement. See page 42 for a chart showing the business‐day definition for each requirement.

30

CLOSING DISCLOSURE

The Closing Disclosure replaces both the old Truth‐in‐Lending disclosures and the RESPA Settlement Statement and must be received by the consumer no later than three business days before closing. If the Closing Disclosure is mailed or e‐mailed, it is considered received by the consumer three business days after mailing or e‐mailing (unless there is evidence that the disclosure was actually received at an earlier date). The definition of "business day" depends on the requirement. See page 42 for a chart showing the business‐day definition for each requirement.

Reg Z § 1026.36(k)

Reg Z §1026.19(e)(3)‐(4)

Reg Z §1026.19(f)

THE CFPB HAS REVISED THE HMDA REPORTING REQUIREMENTS. IN THE FUTURE, EXPECT TO

COLLECT AND REPORT ADDITIONAL INFORMATION, INCLUDING:

AGES OF APPLICANTS

POINTS AND FEES

DIFFERENCE BETWEEN APR AND BENCHMARK RATE

PREPAYMENT PENALTY

VALUE OF SECURED REAL PROPERTY

TERM OF LOAN

INTRODUCTORY INTEREST RATE

NON‐AMORTIZING PAYMENTS

ORIGINATION CHANNEL

CREDIT SCORES

IDENTIFIERS

Regulation C


Reg B §1002.9

31

CORRECTED CLOSING DISCLOSURE

If the Closing Disclosure becomes inaccurate before closing, the creditor must provide a corrected Closing Disclosure. In the following cases, the corrected Closing Disclosure, must be received three business days before closing:

The disclosed APR becomes inaccurate;

The loan product changes; or

A prepayment penalty is added.

Otherwise, the corrected Closing Disclosure may be provided at or before closing.

If the corrected Closing Disclosure is mailed or e‐mailed, it is considered received by the consumer three business days after mailing or e‐mailing (unless there is evidence that the disclosure was actually received at an earlier date). See page 42 for a chart showing the business‐day definition for each requirement.

32

ADVERSE ACTION

Under the Equal Credit Opportunity Act (Reg B), a financial institution must provide the applicant with a Notice of Adverse Action. The rules are complicated and detailed:

Completed Application. If the creditor denies a completed application (refuses to grant credit in the amount or terms requested), it must provide a Notice of Adverse Action within 30 days after receiving the application.

Completed Application. If the creditor makes a counteroffer and the applicant accepts the counteroffer, there is no adverse action and no notice is required. But if the applicant does not accept the counteroffer, the creditor must provide a Notice of Adverse Action within 90 days after notifying the applicant of the counteroffer.

Incomplete Application. Within 30 days after receiving an incomplete application, the creditor must take one of the following actions:

Deny the incomplete application and provide a Notice of Adverse Action within 30 days after taking the adverse action; or

Provide a Notice of Incompleteness. This notice is incorporated into the usual Notice‐of‐ Adverse‐Action forms. If the applicant fails to respond, the creditor will have no further obligation. But if the applicant supplies the information, the creditor must take action on the application and follow the usual notification rules.

If an applicant specifically withdraws an application, there is no “adverse action” and a Notice of Adverse Action is not required. If the applicant provides the lender with a letter of withdrawal, that letter should be kept in the file. If there is no letter, the lender should document the withdrawal. Consider using the “NOTES AND INSTRUCTIONS” portion of the checklist to make this note . . . and the lender should initial and date the notation.

Reg Z §1026.19(f)(2)


33

WAITING PERIODS

Under Reg Z and Reg B, there are several waiting periods that must expire before a loan can be closed. Those waiting periods are shown in the following chart:

DISCLOSURE

WAITING PERIOD CITE

ECOA Copy of Appraisal


Reg B § 1002.14(a)(1)

HPML Copy of Appraisal


Reg Z § 1026.35(c)(6)(ii)

High‐Cost‐Mortgage Disclosure


Reg Z § 1026.31(c)

Loan Estimate

Must be delivered, mailed/e‐mailed no later than the

77tthh business day before closing

Reg Z § 1026.19(e)(1)(iii)

List of Providers

Must be delivered, mailed/e‐mailed no later than the

77tthh business day before closing

Reg Z § 1026.19(e)(1)(iv)(C)

Revised Loan Estimate


Reg Z § 1026.19(e)(4)

Closing Disclosure


Reg Z § 1026.19(f)(1)(ii)

Corrected Closing Disclosure

Must be received no later than 33 business days before closing (if change in APR/loan product/prepay penalty)

Reg Z § 1026.19(f)(2)

Mailbox Rule. If the disclosure is mailed or e‐mailed, it is considered received 3 business days after mailing/e‐mailing, unless there is evidence of actual receipt at an earlier time.

