SAFE Mortgage Pre-Licensing

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For the students of Jillayne Schlicke's LO Pre-Licensing Class.

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SAFE Mortgage Pre-Licensing

  1. 1. 20 Hour SAFE Comprehensive Pre-Licensing and Exam Prep + Wa State Law Jillayne Schlicke
  2. 2. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 1 Introduction  Introduction of trainer  Introduction of students  Review the course syllabus 2
  3. 3. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 1 Module 1.1 National exam $92 2 and a half hours 100 questions, 10 are sample questions 75% to pass If you pass you will know your score. If you fail, they will give you a printout showing your strong and weak areas. Prometric.com 3
  4. 4. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 1 Module 1.1 Exam Components 35% Federal Law RESPA, TILA, ECOA, FCRA, SAFE 25% General Mortgage Knowledge programs, products, terms 25% Loan Origination application, qualifying, title, escrow, math 15% Ethics consumer protection, fraud, fair housing 4
  5. 5. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 1 Module 1.1 Exam prep basics: If you understand the purpose of each law, you are on your way to selecting the best answer on a multiple choice exam. There will be two obvious wrong answers. If you know the purpose of the law, you will be able to spot these. Of the two that remain, one will be a little bit better than the other. Exam writers do not write trick questions. The language of the test questions look tricky because you are being tested on law and most lay people are not use to reading law on a daily basis. This is the only fair way to deliver a 50-state exam. 5
  6. 6. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 1 Module 1.1 There are many different learning styles. I will try to touch all of these throughout the next two days. Auditory-learns by listening Visual-learns by processing images Tactile-learns best when writing Whole Body-learns best when entire body is engaged Emotional-learns best when complex info can be tied to an emotion Learning disabilities- You may be eligible for extra accommodations if you have a diagnosed learning disability. Contact the NMLS after reading the exam candidate handbook. 6
  7. 7. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 2 Module 2.0 Depository Bank Mortgage Broker Non-Depository Checking, No ck/svgs Lender savings Does NOT fund its Non-Bank Lender CAN fund its own loans No ck/svgs own loans Pure middleman CAN fund its own LOs are loans via lines For a fee, finds the “registered” of credit with mortgage money banks LOs are licensed. LOs are licensed In some states, these LOs owe fiduciary duties to clients 7
  8. 8. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 2 Module 2.1 Title Insurance, Escrow Secondary market Underwriting There are many moving parts in Appraiser the Mortgage Home inspector Machine. The Loan originator function of loan Loan processors origination is just Realtors/ Real estate one piece. brokers Mortgage insurance Hazard insurance Flood insurance State/Fed regulators 8
  9. 9. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 2 Module 2.2 Instructor to review how to complete a Residential Loan Application Assignment: Break into small groups and talk about sections of the loan app:  What sections might the customers ask you about?  What sections might the customer consider lying?  What sections might the customer refuse to provide information? 9
  10. 10. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 2 Module 2.2 Large group discussion: Occupancy Assets HMDA Education DOB Former employer Ways of holding title Acknowledgement, signature 10
  11. 11. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 2 Module 2.3 Last two most recent paystubs Last two years W-2s Last three months bank statements Most recent statement on 401Ks or IRAs Documentation of ownership of stocks, bonds Last two months statements from any investment account Information on current mortgage or landlord contact info Soc number or green card for all borrowers or co-signers Letter of explanation for any known credit problems Documentation supporting any other income For self employed, borrowers paid on commission or in the field of sales, and borrowers who own other real property: Two years signed personal tax returns including all schedules 11
  12. 12. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 2 Module 2.4 FIRST RATIO PITI Principal, Interest, Taxes, Insurance Divided by Total gross monthly income =% SECOND RATIO PITI plus all other monthly revolving debt Divided by Total gross monthly income =% 12
  13. 13. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 2 Module 2.5  FHA Review FHA PPT slides 13
  14. 14. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 2 Module 2.6  Veteran’s Administration Lending (VA Loans) See pages 10-11 in the course book 14
  15. 15. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 2 Module 2.7  Conventional Lending See pages 11-12 in the course book Review Fannie Mae Announcements: 09-34 Loan Limits 09-37 Condos Criteria for Purchasing ARMs Maximum Allowable Properties Financed 15
  16. 16. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 2 Module 2.8  Non-Conforming Loans See page 12 in the course book 16
