Loan Originator Pre-Licensing and Exam Prep Powerpoint Slide Deck for students of Jillayne Schlicke and CE Forward, Inc. To be used in tandem with your course book.
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20HrPrelicensingSlides2023.STUDENTVERSION.pptx
1. 20 Hour SAFE Comprehensive
Pre-Licensing and Exam Prep
C-12020
WA State Pre-Licensing
C-11978
Jillayne Schlicke
2. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Welcome!
Please complete the sign-in sheet, including an
address. If you’re not yet employed with a
mortgage company, use your home address.
Read and sign the NMLS Rules of Conduct for
Students Version 4 (2024)
Photo ID required. Any of these are fine:
Driver’s license, passport, state ID card,
military ID that contains both a picture and a
signature
2
3. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 1 Introduction
Introduction of trainer
Introduction of students
Who are you
Where do you work
What do you do? LOA = Loan Originator Assistant
Exam anxieties
3
4. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
4
Section 1 Module 1.1
UST Uniform State Test $110
190 minutes = 3 hrs 17 minutes
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.
Log into the NMLS. Pay for the test. THEN schedule
through the link to ProMetric.
5. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
5
Exam Components
24% Federal Law
20% General Mortgage Knowledge
programs, products, terms
27% Loan Origination Activities
application, qualifying, title, escrow, math
18% Ethics
consumer protection, fraud, fair housing
11% Uniform State Content
licensing law, prohibited practices 53%
6. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
6
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.
8. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
8
Section 1 Module 1.1
What’s your learning style?
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
Verbal-will send link to article about this learning style
https://www.brightoncollege.edu/study-tips-for-verbal-learners/
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.
9. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 1 Module 1.2
History of Mortgage Lending in America
National Bank Act
Federal Reserve Act
Thrift Institutions
Mortgage Lending Prior to Great Depression
Government Involvement in Banking
FHA, Fannie Mae, VA, USDA
1940s through present day
9
10. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 2 Module 2.0
Depository Bank
Checking,
savings
CAN fund its
own loans
LOs are
“registered”
10
Mortgage Broker
No ck/svgs
Does NOT fund its
own loans
Pure middleman
For a fee, finds the
mortgage money
LOs are licensed.
In some states,
these LOs owe
fiduciary duties
to clients
Non-Depository
Lender
Non-Bank Lender
No ck/svgs
CAN fund its
own loans via
lines of credit
with banks
LOs are licensed
Consumer Loan
Act
11. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
The Mortgage Machine
A mortgage is like a machine with many moving parts.
Shout out all the different entities/different jobs that
are involved with creating a mortgage loan….
11
12. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
The Mortgage Machine
What are the different pieces of the mortgage
machine?
Loan originators...
12
13. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 2 Module 2.1
There are many
moving parts in
the Mortgage
Machine. The
function of loan
origination is just
one piece.
13
Loan Originator
Loan Processor
Underwriter
Funder, Quality Control
Title Insurance
Escrow
Appraiser
Insurance
Builders
Realtors
Secondary Market
Loan Servicing
Regulators and Examiners
Consumer
14. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Definition of an LO
Licensed
(6) MORTGAGE LOAN ORIGINATOR—
(a) IN GENERAL—The term ‘‘mortgage loan originator’’—
(i) Means an individual who for compensation or gain or in the expectation of
compensation or gain—
(A) Takes a residential mortgage loan application; or
(B) Offers or negotiates terms of a residential mortgage loan;
(ii) Does not include an individual engaged solely as a loan processor or
underwriter.
(iii) Does not include a person or entity that only performs real estate
brokerage activities and is licensed or registered in accordance with state law,
unless the person or entity is compensated by a lender, a mortgage broker, or
other mortgage loan originator or by any agent of such lender, mortgage
broker, or other mortgage loan originator; and
(iv) Does not include a person or entity solely involved in extensions of credit
relating to timeshare plans, as that term is defined in section 101(53D) of title
11, United States
14
15. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Licensed Loan Originator
The term ‘‘mortgage loan originator’’
Means an individual who for compensation or gain
or in the expectation of compensation or gain
Takes a residential mortgage loan application;
or
Offers* or negotiates terms of a residential
mortgage loan;
*Example: Advertising, quoting rates, fees loan
programs. That would include social media posts
15
16. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Processing and Underwriting
Processor
Analyzes documents
Calls borrower and
asks questions
Prepares the file for
underwriting
Will be the person
you’ll go to with
questions, when you
can’t reach your
boss.
16
Underwriter
Makes sure the loan
conforms to all
guidelines set forth by
the secondary market.
Makes sure the
borrower qualifies
4Cs
Character
Capacity
Capital
Collateral
17. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
17
Section 2 Module 2.2
RESIDENTIAL LOAN APPLICATION
~
The acronym ALIENS can help you
remember the six pieces of
information that constitute a loan
application:
~
Address
Loan amount
Income
Estimated value of the home
Name
Social security number
18. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
18
Section 2 Module 2.2
Break into small groups and talk about
sections of the loan application
What sections might the customers ask you
about?
What sections might the customer consider
lying?
What sections might the customer refuse
to provide information?
19. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
19
Section 2 Module 2.2
Large group discussion:
Occupancy
Assets
Date of Birth
Former employer
Ways of holding title
Acknowledgement, signature
Other Real Estate Owned
Marital Status
HMDA (Home Mortgage Disclosure Act)
20. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Fannie Mae Deed of Trust
6. Occupancy.
Borrower shall occupy, establish, and use the
Property as Borrower’s principal residence within 60
days after the execution of this Security Instrument
and shall continue to occupy the Property as
Borrower’s principal residence for at least one year
after the date of occupancy, unless Lender otherwise
agrees in writing, which consent shall not be
unreasonably withheld, or unless extenuating
circumstances exist which are beyond Borrower’s
control.
https://www.fanniemae.com/singlefamily/security-instruments 20
21. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Home Mortgage Disclosure Act
HMDA
When face to face with the borrower, and the
borrower refuses to provide answers, loan originator is
required to check the boxes on behalf of the applicant
based on visual observation and surname. If the
borrower and loan originator are not face-to-face such
as a loan application taken over the phone or over the
Internet, and the borrower refuses to answer the
questions, the loan originator IS NOT required to check
the boxes on behalf of the applicant.
21
23. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Frequently Asked Question:
What’s the difference between
Hispanic and Latino?
Latino is a term that is telling us about
geography
Hispanic is a term that is telling us about
language.
24. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Hispanic and Latino
Latino
From Latin America
Refers mostly to everything south of the United States
including the Caribbean.
Hispanic
From a country whose primary language is Spanish.
25. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Hispanic and Latino
But not every country in Latin America speaks
Spanish, and some countries that speak Spanish are
not located in Latin America.
Brazil
Latin but not Hispanic. Speaks Portuguese
Spain
Hispanic but not Latino. Speaks Spanish
26. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
HMDA Discussion Questions
Why do Federal regulators want to know if a consumer
is a member of one of the sub-categories?
Why aren’t white ethnic categories offered?
Example: Irish, German
What box is checked when your client is from the
Middle East?
29. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
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
IRS Form 4506-C
29
30. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Qualifying the Applicant: The Four Cs
Character
(credit history)
Capacity
(stable, reliable, sufficient income)
Capital
(verification of funds for down payment)
Collateral
(how much is the home worth?)
30
31. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
31
Section 2 Module 2.4
FIRST RATIO
PITI
Principal, Interest, Taxes, Insurance
plus home owner’s assoc dues, if applicable
Divided by
Total gross monthly income
= %
SECOND RATIO
PITI plus all other monthly revolving debt
Divided by
Total gross monthly income
= %
32. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 2 Module 2.5
Loan Processing
As documents are received, processors compare the
information verified to the original loan application
and consult the credit underwriting guidelines.
A processor is a liaison between the originator, the
borrower, the Realtor, underwriting and
management.
32
33. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 2 Module 2.6
Employment and Income Verification
Verification of Employment
The Work Number (Equifax)
Request for Verification of Employment (Fannie Mae
Form 1005)
Calculating gross pay
Tax returns
Miscellaneous income
33
34. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 2 Module 2.7
Gaps in Employment. Case Study:
Morgan and Elizabeth are applying to refinance their
home. Morgan has a 4-year gap in employment history.
Prior to the time off, Morgan was working in the
financial sector and has recently re-entered the
financial sector, at a similar salary. Both incomes are
needed to qualify.
What will the underwriter ask for?
34
35. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 2 Module 2.7
For borrowers with gaps in employment of six months
or more, the underwriter may consider the
borrower’s current income as effective income if it
can verify:
1) The borrower has been employed in the current
job for at least six months at the time of FHA case
number assignment, AND
2) verification of a two year work history prior to the
absence from employment.
35
36. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 2 Module 2.8
Assets
Acceptable assets for down payment
Assets for reserves
Ineligible assets
Verification of Deposit (VOD)
Gift Letters
36
37. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 2 Module 2.9
Underwriting
Sufficient and stable monthly income
Prior credit history
Assess collateral
Sufficient down payment
Other factors: Payment shock, debt-to-income
ratios, cash on hand after closing, other
compensating factors
37
38. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 2 Module 2.10
Case Study: David and Ryan
Read the case study. Break into small groups and
discuss: Is this an approvable loan?
If yes, why?
If no, why not?
Justify your decision.