Waivers. In some cases, the timing requirement can be waived by the consumer.

Definition of "Business Day." See page 42 for a chart showing the business‐day definition.


Reg Z §1026.36(g)

34

PROMISSORY NOTE

NMLSR Requirements. On a closed‐end loan secured by a dwelling, any loan document provided to a consumer (or presented for signature), must include:

The institution's name and NMLSR ID number; and

The individual lender’s name and NMLSR ID number (if one has been issued).

For the NMLSR requirement, the term “loan documents” includes:

The application;

The promissory note; and

The security instrument (mortgage). At Closing. At closing, the promissory note and mortgage will be signed and the borrower will be given copies of the note, mortgage and Truth‐in‐Lending disclosures. Keep these things in mind:

The note and mortgage are both legal contracts . . . they should be signed by both parties—the borrower and the lender (who signs on behalf of the institution).

Notes (and mortgages) typically contain spaces where the borrower can initial the bottom of each unsigned page. Obtaining a borrower’s initials is a good practice—it keeps the borrower from later claiming that he/she never saw that page.

35

RIGHT OF

RESCISSION

Generally, when a loan is secured by someone’s principal dwelling, the owner of the dwelling (usually—but not always—the borrower) has a right to back out of the loan for three business days after the last of these three things:

Closing;

Receiving the Notice of Right to Rescind; or These usually happen at the same time.

Receiving the material disclosures.

"Material disclosures” means required disclosures related to the annual percentage rate, finance charge, amount financed, total of payments, payment schedule, high‐cost mortgage and prepayment penalties.

For the purpose of determining the three‐business‐day right of rescission period, Saturday is always a business day, even if the creditor is not open for business on Saturday.

There are two exceptions to the right‐of‐rescission rule, and the owner of the secured dwelling will not have a right to cancel if:

The loan is to buy the applicant’s principal dwelling and is secured by the same dwelling; or

The loan is a same‐lender refinancing with no new money.

If right of rescission is applicable, the processor will need to prepare two copies of the Notice of Right to Rescind for each dwelling owner (one can be used to cancel and one can be retained).

And oddly, if right of rescission is applicable, the Closing Disclosure must be given not only to the borrower, but also any consumer entitled to rescind the loan.

Finally, if right of rescission applies, Truth in Lending prohibits the creditor from disbursing money until the three‐business‐day right‐of‐rescission period has expired and the creditor is reasonably satisfied that the consumer has not rescinded the loan.

Reg Z § 1026.23

Reg Z § 1026.17(d)


36

RESPA CLOSING DISCLOSURES

In the past, RESPA required a financial institution to provide a Settlement Statement (HUD‐1 or HUD‐1A) at closing. But when the Integrated Disclosure rules become effective, the disclosures contained in the Settlement Statement will be included in the new Closing Disclosure . . . the Settlement Statement will no longer be used.

Note, however, that if RESPA applies and escrow account is established in connection with the loan, the creditor must continue to conduct an escrow account analysis and prepare and Initial Escrow Account Statement. The Statement must be provided to the borrower at closing . . . or within 45 calendar days of closing.

37

PRIVACY NOTICE

In 1999 the Gramm‐Leach‐Bliley Act established new privacy requirements and the federal banking agencies developed regulations to implement those requirements. Under those regulations, a lender must provide an initial privacy notice to a new customer when it originates a consumer loan. When dealing with an existing customer, however, a notice is only required if the most recently‐provided notice has become inaccurate.

If a new privacy notice is required, it can be given either at application or at closing. These checklists call for the notice to be provided at closing, but it would be perfectly acceptable to provide the notice at application.

