20 hrsafe prelicensing2014slides

20 Hour SAFE Comprehensive Pre-Licensing and Exam Prep

C-1167

WA State Pre-LicensingC-3430

Jillayne Schlicke

Jillayne SchlickeNational Association of Mortgage Fiduciaries

Section 1 Introduction Introduction of trainer Introduction of students Review the course syllabus

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Intros Name, where you work

Do you work in lending? How long?

Exam Anxieties

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Section 1 Module 1.1

UST Uniform State Test $1103 hrs, 10 min115 questions plus 10 sample questions75% to passIf you pass you will know your score.If you fail, they will give you a printout showing your

strong and weak areas.Prometric.com


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Exam Components25% Federal Law

RESPA, TILA, ECOA, FCRA, SAFE

20% General Mortgage Knowledgeprograms, products, terms

20% Loan Originationapplication, qualifying, title, escrow, math

15% Ethicsconsumer protection, fraud, fair housing

20% Uniform State Contentlicensing law, prohibited practices


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Section 1 Module 1.1Exam 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.


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Section 1 Module 1.1There are many different learning styles. I will try to

touch all of these throughout the next two days.Auditory-learns by listeningVisual-learns by processing imagesTactile-learns best when writing Whole Body-learns best when entire body is engagedEmotional-learns best when complex info can be tied to

an emotionLearning disabilities-

You may be eligible for extra accommodations if you have a diagnosed learning disability. Contact the NMLS after reading the exam candidate handbook.


Section 2 Module 2.0Depository BankChecking,

savingsCAN fund its

own loansLOs are

“registered”

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Mortgage BrokerNo 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 LenderNo ck/svgsCAN fund its own

loans via lines of credit with banks

LOs are licensed



There are many moving parts in the Mortgage Machine. The function of loan origination is just one piece.

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Title Insurance, Escrow Secondary marketUnderwritingAppraiserHome inspector

Loan originatorLO Assistants

Loan processorsRealtors/ Real estate

brokersMortgage insurance Hazard insurance

Flood insurance

State/Fed regulators


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Section 2 Module 2.2 Residential Loan ApplicationAssignment:

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?


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Section 2 Module 2.2Large group discussion:

OccupancyAssetsHMDAEducationDOBFormer employerWays of holding titleAcknowledgement, signatureOther Real Estate Owned


Section 2 Module 2.3Last two most recent paystubsLast two years W-2sLast three months bank statementsMost recent statement on 401Ks or IRAs

Documentation of ownership of stocks, bondsLast two months statements from any investment accountInformation on current mortgage or landlord contact infoSoc number or green card for all borrowers or co-signersLetter of explanation for any known credit problems

Documentation supporting any other incomeFor 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-T12


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Section 2 Module 2.4FIRST RATIOPITIPrincipal, Interest, Taxes, Insurance

plus home owner’s assoc dues, if applicableDivided byTotal gross monthly income= %

SECOND RATIOPITI plus all other monthly revolving debtDivided byTotal gross monthly income= %


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.

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Section 2 Module 2.6 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

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Section 2 Module 2.7 Case Study: David and Ryan Read the case study. Break into small groups and

discuss: Is this an approvable loan? Large group recap

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Section 2 Module 2.8 Ability to Repay Rule under Dodd Frank Act

Eight factors:

1. Current income and assets2. Current employment3. Monthly mortgage payment4. Monthly payment on simultaneous loans5. Property taxes, fire/flood insurance, HOA dues

6. Debts including alimony or child support7. Monthly total DTI ratio8. Credit history

Underwriters CAN consider other factors

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Section 3 Credit Module 3.1

Assignment: Break into small groups.Read the credit report.

Question: Does this person posses decent and reasonable credit history?

If yes, why?If no, why not?

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What’s in a FICO Score?

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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?


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Section 4 Title Insurance Module 4.2For 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.


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Section 4 Title Insurance Module 4.3How does a title company protect residential

homeowners and residential lenders?


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Section 4 Module 4.4 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 documents10 questions…


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Legal rights and responsibilities of a title company.


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What is escrow?


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Section 5 Escrow

Module 5.1Module 5.2Module 5.3Module 5.4Module 5.5Module 5.6


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Section 6 Appraisals

Module 6.1Module 6.2Module 6.3Module 6.4Module 6.5


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Section 7 Mortgage Math

Module 7.0Module 7.1 Module 7.2Assignment: Complete the mortgage math

calculations together as a group.


Number 3Loan Amount

104,500 divided by .95 = 110,000

Seller contribution is 3 percent.