Large group recap
38
39. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 2 Module 2.11
Ability to Repay Rule under Dodd Frank Act
Eight factors:
~
1. Current income and assets
2. Current employment
3. Monthly mortgage payment
4. Monthly payment on simultaneous loans
5. Property taxes, fire/flood insurance, HOA dues
6. Debts including alimony or child support
7. Monthly total DTI ratio
8. Credit history
Underwriters CAN consider other factors
39
40. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 3 Credit Module 3.1
What is a credit report?
What are credit reporting agencies?
What information is contained in a credit report?
Have you ever ordered a credit report on yourself?
AnnualCreditReport.com
40
41. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 3 Module 3.2
What’s in a FICO Score?
35% payment history
30% amount owed
15% length of credit history
10% new credit
10% types of credit used
41
42. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
History of land titles in the U.S.
Great movies to watch and their historical time frame
Far and Away (1890s-1893)
There Will Be Blood (1898-1911)
Little House on the Prairie (1871-)
First Cow (2020)
Nomadland (2020)
202106010001 Warranty Deed
202106010002 Deed of Trust
We needed a system of recording the sale of property.
Late 1700s onward
42
43. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
43
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?
44. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Can we do anything we want with our property?
Can I build anything I want?
Can I build a house that would take up the entire lot?
Can I paint my house any color I want?
If I dig a hole, how far down do I own?
How far up do I own?
44
45. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
There are limits to what we can do:
Federal law, state law, county laws, city laws
Zoning, set-backs from the boundary line
Local covenants, conditions and restrictions (CCRs)
Mineral rights
Easements
Height restritions
45
48. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
48
----------------Road-----------------------
Easement to replace the water main is located six feet underground throughout the entire plat
49. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
49
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.
50. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
50
Section 4 Title Insurance Module 4.3
How does a title company protect residential
homeowners and residential lenders?
Owner’s policy: Paid for by the seller, protects
the brand new home buyer. Policy is good as
long as home owner/heirs own the property.
Lender’s policy: paid for by the home buyer,
protects the LENDER in case of default. Lender
wants insurance that they will be in first lien
position if they ever have to foreclose on the
property. New lender’s policy each time the
homeowner refinances.
51. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Physical Rights of Real Estate
51
Center of
the Earth
Surface
rights
Fly-over
rights
Mineral,
water, oil,
and gas
rights
Air
rights
52. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 4 Module 4.4
Title insurance troubleshooting
Who is in title to sell the home?
Who is in title when refinancing?
Undisclosed liens against seller or homeowner (refi)
Mortgage paid off but reconveyance not recorded
First mortgage being refinanced, but second mortgage
needs to stay in second position (re-subordinate)
Easements
Encroachments
52
53. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
53
Section 4 Module 4.5 Case Study
Small group assignment:
Read the case study “John and Sara”
Come up with 10 things a loan originator
must discuss/discover before moving
forward with this transaction.
54. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
54
Section 4 Module 4.5
Legal rights and responsibilities of a title
company.
A title company has two duties:
Duty of defense
Duty of indemnification
55. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
What is escrow?
To hold something until something happens
Neutral third party
Only accepts instructions in writing
Limited Practice Officer (LPO)
55
56. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
56
Section 5 Module 5.1-5.7
What is escrow?
What is the Closing Disclosure?
What is the difference between an escrow agent
and an escrow officer?
What does an escrow closer do?
What are the Escrow Instructions?
What are the duties of an escrow agent
Borrower’s signatures and requirements
Issues that could delay closing
57. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
57
Section 6 Appraisals Module 6.1-6.7
What is an appraisal?
What are the three types of approaches to
reconciling the appraised value?
How does an appraiser make adjustments?
Borrower’s right to receive a copy of the
appraisal
Appraisal requirements for Higher Priced
Mortgage Loans
58. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Three approaches to an appraised value
Cost
If this home were to burn down, how much would it
cost to rebuild it?
Market data
What are similar homes selling for right now?
Income
How much would this home rent for, right now?
58
59. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
59
Section 7 Insurance Module 7.1-7.4
General fire/hazard property insurance
coverage
Flood insurance
Private Mortgage Insurance
(conventional loans only)
Private Mortgage Insurance Act of 1998
60. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 8
Financial Calculations Used in
Mortgage Lending
1. Calculate the periodic interest rate for an annual
mortgage rate of 5.0%
0.05 divided by 12 = 0.0042 or 0.42%
60
61. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Per diem interest
2. Interest Per Diem (per day)
a. Principal x rate divided by 365
3. Calculate per diem interest with a loan amount of
$300,000 and a note rate of 5.0%
$41.09
61
62. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Deb-to-income ratios
4. Monthly gross income is 8,333.33 Total housing
expense is 2,000. (PITI). Total long term installment
debt is $649 per month. What are the first and
second ratios?
2000 divided by 8333.33 = 24%
2000 + 649 = 2649
2649 divided by 8333.33 = 32%
62
63. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Debt-to-income ratios
5. Monthly gross income is $18,750. Total housing
expense is $4295. (PITI). Total long term
installment debt is $3937 per month. What are
the first and second ratios?
4295 divided by 18,750 = 23%
4295 + 3937 = 8,232
8232 divided by 18,750 = 44%
63
64. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
6. Upfront mortgage insurance premiums
An FHA fixed rate loan with a 30 year term requires a
1.75% up front premium and an annual premium of
.85%. The base loan amount is $200,000.
upfront: 200,000 x 1.75 = 3,500.
annual: 200,000 x .85 = 1,700
monthly: 1700 div by 12 = 141.67
64
65. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
7. Total interest paid over loan term
Your client is borrowing $189,000 on a 30 year fixed
rate loan. His monthly P&I payments will be $1,241.73
He wants to know the total amount of interest that
will be paid over the life of the loan. Your answer is:
1241.73 (principal and interest)
x 360 (multiplied by the loan term. Hint: 30 x 12)
= 447,022.80 (P&I paid over 30 years)
– 189,000.00 (subtract the loan amount)
= 258,022.80 (and what’s left is the interest)
65
66. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
8. Calculating Loan Amount
A homebuyer makes an offer on a home and wants to
make a 20% down payment so she can avoid private
mortgage insurance. What would the loan amount be
in this transaction if the sales price is $400,000 and
the appraised value is $395,000?
Whichever is less x 80%
395,000 x 80% = $316,000
“an 80% LTV loan.”
66
67. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
9. Loan amount when financing MIP
A refinancing homeowner is selecting an FHA loan with
an upfront MIP that she would like to finance into the
loan amount. What is the final loan amount?
Base loan amount: 350,000
Upfront MIP: 1.75%
350,000 x 1.75% = 6,125.00
Final loan amount when financing the MIP =
Base loan amount + MIP = Final loan amount
350,000 + 6125.00 = 356,125.00
67
68. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
10. Escrow (bank) account in loan servicing
Borrower’s monthly mortgage payment breakdown looks
like this:
Principal = 1106.15
Interest = 606.15
Escrow account to pay real estate taxes and hazard
insurance = 203.19
What is the principal and interest payment (P&I) only?
1106.15 + 606.15 = $1712.30
What is the full monthly payment including taxes and
insurance (PITI)?
1106.15 + 606.15 + 203.19 =$1915.49
68
69. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
11. Borrowers always prioritize making their car payment
first each month and then their second mortgage and
finally their first mortgage. How will a first mortgage
lender view this practice?
a) Order of payments makes no difference to an underwriter.
b) Order of payments makes no difference to an underwriter
provided the loans are always paid on time.
c) Underwriters are looking for patterns in credit behavior.
Making the first mortgage payment third priority is a valid
reason for declining the loan if there is a consistent
pattern of late payments.
d) Underwriters are looking for patters in credit behavior.
Making the first mortgage payment third priority is not a
valid reason to decline the loan.
69
70. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
12.New Construction
Sale price of the lot is $100,000
Cost to build the home is $200,000
Closing costs estimated: $9,000
What is the estimated completed value of the home
plus land?
100,000 + 200,000 =$300,000.
What is the estimated down payment if this borrower
would like to put 20% down?
300,000 x 20% = $60,000.
What is the estimated cash needed to close the loan?
60,000 + 9,000 = $69,000
70
71. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
13. Purchase money loan
See course book for loan details.
265,000 – 13,250 = 251,750 loan amount
Next add together sales price and closing costs
265,000 + 4,000 = 269,000
Now take the above 269,000 and subtract out the loan
amount 269,000 – 251,750 = 17,250
Homebuyer has paid $800 up front for an appraisal and
put down $5,000 earnest money. We need to credit
this to the borrower. 800 + 5000 = 5800
Now subtract out the credits and we have the cash
needed to close the loan. 17,250 – 5800 = 11,450
71
72. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
14. Calculate the down payment for the following sale:
Purchase price is $500,000
Calculate a 20% down payment:
500,000 x 20% = $100,000.
Uh oh, appraisal comes in at $490,000
Now calculate the 20% down payment:
490,000 x 20% = $98,000.
Note: Cash needed to close the loan will be higher,
but that’s not what the question is asking.
72
73. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
15. Calculating Loan-To-Value
What is the loan to value ratio for a loan amount of
$405,000 where the sales price and appraised value
of the property are both $450,000?
405,000 div by 450,000 =
90%
73
74. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
16. Calculating Loan-To-Value
Borrower would like to avoid paying
mortgage insurance on a conventional loan
and has plenty of money for a down
payment. Sales price is $375,000 and the
appraised value is $365,000. What is the
loan amount in order to provide this
borrower with an 80% loan-to-value
mortgage?