38

FEDERAL CREDIT INSURANCE

DISCLOSURES

IF CREDIT INSURANCE IS SOLD

As earlier discussed in Block 14, the Gramm Leach Bliley Act requires certain insurance‐related disclosures and the federal banking agencies have created regulations to implement those requirements. Under the regulations, if a consumer purchases an insurance product from the bank (including credit insurance) the bank must disclose the following:

The insurance product is not a deposit or other obligation of, or guaranteed by, the bank;

The insurance product is not insured by the FDIC or agency of the United States or the bank; and

In the case of an insurance product that involves an investment risk, that there is investment risk associated with the product, including the possible loss of value.

If you think these disclosures don’t make sense you’re absolutely correct. And yet . . . the disclosure must be made orally and in writing before the completion of the sale of insurance. In addition, the bank must obtain a written acknowledgement that the consumer received the disclosure.

These disclosures—collectively called the federal sale‐of‐insurance disclosure—are only required if the customer purchases insurance. Processors should also note that these disclosures might be preprinted in the promissory note.

39

RIGHT‐OF‐ RESCISSION

WAITING PERIOD

Regulation Z makes it clear that a lender may not disburse funds to the borrower until the three‐day right‐of‐rescission period has expired and the lender is reasonably satisfied that the owner of the secured principal dwelling has not rescinded the loan. And unless prohibited by state law, lenders are permitted to charge interest during the three‐day right‐of‐rescission period, even though funds have not yet been advanced.

Reg X § 1024.17(g)

Reg P ‐ § 1016

FDIC: 12 CFR 343.40(a) and (c)

FED: 12 CFR 14.40(a) and (c)

OCC: 12 CFR 208.84(a) and (c)

Reg Z §226.23(c)

NNOOTT AAPPPPLLIICCAABBLLEE

TTOO CCRREEDDIITT UUNNIIOONNSS


40

CORRECTED CLOSING

DISCLOSURE

Creditors must provide a corrected Closing Disclosure if an event in connection with the settlement occurs during the 30‐calendar‐day period after consummation and causes the Closing Disclosure to become inaccurate and results in a change to an amount paid by the consumer. In this case, the creditor must deliver or place in the mail a corrected Closing Disclosure not later than 30 calendar days after receiving information sufficient to establish that such an event has occurred.

41

NOTES AND

REMINDERS

Private Mortgage Insurance. Private Mortgage Insurance (PMI) covers the difference between the value of a secured home and the balance of the loan. Lenders often require PMI when the amount of a home loan exceeds 80% of the home’s value. In 1998, Congress passed the Homeowners Protection Act of 1998. Under that act, the lender must cancel PMI upon the borrower’s request once the mortgage reaches an 80% LTV. And PMI must be automatically terminated when LTV falls to 78%. In addition, the act requires (i) an information disclosure for new mortgages, (ii) an annual notice, and (iii) notification upon cancellation.

Referral Fee Checklist. RESPA prohibits a lender from accepting a referral fee unless the lender earned the fee by actually performing commensurate services. In 1995 HUD issued a letter containing (i) guidelines to determine whether a referral fee will pass scrutiny and (ii) a list of services to be considered in applying the guidelines. If the institution is involved in loan referrals and accepts referral fees, it’s a good idea to use a checklist indicating which services the lender performed. A checklist is available from Anne.

Servicemembers Civil Relief Act (SCRA). This 2003 Congressional act replaces the Soldiers' and Sailors' Civil Relief Act of 1940 and contains protections for persons in the military service. The two most common protections are:

If the servicemember entered into a loan before entering active‐duty military service, the lender must lower the rate to 6% while the servicemember is on active duty; and

If the servicemember is in default on a residential mortgage, the lender must provide a special SCRA notice within 45 days from the date a missed payment was due.

Military Lending Act. Under this 2005Congressional act (and the DOD implementing regulation) protective requirements and prohibitions apply when service members (or their dependents) apply for the following types of high‐risk loans:

Note, however, that a new DOD regulation will become effective October 1, 2016, and expand the act's coverage to more types of loans.

Furnishing Negative Information. If a lender furnishes negative information to a consumer reporting agency, the lender must provide a written notice to the customer. The notice must be given before, or within 30 days after, the information is furnished. After providing the notice, the lender can submit additional negative information without an additional notice. The notice cannot be included in the Truth‐in‐Lending disclosures, but can be included on or with any notice of default, billing statement or other materials, as long as the notice is clear and conspicuous.

Homeowners Protection Act of 1998 ‐ 12 USC §4901 et seq.