  17. 17. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 2 Module 2.9  QRMs See page 13-15 in the course book 17
  18. 18. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 3 Credit Module 3.1 Assignment: Break into small groups. Read the credit report. Question: Does this person posses decent and reasonable credit history? If yes, why? If no, why not? 18
  19. 19. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 3 Module 3.2 What’s in a FICO Score? See course book pages 16-17 19
  20. 20. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 4 Title Insurance Module 4.1 What does it mean when we say we hold title to something? Is there a document called “title” that we get when we buy a home? Can we do anything we want with and to our home and land? How deep into the ground and how high up do our property rights extend? 20
  21. 21. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 4 Title Insurance Module 4.2 For a one time fee, a title insurance company will check the public records system and disclose all matters that affect the title of real property. They will insure against loss and defend you should somebody lay claim to your title. Pay once, it’s good for as long as you or your heirs own the property. Starts the day of closing and looks backward in time. 21
  22. 22. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 4 Title Insurance Module 4.3 How does a title company protect residential homeowners and residential lenders? See pages 18-19 in the course book 22
  23. 23. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 4 Module 4.4 Case Study Small group assignment: Read the case study “John and Sara” on page 19 of the course book. Come up with 10 things a loan originator must discuss/discover before moving forward with this transaction. 10 documents 10 questions… 23
  24. 24. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 4 Module 4.5 Legal rights and responsibilities of a title company. See pages19-20 in the course book 24
  25. 25. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 5 Module 5.1 What is escrow? See pages 21-11 in the course book 25
  26. 26. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 5 Escrow Module 5.1 Module 5.2 Module 5.3 Module 5.4 Module 5.5 Module 5.6 See pages 21-25 in the course book 26
  27. 27. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 6 Appraisals Module 6.1 Module 6.2 Module 6.3 Module 6.4 Module 6.5 See pages 26-28 in the course book 27
  28. 28. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 7 Mortgage Math Module 7.1 See page 21 in the course book Module 7.2 Assignment: Complete the mortgage math calculations together as a group. See pages… 28
  29. 29. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 8 Processing and Underwriting Module 8.1 Processing Module 8.2 Underwriting See pages 33-35 in the course book Module 8.3 Case Study: David and Ryan See page 35 in the course book In small groups discuss: Is this an approvable loan? Large group recap 29
  30. 30. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 9 Non-Traditional Lending Module 9.1 Module 9.2 Module 9.3 Module 9.4 Module 9.5 Module 9.6 Module 9.7 Module 9.8 Module 9.9 See pages 37-44 in the course book 30
  31. 31. National Association of Mortgage Fiduciaries Jillayne Schlicke Washington State Law  Mortgage Broker Practices Act MPBA  Consumer Loan Act CLA  DFI.WA.GOV Dept of Financial Institutions 31
  32. 32. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 9 Assignment Review the CSBS/AAMR Guidance on Non-Traditional Lending CSBS = Conference of State Bank Supervisors AAMR = American Association of Mortgage Regulators Oct 2006 banking regulators published guidelines on non-trad lending. Examples: Interest only loans Pay option ARMs Reduced/no documentation Simultaneous second lien 32
  33. 33. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 9 CSBS/AAMR Guidance  Ability to repay  Watch for payment shock  Assure borrower understands the loan terms  Avoid misleading claims…payment, rates, refi-out  Risk management strategies 33
  34. 34. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 10 Ethics Module 10.1 Module 10.2 Module 10.3 Module 10.4 Module 10.5 Module 10.6 Use the following: Pages 44-46 in the course book Section 10 Ethics handout 34
  35. 35. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 10 Module 10.1 Ethics Law Minimum moral standard “Have to” Ethics When there’s no clear statement in the law telling us what to do. “Ought, should.” 35
  36. 36. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 10 Module 10.2 Ethics Different sources of moral authority Religion We can’t use religion to solve ethical dilemmas when holding a professional role because there are thousands of different religions in the world. Which one would we us? Intuition Intuition can sometimes steer us in the wrong direction Emotion “If I can’t sleep at night it’s not ethical.” If the only reason we’re choosing to do/not do something is out of fear, that’s a pretty low standard of motivation 36
  37. 37. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 10 Module 10.2 Ethics Different sources of moral authority Written codes of ethics There is no source of moral authority over LOs other than the law. What written codes of ethics that do exist are voluntary and not mandatory. The written codes of ethics that exist are weak, vague, have no sanctions for violations and in most cases, just simply re- state federal law. Philosophical ethics Moral philosophical ethical theories can take the place of a mandatory code of ethics until one is written. 37