$365,000 x 80% = $292,000.
74
75. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Discount Points
Note Rate: 7.00 % = 1% Lender Credit. This can be used
to pay costs on a refi or purchase
Note Rate: 6.50 % = Par
Note Rate: 6.00 % = 1% Discount points paid by borrower
_______________________________________________
Example: 200,000 loan amount
Note Rate: 7.00 % = 1% Lender Credit of $2,000
Note Rate: 6.50 % = 0 No cost to the borrower and no
credit given to the borrower
Note Rate: 6.00 % = 1% Discount Points will cost the
borrower $2,000
75
76. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
76
Rate Points Consumer’s
Situation
Consumer Might
Decide to:
What This Means to
the Consumer
7.00% 1.0%
Lender
Credit
Consumer does not want
to pay a lot of cash up
front and can afford a
slightly higher monthly
payment.
Pay a slightly higher
payment each month. Pay
a higher interest rate over
the life of the loan and not
have to come up with any
money up front to cover
closing costs.
Consumer chooses a
higher rate of 7.00%, in
exchange for $2,000. To
cover closing costs.
Today: Consumer receives
$2,000.
Over the life of the loan:
Consumer pays slightly
more each month.
6.5% 0 Par Consumer is satisfied with
the rate and chooses not
to pay discount points to
buy a lower rate OR
choose a higher rate to
cover closing costs with a
lender credit.
Pay zero points The par rate does not
require consumer to pay
points.
The par rate does not
provide a lender credit.
6.00% 1.0%
Discount
Points
Consumer plans to keep
the mortgage for a long
time. Consumer can
afford to pay more cash
at closing.
Consumer wants a slightly
lower payment
Pay discount points and
select a lower rate. This
will save the consumer
money over the life of the
loan.
Consumer might agree to
pay $2,000. more in
closing costs in exchange
for a lower rate of 6.0%.
Now: Pay $2,000.
Over the life of the loan:
Pay slightly less each
month
77. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
17. Discount points
The purpose of discount points is:
a) To allow lenders to charge a higher rate due to a
low credit score.
b) To allow the consumer to pay some of the
interest up front by purchasing a lower rate, in
order to pay less interest over the life of the
loan.
c) To allow the borrower to obtain a credit from the
lender to cover closing costs, and reducing the
amount of up front money to close the loan.
d) To allow the loan originator to earn additional fee
income.
77
78. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
18. Using the Lender Credit
Consumer chooses a slightly higher rate of 5.125% in
order to obtain a credit from the lender. LOs may use
the lender credit to:
A.Cover the closing costs with the lender credit
B.Cover the closing costs with the lender credit and LO
may also keep what’s left over as a bonus.
C.Cover the closing costs with the lender credit and
distribute what’s left over to the Realtor
D.Cover the closing costs with the lender credit and
may give what’s left over to the consumer in the form
of $14.00 gift cards to cover the monthly payment for
a while
78
79. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Prepaids
19. Calculate the following pre-paid items to be
collected from the borrower at closing:
a) Homeowner’s insurance premium: $125/month for 6
months
125 x 6 = $750.
b) Mortgage insurance premium: $48/month for 3
months
48 x 3 = $144
c) Prepaid, daily interest $20.38/day for 15 days
20.38 x 15 = $305.70
d) Real estate taxes $145.33 per month for 4 months
145.33 x 4 = $581.32
79
80. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Closing Costs
20. A buyer is purchasing a home with a 95%
conventional fixed rate mortgage of $104,500. The
maximum dollar amount the seller may contribute to
the buyer in this case is 3% of the sales price.
Hint: First compute the sales price then multiply by 5%
Loan Amount 104,500 divided by .95 =
The sales price: 110,000
Seller contribution: 110 x 3 percent = 3,300
80
81. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Loan origination charges
21. A homeowner is refinancing and would like to pay
no more than 1 percentage point in loan origination
charges. Loan amount is 375,000. Your company
charges the following loan origination fees:
Loan Origination fee .50
Underwriting fee .25
Processing fee .25
Will you be able to serve this customer?
.50 x 375,000 = 1,875.00
.25 x 375,000 = 937.50
.25 x 375,000 = 937.50
Total $3750
81
82. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
22. Seller buy-downs
A homebuyer would like to have the seller buy down the
interest rate by contributing 2 percent of the sales price to
purchase discount points in order to lower the note rate on
the loan by 1 percent.
Sales price: $325,000
Loan amount: $292,500
Note rate at par is 4.75%
Borrower will have how much money contributed by the
seller? 325,000 x 2% = $6,500.
Purchasing 1 discount point to obtain a lower rate will cost:
292,500 x 1% = $2925.
How much will the borrower have
left over to cover other costs? 6500 – 2925 = $3575.
82
83. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
23. Adjustable Rate Mortgages
5/1/1 Treasury Securities Indexed ARM loan has a
starting rate of 2.0%. At the first adjustment, the
index is 3.0% and the margin is 2.25%. What is the
fully indexed rate?
3.0 + 2.25 = 5.25%
The Index is an economic indicator used to calculate
interest rate adjustments for ARM loans. The index
rate can increase or decrease at any time.
The Margin remains stable over the life of the loan
83
84. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 9: The Consumer Protection Act
(Dodd Frank Act) and Qualified Mortgages
Financial crisis of 2008 led to Fannie Mae and Freddie
Mac being taken into government conservatorship.
FHA eventually went insolvent as well, after absorbing
the collapse of subprime loans in 2008.
All three entities received a direct draw from the U.S.
Treasury. As such, consumers asked for and received
massive regulatory reform: The Dodd Frank Act of
2010
84
85. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Qualified
Mortgages
Regular periodic payments
that are substantially equal
~
Loan term does not exceed
30 years
~
Total points and fees do not
exceed 3% for loans over
$100,000
~
Total debt to income
ratio does not exceed
43%
~
If loan conforms to
guidelines set forth by
Fannie & Freddie (aka
Conventional,) FHA,
VA, USDA Loan is
automatically a QM
Until Feb 2021.
Ability to Repay: 5 Years 85
Higher PRICED
Mortgage Loans
HPMLs
Loans formerly known as
Subprime
Non-Traditional = Any loan
that’s not a 30 year fixed
rate mortgage
Non-prime
Non-QM
A loan is an HPML When:
Annual Percentage Rate (APR)
is:
1.5 or more points higher on a
fixed rate mortgage OR
2.5 or more points on a non-
conforming loan OR
3.5 or more points higher for a
subordinate lien
When compared with the
Average Prime Offering Rate
(APOR)
Ability to Repay: 7 Years
High COST
Mortgages
~
H.O.E.P.A.
Home Owner Equity
Protection Act
Originally for second mortgages,
also known as Home Equity
Lines of Credit. These are VERY
EXPENSIVE mortgages, with
higher costs due to a higher
risk.
~
Annual Percentage Rate (APR)
exceeds Average Prime Offering
Rate (APOR) by more than:
~
6.5% for first lien mortgages
OR
8.5% for first lien mortgages
under $50,000.
OR
8.5% for junior or subordinate
liens.
~
Borrower must attend a
counseling class
86. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
The CFPB issued two final rules amending the
Ability-to-Repay/Qualified Mortgage Rule:
https://files.consumerfinance.gov/f/documents/cfpb_atr-qm-final-rule-
amendments_executive-summary_2020-12.pdf
The General QM Final Rule replaces the existing
43 percent debt-to-income ratio limit with
price-based thresholds and makes other changes to
the Ability to Repay/QM Rule
The Seasoned QM Final Rule creates a new category
of qualified mortgage: the Seasoned QM.
86
87. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Qualified
Mortgages
Regular periodic payments
that are substantially equal
~
Loan term does not exceed
30 years
~
Total points and fees do not
exceed 3% for loans over
$100,000
~
Total debt to income ratio
does not exceed 43%
~
If loan conforms to
guidelines set forth by
Fannie & Freddie (aka
Conventional,) FHA, VA,
USDA Loan is automatically a
QM Until 2021.
Ability to Repay: 5 Years
87
Higher PRICED
Mortgage Loans
HPMLs
Loans formerly known as
Subprime
Non-Traditional = Any loan
that’s not a 30 year fixed
rate mortgage
Non-prime
Non-QM
A loan is an HPML When:
Annual Percentage Rate (APR)
is:
1.5 or more points higher on a
fixed rate mortgage OR
2.5 or more points on a non-
conforming loan OR
3.5 or more points higher for a
subordinate lien
When compared with the
Average Prime Offering Rate
(APOR)
Ability to Repay: 7 Years
High COST
Mortgages
~
H.O.E.P.A.
Home Owner Equity
Protection Act
Originally for second mortgages,
also known as Home Equity
Lines of Credit. These are VERY
EXPENSIVE mortgages, with
higher costs due to a higher
risk.
~
Annual Percentage Rate (APR)
exceeds Average Prime Offering
Rate (APOR) by more than:
~
6.5% for first lien mortgages
OR
8.5% for first lien mortgages
under $50,000.
OR
8.5% for junior or subordinate
liens.