Reg X § 1024.14

PAYDAY LOANS

91 days or less $2,000 or less Borrower provides check (or

EFT authorization) for

VEHICLE TITLE LOANS

181 days or less Secured by already‐owned

vehicle

TAX REFUND ANTICIPATION LOANS

Expressly secured by (or to be paid by) income tax refund

FDIC: FIL‐83‐2007 FED: CA 07‐05 OCC: Bulletin 2007‐40

Fair Credit Reporting Act §623(a)(7)

Reg Z §226.19(f)(2)(iii)

50 USC §501 et seq.


42

NOTES AND

INSTRUCTIONS

Each checklist contains a block for notes and instructions. The size of the block varies, depending on the space available in that particular checklist. If each loan file contains a completed checklist, this block can be used to record and document various loan‐related events and instructions. Where the notice is critical for compliance requirements, make sure it is authenticated with the maker's initials (or name, if you prefer) and the date the note was entered. Internal notes or instructions need not be authenticated. Here are some examples:

Mark withdrew app by phone 5/13/16 Mary 5/14/16 On 6.18.16 Smith waived 3-day timing requirement (phone) BWC 6-18-16 Ben – be sure to order title insurance

43

SPECIAL HPML

APPRAISAL RULES

Special HPML Appraisal Rules. Under the new CFPB rules, there are special appraisal rules for HPMLs secured by the consumer’s principal dwelling. These special rules apply to both first‐and‐second mortgage HPMLs and require a lender to:

Provide a copy‐of‐appraisal notice within three business days after application (this is now automatically included in the Loan Estimate);

Provide a copy of any appraisal developed in connection with the application no later than three business days before closing;.

Obtain a written appraisal performed by certified or licensed appraiser; and

Have the appraiser visit the interior of the property.

Additional Requirements for Flipped Homes. If a covered HPML is being used to purchase a flipped home within 90‐180 days after being purchased by the seller, an additional appraisal will be required if the consumer’s purchase price is:

More than a 10% price increase if the seller acquired the property in the past 90 days; or

More than a 20% price increase if the seller acquired the property in the past 91 to 180 days.

Note, however, that this additional appraisal is not required if the flipped property is located in a rural county.

Definition of Business Day. For the purposes of deadlines for delivering the copy‐of‐appraisal notice (and also for delivering a copy of the appraisal), a “business day” is defined as when “the creditor’s officers are open to the public for carrying on substantially all of its business functions.”

Exemptions. None of the special HPML appraisal rules apply to the following loans:

Qualified mortgage

Bridge loan for new principal dwelling of 12 months or less

Initial construction of a dwelling

Loan of $25,500 or less (amount for 2016)

Loan secured by manufactured home

Streamlined refinancing

Reg Z §1026.35(c)(4)

Reg Z §1026.35(c)(2)

"Streamlined refinancing" occurs when:

Creditor is the same;

No negative amortization, interest‐only payments, balloon payments; and

Proceeds are used only to pay the existing loan (and closing costs).

CFPB Guidelines

Reg Z §1026.35(c)


44

HPML ESCROW ACCOUNT

If a loan is a higher‐priced mortgage loan (HPML) and is secured by a first mortgage, the creditor must establish—before closing—an escrow account for property taxes and required mortgage‐related insurance premiums.

Required Time Period. Prior to 2013, the consumer could cancel the escrow requirement after the first year. That one‐year period has now been extended to five years.

Exemptions. Even if an institution has a HPML, escrow accounts need not be established for the following loans:

Loans secured by shares in a cooperative

Loans to finance the initial construction of a dwelling

Temporary or “bridge” loans with terms of 12 months or less

Reverse mortgages

Subordinate liens

Open‐end credit (such as a home equity line of credit)

Insurance premiums that are not required

Loans secured by properties in common interest communities where there is a master policy

Exemption for Small Creditors. Since June 13, 2013, CFPB rules have exempted small creditors from the HPML escrow requirements. In many cases, however, a creditor who otherwise met the "small creditor" test did not meet the "rural area" test. The CFPB has now issued new tests that enable more creditors to meet the "small creditor" exemption:

During the preceding calendar year (or if the application was received before April 1, during either of the two preceding calendar years) the creditor extended at least one covered loan secured by a property located in a rural or underserved area;

During the preceding calendar year (or if the application was received before April 1, during either of the two preceding calendar years), the creditor and its affiliates together extended no more than 2,000 first‐lien covered transactions that were transferred to another person (or that were subject to a commitment to be acquired by another person);

The creditor and its affiliates have assets of less than $2.052 billion (adjusted annually); and

Neither the creditor nor its affiliate maintains an escrow account for any consumer loan secured by real property or a dwelling (other than an escrow account established for first‐lien HPMLs for which applications were received on or after April 1, 2010 and before May 1, 2016).

