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  • Mortgage Bankers Association 05/04/10 Mortgage Bankers Association

Presentation Presentation Presentation Transcript

  • Truth In Lending Revisiting the Basics
  • TILA Refresher Workshop
    • Truth In Lending
    • Consumer Credit Protection Act (1968)
    • Truth In Lending Act (Title 1)
    • Regulation Z (1969)
  • TILA Refresher Workshop
    • The Purpose of TILA
      • To Promote the Informed Use of Consumer Credit by Requiring Disclosures about its Terms & Costs.
      • Purpose does not include governing charges for Consumer Credit.
  • TILA Refresher Workshop
    • Revisiting The Basics
    • HOEPA & HERA
  • TILA Refresher Workshop
    • Open End Credit Plans
    • - The Creditor Anticipates Repeat Transactions
    • - Finance Charge Assessed on Outstanding Balance
    • - Renewable Credit Limits Imposed
    • Among Mortgages, a Home Equity Line of Credit (HELOC) is an Open End Loan type.
  • TILA Refresher Workshop
    • Closed End Credit Plans
        • Closed End means the loan program will have a definite End Date.
        • Any Plan that is not an Open End Plan is by definition a Closed End Plan.
  • TILA Refresher Workshop
    • Regular v. Irregular Transactions
      • An Irregular Transaction is one that includes one or more of the following features: multiple advances, irregular payment periods, or irregular payment amounts (other than an irregular first period or an irregular first or final payment).
      • A Regular Transaction will have a single advance, and regular payment periods and amounts.
  • TILA Refresher Workshop
    • Fixed v. Variable Rates
        • Fixed provides one rate of interest for the life of the loan.
        • Variable means the Interest Rate can change over the life of the loan.
        • Reg Z provides very specific rules for explaining Variable Rate loans in an effort to keep the consumer informed.
  • TILA Refresher Workshop
    • Variable Rate Loans
        • Terms & Things to Know
          • What is the Index Rate?
          • What is the Margin?
          • What is the Fully Indexed Rate?
          • What are Periodic Caps?
          • How does a Variable Rate Payment Schedule work?
  • TILA Refresher Workshop
    • The TILA Disclosure
      • A terrific summary for the consumer, showing the long term impact of a mortgage loan.
        • Finance Charge
        • Annual Percentage Rate (APR)
        • Total of Payments
        • Payment Schedule
        • Various Important Factors
  • TILA Refresher Workshop
    • Finance Charge
      • Section 226.4
      • (a) Definition
      • (b) Examples of F/C
      • (c) Exclusions from F/C
      • (c) (7) Real Estate Exclusions
  • TILA Refresher Workshop
    • Definition
    • The FINANCE CHARGE is the cost of consumer credit expressed as a dollar amount.
    • It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit.
    • It does not include any charge of a type payable in a comparable cash transaction.
  • TILA Refresher Workshop
    • Any Fee not specifically excluded from the Finance Charge in 226.4(c)(7) is, in fact, a Finance Charge.
  • TILA Refresher Workshop
    • Prepaid Finance Charges
      • Refers to Finance Charges that are paid by the consumer AT or PRIOR TO the closing of the loan.
      • Finance Charges assessed on the HUD Settlement Statement are Prepaid Finance Charges.
  • TILA Refresher Workshop
    • Annual Percentage Rate (APR)
    • The cost of Consumer Credit expressed as a percentage.
      • Modifies the rate of interest applicable to a loan, considering the effect of non-interest Finance Charges paid by the consumer.
      • TILA requires the disclosure of an APR whenever an Interest Rate is referenced, either orally or in writing.
  • TILA Refresher Workshop
    • Tolerance for Accuracy (Fin. Chg)
    • Lender open to civil liability if Finance Charge is understated by $100.00 or more.
    • Lender open to Rescission liability if Finance Charge is understated by $35.00 or more.
    • No Liability if Finance Charge is Overstated on Disclosure.
  • TILA Refresher Workshop
    • Tolerance for Accuracy (APR)
    • Accurate if within .00125 for Regular Transaction.
    • Accurate if within .00250 for Irregular Transaction.
  • TILA Refresher Workshop
    • Borrower’s Right to Rescind
    • Borrower is given 3 Business Days after closing to reconsider the loan and cancel the transaction.
    • Applies to
      • Refinance & Subordinate Lien Loans
      • Owner Occupied Primary Residence
  • TILA Refresher Workshop
    • Rescission Period
      • Three Day Clock Begins Ticking when all of the following have occurred.
        • The Note & Mortgage (DOT) have been executed;
        • The Consumer has received their Final TILA Disclosure; and,
        • The Consumer has received the Notice of Right to Cancel
  • TILA Refresher Workshop
    • Rescission
      • If a consumer rescinds on the transaction, they are entitled to a refund of any fees paid during the transaction.
  • TILA Refresher Workshop
    • TILA’s Disclosures
    • Truth In Lending Disclosure
      • Preliminary and Final
    • Adjustable Rate Disclosure
    • Right to Cancel Disclosure
    • HOEPA Disclosure
    • New Disclosures
  • TILA Refresher Workshop
    • 2009 - Watershed Year for TILA
      • HERA / MDIA Changes (effective July 30, 2009)
      • HOEPA Changes (effective October 1, 2009)
      • Proposed Future Changes
  • TILA Refresher Workshop
    • HERA – The Housing & Economic Recovery Act
      • Effective for all new Applications received on or after July 30, 2009
        • Early Disclosure Requirements on all mortgage loans subject to TILA.
