20 Hour SAFE Loan Originator Pre-licensing Slides 2017-2018

20 Hour SAFE Comprehensive
Pre-Licensing and Exam Prep
C-1167
WA State Pre-Licensing
C-3430
Jillayne Schlicke

Jillayne Schlicke
National Association of Mortgage Fiduciaries
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.
Photo ID required. Any of these are fine:
Driver’s license, passport, state ID card,
military ID
2

Jillayne Schlicke
Section 1 Introduction
 Introduction of trainer
 Introduction of students
 Who are you
 Where do you work
 What do you do?
 Exam anxieties
3

Jillayne Schlicke
4
Section 1 Module 1.1
UST Uniform State Test $110
3 hrs, 10 min
115 questions plus 10 sample questions
75% to pass
If you pass you will know your score.
If you fail, they will give you a printout showing your
strong and weak areas.
Prometric.com

Jillayne Schlicke
5
Exam Components
23% Federal Law
23% General Mortgage Knowledge
programs, products, terms
25% Loan Origination Activities
application, qualifying, title, escrow, math
16% Ethics
consumer protection, fraud, fair housing
13% Uniform State Content
licensing law, prohibited practices

Jillayne Schlicke
6
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.

Jillayne Schlicke
7
There are many different learning styles. I will try to
touch all of these throughout the next three days.
~
Auditory-learns by listening
Visual-learns by processing images
Tactile-learns best when writing
Whole Body-learns best when entire body is engaged
Emotional-learns best when complex info can be tied to
an emotion
The Talker- OMG
~
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.

Jillayne Schlicke
Depository Bank
Checking,
savings
CAN fund its
own loans
LOs are
“registered”
8
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

Jillayne Schlicke
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….
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Jillayne Schlicke
The Mortgage Machine
 Realtors
 Customers/Clients/Consumers
 credit
 Loan originators
 Processing, underwriting
 Escrow closers, title insurance
 Funder….quality control….auditor
 Investors…..secondary market
 Appraisers
 Regulators….government
 Insurance….fire/hazard…mortgage insurance…flood
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Jillayne Schlicke
There are many
moving parts in
the Mortgage
Machine. The
function of loan
origination is just
one piece.
11
Title Insurance, Escrow
Secondary market
Underwriting
Appraiser
Home inspector
Loan originator
LO Assistants
Loan processors
Realtors/ Real estate
brokers
Mortgage insurance
Hazard insurance
Flood insurance
State/Fed regulators

Jillayne Schlicke
12
Break into small groups and talk about
sections of the loan app:
 What sections might the customers ask you
about?
 What sections might the customer consider
lying?
 What sections might the customer refuse
to provide information?
 Page 12: Describe other income

Jillayne Schlicke
13
Large group discussion:
Occupancy
Assets
HMDA
Education
DOB
Former employer
Ways of holding title
Acknowledgement, signature
Other Real Estate Owned

Jillayne Schlicke
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.
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Jillayne Schlicke
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-T
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Jillayne Schlicke
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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
= %

Jillayne Schlicke
 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.
17

Jillayne Schlicke
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
18

Jillayne Schlicke
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?
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Jillayne Schlicke
Assets
Acceptable assets for down payment
Assets for reserves
Ineligible assets
Verification of Deposit (VOD)
Gift Letters
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Jillayne Schlicke
 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
21

Jillayne Schlicke
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
22

Jillayne Schlicke
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
23

Jillayne Schlicke
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?
24

Jillayne Schlicke
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
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Jillayne Schlicke
26
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?

Jillayne Schlicke
27
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.

Jillayne Schlicke
28
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.