~
Borrower must attend a
counseling class
88. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Mod 9.2 The General QM Final Rule clarifies that to
meet the requirement to consider, a creditor must
take into account in its ability-to-repay
determination
Current or reasonably expected income or assets
(other than the value of the dwelling that secures the
loan and any real property attached to that dwelling)
Debt obligations
Alimony, child support
and monthly DTI ratio or residual income;
88
89. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
The General QM Final Rule clarifies that to meet
the requirement to consider, a creditor must…
Maintain written policies and procedures for how
it takes into account
income or assets
debt obligations
alimony and/or child support
monthly DTI ratio or residual income in its
ability-to-repay determination;
89
90. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
The General QM Final Rule clarifies that to meet
the requirement to consider, a creditor must…
Retain documentation showing how it took into
account all of the above, including how it applied its
policies and procedures. Example:
Underwriter’s worksheet
Final AUS Certification
Creditor’s underwriting standards
Applicable exceptions described in creditor’s policies and
procedures that shows how these factors were taken into
consideration with regard to the borrower’s ability to repay.
If creditor does not satisfy this documentation
requirement, the loan is not a General QM.
90
91. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Verification Standards
Additionally, the General QM Final Rule includes a
list of specific verification standards that creditors
may use to meet the revised General QM
definition’s verify requirement.
If a creditor satisfies the verification standards in
one or more 5 specified manuals, the creditor has a
safe harbor for compliance with the verification
requirement in the revised General QM definition….
91
92. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Safe Harbor for compliance with the
verification requirement:
Relevant provisions in specified versions of:
Fannie Mae Single Family Selling Guide
Freddie Mac Single-Family Seller/Servicer Guide
FHA’s Single Family Housing Policy Handbook
VA’s Lenders Handbook
USDA’s Field Office Handbooks for
Direct Single Family Housing Program
Single Family Guaranteed Loan Program.
92
93. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
A creditor need only comply with requirements
in the manuals to verify:
income
assets
debt obligations
alimony and child support
Reasonable reliable third party documents or to
include or exclude particular inflows, property,
and obligations as income, assets, debt
obligations, alimony, and child support.
93
94. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
General QM Final Rule Other Amendments
EXAMPLE
The General QM Final Rule also clarifies that a
creditor does not meet the verification
requirements in the ATR/QM Rule’s general ability-
to-repay standard if the creditor observes an inflow
of funds into the consumer’s account without
confirming that the funds are the consumer’s
personal income….
94
95. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
General QM Final Rule Other Amendments
…continued:
For example, a creditor would not meet the
verification requirements in the ATR/QM Rule’s
general ability-to-repay standard where it observes an
unidentified deposit in the consumer’s account but
fails to take any measures to confirm or lacks any basis
to conclude that the deposit represents the
consumer’s personal income and is not from another
source, such as proceeds from a loan.
95
96. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Other Amendments, Safe Harbor
The General QM Final Rule preserves the ATR/QM
Rule’s current threshold separating safe harbor from
rebuttable presumption QMs.
Under that threshold, a loan is a safe harbor QM if
its APR exceeds APOR for a comparable transaction
by less than 1.5 percentage points as of the date
the interest rate is set or by less than 3.5
percentage points for subordinate-lien transactions.
96
97. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Mod 9.3 Rebuttal Presumption QMs
Both in common law and in civil law, a rebuttable
presumption (in Latin, praesumptio iuris tantum*) is
an assumption made by a court that is taken to be
true unless someone comes forward to contest it
and prove otherwise. For example, a defendant in a
criminal case is presumed innocent until proved
guilty.
*True unless proven otherwise.
97
98. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Safe Harbor
QMs that are not higher-
priced have a safe
harbor, meaning that they
are conclusively presumed
to comply with the ATR
requirements.
Under a safe harbor, if
a court finds that a
mortgage you originated
was a QM, then that
finding conclusively
establishes that you
complied with the ATR
requirements when you
originated the mortgage. 98
Rebuttable presumption
QMs that are higher-
priced have a rebuttable
presumption* that they
comply with the ATR
requirements, but
consumers can rebut that
presumption.
*True unless proven otherwise
99. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Qualified
Mortgages
Regular periodic payments
that are substantially equal
~
Loan term does not exceed
30 years
~
Total points and fees do not
exceed 3% for loans over
$100,000
~
Total debt to income ratio
does not exceed 43%
~
If loan conforms to
guidelines set forth by
Fannie & Freddie (aka
Conventional,) FHA, VA,
USDA Loan is automatically a
QM Until 2021.
Ability to Repay: 5 Years
99
Higher PRICED
Mortgage Loans
HPMLs
Loans formerly known as
Subprime
Non-Traditional = Any loan
that’s not a 30 year fixed
rate mortgage
Non-prime
Non-QM
A loan is an HPML When:
Annual Percentage Rate (APR)
is:
1.5 or more points higher on a
fixed rate mortgage OR
2.5 or more points on a non-
conforming loan OR
3.5 or more points higher for a
subordinate lien
When compared with the
Average Prime Offering Rate
(APOR)
Ability to Repay: 7 Years
High COST
Mortgages
~
H.O.E.P.A.
Home Owner Equity
Protection Act
Originally for second mortgages,
also known as Home Equity
Lines of Credit. These are VERY
EXPENSIVE mortgages, with
higher costs due to a higher
risk.
~
Annual Percentage Rate (APR)
exceeds Average Prime Offering
Rate (APOR) by more than:
~
6.5% for first lien mortgages
OR
8.5% for first lien mortgages
under $50,000.
OR
8.5% for junior or subordinate
liens.
~
Borrower must attend a
counseling class
100. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Qualified
Mortgages
Regular periodic
payments that are
substantially equal
~
Loan term does not
exceed 30 years
~
Total points and fees do
not exceed 3% for loans
over $100,000
~
Total debt to income
ratio does not exceed
43%
~
If loan conforms to
guidelines set forth by
Fannie & Freddie (aka
Conventional,) FHA, VA,
USDA Loan is
automatically a QM Until
2021.
Ability to Repay: 5 Years 100
Higher PRICED
Mortgage Loans
HPMLs
Loans formerly known as
Subprime
Non-Traditional = Any loan
that’s not a 30 year fixed
rate mortgage
Non-prime
Non-QM
A loan is an HPML When:
Annual Percentage Rate
(APR) is:
1.5 or more points higher on
a fixed rate mortgage OR
2.5 or more points on a non-
conforming loan OR
3.5 or more points higher for
a subordinate lien
When compared with the
Average Prime Offering Rate
(APOR)
Ability to Repay: 7 Years
High COST
Mortgages
~
H.O.E.P.A.
Home Owner Equity
Protection Act
Originally for second mortgages,
also known as Home Equity
Lines of Credit. These are VERY
EXPENSIVE mortgages, with
higher costs due to a higher
risk.
~
Annual Percentage Rate (APR)
exceeds Average Prime Offering
Rate (APOR) by more than:
~
6.5% for first lien mortgages
OR
8.5% for first lien mortgages
under $50,000.
OR
8.5% for junior or subordinate
liens.
~
Borrower must attend a
counseling class
QMs
with
Rebuttal
Presumption
101. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
101
Under a rebuttable presumption, if a court finds that a
mortgage you originated was a higher-priced QM, a
consumer can argue that you violated the ATR rule.
However, to prevail on that argument, the consumer must
show that based on the information available to you at
the time the mortgage was made, the consumer did not
have enough residual income left to meet living expenses
after paying their mortgage and other debts.
The rebuttable presumption provides more legal
protection and certainty to you than the general ATR
requirements, but less protection and certainty than the
safe harbor.
102. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Other Amendments, ARMs
the General QM Final Rule creates a special rule for
General QM loans for which the interest rate may or
will change within the first five years after the date
on which the first regular periodic payment will be
due.
For such loans, the creditor must determine the
APR, for purposes of this threshold, by treating the
maximum interest rate that may apply during that
five-year period as the interest rate for the full
term of the loan.
102
103. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Mod 9.4 Seasoned QM Final Rule
A residential mortgage loan is a Seasoned QM and
receives a safe harbor from liability under the
ATR/QM Rule if the loan:
Satisfies certain product restrictions
Does not exceed a points-and-fees limit
Satisfies underwriting requirements
Is held in portfolio until the end of the seasoning period
(subject to certain enumerated exceptions)
And meets certain performance standards at the end of the
seasoning period...
103
104. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Seasoned QM Final Rule
The new rule also creates a new category for QM’s:
Seasoned QM’s, for otherwise qualified first-lien,
fixed rate loans held in portfolio for 36 months,
complying with general product restrictions, a
seasoned loan can become a QM after three years of
timely borrower payments
104
105. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Seasoned QM Product Restrictions
A loan has to meet the following product restrictions
to be eligible to become a Seasoned QM:
The loan is secured by a first lien. If a loan is a
subordinate-lien loan, the loan is not eligible to be
a Seasoned QM.
The loan has a fixed rate. Adjustable-rate or step-
rate mortgage loans are not eligible to be Seasoned
QMs …continued
105
106. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Seasoned QM Product Restrictions
…continued
The loan has regular, substantially equal periodic
payments that are fully amortizing, does not allow
negative amortization, and does not have a balloon
payment. A loan has fully amortizing payments if
periodic payments of principal and interest will fully
repay the loan over the loan term.
The loan term does not exceed 30 years.
The loan is not a high-cost mortgage as defined in
Regulation Z, 12 CFR 1026.32(a).
106
107. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Seasoned QM Product Restrictions
…continued
Additionally, the total points and fees for the
loan cannot exceed the limits specified in the
ATR/QM Rule.
Generally, this means that the total points and
fees cannot exceed 3 percent of the loan
amount.