  38. 38. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 10 Module 10.3 Professional Status Specialized knowledge Formal, pre-licensing education Mandatory continuing education Test Licensing Fiduciary Duties Code of ethics with sanctions for violations Compare to non-professionals such as a retail salesperson. 38
  39. 39. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 10 Module 10.3 and 10.5 Question: Are loan originators professional? Specialized knowledge Formal, pre-licensing education Mandatory continuing education Test Licensing Fiduciary Duties (this is emerging in some states) Code of ethics with sanctions for violations (this piece is not yet in place.) LOs are classified as “an emerging profession.” 39
  40. 40. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 10 Module 10.4 Assignment: Small group discussion: What do you remember from past classes in ethics? What is ethics? Think about a person you admire or look up to as a mentor, living or dead. What do admire about that person? Think about an ethical dilemma you’ve faced in your career. How did you solve your dilemma? 40
  41. 41. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 10 Module 10.4 Assignment: Large group recap after small group discussion, while instructor slowly completes the slide with the three normative moral theories. Lacking any mandatory, prescriptive and descriptive ethical code, this is the best way for LOs to learn ethics. The next slide lays out the following: --what kind of person do I want to become? --what duties do I have? --what are the possible consequences? 41
  42. 42. National Association of Mortgage Fiduciaries Jillayne Schlicke Aristotle Kant J.S. Mill Respect Duty-based Utilitarianism honesty ethics (promotes Maximize good autonomy) If we have a consequences for Loyalty duty to do the most number something, of people and also Responsibility we ought do minimize bad Integrity it. consequences Beneficence for the most Non-maleficence What I want for number of people Compassion myself, I must also want for Justice the other. 384 BC-322 BC 1806-1873 1724-1804 42
  43. 43. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 10 Module 10.4 Moral Development 22+ The intrinsic worth, value and dignity of all human persons. 16 to 22 Some laws might not be moral 12 to 16 Law , society’s rules 6 to 12 The good, norms, roles, shared values 3 to 5 Practical agreements 0 to 2 Morality comes from external sources 43
  44. 44. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 10 Module 10.5 Fiduciary Duties Come from Agency Law Agency: Consent by one person (principal) that the other (agent) act on his or her behalf. Agency can be created by oral or written agreement OR it may be implied through conduct. “I can get you the best loan” “I can get you the best rate” 44
  45. 45. National Association of Mortgage Fiduciaries Jillayne Schlicke Coercion Persuasion Manipulation Completely Completely Controlled Non-Controlled Influences Influences Substantially Substantially Controlling Not Controlling Section 10 Module 10.5 45
  46. 46. National Association of Mortgage Fiduciaries Jillayne Schlicke What Fiduciary does will, in good faith, advance the interests of the client and not the Fiduciary’s personal interests Duty of Loyalty Duty of Care Act in good faith Reasonable person test Informed Section 10 Module 10.5 46
  47. 47. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 10 Module 10.5 Fiduciary Duties May Include… 1. Disclose all loan information to the borrower 2. Act in good faith and deal fairly 3. Avoiding secret fees or undisclosed fee splitting 4. No self dealing 47
  48. 48. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 10 Module 10.5 Fiduciary Duties are Higher When… Broker/LO has higher level of knowledge, experience, skills Client has limited knowledge Client is relying exclusively on you Greater the imbalance the higher the duty 48
  49. 49. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 11 Fair Housing Module 11.1 Module 11.2 Module 11.3 Module 11.4 Module 11.5 Module 11.6 Module 11.7 Page 47 in the 2012 course book Page 37 in the 2013 course book Fair Housing/Fair Lending http://www.hud.gov/offices/fheo/lending/index.cfm 49
  50. 50. National Association of Mortgage Fiduciaries Jillayne Schlicke 1968 Civil Rights Act Section 11 1968 Fair Housing Act Module 11.1, 11.3 ~ Protected Classes: Realtors and lenders Race have great power to Color affect neighborhoods Religion (Creed) Sex National Origin Familial Status Intent v. Effect Sexual orientation added in 2012 Disability Fair Housing/Fair Lending http://www.hud.gov/offices/fheo/lending/index.cfm 50
  51. 51. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 11 Module 11.2  Blockbusting  Steering Encouraging  Redlining white property Denying or Guiding owners to sell increasing the prospective their homes at a cost of homebuyers to loss by services to or away from a fraudulently residents of a specific implying that racially neighborhood racial or specific based on religious geographical his/her race minorities were area moving into Fair Housing/Fair Lending their http://www.hud.gov/offices/fheo/lending/index.cfm neighborhood 51