Jillayne Schlicke
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
29

Jillayne Schlicke
30
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.
10 documents
10 questions…

Jillayne Schlicke
31
Legal rights and responsibilities of a title
company.
A title company has two duties:
Duty of defense
Duty of indemnification

Jillayne Schlicke
32
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

Jillayne Schlicke
33
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

Jillayne Schlicke
34
Section 7 Insurance Module 7.1-7.4
General fire/hazard property insurance
coverage
Flood insurance
Private Mortgage Insurance
Private Mortgage Insurance Act of 1998

Jillayne Schlicke
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%
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Jillayne Schlicke
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%
b. 41.09%
36

Jillayne Schlicke
Deb-to-income ratios
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 83333.33 = 24%
2000 + 649 = 2649
2649 divided by 8333.33 = 32%
37

Jillayne Schlicke
Debt-to-income ratios
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 18750 = 23%
4295 + 3937 = 8,232
8232 divided by 18,750 = 44%
38

Jillayne Schlicke
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
39

Jillayne Schlicke
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)
40

Jillayne Schlicke
Calculating Loan To Value
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
41

Jillayne Schlicke
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
42

Jillayne Schlicke
Escrow 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
43

Jillayne Schlicke
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.
44

Jillayne Schlicke
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
45

Jillayne Schlicke
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
46

Jillayne Schlicke
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.
47

Jillayne Schlicke
Loan to value ratios
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%
48

Jillayne Schlicke
LTV
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 multiplied by 80% = 292,000.
49

Jillayne Schlicke
Discount Points
Note Rate: 5.0% = 1% Lender Credit. This can be used
to pay costs on a refi or purchase
Note Rate: 4.5% = Par
Note Rate: 4.25% = 1% Discount points paid by
borrower
_______________________________________________
100,000 loan amount
Note Rate: 5.0% = 1% Lender Credit of $1,000
Note Rate: 4.5% = 0 No cost to the borrower and no
credit given to the borrower
Note Rate: 4.25% = 1% Discount Points will cost the
borrower $1,000
50

Jillayne Schlicke
Discount points. Test your knowledge:
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.
51

Jillayne Schlicke
Prepaids
Calculate the following pre-paid items to be collected
from the borrower at closing:
Ø Homeowner’s insurance premium: $125/month for 6
months
125 x 6 = $750.
Ø Mortgage insurance premium: $48/month for 3
months
48 x 3 = $144
Ø Prepaid, daily interest $20.38/day for 15 days
20.38 x 15 = $305.70
Ø Real estate taxes $145.33 per month for 4 months
145.33 x 4 = $581.32
52

Jillayne Schlicke
Closing Costs
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 3%
Loan Amount 104,500 divided by .95 =
The sales price: 110,000
Seller contribution: 110 x 3 percent = 3,300
53

Jillayne Schlicke
Loan origination charges
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
54

Jillayne Schlicke
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.
55

Jillayne Schlicke
Adjustable Rate Mortgages
A 5/1 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%
56

Jillayne Schlicke
Section 9
Federal law
(Example: Dodd Frank Act)
State law
(Example: WA State law)
Secondary market guidelines
(Example: Fannie Mae, Freddie Mac, FHA, VA, USDA)
Lender’s unique additions to the guidelines
(Example: Wells Fargo, Guild Mortgage, etc. might have
rules that are higher that any of those laws/guidelines.
57

Jillayne Schlicke
Section 9
Qualified Mortgages and The Dodd Frank Act
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 $100K
~
Total debt to income back-end ratio does not exceed 43%
~
If loan conforms to guidelines set forth by Fannie & Freddie
(aka Conventional loans,) FHA, VA, USDA then loan is
automatically a QM UNTIL 2021
~
Ability to Repay: 5 Years
58

Jillayne Schlicke
Qualified Mortgage Rules for 2017
For the general rule to determine consumers’ ability to repay
mortgage loans, the maximum threshold for total points and fees
for qualified mortgages in 2017:
3 percent of the total loan amount for a loan greater than or
equal to $102,894;
$3,087 for a loan amount greater than or equal to $61,737 but
less than $102,894;
5 percent of the total loan amount for a loan greater than or
equal to $20,579 but less than $61,737;
$1,029 for a loan amount greater than or equal to $12,862 but
less than $20,579; and
8 percent of the total loan amount for a loan amount less than
$12,862.
59

Jillayne Schlicke
Qualified Mortgage Rules for 2018
For the general rule to determine consumers’ ability to repay
mortgage loans, the maximum threshold for total points and
fees for qualified mortgages in 2018 will be
3% of the total loan amount for loans greater than
$105,158;
$3,155 for loans between $63,095 and $105,158;
5% of the total loan amount for loans between $21,032 and
$63,095;
$1,052 for loans between $13,145 and $21,032;
8% of the total loan amount for loans of less than $13,145.
60