Under these new "small creditor" rules, an area is considered rural if it is:

Not located in an MSA or adjacent county; or

Located in a census block that is not considered an urban area by the Census Bureau.

The CFPB has created an easy‐to‐use automated tool which can be used to determine whether a property is located in a rural area. Simply enter the address of the property and in just a few seconds, the site will clearly indicate whether the property is rural or urban.

Reg Z §1026.35(b)

CFPB AUTOMATED TOOL

http://www.consumerfinance.gov/rural‐or‐underserved‐tool/


45

PURPOSE OF LOAN

Under the Bank Secrecy Act, if a loan is not secured by real estate and exceeds $10,000, a creditor must show the purpose of the loan. Because promissory note forms commonly contain a space to indicate the purpose of the loan, these checklists show the purpose requirement in connection with the promissory note. In fact, however, the purpose can be shown any place in the creditor's files. The stated purpose must be as specific as possible; general terms such as “business,” “personal” or “personal expenses” are not permissible.

46

APPENDIX D

FOR MULTIPLE ADVANCES

Most temporary construction loans have multiple advances. Since the timing and amount of the advances are unknown when the Truth‐in‐Lending disclosures must be provided, the creditor is forced to estimate several disclosures. Regulations Z’s Appendix D offers a safe harbor for estimating disclosures on multiple‐advance loans. It permits the creditor to base estimated disclosures on the assumption that the one‐half of the commitment amount is outstanding for the term of the loan.

47

HELOC DISCLOSURES

On a home equity line of credit (HELOC), Truth in Lending requires the lender to provide the following two items at the time an application is provided to the applicant:

The home equity brochure; and

Disclosures about the lender’s HELOC program. These disclosures must include information about retaining the disclosure, conditions for terms, security interest and risk to home, possible creditor actions, payment terms, APR, fees, negative amortization, loan requirements, tax implications and variable‐rates.

In addition, the lender is required to provide a statement of billing rights at closing. Note that this statement might be preprinted on the HELOC note.

48

COPY‐OF‐APPRAISAL NOTICE

The CFPB rules of 2014 require lenders to provide a Copy‐of‐Appraisal Notice within three business days after application. Since that notice is now automatically included in the Loan Estimate, no separate notice is necessary on loans secured by real property. But where the loan is secured by a dwelling without real property, the notice must be separately provided. Instructions follow . . .

■ ECOA Copy‐of‐Appraisal NNoottiiccee

The ECOA rule applies to all loans secured by a first lien on a dwelling. On those loans, the lender must provide the copy‐of‐appraisal notice within three business days after application. The notice wording is as follows:

■ HPML Copy‐of‐Appraisal NNoottiiccee

While the ECOA notice requirement applies only to first mortgages, the HPML notice requirement applies to both first and second liens. The lender must provide the HPML copy‐of‐appraisal notice within 3 business days after application. The HPML notice is identical to the ECOA notice except for one thing: It does not contain the word "promptly." Note, however, that the law makes it clear that the ECOA disclosure will satisfy the HPML notice requirement.

NOTE: Many HPML loans are eexxeemmpptt from the notice requirement, but lenders should be aware that the ECOA notice requirement will still apply in the case of a first mortgage.

31 CFR Chapter X §1010.410(a)

Reg Z – Appendix D

Reg Z § 1026.15(f)

Reg Z §1026.35(c)

We may order an appraisal to determine the property’s value and charge you for this appraisal. We will promptly give you a copy of any appraisal, even if your loan does not close. You can pay for an additional appraisal for your own use at your own cost.

Reg B §1002.14(a)(2)


49

HIGHER‐PRICED MORTGAGE

LOAN (HPML)

Applicability. A loan is a higher‐priced mortgage loan (HPML) if it:

Is closed‐end,

Is secured by the consumer’s principal dwelling; and

Has an APR that exceeds the APOR by 1.5 (first mortgage) or 3.5 (second mortgage).