  52. 52. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 11 Module 11.4 In Mortgage Lending: No one may take any of the following actions based on race, color, national origin, religion, sex, familial status or handicap (disability): Refuse to make a mortgage loan Refuse to provide information regarding loans Impose different terms or conditions on a loan, such as different interest rates, points, or fees Discriminate in appraising property Refuse to purchase a loan or Set different terms or conditions for purchasing a loan. Fair Housing/Fair Lending http://www.hud.gov/offices/fheo/lending/index.cfm 52
  53. 53. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 11 Module 11.7 Fair Housing Thought Questions Should sexual orientation be added as one of the protected classes? Should we make a woman on maternity leave return to work before counting her income when qualifying for a loan? Should we make long term disabled applicants provide additional documentation proving that they will stay disabled? Fair Housing/Fair Lending http://www.hud.gov/offices/fheo/lending/index.cfm 53
  54. 54. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 12 Consumer Protection Module 12.1 Module 12.2 Module 12.3 Pages 53-54 in the course book Case Study: Carnell v. KMC Funding Read the case. In small groups discuss the questions. As a large group, share your anwers 54
  55. 55. FBI US Department of JusticeNational Association of Mortgage the Public 2010-2011 Financial Crimes Report to Fiduciaries Jillayne http://www.fbi.gov/stats-services/publications/financial-crimes-report-2010-2011 Schlicke Section 13 Mortgage Fraud Module 13.1 Module 13.2 Module 13.3 Module 13.4 Module 13.5 page 41 in the 2013 course book page 54 in the 2012 course book FBI US Department of Justice Financial Crimes Report to the Public 2010-2011 http://www.fbi.gov/stats-services/publications/financial-crimes-report-2010-2011 55
  56. 56. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 13 Module 13.1 Fraud for Housing, or fraud for property, is perpetrated by borrowers and/or one or more industry professionals when they misrepresent information on the loan application. This type of fraud does not usually result in significant losses to a financial institution. . FBI US Department of Justice Financial Crimes Report to the Public 2010-2011 http://www.fbi.gov/stats-services/publications/financial-crimes-report-2010-2011 56
  57. 57. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 13 Module 13.1 Fraud for profit consists of systematic transactions by industry professionals who are attempting to steal a significant amount of the funds associated with one or more mortgage transactions. This type of fraud usually involves multiple parties in various disciplines within the mortgage industry, such as mortgage originators, appraisers, real estate brokers, escrow closers, builders and title companies. Fraud for profit usually results in significant—if not catastrophic—losses to financial entities involved in mortgage loan transactions and it is of major concern to the mortgage industry FBI US Department of Justice Financial Crimes Report to the Public 2010-2011 http://www.fbi.gov/stats-services/publications/financial-crimes-report-2010-2011 57
  58. 58. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 13 Module 13.2 Property Flipping Silent Second Straw Borrowers Identity Theft Appraisal Fraud Foreclosure Rescue Equity Skimming Loan Mod Scams Short Sale Fraud FBI US Department of Justice Financial Crimes Report to the Public 2010-2011 http://www.fbi.gov/stats-services/publications/financial-crimes-report-2010-2011 58
  59. 59. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 13 Module 13.3 Red Flags When seeking employment as an LO When working with real estate agents or Realtors When working with consumers FBI US Department of Justice Financial Crimes Report to the Public 2010-2011 http://www.fbi.gov/stats-services/publications/financial-crimes-report-2010-2011 59
  60. 60. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 13 Modules 13.6-13.20 SARS Suspicious Activity Reports AML Anti Money Laundering Pages 46 in the 2013 course book Financial Crimes Enforcement Network Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for Residential Mortgage Lenders and Originators AGENCY: Financial Crimes Enforcement Network (‘‘FinCEN’’), Treasury. ACTION: Final rule. Federal Register / Vol. 77, No. 30 / Tuesday, February 14, 2012 / Rules and Regulations Page 8159 Subpart C—Reports Required To Be Made by Loan or Finance Companies http://www.gpo.gov/fdsys/pkg/FR-2012-02-14/pdf/2012-3074.pdf 60
  61. 61. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 14 Reflect on everything learned today. …any final questions? Preview of tomorrow. 61
  62. 62. 20 Hour SAFE Comprehensive Pre-Licensing and Exam Prep Jillayne Schlicke DAY 2
  63. 63. National Association of Mortgage Fiduciaries Jillayne Schlicke The Main Fed Law Acronyms TILA Truth in Lending Act MDIA Mortgage Disclosure Improvement Act RESPA Real Estate Settlement And Procedures Act ECOA Equal Credit Opportunity Act FCRA Fair Credit Reporting Act SAFE Secure and Fair Enforcement Act 64