Jillayne Schlicke
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
61

Jillayne Schlicke
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.
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Jillayne Schlicke
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
Acceptable down payment amounts
Hazard/fire insurance requirements
Pre-payment requirements
63

Jillayne Schlicke
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
64

Jillayne Schlicke
Section 11 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 .85 = $3,825.00 annually. Divided by 12 =
$318.75 per month
65

Jillayne Schlicke
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
66

Jillayne Schlicke
Section 11 Mod 11.18 USDA loans
What is a USDA loan?
Minimum down payment
67

Jillayne Schlicke
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
68

Jillayne Schlicke
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
69

Jillayne Schlicke
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.
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Jillayne Schlicke
Section 13: 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
71

Jillayne Schlicke
Section 13 Mod 13.3
CSBS/AAMR 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.
72

Jillayne Schlicke
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
73

Jillayne Schlicke
Section 14 DFA: HPMLs
The Dodd Frank Act (full name: Dodd Frank Wall Street
Reform Act) was passed in 2008 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)
74

Jillayne Schlicke
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.
~
75
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

Jillayne Schlicke
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.
76

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77
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

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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.
78

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DAY 2

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80
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
%20Document%20Library/SAFE-Act.pdf

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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.
81

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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
82

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Section 16 SAFE Act
State Exam Authority
Definitions
Licensing or registration
Supervised processors and underwriters
Independent contractors
83

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84
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

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85
Section 15 SAFE Act
State or Federally Chartered Depository
Banks:
LOs are exempt from testing and education.
NOT exempt from “registration.”
Register with the Nationwide Mortgage Licensing
System (NMLS) and will be given a unique identifier.
“Registered” LOs

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86
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

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87
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

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88
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.

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89
Section 16 Model State Law
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

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Section 16 SAFE Act/Uniform State
Content
Take the SAFE Act/Model State Law Quiz
90

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Case Study
Capitol Federal Funding
v.
Sylmar Realty, Candlee Escrow, Manthra
Appraisals, and John Doe, a licensed real
estate salesperson
91

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Section 17 Ethics
What is law?
What is ethics?
Who do you admire, living or dead?
Why do you admire that person?
Have you ever faced an ethical dilemma in business?
How did you solve it?
92

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Section 17 Ethics
Law
Minimum moral standard
“Have to”
Ethics
When there’s no clear statement in the law telling
us what to do.
“Ought, should.”
93

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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 94

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95
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

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96
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

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97
Section 17 Ethics
Question: Are loan originators professional?
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.”

Jillayne Schlicke
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.
98

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99
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

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100
ManipulationCoercion
Completely
Controlled
Influences
Completely
Non-Controlled
Influences
Persuasion
Substantially
Not Controlling
Substantially
Controlling
Section 17 Ethics

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101
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

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102
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

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103
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

Jillayne Schlicke
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?
104
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

Jillayne Schlicke
Sec 17 Ethics
Common ethical scenarios
Break into small groups and discuss your
assigned ethical scenario with the members of
your group.
Elect a group leader and share your answers
with the rest of the class.
105

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Sec 17 Ethics Recap
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
LO, ask yourself: What is in the best interest of my
client?
106

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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
107

Jillayne Schlicke
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
108

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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.
109

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110
1968 Civil Rights Act
1968 Fair Housing Act
~
Protected Classes:
Race
Color
Religion (Creed)
Sex
National Origin
Familial Status
Sexual orientation added
in 2012 (lending only)
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

Jillayne Schlicke
Additional protected classes in WA State
LGBTQ
Honorably discharged military veteran
Use of a service animal
111

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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
112
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

Jillayne Schlicke
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
113

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Fair Housing Thought Questions
Should we make a woman on maternity leave return
to work before counting her income when qualifying
for a loan?
Should we make long term disabled applicants
provide additional documentation proving that they
will stay disabled?
114

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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?
115

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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.
116