110 x 3 = 3,300

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Number 111241.73 X 360 = 447,022.80

447,022.80 – 189,000 = 258,022.80

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Section 8 Mortgage Loan Programs:

Conforming Conventional Loans Fannie Mae, Freddie Mac

Government Loans FHA, VA, USDA

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Section 8 Module 8.1 Conventional, Conforming Loans Conforming to guidelines established by Fannie Mae

and Freddie Mac. This means loans can be packaged and sold to Fannie or Freddie on the secondary market.

Handout: Fannie Mae Eligibility Matrix

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Section 8 Module 8.2 FHA

FHA = Federal Housing Administration

FHA provides mortgage insurance on low down payment loans made by FHA-approved lenders

U.S. Department of Housing and Urban Development was created through the US Housing Act of 1937. HUD does lots of things:

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Section 8 Module 8.2 FHAWhat does HUD do?

Provides opportunities for homeownershipProvides housing assistance for low income personsHelps to rehabilitate and maintain affordable housingEnforces Fair Housing lawsHelps the homelessSpurs economic growth in distressed neighborhoods



Insuring and EndorsementWhen an FHA loan closes, the lender collects and remits an up front MIP directly to HUD via wire transfer.

Then the lender sends the original loan file (aka case binder) to the FHA HOC for review.

If the paperwork is in order, HUD transmits an electronic MIC (mortgage insurance certificate.)



GNMA = Government National Mortgage Association

Ginnie Mae is not a lender nor does it buy or sell mortgages. GNMA guarantees Residential Mortgage Backed Securities that are backed by pools of FHA loans

GNMAs are backed by the federal government



Only an FHA-approved lender can originate FHA loans

Property Types: 1 to 4 unit propertiesPurchases up to 96.5% LTV

Borrower Contributions3.5% cash investment

100% gift acceptable



Reserves are not required on 1 & 2 unit propertiesFHA loans are fully assumable No income limitations

FHA Loans are only to owner occupied borrowersExceptions:

HUD owned propertyNon-owner occupied purchase at 85% LTV



FHA Home Mortgage Insurance Programs:

203b Single Family234c Condo203h Disaster Victims255 HECM203k RehabEEM Energy Efficient Mortgage


Section 8 Module 8.2Single Family

Owner occupied1 to 4 unitsPUDs (Planned Unit Developments)Manufactured Homes


Section 8 Module 8.2RolesLoan originator satisfies the processorProcessor satisfies the underwriterUnderwriter satisfies managementManagement satisfies FHARole of the underwriter is to build a defensible positionFHA satisfies minimum risk for FHALenders set minimum risk for themselvesFHA might say yes but your lender might say no.



Social Security NumberHandbook 4155.1 paragraph 3-1C

HUD/FHA require all lenders to ensure that each FHA borrower, co-borrower and co-signer has their own valid Social Security Number as issued by the Social Security Administration

Verification also through FHA Connection



U.S. Citizenship Not RequiredFHA will insure mortgages made to lawful permanent and non-permanent resident aliensPermanent resident alien:

Must have evidence of permanent resident statusHave a valid social security number

Non-permanent resident alienProperty must be their principal residenceMust be eligible to work in the U.S.Have a valid social security numberHave likelihood of continued lawful status



Documentation acceptable to verify social security number includes:

PaystubValid tax returnCopy of SSN cardDriver’s licenseMedical informationService provider with access to SSA



FHA UnderwritingTOTAL Scorecard Factors:

Credit FICO scoreMonthly housing expense ratioNumber of monthly payments in reserveLoan to value ratioLoan term

These are the five biggest risk factors and the only things TOTAL looks at.Accept or Refer



FHA Underwriting:

What must an FHA borrower possess?

Decent and reasonable credit historyPerfect credit is not a requirement.

Stable, reliable, and sufficient incomeVerified funds to closeSufficient security for the loan



The Four Cs of Underwriting:

CharacterCredit

CapacityIncome

CollateralValue

CapitalLiquid assets

• Does the borrower have the ability and willingness to repay the loan?