  64. 64. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 16 Truth in Lending Act Modules 16.1-16.3 Purpose: To promote informed use of credit. (Instead, creates mass confusion.) Gives consumers the right to cancel some transactions (o.o. refi), regulates variable rate loans. TILA Disclosures: 3 days from date of application, final disclosure at settlement Disclosure content: variable rate features, payment schedule, demand feature, prepayment penalty, security interest in the property, insurance cancellation, assumption policy. CHARM Booklet required on ARM loans Truth in Lending Act http://www.fdic.gov/regulations/laws/rules/6500-200.html 65
  65. 65. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 16 Truth in Lending Act Modules 16.3 Four Government Boxes This info must be presented in clear and conspicuous place: Annual Percentage Rate/APR (will cover this soon) Finance Charge Interest + closing costs Amount Financed Loan amount less closing costs Total of Payment All P&I if all payments made Truth in Lending Act http://www.fdic.gov/regulations/laws/rules/6500-200.html 66
  66. 66. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 16 Truth in Lending Act Modules 16.4-16.5 Rescission: on an o.o. refinance, the borrower has 3 days after signing the final loan documents to cancel and receive a full refund from the lender. LOs must refund any money collected for third party services, even if spent. For TILA RESCISSION purposes, business days include Saturday. Can the 3 day right of rescission ever be waived? Truth in Lending Act http://www.fdic.gov/regulations/laws/rules/6500-200.html 67
  67. 67. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 16 TILA Module 16.4 Case Study: What is the first business day on which funds may be disbursed if: Closing date: Thurs, May 2   1st bus. day: Fri, May 3 2nd bus. day: Sat, May 4 Sun, May 5 3rd bus. day: Mon, May 6 The loan can fund on Tuesday May 7th Truth in Lending Act http://www.fdic.gov/regulations/laws/rules/6500-200.html 68
  68. 68. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 16 Truth in Lending Act A closer look at APR (Annual Percentage Rate) APR is a measure of the cost of credit, expressed as a nominal yearly rate. It relates the amount and timing of value received by the consumer to the amount and timing of payments made. Disclosure of the APR is central to the uniform credit cost disclosure envisioned by the TILA. Truth in Lending Act http://www.fdic.gov/regulations/laws/rules/6500-200.html 69
  69. 69. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 16 Truth in Lending Act A closer look at APR (Annual Percentage Rate) Common consumer question: What costs are included when calculating APR? At a typical mortgage company, software systems are already programmed to do this for LOs. However, customers ask questions about the TILA disclosure forms and regulators expect licensees to know how to answer basic questions about the information contained in the TILA disclosure form. Truth in Lending Act http://www.fdic.gov/regulations/laws/rules/6500-200.html 70
  70. 70. National Association of Mortgage Fiduciaries Jillayne Schlicke Included Excluded Prepaid interest Hazard Insurance Mortgage insurance (IF obtained from a premiums neutral company) Wire transfer fees Seller paid points Recording fees Document prep fee Loan origination fee Title insurance (lender Mortgage broker fee policy) Escrow (closing fee) Notary fee Discount points Appraisal Pest inspection (VA only when prop Credit report is located in mod to high probability of area of pest infestation and lender is paying for it. Impounds for taxes & ins Flood Ins. premiums Flood Hazard Check http://www.fdic.gov/regulations/laws/rules/6500-200.html 71
  71. 71. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 16 Truth in Lending Act A closer look at APR (Annual Percentage Rate) Tip: How to remember which costs are included/excluded when calculating APR: Costs included Costs excluded These are costs These are costs that benefit the that are paid to lender or costs and benefit third that the lender parties other than requires in order the lender. to obtain a loan. Truth in Lending Act http://www.fdic.gov/regulations/laws/rules/6500-200.html 72
  72. 72. National Association of Mortgage Fiduciaries Jillayne Schlicke APR Tolerances…Can we make a mistake and still be in compliance? Yes:  Example: |________|_______ APR 7.75_______|________| .25 .125 .125 .25 ARM FRM FRM ARM ARM = Adjustable Rate Mortgage FRM = Truth in Lending ActMortgage Fixed Rate http://www.fdic.gov/regulations/laws/rules/6500-200.html 73
  73. 73. National Association of Mortgage Fiduciaries Jillayne Schlicke  Prepaids  Prepaid finance charges = CLOSING COSTS  Impounds = a few months payments of real estate taxes, hazard insurance 74
  74. 74. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 16 Module 16.6 Truth In Lending Act Quiz 75
  75. 75. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 17 Mortgage Disclosure Improvement Act MDIA Module 17.1 Module 17.2 Module 17.3 Module 17.4 Module 17.5 Module 17.6 --take the TILA/MDIA Quiz Pages 52+ in the coursebook Truth in Lending Amendments Regulation Z, Subpart C, Closed End Credit, Section 226.17, General Disclosure Requirements Effective July 30, 2009 76