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Section 20 Mortgage Fraud
Fraud for Housing, or fraud for property, is
perpetrated by borrowers and/or one or more
industry professionals when they misrepresent
information on the loan application. This type of
fraud does not usually result in significant losses to
a financial institution.
117
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

Jillayne Schlicke
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
118
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

Jillayne Schlicke
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.”
119

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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
120

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Appraisal Fraud
Fraud at settlement/escrow
Cyber crime
Red flags on the purchase and sales agreement
Change of info from the initial loan app
121

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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.
122

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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.
123

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Section 21
Bank Secrecy Act of 1970
U.S. Patriot Act of 2001
SARS: Suspicious Activity Reports
AML: Anti Money Laundering
124
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

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Section 22 Practice Quiz
Take the practice quiz:
Ethics, Consumer Protection, Fraud, Fair Housing,
SARS/AML
125

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Section 22
Reflect on everything learned today and yesterday.
…any final questions?
Preview of tomorrow.
126

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DAY 3

Jillayne Schlicke
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.
128

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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
129

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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
130

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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
131

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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
132

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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 133

Jillayne Schlicke
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.
2009 Changes to TILA = MDIA
2011 FRB Rule on LO Comp
R.E. Settlement and Proc. Act
2010 Dodd Frank Act
2015 TRID
Fair Credit Reporting Act
Fair Housing
Other Fed Laws
2008 SAFE Act
2010 Dodd Frank Act
2015 TILA/RESPA Integrated Discl.
134

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135
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
http://www.fdic.gov/regulations/laws/rules/6500-200.html

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136
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

Jillayne Schlicke
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.)
137

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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
138

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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
139

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140
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

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141
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 MortgageTruth in Lending Act

Jillayne Schlicke
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.
142
A closer look at APR (Annual Percentage Rate)

Jillayne Schlicke
Included
Prepaid interest
Mortgage insurance premiums
Wire transfer fees
Recording fees
Loan origination fee
UW, proc, 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.
143
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

Jillayne Schlicke
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.
144

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145
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.

Jillayne Schlicke
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.
146

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Sample APR question:
What items are included when 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
147

Jillayne Schlicke
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
148

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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
149

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150
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

Jillayne Schlicke
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
151

Jillayne Schlicke
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
152
Section 24 TILA Module 24.8

Jillayne Schlicke
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.
153

Jillayne Schlicke
Fun Fact
High-Cost loans are considered “Section 32 loans”
12 CFR 1026.32
Higher Priced loans are considered “Section 35
loans”
12 CFR 1026.35
…because these are the names of the sections
within the Truth in Lending Act, that describe
these loans.
154

Jillayne Schlicke
HOEPA
For 2018, reflecting a 2.2 percent increase in the CPI-U that was
reported on the preceding June 1, a covered transaction is not a
qualified mortgage unless the transaction's total points and fees
do not exceed:
A. For a loan amount greater than or equal to $105,158: 3
percent of the total loan amount;
B. For a loan amount greater than or equal to $63,095 but less
than $105,158: $3,155;
C. For a loan amount greater than or equal to $21,032 but less
than $63,095: 5 percent of the total loan amount;
D. For a loan amount greater than or equal to $13,145 but less
than $21,032: $1,052;
E. For a loan amount less than $13,145: 8 percent of the total
loan amount.
155

Jillayne Schlicke
Section 24 Module 24.9 TILA
Records Retention
General Records Retention
Lenders must retain TILA records on residential mortgage loans
for three years. Other federal or state laws may require
lenders to retain records for a longer period of time.