Section 8 Module 8.3VA = Veteran’s AdministrationSee course book

USDA = U.S. Department of Agriculture. Rural LoansSee course book

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Section 9 AssignmentReview the CSBS/AAMR Guidance on Non-Traditional

Lending

CSBS = Conference of State Bank Supervisors

AAMR = American Association of Mortgage RegulatorsOct 2006 banking regulators published guidelines on

non-trad lending. Examples:

Interest only loansPay option ARMsReduced/no documentationSimultaneous second lien

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Section 9 CSBS/AAMR Guidance

Ability to repay

Watch for payment shock

Assure borrower understands the loan terms

Avoid misleading claims…payment, rates, refi-out

Risk management strategies

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Section 9 Non-Traditional LendingModule 9.1Module 9.2 Non Conforming JumboModule 9.3 Alt AModule 9.4 Hard Money and Private MoneyModule 9.5 ARMsModule 9.6 ARM featuresModule 9.7 ARM CapsModule 9.8 Hybrid ARMsModule 9.9 Option ARMsModule 9.10 HECM Reverse Mortgage LoansModule 9.11 Suitability


Jillayne Schlicke

DAY 2


WA State Pre-Licensing DFI Department of Financial Institutions DFI.WA.Gov

Charles Clark

MBPA = Mortgage Broker Practices Act

CLA = Consumer Loan Act

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Uniform State Content Wa State adopted the uniform state content in April

of 2013

LOs only take ONE test and will then have met the TESTING requirements in 35 states.

You would still need to take that state’s PE and CE and your company must be licensed in states in which you’d like to originate.

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CASE STUDYCapitol Federal

V.Sylmar Realty

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Special Guest SpeakerDave Angrove30 year veteran of the mortgage industryAdvisory Lending Group, Division of AP Mortgage

Q: What does it take to be a successful LO?A: Create value for our clients

Our clients could be…Realtors, builders, consumers…Products and programs are very similarFind a way to bring unique value

Dave uses “smart analysis” (Vantage Productions is the company)CRM = Customer Relationship Management SystemAlso –”Mortgage Coach”These give ppl a financial analysis of the conversation

Become a specialist in one area

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Average day of the average LO Connecting with people every single day. There are many ways to connect w/consumers…

face2face….phone, emails, print ads, mailings, other ads, social media, business networking groups, affinity clubs. Partner w/industry vendors

You must feed the Realtor Animal in order to survive in mortgage lending. This is a LONG TERM prospecting plan that will pay off if you simple refuse to give up asking for business

CPAs, financial planners, insurance agents, working with renters (first time homebuyer classes)

Build your database of happy clients. Plan for the next day every night

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Meet your vendors and network with them!Title Company reps tend to know a lot of Realtors

Attend Realtor events w/your favorite vendors and ask to be introduced to Realtors!

Career: The Long Game

It’s always a great time to become a loan originator for people who are highly ethical and who love to work hard.

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Interview Questions Jillayne Would Ask Will you pair me with a loan processor who loves working

with new people? What kind of compliance support do you offer new LOs? What kind of help can your company offer me for

obtaining new clients? Is there a company “lead generation” program available to me or am I on my own for obtaining leads?

What kind of mortgage programs are available to consumers at this company?

Will you provide mentoring and coaching? How diverse is your company? (Hint: you’re looking for a

company that has lots of people who look different. Avoid companies with only old white males in the LO position and senior management position, and all support staff is female.)

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Jillayne Schlicke

ETHICS


Section 10 EthicsModule 10.1 Module 10.2 Module 10.3 Module 10.4

Module 10.5

Use the following:course bookSection 10 Ethics handout

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Section 10 Module 10.1 Ethics

LawMinimum moral standard“Have to”

EthicsWhen there’s no clear statement in the law tellingus what to do.“Ought, should.”

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Section 10 Module 10.2 EthicsDifferent sources of moral authorityReligion

We can’t use religion to solve ethical dilemmas when holding a professional role because there are thousands of different religions in the world. Which one would we us?

Intuition

Intuition can sometimes steer us in the wrong direction

Emotion“If I can’t sleep at night it’s not ethical.”If the only reason we’re choosing to do/not do something is out of fear, that’s a pretty low standard of motivation 63


Section 10 Module 10.2 EthicsDifferent sources of moral authorityWritten 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 ethicsMoral philosophical ethical theories can take the place of a mandatory code of ethics until one is written.

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Professional StatusSpecialized knowledgeFormal, pre-licensing educationMandatory continuing educationTestLicensingFiduciary DutiesCode of ethics with sanctions for violations

Compare to non-professionals such as a retail salesperson.


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Section 10 Module 10.3 and 10.5Question: Are loan originators professional?Specialized knowledgeFormal, pre-licensing educationMandatory continuing educationTestLicensingFiduciary Duties (this is emerging in some states)Code of ethics with sanctions for violations

(this piece is not yet in place.)

LOs are classified as “an emerging profession.”


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Aristotle Kant J.S. MillRespect

honesty(promotes autonomy)

LoyaltyResponsibilityIntegrityBeneficenceNon-maleficenceCompassionJustice

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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Section 10 Module 10.4 Assignment: Small group discussion:

What do you remember from past classes in ethics?