107
108. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Seasoned QMs:
Underwriting Requirements
For a loan to be eligible to become a Seasoned QM,
the creditor must meet consider and verify
requirements for the loan. The creditor must
consider the consumer’s DTI ratio or residual
income, income and assets other than the value of
the dwelling, and debts and must verify the
consumer’s income or assets other than the value of
the dwelling and the consumer’s debts, using the
consider and verify requirements established for
General QMs in the General QM Final Rule.
108
109. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Seasoned QMs: Portfolio Requirements
In order to be eligible to be a Seasoned QM, a loan
must meet certain portfolio requirements.
Generally, a loan is eligible to be a Seasoned QM
only if, at consummation, the loan is not subject to
a commitment to be acquired by another person,
and the creditor holds the loan in portfolio until the
end of the seasoning period.
109
110. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Seasoned QMs: Portfolio Requirements
However, the Seasoned QM Final Rule provides
exceptions to these portfolio requirements.
First, the Seasoned QM Final Rule provides some
exceptions that are similar to those that apply to
Small Creditor QMs under the ATR/QM Rule.
For example, it allows transfers pursuant to certain
supervisory sales and pursuant to certain mergers
and acquisitions.
110
111. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Seasoned QMs: Portfolio Requirements
Second, the Seasoned QM Final Rule allows for a
single transfer during the seasoning period if the
loan is not securitized as part of the transfer or at
any other time before the end of the seasoning
period. This exception may only be used one time.
This means that if a loan is to remain eligible to
become a Seasoned QM, a purchaser that acquires
the loan pursuant to this exception may not
subsequently transfer it to any other entity, unless a
different exception applies.
Additionally the loan may not be securitized before
the end of the seasoning period.
111
112. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Seasoned QMs: Performance Requirements
In order to become a Seasoned QM, a loan must
meet certain performance requirements at the end
of the seasoning period.
The loan can have no more than two
delinquencies of 30 or more days
and no delinquencies of 60 or more days
at the end of the seasoning period.
112
113. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Seasoned QMs: Seasoning Period
The seasoning period is the 36-month period that
begins on the date on which the first periodic
payment is due after consummation. The end of the
seasoning period occurs later in two situations….
113
114. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Seasoned QMs: Seasoning Period
First, if there is a delinquency of 30 days or more at
the end of the final month of the seasoning period,
the seasoning period is extended until there is no
delinquency.
Second, time spent in a temporary payment
accommodation extended in connection with a
disaster or pandemic-related national emergency
does not count towards the seasoning period.
Additionally, the seasoning period can only resume
after the temporary payment accommodation if any
delinquency is cured either pursuant to the loan’s
original terms or through a qualifying change.
114
115. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Seasoned QMs: Safe Harbor
The Seasoned QM Final Rule provides a safe harbor
for Seasoned QMs, regardless of whether the loan is
a higher-priced loan.
115
116. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
The CFPB found that delinquency rates had a direct
correlation to the Annual Percentage Rate.
The bureau’s method compares the borrower’s APR
to the average rate offered to highly-qualified
borrowers.
The new rule requires that a Qualified Mortgage APR
cannot exceed 2.25 percentage points above the
average APR assigned to highly qualified borrowers.
(APOR)
116
117. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Qualified
Mortgages
Regular periodic payments
that are substantially
equal
~
Loan term does not exceed
30 years
~
Total points and fees do
not exceed 3% for loans
over $100,000
~
Total debt to income
ratio does not exceed
43%
~
If loan conforms to
guidelines set forth by
Fannie & Freddie (aka
Conventional,) FHA, VA,
USDA Loan is
automatically a QM Until
2021.
Ability to Repay: 5 Years 117
Higher PRICED
Mortgage Loans
HPMLs
Loans formerly known as
Subprime
Non-Traditional = Any loan
that’s not a 30 year fixed
rate mortgage
Non-prime
Non-QM
A loan is an HPML When:
Annual Percentage Rate (APR)
is:
1.5 or more points higher on a
fixed rate mortgage OR
2.5 or more points on a non-
conforming loan OR
3.5 or more points higher for a
subordinate lien
When compared with the
Average Prime Offering Rate
(APOR)
Ability to Repay: 7 Years
High COST
Mortgages
~
H.O.E.P.A.
Home Owner Equity
Protection Act
Originally for second
mortgages, also known as Home
Equity Lines of Credit. These
are VERY EXPENSIVE mortgages,
with higher costs due to a
higher risk.
~
Annual Percentage Rate (APR)
exceeds Average Prime Offering
Rate (APOR) by more than:
~
6.5% for first lien mortgages
OR
8.5% for first lien mortgages
under $50,000.
OR
8.5% for junior or subordinate
liens.
~
Borrower must attend a
counseling class
QMs
with
Rebuttal
Presumption
118. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
General QMs
Safe Harbor
Regular periodic payments
that are substantially equal
~
Loan term does not exceed
30 years
~
Total points and fees do not
exceed 3% for loans over
$100,000
adjusted each year for inflation
~
Ability to Repay:
Consider and verify
~
APR is 1.5 or less points
on a fixed rate mortgage
when compared with the
Average Prime Offering
Rate (APOR)
Ability to Repay: 5 Years
118
Higher PRICED
Mortgage Loans
HPMLs
Loans formerly known as
Subprime
Non-Traditional
Non-prime
Non-QM
A loan is an HPML When:
Annual Percentage Rate (APR)
is:
1.5 or more points higher on a
fixed rate mortgage
When compared with the
Average Prime Offering Rate
(APOR)
Ability to Repay: 7 Years
General QMs
Rebuttal
Presumption
true unless proven otherwise
Regular periodic payments
that are substantially equal
~
Loan term does not exceed
30 years
~
Total points and fees do not
exceed 3% for loans over
$100,000
adjusted each year for inflation
~
Ability to Repay:
Consider and verify
~
APR is 2.25 or less points
on a fixed rate mortgage
when compared with the
Average Prime Offering
Rate (APOR)
Ability to Repay: 5 Years
119. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
The New QM Rule is Good News
43% DTI factor goes away.
We can make fixed rate loans with an APR of
2.25 or or less points on a fixed rate mortgage,
when compared with the Average Prime Offering
Rate (APOR)
APOR----------------2.25
my APR
119
120. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 10
The Secondary Market: Conventional Loans
Fannie Mae and Freddie Mac purchase mortgages
from banks and lenders.
F and F turn a bundle of mortgages into
“mortgage-backed securities”
F and F guarantee principal and interest to the investor,
if the borrower does not make their payment
120
121. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
The Secondary Market: Gov Loans
Banks and lenders bundle government loans into a
pool of mortgage backed securities, called Ginnie
Mae Bonds.
GNMA = Government National Mortgage Association,
nicknamed Ginnie Mae
Ginnie Mae guarantees principal and interest to
the investor, if the borrower does not make their
payment
121
122. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 10 The Secondary Market
The secondary market consists of different entities that
purchase residential mortgage loans from banks and non-
bank lenders. Once the loan is purchased, the money
returns to the banks and non-bank lenders so they may
re-lend the money over and over again. This helps
guarantee an ongoing flow of mortgage money available
to banks and non-bank lenders and ultimately consumers.
Not all banks and non-bank lenders sell their loans on the
secondary market. Some companies hold the loans in
their own portfolio. However, the majority of loans you
will be originating will be sold on the secondary market.
122
123. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Your mortgage company’s product “overlays”
Example: Credit score can be no lower than 620
Conventional Loan Products | Government Loan Products
Example: 30 year fixed rate loan
Conventional Loan Programs | Government Loan Programs
Mortgage-backed securities GNMA (Ginnie Mae Bonds)
Example: Owner Occupied Single Family Purchase or Refi
Fannie Mae and Freddie Mac | FHA/VA/USDA
The Secondary Market provides guidelines
on loans eligible for purchase
State Law
Federal Law
123
124. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 10 Fannie Mae and Freddie Mac
Responsibilities
Conventional loan programs
Limits on closing cost concessions
Loan Level Pricing Adjustments
AUS
N.O.O. rental 20%
Acceptable down payment amounts
Hazard/fire insurance requirements
Pre-payment requirements
124
125. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 11 Government Loan Programs
Types of government guarantors
FHA
FHA Loan Limits
FHA Eligible Property
FHA’s required Mortgage Insurance Premium (MIP)
FHA monthly MIP scenarios
Practice: Calculate the Monthly MIP
Required Documentation
125
126. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 11, Module 11.7
Calculate MIP
Calculate the MONTHLY Mortgage Insurance
Premium for the following loan:
Loan Amount 450,000
30 year fixed
Loan to Value is greater than 95%
450,000. x .55 = $2,475.00 annually. Divided by 12
= $206.25 per month
126
127. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 11 Mod 11.9 VA Loans
VA loan facts
VA loan limits
VA funding fee
Eligible property for a VA loan
Certificate of Eligibility (COE)
Entitlement
Acceptable funds for down payment and closing costs
Residual income
127
128. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 11 Mod 11.18 USDA loans
What is a USDA loan?
Minimum down payment
128
129. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 12 Most Common, Conforming
Loan PRODUCTS
Fixed Rate Mortgages (FRM)
Characteristics of a FRM
Situations that effect a FRM payment
Comparison of types of loan scenarios
Percentage of down payment to lessen
monthly payment
FRM’s with escrow
129
130. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 12 Most Common, Conforming
Loan PRODUCTS
Adjustable Rate Mortgages (ARMs)
Facts on ARM loans
Examples of ARM loans
Hybrid ARMs
Timeline for notifying customer of rate change
130
131. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 13 Non Traditional Mortgage Loans
Definition:
According to the SAFE Mortgage Licensing Act of
2008, the term “nontraditional mortgage product”
means any mortgage product other than a 30-year
fixed rate loan.