Closing Disclosure
Lenders must retain a copy of the Closing Disclosure for five
years

Loan Originator Compensation
Lenders must retain records of loan originator compensation for
3 years unless another federal or state law requires maintaining
LO compensation records for a longer time period.
156

Jillayne Schlicke
Section 24 Module 24.10 HOEPA
The following loans will be covered by HOEPA
APR exceeds APOR by 6.5% for first lien mortgages, or
8.5% for a first lien mortgage if the dwelling is personal
property and the transaction is under $50,000
The APR exceeds the applicable APOR by more than 8.5%
for subordinate and junior liens
Points and fees exceed 5% of the total transaction amount
or, for loans less than $20,000 the lesser 8% of transaction
amount or $1,000 (adjusted annually for inflation)
157

Jillayne Schlicke
Section 24 Module 24.10 HOEPA
A lender must provide a written list of HUD-approved, housing
counseling agencies to all applicants for federally-related
mortgages
It must list the ten counseling agencies that are closest to the
centroid of the zip code of the borrower’s current address, in
descending order of proximity to the centroid. Lenders, should
they choose can put in a more precise geographic marker like the
borrower’s street address. Additionally, they can give the borrower
the option of inputting a different location then the borrower’s
current zip code, but they are not required to do so.
The list must include the following text: “The counseling agencies
on this list are approved by the U.S. Department of Housing and
Urban Development
158

Jillayne Schlicke
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.
159
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)
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

Jillayne Schlicke
Sample HOEPA question
What is the APR trigger on a first lien mortgage under
HOEPA?
a) APR exceeds APOR by 6.5%
b) APR exceeds APOR by 8.5%
c) APOR is not a factor
d) APR trigger rules are irrelevant on a first lien
mortgage under the special provisional “APR Sucks”
amendment to the HOEPA section of the Dodd Frank
Act.
160

Jillayne Schlicke
Section 24
Module 24.11
Truth In Lending Act Quiz
161

Jillayne Schlicke
Federal
Laws
The laws shown in
blue were passed
during the late
notice that we are
currently living
of consumer
protection laws
directed at the
mortgage lending
industry.
2010 Dodd Frank Act
2015 TRID
Fair Housing
Other Fed Laws
2008 SAFE Act
2010 Dodd Frank Act
162

Jillayne Schlicke
Section 25
Federal Reserve Board (FRB) rule
on Loan Originator Compensation
163
Module 25.1
Background
FTC v. Golden Empire Mortgage
Federal Reserve
Regulation Z: Loan Originator Compensation and Steering 12 CFR 226
http://edocket.access.gpo.gov/2010/pdf/2010-22161.pdf

Jillayne Schlicke
Section 25
Federal Reserve Board Rule on
164
Module 25.2 Three main prohibitions:
P1: Compensation based on a transaction’s term
or conditions.
P2: Compensation by lender OR consumer but not
both.
P3: Prohibitions against steering.
Federal Reserve

Jillayne Schlicke
Section 25
165
P1: Compensation based on a transaction’s term
or conditions:
> Payment based on transaction terms or conditions.
> Compensation cannot go up or down based on the
loan’s terms or conditions.
> Minimum or max dollar amount of compensation
may not vary with each loan.
Federal Reserve

Jillayne Schlicke
Section 25
166
P2: Compensation by someone other than the
consumer.
If an LO will be compensated by the
consumer, the LO may not also receive
compensation from the lender funding the
loan, or any other person connected with
that transaction.
Federal Reserve

Jillayne Schlicke
Section 25
167
P3: Prohibitions against steering.
LOs may not steer a consumer to a loan only
because the LO will be compensated at a
higher rate by selling that product, unless the
loan is in the best interest of the consumer.
Federal Reserve

Jillayne Schlicke
Test your knowledge:
Complete the LO Comp practice quiz questions.
168

Jillayne Schlicke
Depository Bank
Checking,
savings
CAN fund its
own loans
LOs are
“registered”
169
Mortgage Broker
No ck/svgs
Does NOT fund its
own loans
Pure middleman.
Like an “agent”
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

Jillayne Schlicke
Federal
Laws
The laws shown in
blue were passed
during the late
notice that we are
currently living
of consumer
protection laws
directed at the
mortgage lending
industry.
2010 Dodd Frank Act
2015 TRID
Fair Housing
Other Fed Laws
2008 SAFE Act
2010 Dodd Frank Act
170

Jillayne Schlicke
Section 26 RESPA
RESPA =
Real Estate Settlement and Procedures Act
Definition of “Settlement Services”
RESPA defines “settlement” as any activity
surrounding the application, approval, and closing
of real estate transactions.
171

Jillayne Schlicke
Section 26 RESPA
Implemented by HUD as Regulation X, the original
purpose of RESPA was to do the following:
a) Eliminate kickbacks and referral fees;
b) Provide more effective advance disclosure of
settlement costs;
c) Reduce the amounts buyers were required to
place in escrow accounts; and
d) Provide reform and modernization for local
record keeping and land information.