        • Restrictions on Fee Receipt and Closing Practices
        • Pre Closing Disclosure Requirements
  • TILA Refresher Workshop
    • Early Disclosure Requirements
    • Up til now, a Preliminary Truth in Lending Disclosure was required only on Purchase transactions; not Refinances.
    • HERA / MDIA Amendments to TILA now require that Preliminary or EARLY TILA Disclosures be given in all circumstances.
  • TILA Refresher Workshop
    • Early Disclosure & Receipt of Fees
    • Before the Consumer can be required to pay any fee, they must receive a copy of the Preliminary Truth In Lending Disclosure.
    • If the Disclosure is delivered by regular mail, it will be presumed to have been received by the consumer on the third business day after mailing.
    • Cannot close loan until at least Seven (7) business days after early disclosures have been mailed.
  • TILA Refresher Workshop
    • New Pre Closing Disclosures
    • If the APR has changed beyond TOLERANCE since the Preliminary or the most recent disclosure, a New TILA Disclosure must be delivered to the applicant at least three business days prior to closing.
    • APR Tolerance is affected regardless of whether the change is in the form of an Increase or a Decrease.
  • TILA Refresher Workshop
    • New Pre Closing Disclosures
    • In reality, nothing has changed in regard to the accuracy of the APR or Finance Charge, except the timing of its measurement.
    • TILA recognizes that the APR is correct, if it is within the 1/8 Tolerance variance (1/4 for Irregular Transactions.)
    • TILA also recognizes that the APR is correct if it is a function of the Finance Charge, and the Finance Charge is within tolerance.
  • TILA Refresher Workshop
    • What’s Different ?
      • The difference is in the timing.
      • Instead of being accurate only AT CLOSING, we must now provide a new accurate disclosure in advance of closing when loan terms have changed.
  • TILA Refresher Workshop
    • HOEPA
    • Section 32 of Reg Z – added in 1994 to address abusive lending practices.
    • Under HOEPA, a mortgage is considered to be a High Cost Loan if it includes terms that exceed certain thresholds established for the Points & Fees and Annual Percentage Rate.
  • TILA Refresher Workshop
    • New HOEPA Regulations
    • Most changes become effective on Oct 1, 2009
    • Amends Old Rules & Creates New Rules
    • Designed to Address Subprime Lending Concerns
  • TILA Refresher Workshop
    • HPML – Higher Priced Mortgage Loan
    • First there was just plain PRICING.
    • Then with HOEPA in 1994, we got HIGH COST PRICING.
    • Now, HOEPA 2009 brings us HIGHER COST PRICING.
  • TILA Refresher Workshop
    • HPML – Higher Priced Mortgage Loan
    • Old HOEPA –
      • If APR for First Lien loan is greater than 8 points above applicable Treasury Index, then loan would be considered to be a High Cost Loan, and subject to HOEPA restrictions.
  • TILA Refresher Workshop
    • HPML – Higher Priced Mortgage Loan
    • Old HOEPA –
      • Treasury Index = 4.50 %
      • APR = 12.51%
      • Loan is a High Cost Loan per HOEPA because the APR exceeds the Applicable Index by more than 8 pts.
  • TILA Refresher Workshop
    • HPML – Higher Priced Mortgage Loan
    • New HOEPA
      • If APR for First Lien Loan is greater than 1.50 % above the Average Prime Offer Rate, then it is a Higher Priced Mortgage Loan, and subject to all the restrictions implied.
  • TILA Refresher Workshop
    • HPML – Higher Priced Mortgage Loan
    • New HOEPA –
      • Avg. Prime Offer Rate = 4.50%
      • APR = 6.50%
      • Loan is a HPML because the APR exceeds the Average Prime Offer Rate by more than 1.50%.
  • TILA Refresher Workshop
    • The Average Prime Offer Rate
    • Published weekly and is effective from Monday thru Sunday. Table found at:
    • http://www.ffiec.gov/ratespread/newcalc.aspx
  • TILA Refresher Workshop
    • HPML – Higher Priced Mortgage Loan
    • HPML Restrictions
      • Ability to Repay
      • Prepayment Penalties
      • Escrow Accounts
  • TILA Refresher Workshop
    • Ability to Repay
      • Applies to HPMLs only, but likely to wield a broader brush.
      • Verify & Document Repayment Ability.
      • Use Highest Scheduled Payment for first seven years of the loan.
      • Stated Income loans prohibited
      • No Doc loans prohibited.
  • TILA Refresher Workshop
    • HPML – Higher Priced Mortgage Loan
    • Prepayment Penalties
      • No Prepayment Penalties if monthly payment amount can change during the first 4 yrs of the loan.
      • No Prepayment Penalties when refinanced by same creditor.
      • Otherwise, 2 yr maximum Prepay period.
  • TILA Refresher Workshop
    • Escrow Accounts (for HPMLs)
        • Not Effective Until 2010
      • Escrow Accounts required for all new loans that meet HPML threshold.
      • Cannot be waived by borrower.
      • Borrower can discontinue after one year.
  • TILA Refresher Workshop
    • Advertising Guidelines
    • FTC’s “How to Advertise Consumer Credit & Lease Terms”
    • Expanded Advertising Directives in October 2009 Amendments.
    • http://www.ftc.gov/bcp/conline/pubs/buspubs/creditad.htm
  • TILA Refresher Workshop
    • Read the Regs
    • TILA (Reg Z) is best understood, ultimately, by taking the time to read the regulation and commentary.
    • http://www.fdic.gov/regulations/laws/rules/6500-1400.html