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

    • 1. Truth In Lending Revisiting the Basics
    • 2. TILA Refresher Workshop
      • Truth In Lending
      • Consumer Credit Protection Act (1968)
      • Truth In Lending Act (Title 1)
      • Regulation Z (1969)
    • 3. 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.
    • 4. TILA Refresher Workshop
      • Revisiting The Basics
      • HOEPA & HERA
    • 5. 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.
    • 6. 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.
    • 7. 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.
    • 8. 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.
    • 9. 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?
    • 10. 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
    • 11. 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
    • 12. 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.
    • 13. TILA Refresher Workshop
      • Any Fee not specifically excluded from the Finance Charge in 226.4(c)(7) is, in fact, a Finance Charge.
    • 14. 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.
    • 15. 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.
    • 16. 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.
    • 17. TILA Refresher Workshop
      • Tolerance for Accuracy (APR)
      • Accurate if within .00125 for Regular Transaction.
      • Accurate if within .00250 for Irregular Transaction.
    • 18. 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
    • 19. 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
    • 20. TILA Refresher Workshop
      • Rescission
        • If a consumer rescinds on the transaction, they are entitled to a refund of any fees paid during the transaction.
    • 21. TILA Refresher Workshop
      • TILA’s Disclosures
      • Truth In Lending Disclosure
        • Preliminary and Final
      • Adjustable Rate Disclosure
      • Right to Cancel Disclosure
      • HOEPA Disclosure
      • New Disclosures
    • 22. TILA Refresher Workshop
      • 2009 - Watershed Year for TILA
        • HERA / MDIA Changes (effective July 30, 2009)
        • HOEPA Changes (effective October 1, 2009)
        • Proposed Future Changes
    • 23. 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
    • 24. 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.
    • 25. 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.
    • 26. 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.
    • 27. 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.
    • 28. 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.
    • 29. 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.
    • 30. 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
    • 31. 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.
    • 32. 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.
    • 33. 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.
    • 34. 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.
    • 35. 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%.
    • 36. TILA Refresher Workshop
      • The Average Prime Offer Rate
      • Published weekly and is effective from Monday thru Sunday. Table found at:
    • 37. TILA Refresher Workshop
      • HPML – Higher Priced Mortgage Loan
      • HPML Restrictions
        • Ability to Repay
        • Prepayment Penalties
        • Escrow Accounts
    • 38. 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.
    • 39. 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.
    • 40. 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.
    • 41. TILA Refresher Workshop
      • Advertising Guidelines
      • FTC’s “How to Advertise Consumer Credit & Lease Terms”
      • Expanded Advertising Directives in October 2009 Amendments.
    • 42. TILA Refresher Workshop
      • Read the Regs
      • TILA (Reg Z) is best understood, ultimately, by taking the time to read the regulation and commentary.