172

Jillayne Schlicke
Section 26 RESPA
RESPA is applicable to all federally related
mortgage loans.
Federally related mortgage loans are loans,
including refinances, secured by a first or
subordinate lien on residential real property upon
which:
A one- to four-family structure is located or is to be
constructed using proceeds of the loan (including
individual units of condominiums and cooperatives) or
A manufactured home is located or is to be
constructed using proceeds of the loan
173

Jillayne Schlicke
Section 26 RESPA
Exemptions:
25 acres or more
Business, commercial, agricultural loans
Temporary loans
Vacant land
Assumptions
Loan modifications
Transfer of loan servicing
174

Jillayne Schlicke
Section 26: Definition of “An Application”
Financial Data
Borrower’s Name
Social Security Number
Income
Estimated value of the property
Loan amount sought
…..
Prop address (will have this if refinance, might
not have this right away if borrower is still
house-shopping.)
…..
175
http://www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm

Jillayne Schlicke
Sample RESPA question
During a phone interview, borrower provides the loan
originator with her name, social security number, income,
estimated value of the home that she will be purchasing,
and the loan amount she needs, and the property address.
The loan originator has:
a)Taken a loan application.
b)Prequalified the borrower.
c)Prequalified the borrower and early disclosures will not be
sent out until the loan originator receives a fully executed
purchase and sales agreement signed by all parties.
d)Taken a loan application and early disclosures are due to be
sent to the borrower within three days.
176

Jillayne Schlicke
Section 26 RESPA
Early Disclosure Package: Loan Estimate
Within 3 days of the date on the loan application,
we send the early disclosures to our borrowers.
The Loan Estimate
If purchase-money loan: Your Home Loan Toolkit
If Adjustable Rate Mortgage, the CHARM Booklet
If HOEPA, the extra required HOEPA disclosures
Any other disclosures required by state and federal
law
177

Jillayne Schlicke
Section 26 RESPA: Mortgage Brokers
If the mortgage broker is the exclusive agent of
the institution, either the institution or the
broker must provide The Loan Estimate within
three business days after the broker receives or
prepares the application.
When the broker is not the exclusive agent of the
institution, the institution is not required to
provide The Loan Estimate if the broker has
already provided it.
However, the funding lender must ascertain that
The Loan Estimate has been delivered.
178

Jillayne Schlicke
RESPA: Lender Required Use
When the lender requires that the borrower use a
certain settlement service provider, the borrower is
owed an extra disclosure stating:
 The use of the provider is required
 Contact info of the provider
 Description of the relationship between lender
and provider
 Statement that there is is no affiliated business
relationship between the two companies.
179

Jillayne Schlicke
RESPA: Affiliated Business Relationships
Prior to the referral, an affiliated business arrangement
disclosure statement is owed to the consumer. This disclosure
must specify both:
 The nature of the relationship (explaining the ownership
and financial interest) between the provider and the
financial institution and
 The estimated charge or range of charges generally
made by such provider
This disclosure must also be provided on a separate piece of
paper either at the time of loan application, or with the Loan
Estimate, or at the time of the referral.
Generally, the institution may NOT require the use of such a
provider
180

Jillayne Schlicke
RESPA: Escrow Accounts
The amount of escrow funds that may be
collected at settlement or upon creation of an
escrow account is restricted to an amount
sufficient to pay charges, such as taxes and
insurance, that are attributable to the period
from the date such payments were last paid
until the initial payment date.
181

Jillayne Schlicke
182
Which entities must comply with the anti-
kickback provisions of RESPA?
Lenders (banks, lenders, brokers)
Real estate agents/Realtors
Title and Escrow
Appraisers
Home inspectors
Mortgage insurance companies
Credit reporting agencies
Flood hazard check companies
Attorneys
Hazard insurance companies
Home warranty companies
Builders Real Estate Settlement and Procedures Act