  76. 76. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 17 MDIA Module 17.3 We now have three categories of mortgage loans HOEPA (Added in 1994 as Section 32 of TILA) High cost/2nd mtg/HELOC Higher Priced High Risk (Added in 2009 as part of MDIA) 1.5 or more points higher (APR) FRM 3.5 or more points higher (APR) ARM 3.5 or more points higher for a subordinate lien QRM Qualified Residential Mortgage (Added as part of the Dodd Frank Act of 2010) Truth in Lending Amendments Regulation Z, Subpart C, Closed End Credit, Section 226.17, Definition of a QRM scheduled to Effective July 30, 2009 General Disclosure Requirements be announced in 2013 77
  77. 77. National Association of Mortgage Fiduciaries Jillayne Schlicke MDIA Quiz 78
  78. 78. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 17 Module 17.6 Quiz Review Quiz Question 7: 0 Mon Jan 5 1 Tues Jan 6 2 Wed Jan 7 3 Thurs Jan 8 4 Fri Jan 9 5 Sat Jan 10 Sun Jan 11 6 Mon Jan 12 7 Tues Jan 13 79
  79. 79. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 17 Module 17.6 Quiz Review TILA Quiz Question 10 Mon July 9 Consumer must receive disclosures Tues July 10 Wed July 11 Thurs July 12 Signing is scheduled 80
  80. 80. Federal ReserveNational AssociationRegulation Z: Loan Originator Compensation and Steering 12 CFR 226 of Mortgage Fiduciaries http://edocket.access.gpo.gov/2010/pdf/2010-22161.pdf Jillayne Schlicke Section 18 Federal Reserve Board (FRB) rule on Loan Originator Compensation Module 18.1 Background FTC v. Golden Empire Mortgage Federal Reserve Regulation Z: Loan Originator Compensation and Steering 12 CFR 226 http://edocket.access.gpo.gov/2010/pdf/2010-22161.pdf 81
  81. 81. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 18 Federal Reserve Board Rule on Loan Originator Compensation Module 18.2 Three main prohibitions: P1: Compensation based on a transaction’s term or conditions. P2: Compensation by someone other than the consumer. P3: Prohibitions against steering. Federal Reserve Regulation Z: Loan Originator Compensation and Steering 12 CFR 226 http://edocket.access.gpo.gov/2010/pdf/2010-22161.pdf 82
  82. 82. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 18 Federal Reserve Board Rule on Loan Originator Compensation Module 18.2 Three main prohibitions: P1: Compensation based on a transaction’s term or conditions: > Payment based on transaction terms or conditions. > Compensation cannot go up or down based on the loan’s terms or conditions. > Minimum or max dollar amount of compensation may not vary with each loan. Federal Reserve Regulation Z: Loan Originator Compensation and Steering 12 CFR 226 http://edocket.access.gpo.gov/2010/pdf/2010-22161.pdf 83
  83. 83. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 18 Federal Reserve Board Rule on Loan Originator Compensation Module 18.2 Three main prohibitions: P2: Compensation by someone other than the consumer. If an LO will be compensated by the consumer, the LO may not also receive compensation from the lender funding the loan, or any other person connected with that transaction. Federal Reserve Regulation Z: Loan Originator Compensation and Steering 12 CFR 226 http://edocket.access.gpo.gov/2010/pdf/2010-22161.pdf 84
  84. 84. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 18 Federal Reserve Board Rule on Loan Originator Compensation Module 18.2 Three main prohibitions: P3: Prohibitions against steering. LOs may not steer a consumer to a loan only because the LO will be compensated at a higher rate by selling that product, unless the loan is in the best interest of the consumer. Federal Reserve Regulation Z: Loan Originator Compensation and Steering 12 CFR 226 http://edocket.access.gpo.gov/2010/pdf/2010-22161.pdf 85
  85. 85. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 18 Federal Reserve Board Rule on Loan Originator Compensation Module 18.3 Review the Section 18 Handout: RESPA Roundup RESPA Roundup: Compliance Guide for REPA as it applies to the Federal Reserve Board’s MLO Compensation Rules Published on Sept 24, 2010 86
  86. 86. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 19 Real Estate Settlement and Procedures Act RESPA Modules 19.1-19.2 Applies to all federally related loans; sale or refi, primary market loans only. Exemptions: 25 acres or more, temporary financing, assumptions with lender approval, conversions (contract to deed), secondary market transactions, vacant property. Which entities must comply? Real Estate Settlement and Procedures Act http://www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm 87
  87. 87. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 19 RESPA Modules 19.1-19.2 Which entities must comply? Lenders (banks, brokers, etc.) Real estate agents/Realtors Title and XO Appraisers Home inspectors Mortgage insurance companies Credit reporting agencies Flood hazard check companies Attorneys Hazard insurance companies Home warranty companies Builders Real Estate Settlement and Procedures Act http://www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm 88
  88. 88. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 19 RESPA Modules 19.1-19.2 Purpose Timely disclosure of settlement costs Limits on escrow reserve accounts Prohibits seller-directed title insurance Forbids kickbacks (Section 8. See next slide) GFE and HUD 1 Disclosure of Affiliated Business Arrangements Disclosure of potential loan servicing charges “Settlement Cost Booklet” Lender required use agreements Real Estate Settlement and Procedures Act http://www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm 89