131
132. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Sec 13 Mod 13.2: Statement on Subprime
Generally subprime borrowers will display a range of credit
risk characteristics that may include one or more of the
following:
1. Two or more 30-day delinquencies in the last 12 months,
or one or more 60-day delinquencies in the last 24 months
2. Judgment, foreclosure, repossession, or charge-off in the
prior 24 months
3. Bankruptcy in the last 5 years
4. Relatively high default probability as evidenced by, for
example, a credit bureau risk score (FICO) of 660 or below
5. Debt service-to-income ratio of 50% or greater
132
133. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 13 Mod 13.3
CSBS/AARMR Guidance on Non-Traditional
Lending
CSBS = Conference of State Bank Supervisors
AARMR = American Association of Residential Mortgage
Regulators
Oct 2006 those^ banking regulators published guidelines
on non-traditional lending.
133
134. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 13 CSBS/AARMR Guidance
Ability to repay
Watch for payment shock
Assure borrower understands the loan terms
Avoid misleading claims…payment, rates, refi-out
Risk management strategies
134
135. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 14 DFA: HPMLs
The Dodd Frank Act (full name: Dodd Frank Wall Street
Reform Act) was passed in 2010 and brought the
guidelines we just reviewed, into federal law.
Instead of subprime loans, we use new language to
describe subprime without saying that word:
Non-prime, Non-traditional, non-conforming, and now:
Higher Priced Mortgage Loans (HPMLs)
135
136. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
136
Higher Priced Mortgage
Loans (HPMLs)
Loans formerly known as Subprime
Non-Traditional = Any loan that’s not
a 30 year fixed rate mortgage
Non-prime
Non-QM
A loan is an HPML When:
Annual Percentage Rate (APR) is:
1.5 or more points higher on a fixed
rate mortgage
OR
2.5 or more points higher on a non-
conforming mortgage (jumbo)
OR
3.5 or more points higher for a
subordinate lien
When compared with the Average
Prime Offering Rate (APOR)
Ability to Repay: 7 years
137. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Average Prime Offering Rate (APOR)
sample test question
What are the trigger thresholds under the Dodd Frank
Act for Higher Priced Mortgage Loans?
1) The law superseded by the new subprime loans
is a ridiculous law with a funny name
2) 1.5 percentage points above the average
prime offering rate (APOR)
3) 2.5 percentage points above the average prime
offering rate (APOR)
4) There are no trigger thresholds.
137
138. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
138
Section 15
Higher Priced Mortgage Loan Products
Conforming Jumbo Loans
Non-conforming Jumbo Loans
Interest-only Mortgages
Balloon Payment Mortgages
Construction Loans
Hard Money
Private Money
Option ARMs
Reverse Mortgages (HECM)
Suitability
139. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 15
Module 15.9
Suitability
Break into small groups and come up with at least 2
loan program suggestions for the borrower scenarios in
the course book.
139
140. 20 Hour SAFE Comprehensive
Pre-Licensing and Exam Prep
Jillayne Schlicke
DAY 2
141. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Agenda
Washington State Law (morning session)
Uniform State Law
SAFE Act Quiz
Case Study
Ethics
Consumer Protection
Fair Housing
Fraud
Anti-Money Laundering and Suspicious Activity Reports (SARS)
141
142. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
142
People on the left side
of the bell curve will
never understand
anything we give
them. They don’t
know how to balance
their checkbook.
Simple interest?
Compound Interest?
Everything we do is
WAY over their head.
People on the right
side of the bell curve
know more than we
know about the
mortgage machine,
rates, fees, your
compensation, when
is the right time to
buy or sell, etc.
Laws and rules are written for people
whose understanding of mortgage lending
is in the MIDDLE of the bell curve.
Once you are licensed, you will know MORE
than the average random person in the
middle of the bell curve.
We are not allowed to use our advanced
knowledge of the mortgage machine to
de-fraud people
143. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
143
Rate Points Consumer’s
Situation
Consumer Might
Decide to:
What This Means to
the Consumer
7.50% 1.0%
Lender
Credit
Consumer does not want
to pay a lot of cash up
front and can afford a
slightly higher monthly
payment.
Pay a slightly higher
payment each month. Pay
a higher interest rate over
the life of the loan and not
have to come up with any
money up front to cover
closing costs.
Consumer chooses a
higher rate of 7.5%, in
exchange for $2,000. To
cover closing costs.
Today: Consumer receives
$2,000.
Over the life of the loan:
Consumer pays slightly
more each month.
7.0% 0 Par Consumer is satisfied with
the rate and chooses not
to pay discount points to
buy a lower rate OR
choose a higher rate to
cover closing costs with a
lender credit.
Pay zero points The par rate does not
require consumer to pay
points.
The par rate does not
provide a lender credit.
6.50% 1.0%
Discount
Points
Consumer plans to keep
the mortgage for a long
time. Consumer can
afford to pay more cash
at closing.
Consumer wants a slightly
lower payment
Pay discount points and
select a lower rate. This
will save the consumer
money over the life of the
loan.
Consumer might agree to
pay $2,000. more in
closing costs in exchange
for a lower rate of 6.5%.
Now: Pay $2,000.
Over the life of the loan:
Pay slightly less each
month
144. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
144
Section 16
SAFE Mortgage Licensing Act
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%20
Document%20Library/SAFE-Act.pdf
145. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 16 SAFE ACT
1. Provides uniform license applications and reporting requirements for
State-licensed loan originators.
2. Provides a comprehensive licensing and supervisory database.
3. Aggregates and improves the flow of information to and between
regulators.
4. Provides increased accountability and tracking of loan originators.
5. Streamlines the licensing process and reduces the regulatory burden.
6. Enhances consumer protections and supports anti-fraud measures.
7. Provides consumers with easily accessible information, offered at no
charge, utilizing electronic media, including the Internet, regarding
the employment history of, and publicly adjudicated disciplinary and
enforcement actions against, loan originators.
8. Establishes a means by which residential mortgage loan originators
would, to the greatest extent possible, be required to act in the
best interests of the consumer.
145
146. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 16 SAFE ACT
State Examination Authority. The State may:
1. Review, investigate and examine any loan
originator, as often as necessary
2. Examine books and records
3. Retain authority
4. No person may destroy records
The State has broad enforcement authority
146
147. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 16 SAFE Act
State Exam Authority
Definitions
Licensing or registration
Supervised processors and underwriters
Independent contractors
147
148. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
148
Section 16 SAFE Act
“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%20
Document%20Library/SAFE-Act.pdf
149. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
149
Section 16 SAFE Act
State or Federally Chartered Depository
Banks:
Bank LOs are exempt from testing and education.
Bank LOs are NOT exempt from “registering.”
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%20
Document%20Library/SAFE-Act.pdf
150. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
150
Section 16 SAFE Act
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 or surety bond
Title V SAFE Mortgage Licensing Act of 2008
http://mortgage.nationwidelicensingsystem.org/SAFE/NMLS%20
Document%20Library/SAFE-Act.pdf
151. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
151
Section 16 SAFE Act
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%20
Document%20Library/SAFE-Act.pdf
152. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
152
Section 16 SAFE Act
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%20
Document%20Library/SAFE-Act.pdf
153. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
153
Section 16 Model State Law
Module 16.1 Purpose, 16.2 Enforcement
Module 16.6 Definitions
Module 16.7 Exemptions
Module 16.8 Issuance of License
Module 16.9 Pre-Licensing of LOs
Module 16.10 Licensing Renewals
Module 16.11 Enforcement Authority
Module 16.12 Investigations & Exam
Module 16.13 Prohibited Practices
Module 16.14 Unique Identifier
Module 16.15 Initial Registration
Module 16.16 Records Retention
Module 16.17 Temporary Authority
154. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 16 SAFE Act/Uniform State
Content
Take the SAFE Act/Model State Law Quiz
154
155. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 17 Ethics
1) What is ethics?
2) Who do you admire, living or dead? Why do you
admire that person?
3) Have you ever faced an ethical dilemma in
business? How did you solve it?
155
157. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
157
Aristotle Kant J.S. Mill
Respect
honesty
(promotes
autonomy)
Loyalty
Responsibility
Integrity
Beneficence
Non-maleficence
Com passion
Justice
384 BC-322 BC
Duty-based
ethics
If we have a
duty to do
something,
we ought do
it.
What I want for
myself, I must
also want for
the other.
1724-1804
Utilitarianism
Maximize good
consequences for
the most number
of people and also
minimize bad
consequences
for the most
number of people
1806-1873
158. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 17 Ethics
Ethics
When there’s no clear statement in the law telling
us what to do.
“Ought, should.”
Law
Minimum moral standard
“Have to”
158
159. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 17 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 use?
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 159
160. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
160
Section 17 Ethics
Moral Development
The intrinsic worth, value and dignity
of all human persons.
Some laws might not be moral
Law , society’s rules
The good, norms, roles, shared values
Practical agreements
Morality comes from external sources
22+
16 to 22
12 to 16
6 to 12
3 to 5
0 to 2
161. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
What is ethics? Who do you admire?
Compassion
Empathy
Beneficence
To to good
Non-maleficence
to avoid harm
161
Honesty
Respect for persons
Integrity
consistent commitment
to a set of values
Trust…loyalty
Responsibility
Responsive to a set of job
duties
162. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 17 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.