Jillayne Schlicke
RESPA Anti-kickbacks
RESPA Section 8:
Any person who gives or receives a fee or a thing
of value (a payment, commission, fee, gift, or
special privilege) for the referral of settlement
business is in violation of section 8 of RESPA.
Payments in excess of the reasonable value of
goods provided or services rendered are considered
kickbacks.
183

Jillayne Schlicke
184
Q: What is an “un-earned fee?”
Un-earned fee, also called a kickback:
A fee we receive but we have performed no
work in exchange for receiving the fee.
Example: Referral fees given or received are a
violation of RESPA

Jillayne Schlicke
Section 26 RESPA
Violations of Section 8's anti-kickback, referral fees
and unearned fees provisions of RESPA are subject to
criminal and civil penalties.
In a criminal case a person who violates Section 8 may
be fined up to $10,000 and imprisoned up to one year.
In a private law suit a person who violates Section 8
may be liable to the person charged for the
settlement service an amount equal to three times
the amount of the charge paid for the service.
185

Jillayne Schlicke
RESPA Kickbacks
Large group discussion on common scenarios LOs
may face once licensed.
Are any of these scenarios allowed under the
anti-kickback Section 8 of RESPA?
186

Jillayne Schlicke
Section 26
RESPA
Take the RESPA quiz
187

Jillayne Schlicke
Federal
Laws
The laws shown in
blue were passed
during the late
notice that we are
currently living
of consumer
protection laws
directed at the
mortgage lending
industry.
2010 Dodd Frank Act
2015 TRID
Fair Housing
Other Fed Laws
2008 SAFE Act
2010 Dodd Frank Act
188

Jillayne Schlicke
189
LE --- (loan estimate)------Ellie
CD ---- (closing disclosure)-------Seedy
“CD” means something different to Realtors:
Commission Disbursement
Part of the Dodd Frank Act
Went into effect Oct 3, 2015
TRID
TILA RESPA Integrated Disclosure Rule

Jillayne Schlicke
190
Section 27
Intent To Proceed
Real Estate Settlement and Procedures Act (2009 Changes)
http://www.federalreserve.gov/boarddocs/supmanual/cch/respa.pdf
Imposing fees on a consumer before the consumer has
received the Loan Estimate and indicated an “intent to
proceed” with the transaction.
A consumer may indicate intent to proceed in any manner
the consumer chooses, unless a particular manner of
communication is required by the creditor.
A consumer’s silence is not indicative of intent to
proceed. A creditor must document this communication to
satisfy the record retention requirements.

Jillayne Schlicke
Section 27
Rule regarding “worksheets”
There are other restrictions on the form of this
statement to assure it is not confused with the Loan
Estimate:
Must be in font size no smaller than 12-point font.
May not have headings, content, and format
substantially similar to the Loan Estimate or the Closing
Disclosure.

Jillayne Schlicke
192
For these other purposes, business day means all
calendar days except Sundays and the legal public
holidays
…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 Day.
Section 27
Business Day Definition

Jillayne Schlicke
193
Section 27
What is “an application”

Jillayne Schlicke
TILA RESPA Integrated Disclosure
 Review The Loan Estimate
194

Jillayne Schlicke
How to calculate Total Interest Percentage
(TIP)
761.78 x 360 = 274,240.80
274,240.80 - 162,000 = 112,240.80
112,240.80 div by 162,000 = 69.28%
112,240.80 + 262 = 112,502.80
112,502.80 div by 162,000 = 69.45%
195

Jillayne Schlicke
196
Good Faith Requirement and Tolerances
Delivery of the Closing Disclosure
Take the TRID quiz
Section 27

Jillayne Schlicke
Federal
Laws
The laws shown in
blue were passed
during the late
notice that we are
currently living
of consumer
protection laws
directed at the
mortgage lending
industry.
2010 Dodd Frank Act
2015 TRID
Fair Housing
Other Fed Laws
2008 SAFE Act
2010 Dodd Frank Act
197

Jillayne Schlicke
198
Section 28
ECOA
1974
ECOA points us toward the evaluation based
on creditworthiness only.
It is a violation to discourage an applicant
from making an application for credit on a
prohibited basis

Jillayne Schlicke
199
Section28
Module 28.2
ECOA definitions: Marital Status
Unmarried =
Single
Divorced
Widowed
Married
Separated

Jillayne Schlicke
200
Section 28 Equal Credit Opportunity Act
We cannot base our lending decision on:
Race
Color
Religion
National Origin
Sex
Marital Status
Income from Public Assistance
(Age)
Whether an applicant has exercised his or
her rights under this act.