  89. 89. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 19 RESPA Modules 19.1-19.2 Section 8 Referral Fees Prohibits the giving or taking of a fee or other thing of value for a referral involving a federally related loan Un-earned fee A fee we receive but we have performed no work in exchange for receiving the fee. Real Estate Settlement and Procedures Act http://www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm 90
  90. 90. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 19 RESPA Modules 19.1-19.2 TILA/RESPA Definition of “an Application” Financial Data Borrower’s Name Soc Income Estimated value Loan Amount ….. Prop address (will have this if refi, might not have this right away if borrower is still house-shopping.) ….. Any other info deemed necessary by the LO Real Estate Settlement and Procedures Act http://www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm 91
  91. 91. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 19 RESPA Module 19.3 Take the RESPA Quiz Section 19 Module 19.4 Learn how to complete a Good Faith Estimate See instructions from HUD Instructions for Completing Good Faith Estimate (GFE) Form Code of Federal Regulations Title 24, Volume 5 See example on page 81 92
  92. 92. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 20 RESPA Amendments in 2009 Modules 20.1 New Good Faith Estimate Mortgage Brokers who table fund are mortgage brokers All yield spread premium dollars credited from the lender when a borrower selects a higher note rate is for the borrower’s benefit. This was a huge change for mortgage broker LOs and many fled to non-depository lenders after these 2009 changes were enacted. Then FRB rule on LO Comp (which went into effect April 5, 2011) disallowed steering borrowers into a higher rate loan, solely for the purpose of LOs making more money for all LOs no matter where they work. Real Estate Settlement and Procedures Act (2009 Changes) http://www.federalreserve.gov/boarddocs/supmanual/cch/respa.pdf 93
  93. 93. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 20 RESPA Amendments in 2009 Modules 20.1-20.7 GFE tolerances Violations, penalties Definition of “An Application” GFE delivery, loan term availability Changed circumstances Seller paid fees Required use Average charge pricing, volume discounting RESPA Amendments Quiz Real Estate Settlement and Procedures Act (2009 Changes) http://www.federalreserve.gov/boarddocs/supmanual/cch/respa.pdf 94
  94. 94. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 21 Module 21.1 and 21.2 Equal Credit Opportunity Act ECOA 1974 ECOA points us toward the evaluation based on creditworthiness only. Nine categories; the prohibited bases: Race Color Religion Equal Credit Opportunity Act http://www.fdic.gov/regulations/laws/rules/6500-1200.html Sex Marital Status National Origin Income from Public Assistance (Age) Whether an applicant has exercised his or her rights under this act. 95
  95. 95. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 21 ECOA Module.21.2 It is a violation to discourage an applicant from making an application for credit on a prohibited basis. Cannot ask an applicant if he or she receives alimony, child support. The applicant may volunteer such information. You must ask if he or she PAYS alimony or child support. Unmarried… ECOA requires the lender to provide a copy of the appraisal report. Application need not be in writing for this act to apply. Can we ask questions NOT related to creditworthiness? Adverse Action Form Equal Credit Opportunity Act http://www.fdic.gov/regulations/laws/rules/6500-1200.html 96
  96. 96. National Association of Mortgage Fiduciaries Jillayne Schlicke Section21 Module 21.2 Equal Credit Opportunity Act ECOA Marital Status 1. Unmarried = Single Divorced Widowed 2. Married 3. Separated Equal Credit Opportunity Act http://www.fdic.gov/regulations/laws/rules/6500-1200.html 97
  97. 97. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 21 Module 21.3 Equal Credit Opportunity Act ECOA Quiz 98
  98. 98. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 22 Module 22.1 and 22.2 Fair Credit Reporting Act FCRA Fair Credit Reporting Act http://www.fdic.gov/regulations/laws/rules/6500-200.html Passed to ensure consumers have access to credit information used by lenders and others so that remedial steps could be taken when incorrect or outdated information remained in their file. Purpose of a credit report: Insurance, licensing, instruction from consumer, extension of credit, employment, response to a court order, potential investor risk, other legitimate business needs. Credit reports are deemed privileged info. A CRA has 30 days to respond to a disputed item Adverse Action: Name, address and phone number of the CRA, reason, and info on how to obtain a free copy of their report. 99
  99. 99. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 22 Fair Credit Reporting Act FCRA Module 22.3 Quiz 100
  100. 100. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 23 Modules 23.1-23.10 Other Federal Laws Governing Mortgage Lending HMDA Home Mortgage Disclosure Act CRA Community Reinvestment Act GLB Gramm Leach Bliley Act AKA Privacy Act HOEPA Home Owner’s Equity Protection Act Bank Secrecy Act U.S. Patriot Act PMI Act FACTA Fair and Accurate Credit Transactions Act Do Not Call Additional Federal Laws Quiz 101