162
163. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
163
Aristotle Kant J.S. Mill
Respect
honesty
(promotes
autonomy)
Loyalty
Responsibility
Integrity
Beneficence
Non-maleficence
Compassion
Justice
384 BC-322 BC
Duty-based
ethics
If we have a
duty to do
something,
we ought do
it.
What I want for
myself, I must
also want for
the other.
1724-1804
Utilitarianism
Maximize good
consequences for
the most number
of people and also
minimize bad
consequences
for the most
number of people
1806-1873
164. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
164
Are Loan Originators “Professionals?”
Specialized knowledge
Formal, pre-licensing education
Mandatory continuing education
Test
Licensing
Fiduciary Duties (Reminder: The SAFE Act contains a requirement
to act in the best interests of the consumer.)
Code of ethics with sanctions for violations
^This is not yet in place, so LOs are classified as “an emerging
profession.”
165. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
165
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”
Section 17 Ethics
166. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
166
Duty of Loyalty
Duty of Care
What Fiduciary does will,
in good faith, advance the
interests of the client and
not the Fiduciary’s
personal interests
Act in good faith
Reasonable person test
Informed
Section 17 Ethics
167. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
167
Manipulation
Coercion
Completely
Controlled
Influences
Completely
Non-Controlled
Influences
Persuasion
Substantially
Not Controlling
Substantially
Controlling
Section 17 Ethics
168. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
168
Section 17 Ethics
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
169. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
169
Fiduciary Duties are Higher When…
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
Section 17 Ethics
170. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 17 Ethics: A Methodology
1. Define the problem
2. Collect facts
3. Reframe
4. Is this a legal issue?
5. Are you a manager?
6. Are you a partner?
7. Formal policies at
your company?
170
8. Professional Code of
Ethics?
9. Identify values
10. Consider all choices
11. Good reasons for and
against each choice
12. Decide
13. Act
14. Reflect
171. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
171
Are Loan Originators “Professionals?”
Specialized knowledge
Formal, pre-licensing education
Mandatory continuing education
Test
Licensing
Fiduciary Duties (Reminder: The SAFE Act contains a requirement
to act in the best interests of the consumer.)
Code of ethics with sanctions for violations
^This is not yet in place, so LOs are classified as “an emerging
profession.”
172. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Strategy for any question on the test
containing the word, “ETHICS”
Regulators do not regulate ethics, they regulate law.
It is the job of an industry to self-regulate the
ethical conduct of its members.
Our regulators see “ethics” through a legal lens:
consumer protection, fraud, fair housing
Ask yourself: What is in the best interest of my
client?
172
173. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Sample Ethics Question
Q: An appraiser approaches you with a deal to give
you the values you need in exchange for referrals of
your next 10 appraisals.
a. This is unethical
b. This is allowed under certain circumstances
c. This is only allowed with a special agreement fee
worksheet approved by DFI
d. This conduct could be allowed but only if the
appraisal company was owned by the mortgage
company
173
174. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Sample Ethics Question
A LO discovers that his/her co-worker is signing
client documents for the client. The LO asks
his/her co-worker about this practice, and the co-
worker answers, “my customer gave me permission
to sign her name on her behalf.”
a. This is unethical
b. It’s possible that this could be allowed
c. Federal law “signatures are cool” allows this
d. This practice is normal
174
175. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 18
Consumer Protection Case Study
Carnell v. KMC Funding
Read the case. Break into small groups and discuss the
case with members of your small group.
Elect a group leader and share your answers with the
rest of the class.
175
176. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
176
1968 Civil Rights Act
1968 Fair Housing Act
Protected Classes:
Race
Color
Religion (Creed)
National Origin
Sex
Sexual Orientation
Gender Identity
Familial Status
Disability
Section 19
Fair Housing
Intent v. Effect
Realtors and lenders
have great power to
affect neighborhoods
Fair Housing/Fair Lending
http://www.hud.gov/offices/fheo/lending/index.cfm
177. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Intent v. Effect
It doesn’t matter what our good intentions are.
The only thing that matters is the effect, or the result
of our actions.
If we treat people differently based on nothing but
their protected class, we have violated Fair Housing.
Disparate Impact
177
178. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Additional protected classes in WA State
Sexual orientation
Gender identity
Honorably discharged military Veteran
The use of a service animal
Retaliation against a whistleblower
178
179. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 19
Redlining
Denying or
increasing the
cost of
services to
residents of a
racially
specific
geographical
area
Steering
Guiding
prospective
homebuyers to
or away from a
specific
neighborhood
based on his/her
race
179
Blockbusting
Encouraging
white property
owners to sell
their homes at a
loss by
fraudulently
implying that
racial or
religious
minorities were
moving into their
neighborhood
Fair Housing/Fair Lending
http://www.hud.gov/offices/fheo/lending/index.cfm
180. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 19 Module 19.4 Fair Lending
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
180
181. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 19 Module 19.7
Fair Housing Thought Questions
Should we make long term disabled applicants
provide additional documentation proving that they
will stay disabled?
181
Fair Housing/Fair Lending http://www.hud.gov/offices/fheo/lending/index.cfm
182. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Sample Test Question:
Verification of Employment confirms employment of your
applicant and probability of employment is “excellent.”
In the comments box: “on maternity leave.”
1. Lender should close the loan.
2. Lender should not originate loans to new parents.
3. Lender should originate the loan only after asking
female applicant to provide additional
documentation and detailed motivational letter
regarding her intent to return to work.
4. Lender should follow some law you’ve never heard
of.
182
183. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 19 Module 19.7
Fair Housing Thought Questions
A mortgage company creates a policy that they
will not lend money on manufactured housing.
Could this create a Fair Housing violation?
183
Fair Housing/Fair Lending http://www.hud.gov/offices/fheo/lending/index.cfm
184. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 19 Module 19.8
Disparate Impact: Intent v. effect
Under Fair Housing, the lender’s good intentions
of lending on good quality collateral or our
intent to make sure that people have the ability
to repay do not matter. Instead, the effect of
our lending decisions is what matters.
If the effect of our lending decisions treats
people differently like higher rates, fees, more
documentation, or creates more segregated
neighborhoods, we have violated Fair Housing.
184
Fair Housing/Fair Lending http://www.hud.gov/offices/fheo/lending/index.cfm
185. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 19 Module 19.5: Redlining
Fair Lending Case Study:
U.S. and CFPB
v.
Bancorp South
185
188. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 20 Mortgage Fraud
Fraud for Housing, or fraud for profit, 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.
188
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
189. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 20 Mortgage Fraud
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
189
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
190. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 20 Module 20.2
General Red Flags of Mortgage Fraud
Red flags are inconsistencies in the information
presented in an application or a loan file that would
cause someone to take a second look or be
suspicious. Red flags are potential indicators that
should be explored; but they do not necessarily
mean that fraud occurred.
Lenders can help protect themselves if they can
identify red flags and learn to sense when something
“isn’t quite right.”
190
191. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 20 Module 20.3
Loan Application Red Flags
Occupancy
Borrower and co-borrower scenarios
Employment and income fraud
Information supplied by borrowers
Undisclosed income
Assets, bank activity, deposits
Liabilities
Credit
Down payment fraud: gifts, silent second
191
192. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 20 Mortgage Fraud
Appraisal Fraud
Fraud at settlement/escrow
Cyber crime
Red flags on the purchase and sales agreement
Change of info from the initial loan app
192
193. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 20 Mortgage Fraud
Module 20.10
Requirement to Report Mortgage Fraud
All employees who work for a depository bank,
non-bank lender, or mortgage broker are
required to promptly report possible mortgage
fraud to their supervisor.
193
194. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 20 Mortgage Fraud
Module 20.10
Mortgage Fraud is investigated by the Federal
Bureau of Investigation and is punishable by up
to 30 years in federal prison or $1,000,000 fine,
or both. It is illegal for a person to make any
false statement regarding income, assets, debt,
or matters of identification, or to willfully
overvalue any land or property, in a loan and
credit application for the purpose of influencing
in any way the action of a financial institution.
194
195. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 21
Bank Secrecy Act of 1970 Nixon
U.S. Patriot Act of 2001 W.
SARS: Suspicious Activity Reports
AML: Anti Money Laundering
195
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
196. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 22 Practice Quiz
Take the practice quiz:
Ethics, Consumer Protection, Fraud, Fair Housing,
SARS/AML
196
197. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 22
Reflect on everything learned today and yesterday.
…any final questions?
Preview of tomorrow.
197
198. 20 Hour SAFE Comprehensive
Pre-Licensing and Exam Prep
Jillayne Schlicke
DAY 3
199. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
CFPB =
Consumer Financial Protection Bureau
All federal laws governing mortgage lending
are now regulated by the CFPB with one
exception:
Fair Housing stays with HUD
Each state also regulates it’s own state laws
governing mortgage lending. State laws can
be tougher than federal law.