Jillayne Schlicke
ECOA
Race
Color
Religion
National Origin
Sex
Marital Status
Income from Public
Assistance
Age
Whether an applicant
has exercised his or
Her rights under this
Act.
201
Fair Housing
Race
Color
Religion (Creed)
National Origin
Sex
Familial Status
Sexual orientation
added in 2012 as a
protected class in all
50 states to Fair
Lending rules
Disability

Jillayne Schlicke
202
Section 28 ECOA
Requests for information
Evaluating applicants for creditworthiness
Cannot ask an applicant if he or she
RECEIVES alimony, child support. The
applicant may volunteer such
information.
You must ask if he or she is obligated to
PAY alimony or child support.

Jillayne Schlicke
203
Section 28 ECOA
Adverse Action
A refusal to grant credit in substantially
the amount or on substantially the terms
requested in an application…
unless the creditor makes a counteroffer
(to grant credit in a different amount or
on other terms) and the applicant uses or
expressly accepts the credit offered;

Jillayne Schlicke
204
ECOA: Adverse Action Notification
A notification given to an applicant when
adverse action is taken shall be in writing
and shall contain:
• A statement of the action taken;
• The name and address of the creditor;
• A list of the prohibited basis;
• The name and address of The CFPB; and
• A statement of specific reasons for the
action taken.

Jillayne Schlicke
205
Borrower’s Right to Receive a Copy of the Appraisal
(1) Creditors are required to notify applicants within three
business days of receiving an application of their right to
receive a copy of appraisals developed.
(2) Creditors are required to provide applicants a copy of each
appraisal and other written valuation promptly upon its
completion or three business days before consummation or
account opening.
(3) Creditors are prohibited from charging for the copy of
appraisals and other written valuations, but are permitted to
charge applicants reasonable fees for the costs of appraisals or
other written valuations unless applicable law provides
otherwise.

Jillayne Schlicke
206
Section 28
Module 28.10
Equal Credit Opportunity Act ECOA
Quiz

Jillayne Schlicke
207
Passed to ensure consumers have access to
credit information used by lenders and
others so that remedial steps could be
taken when incorrect or outdated
information remained in their file.
Purpose of a credit report:
Insurance, licensing, instruction from
consumer, extension of credit,
employment, response to a court order,
potential investor risk, other legitimate
business needs.
Credit reports are deemed privileged info.
Section 29 Fair Credit Reporting Act FCRA

Jillayne Schlicke
208
A CRA has 30 days to respond to a disputed item
Adverse Action: Name, address and phone
number of the CRA, reason, info on how to
obtain a free copy of their report, and the name
of the credit reporting agency.
FACTA
FACTA Red Flag Rules
Take the FCRA Quiz
Section 29 Fair Credit Reporting Act FCRA

Jillayne Schlicke
209
E-Sign Act
Gramm Leach Bliley (Privacy Act)
FTC Safeguard Rules
Do-No-Call Act
Truth in Advertising and Marketing
Unfair, Deceptive Acts and Practices
Additional Federal Laws Quiz
Section 30 Additional Federal Laws

Jillayne Schlicke
210
Section 31 Final Exam, Recap and Close
Review all remaining unanswered questions.
FINAL EXAM
Students complete end-of-course evaluation form.
Instructor provides end-of-course completion
certificates.

Jillayne Schlicke
211
Jillayne Schlicke
CE Forward, Inc.
National Assoc of Mortgage Fiduciaries
206-931-2241
jillayne@ceforward.com

20 Hour SAFE Loan Originator Pre-licensing Slides 2017-2018

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