If a loan is a HPML, the following HPML rules could apply:

Required escrow accounts on first mortgages (Block 44);

Special appraisal rules (Block 43);

Restrictions on prepayment penalties.

Note, however, that many HPML loans are exempt from the special restrictions and those exemptions are shown in the relevant blocks.

50

USUAL TIL DISCLOSURES

When a closed‐end consumer loan is secured by real estate, the new TRID disclosures are required. But if the loan is not secured by real estate, the creditor must provide the "old" Truth‐in‐Lending disclosures.

Similarly, since the new TRID disclosures do not apply to HELOCs, the usual Truth‐in‐Lending disclosures are still required on HELOCs.

51

INTENT TO PROCEED

If the TRID rules apply, the creditor cannot impose a fee (other than the credit report fee) until the consumer has received the Loan Estimate and indicated his or her intent to proceed with the loan.

A consumer may indicate that intent in any manner (unless the creditor requires a particular manner of communication). For example, an oral statement at the time the Loan Estimate is delivered will sufficiently indicate intent. Telephone statements, e‐mailed messages and signing pre‐printed form are also appropriate ways to indicate intent, as long as those actions occur after receipt of the Loan Estimate. But remember that a consumer's silence does not indicate intent. For example, a creditor cannot deliver the Loan Estimate, wait for some period of time for the consumer to respond, and then charge a fee for an appraisal if the consumer does not respond, even if the creditor disclosed that it would do so.

NOTE: However the consumer communicates his or her intent to proceed with the loan, it is clear that the creditor must document that communication.

Reg Z §1026.35(a)

Reg Z §1026.19(e)(2)(i)(A)


DISCLOSURE

TIMING REQUIREMENT

BUSINESS DAY DEFINITION

EACH DAY THE BANK IS OPEN TO CARRY ON SUBSTANTIALLY ALL BUSINESS

ALL DAYS EXCEPT SUNDAY AND

FEDERAL HOLIDAYS _______________

SATURDAY IS A BUSINESS DAY

LOAN ESTIMATE

Deliver, mail or e‐mail no later than:

Third business day after application, and . . . . . . . . . . . .

Seventh business day before closing . . . . . . . . . . . . . . . .

. . . . .

. . . . . . . . . . . . . . . . . .

. . . . .

REVISED LOAN ESTIMATE

Deliver, mail or e‐mail no later than three business days after receiving information . . . . . . . . . . . . . . . . . . . . . . . . . . .

Must be received no later than the four business days before closing. [Note mailbox rule] . . . . . . . . . . . . . . . . . . . .

. . . . .

. . . . . . . . . . . . . . . . . .

. . . . .

CLOSING DISCLOSURE

Must be received no later than three business days before closing. [Note mailbox rule]

CORRECTED CLOSING DISCLOSURE

If changes affect the APR, loan product or prepayment penalty, the disclosure must be received no later than three business days before closing. Otherwise, may be provided at closing. [Note mailbox rule]

HOME LOAN TOOLKIT

Deliver, mail or e‐mail no later than three business days after application

ECOA APPRAISAL NNOOTTIICCEE

Deliver, mail or e‐mail no later than the third business day after application.

ECOA

CCOOPPYY OF APPRAISAL

Copy may be delivered, mailed or e‐mailed, but it must be received at least three business days before closing. [Note mailbox rule]

HPML APPRAISAL NNOOTTIICCEE

Deliver, mail or e‐mail no later than the third business day after application.

HPML

CCOOPPYY OF APPRAISAL

Copy may be delivered, mailed or e‐mailed, but it must be received at least three business days before closing. [Note mailbox rule]

TTHHEE MMAAIILLBBOOXX RRUULLEE .. .. ..

If a disclosure is MAILED OR E‐MAILED, it is "RECEIVED" three business days after mailing or e‐mailing (unless there is evidence

that the disclosure was actually received earlier).

USE EITHER DEFINITON.

USE EITHER DEFINITON.

ELECTRONIC DISCLOSURES

DISCLOSURES CAN BE E-MAILED, BUT THE CREDITOR MUST FIRST COMPLY WITH THE REQUIREMENTS OF THE FEDERAL E-SIGN ACT.

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