  101. 101. National Association of Mortgage Fiduciaries Jillayne Schlicke ECOA Fair Housing Race Race Color Color Religion Religion (Creed) Sex National Origin Sex Marital Status National Origin Income from Public Familial Status Assistance Sexual orientation Age added in 2012 as a Whether an applicant protected class in all 50 states has exercised his or Her rights under this Disability Act. 102
  102. 102. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 24 SAFE Mortgage Licensing Act Module 24.1 The SAFE Act of 2008 SAFE = Secure and Fair Enforcement Act  Passed in order to increase uniformity, reduce regulatory burden, enhance consumer protection, and reduce fraud. Establishes the Nationwide Mortgage Licensing System and Registry. Title V SAFE Mortgage Licensing Act of 2008 http://mortgage.nationwidelicensingsystem.org/SAFE/NMLS %20Document%20Library/SAFE-Act.pdf 103
  103. 103. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 24 SAFE Act Module 24.2 “Registered Loan Originator” An employee of: a depository institution; a subsidiary that is: owned and controlled by a depository institution AND regulated by a federal banking agency OR An institution regulated by the Farm Credit Admin Title V SAFE Mortgage Licensing Act of 2008 http://mortgage.nationwidelicensingsystem.org/SAFE/NMLS %20Document%20Library/SAFE-Act.pdf 104
  104. 104. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 24 SAFE Act Module 24.2 State or Federally Chartered Depository Banks: LOs are exempt from testing and education. NOT exempt from “registration.” Register with the Nationwide Mortgage Licensing System (NMLS) and will be given a unique identifier. “Registered” LOs Title V SAFE Mortgage Licensing Act of 2008 http://mortgage.nationwidelicensingsystem.org/SAFE/NMLS %20Document%20Library/SAFE-Act.pdf 105
  105. 105. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 24 SAFE Act Module 24.2 Issuance of a License: Never revoked No felony last 7 years No felony at any time re fraud, dishonesty, breach of trust, money laundering Financial responsibility Pre-licensing education Written test Net worth and surety bond Title V SAFE Mortgage Licensing Act of 2008 http://mortgage.nationwidelicensingsystem.org/SAFE/NMLS %20Document%20Library/SAFE-Act.pdf 106
  106. 106. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 24 SAFE Act Module 24.2 LO exam: 75% to pass Can retake 3 X at 30 day intervals If fail 3 X, must wait 6 months 5 year lapse in license: must retake the test Title V SAFE Mortgage Licensing Act of 2008 http://mortgage.nationwidelicensingsystem.org/SAFE/NMLS %20Document%20Library/SAFE-Act.pdf 107
  107. 107. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 24 SAFE Act Module 24.2 Continuing Ed 3 hours Federal Law 2 hours Ethics, Consumer Protection, Fraud, Fair Housing 2 hours Non Traditional Lending 1 hour Undefined No carry-overs Can’t take the same class each year. Title V SAFE Mortgage Licensing Act of 2008 http://mortgage.nationwidelicensingsystem.org/SAFE/NMLS %20Document%20Library/SAFE-Act.pdf 108
  108. 108. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 24 SAFE Act Module 24.3 Take the SAFE Act Quiz 109
  109. 109. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 25 A Look Ahead-Dodd Frank Module 25.1 QRMs Dodd Frank Wall Street Reform and Consumer Protection Act http://www.gpo.gov/fdsys/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf QRMs • High Priced • High Cost Qualified • aka High Risk, HOEPA Residential Subprime, Non- Home Mortgage Traditional, Owner Downpayment Non- Standard Equity good credit Protection • When sold on Act When sold on Wall St Lenders Wall Street, NO must put aside • Junior Liens money put 5% of the value Section 32 aside in loss of the pool of of TILA reserves RMBS to cover potential future 2013 losses • 1994
  110. 110. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 25 Module 25.2 CFPB CFPB = Consumer Financial Protection Bureau All federal laws governing mortgage lending are now under the CFPB with the exception of Fair Housing which will stay under HUD. CFPB is currently in the process of finalizing rules on many sections of the Dodd Frank Act and the industry received these from the CFPB in 2013 and the rules will go into effect no later than Jan 2014 Dodd Frank Wall Street Reform and Consumer Protection Act http://www.gpo.gov/fdsys/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf 111
  111. 111. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 25 Module 25.3 LO Comp LO Comp rules under Dodd Frank mirror the LO Comp rules established by the Fed Reserve Board that went into effect April 5, 2011. Dodd Frank Wall Street Reform and Consumer Protection Act http://www.gpo.gov/fdsys/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf 112
  112. 112. National Association of Mortgage Fiduciaries Jillayne Schlicke Section 26 Recap and Close Review all remaining unanswered questions. Students complete end-of-course evaluation form. Instructor provides end-of-course completion certificates. 113
  113. 113. National Association of Mortgage Fiduciaries Jillayne Schlicke Jillayne Schlicke CE Forward, Inc. National Assoc of Mortgage Fiduciaries 206-931-2241 jillayne@ceforward.com mortgagefiduciaries.com 114

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