199
200. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 23 CFPB Core Functions
Rooting out unfair, deceptive, or abusive acts or
practices by writing rules, supervising
companies, and enforcing the law
Enforcing laws that outlaw discrimination in
consumer finance
Taking consumer complaints
Enhancing financial education
Researching the consumer experience of using
financial products
Monitoring financial markets for new risks to
consumers
200
201. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 23 CFPB Consumer Complaints
1. Complaint submitted
2. Review and route
3. Company responds
4. Complaint published
5. Consumer review
Consumer complaint database:
https://data.consumerfinance.gov/dataset/Consumer-
Complaints/s6ew-h6mp
201
202. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 23 HUD
Programs offered by HUD
Community Planning and Development
Federal Housing Administration (FHA)
Public and Indian Housing
Fair Housing
Policy Development
Government National Mortgage Association (Ginnie Mae)
Office of Housing Counseling
Lead Hazard Control and Healthy Homes
202
203. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 23 HUD
HUD oversees the following entities:
Banks, Lenders, Mortgage Brokers
Real Estate Brokers
Appraisers
Housing Counselors
Housing Inspectors
Landlords
Non-Profits
HUD Grant Recipients
203
204. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
The Main Fed Law Acronyms
TILA
Truth in Lending Act
MDIA
Mortgage Disclosure Improvement Act
RESPA
Real Estate Settlement
And Procedures Act
TRID
TILA/RESPA Integrated Disclosure
ECOA
Equal Credit Opportunity Act
SAFE
Secure and Fair Enforcement Act 204
205. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Patterns
What was going on in the late 1960s and 1970s in the
United States?
The Economy?
The American Family?
If you understand WHY a law was passed, you will be
able to isolate and rule out the two, dead-wrong
answers. Two answers will remain. One will be a little
bit better than the other.
205
206. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Federal
Laws
The laws shown in
blue were passed
during the late
1960s/early 1970s and
notice that we are
currently living
through another wave
of consumer
protection laws
directed at the
mortgage lending
industry.
Truth in Lending Act
2009 Changes to TILA = MDIA
2011 FRB Rule on LO Comp
R.E. Settlement and Proc. Act
2010 Dodd Frank Act
2015 TRID
Equal Credit Opportunity Act
Fair Credit Reporting Act
Fair Housing
Other Fed Laws
2008 SAFE Act
2010 Dodd Frank Act
2015 TILA/RESPA Integrated Discl.
206
207. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
207
To promote informed use of credit.
Requires disclosure of Annual Percentage Rate (APR)
Gives consumers the right to cancel some transactions
(owner occupied refi)
Imposes cost limits on home equity loans
Regulates variable rate loans
CHARM Booklet required on ARM loans
continued
Section 24 Module 24.2 TILA Core Concepts
Truth in Lending Act
http://www.fdic.gov/regulations/laws/rules/6500-200.html
208. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
208
Delineates and prohibits unfair and deceptive mortgage
lending practices
At the beginning of the transaction:
Consumers receive disclosures 3 days from date on
the loan application.
At the end of the transaction:
Consumers receive their final disclosures 3 days prior
to consummation (signing.)
Section 24 Module 24.2 TILA Core Concepts
continued
Truth in Lending Act
http://www.fdic.gov/regulations/laws/rules/6500-200.html
209. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 24 Module 24.3 TILA
Loans Covered by TILA and Regulation Z
1. Purpose of credit is for personal, family, or
household use, and;
2. Credit is extended to a consumer, and;
3. Credit is extended by a creditor (a lender,) and;
4. Credit or loan is secured by real property
(dwelling.)
209
210. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 24 Module 24.3 Definitions
Business Day
Business day means a day on which the creditor's
offices are open to the public for carrying on
substantially all of its business functions.
Generally, all calendar days except Sundays and the
legal public holidays specified in 5 U.S.C. 6103(a),
such as New Year's Day, the Birthday of Martin
Luther King, Jr., Washington's Birthday, Memorial
Day, Independence Day, Labor Day, Columbus Day,
Veterans Day, Thanksgiving Day, and Christmas
210
211. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
TILA requires us to quote APR when
quoting a note rate
A. Actually available terms
B. Clear and conspicuous standard
C. Finance charge advertising rules
D. Additional disclosures required
E. Catalog, multi-page, electronic ads
F. Disclosures
G. TV and radio ads
H. Taxes and insurance
I. Prohibited practices
211
212. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
212
Annual Percentage Rate/APR
The cost of the loan expressed in the form of a rate
that has been annualized over one year.
APR was designed as a shopping tool for consumers.
The APR calculation contains the following:
Loan amount, closing costs, note rate, loan term.
APR is always quoted when we quote a note rate.
We are allowed to use a sample APR for
advertising.
Tolerances
Section 24 Truth in Lending Act
Truth in Lending Act
http://www.fdic.gov/regulations/laws/rules/6500-200.html
213. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
213
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 = Fixed Rate Mortgage
Truth in Lending Act
http://www.fdic.gov/regulations/laws/rules/6500-200.html
214. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Common consumer question:
What finance charges (also called settlement costs
or closing 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.
214
Section 24 Truth in Lending Act
A closer look at APR (Annual Percentage Rate)
Truth in Lending Act
http://www.fdic.gov/regulations/laws/rules/6500-200.html
215. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Included
Prepaid interest
Mortgage insurance premiums
Wire transfer fees
Recording fees
Loan origination fee
Underwriting fee, processing
fee, admin
Mortgage broker fee
Escrow fee (also called settlement or
closing)
Borrower paid discount points
Flood Ins. premiums
Pest inspection (VA only when prop is
located in mod to high probability of area of
pest infestation and lender is paying for it.
215
Hazard Insurance
(IF obtained from a
neutral company)
Seller paid discount
points
Document prep fee
Title insurance
Notary fee
Appraisal
Credit report
Impounds for taxes & ins
Flood Hazard Check
Excluded
http://www.fdic.gov/regulations/laws/rules/6500-200.html
216. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 24 Module 24.3 Definitions
Finance Charge
The finance charge is a measure of the cost of
consumer credit represented in dollars and cents.
Along with APR disclosures, the disclosure of the
finance charge is central to the uniform credit cost
disclosure envisioned by the TILA.
The finance charge does not include any charge of a
type payable in a comparable cash transaction.
216
217. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
217
Section 24 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
These are costs
that benefit the
lender or costs
that the lender
requires in order
to obtain a loan.
Costs excluded
These are costs
that are paid to
and benefit third
parties other than
the lender.
Truth in Lending Act
http://www.fdic.gov/regulations/laws/rules/6500-200.html
218. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Sample APR question
If seller contributes 1% to buy down the interest rate
and the buyer also contributes 1% to buy down the
interest rate, what is included in the APR calculation?
A. buyer’s 1%
B. seller’s 1%
C. neither
D. both the buyer and seller’s 1% for a total of 2%
discount points included in the APR Calc.
218
219. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Sample APR question:
What items are included when we calculating APR?
a) loan amount, closing costs
b) term, note rate, loan amount, appraisal
c) Prepaids, term, note rate, loan amount
d) term, note rate, loan amount
219
220. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Sample APR Question:
What is the APR for the following loan?
Closing costs: $2,000
Loan term: 360 months
Note rate: 5.0%
Loan amount: $200,000
a) 5.0
b) 4.9
c) 5.08
d) 6.98
220
221. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 24 MDIA
Consumer fees
Re-disclosure
Timing
Seven business day waiting period
Waiver of waiting period
Consumer notice
Imposition of fees
Interactions with appraisers
221
222. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Federal
Laws
The laws shown in
blue were passed
during the late
1960s/early 1970s and
notice that we are
currently living
through another wave
of consumer
protection laws
directed at the
mortgage lending
industry.
Truth in Lending Act
2009 Changes to TILA = MDIA
2011 FRB Rule on LO Comp
R.E. Settlement and Proc. Act
2010 Dodd Frank Act
2015 TRID
Equal Credit Opportunity Act
Fair Credit Reporting Act
Fair Housing
Other Fed Laws
2008 SAFE Act
2010 Dodd Frank Act
2015 TILA/RESPA Integrated Discl.
222
223. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Sample MDIA Question:
is this ad deceptive?
Call us! Acme Mortgage for your 30 year loan!
1.50%
1.95% APR
a) Yes
b) No
c) This is a violation of the TILA/MDIA advertising
rules requiring loan terms be clear and
conspicuous.
d) It may or may not be deceptive depending on
the day of the week that ends in the word “day”
223
224. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
224
On an owner occupied refinance, the borrower
has 3 days after signing the final loan
documents to cancel and receive a full refund
from the lender. Lenders must refund any
money collected for third party services, even
if spent.
For TILA RESCISSION purposes, business days
include Saturday (full 24 hours.)
Can the 3 day right of rescission ever be
waived?
Section 24 Module 24.8 Truth in Lending Act
Rescission
Truth in Lending Act
http://www.fdic.gov/regulations/laws/rules/6500-200.html
225. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
Section 24 TILA Module 24.8
Case Study: What is the first business day on
which funds may be disbursed if:
Signing 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
225
Truth in Lending Act
http://www.fdic.gov/regulations/laws/rules/6500-200.html
226. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
How many copies of the rescission notice are printed?
3
1---stays in the escrow closer’s file
2 are provided (not mailed) to the borrower
If the borrower rescinds, one is signed and mailed to
escrow, and the other the borrower keeps
226
Section 24 TILA Module 24.8
227. Jillayne Schlicke
CE Forward, Inc. DBA NAMF
HOEPA
High Cost Mortgage Loans
H.O.E.P.A. =
Home Ownership and Equity Protection Act
Revised HOEPA Coverage Tests:
APR exceeds APOR by more than 6.5% for first lien
mortgages, or;
APR exceeds APOR by 8.5% for first lien mortgages
under $50,000. or;
APR exceeds APOR by more than 8.5% for junior or
subordinate liens.
227