What is ethics?

Think about a person you admire or look up to as a mentor, living or dead. What do admire about that person?

Think about an ethical dilemma you’ve faced in your career. How did you solve your dilemma?


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Section 10 Module 10.4 Assignment: Large group recap after small

group discussion, while instructor slowly completes the slide with the three normative moral theories.

Lacking any mandatory, prescriptive and descriptive ethical code, this is the best way for LOs to learn ethics. The next slide lays out the following:

--what kind of person do I want to become?--what duties do I have?--what are the possible consequences?


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Aristotle Kant J.S. MillRespect

honesty(promotes autonomy)

LoyaltyResponsibilityIntegrityBeneficenceNon-maleficenceCompassionJustice

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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Section 10 Module 10.4Moral Development

The intrinsic worth, value and dignityof all human persons. Some laws might not be moralLaw , society’s rulesThe good, norms, roles, shared valuesPractical agreementsMorality comes from external sources

22+

16 to 2212 to 166 to 123 to 50 to 2


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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”



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ManipulationCoercion

CompletelyControlledInfluences

Completely Non-Controlled

Influences

Persuasion

SubstantiallyNot Controlling

SubstantiallyControlling



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Duty of LoyaltyDuty 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



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Fiduciary Duties May Include…1. Disclose all loan information to

the borrower

2. Act in good faith and deal fairly3. Avoiding secret fees or

undisclosed fee splitting4. No self dealing


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Fiduciary Duties are Higher When…

Broker/LO has higher level of knowledge, experience, skills

Client has limited knowledge

Client is relying exclusively on you

Greater the imbalance the higher the duty



How to get all your ethix questions right 1. Regulators do not regulate ethix

2. all ethix questions will be legal questions in disguise Ethics---consumer protection, fraud, fair housing

3. If you see a question with the word ETHICS in it….ask yourself if this is a legal issue and then answer it as if it was a legal issue.

4. What is in the best interest of the client?

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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.

This is unethical This is allowed under certain circumstances This is only allowed with a special agreement fee

worksheet approved by DFI This conduct could be allowed but only if the

appraisal company was owned by the mortgage company

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Consumer Protection Case Study Carnell v. KMC Funding

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Module 11.1Module 11.2

Module 11.3Module 11.4Module 11.5

Module 11.6

Module 11.7

Section 11 Fair Housing


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1968 Civil Rights Act1968 Fair Housing Act

~

Protected Classes:Race

ColorReligion (Creed)

SexNational Origin

Familial StatusSexual orientation added

in 2012

Disability

Section 11Module 11.1, 11.3

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



RedliningDenying or increasing the cost of services to residents of a racially specific geographical area

SteeringGuiding prospective homebuyers to or away from a specific neighborhood based on his/her race

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BlockbustingEncouraging white property owners to sell their homes at a loss by fraudulently implying that racial or religious minorities were moving into their neighborhood



Section 11 Module 11.4In 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 loansImpose different terms or conditions on a loan, such as

different interest rates, points, or feesDiscriminate in appraising property

Refuse to purchase a loan orSet different terms or conditions for purchasing a loan.Fair Housing/Fair Lending http://www.hud.gov/offices/fheo/lending/index.cfm

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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?

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Section 12 Consumer ProtectionModule 12.1Module 12.2

Module 12.3

Case Study: Carnell v. KMC FundingRead the case. In small groups discuss the questions.

As a large group, share your answers

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Section 13 Mortgage Fraud



Module 13.5

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FBI US Department of JusticeFinancial Crimes Report to the Public 2010-2011http://www.fbi.gov/stats-services/publications/financial-crimes-report-2010-2011




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.

.

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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

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Property FlippingSilent Second

Straw BorrowersIdentity Theft

Appraisal FraudForeclosure RescueEquity Skimming

Loan Mod ScamsShort Sale Fraud

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Section 13 Module 13.3Red Flags

When seeking employment as an LOWhen working with real estate agents or RealtorsWhen working with consumers

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Section 13 Modules 13.6-13.20SARSSuspicious Activity ReportsAMLAnti Money Laundering

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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 8159Subpart C—Reports Required To Be Made by Loan or Finance Companieshttp://www.gpo.gov/fdsys/pkg/FR-2012-02-14/pdf/2012-3074.pdf


Section 14

Reflect on everything learned today.

…any final questions?Preview of tomorrow.

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Jillayne Schlicke

DAY 3


The Main Fed Law AcronymsTILATruth in Lending Act

MDIAMortgage Disclosure Improvement Act

RESPAReal Estate SettlementAnd Procedures Act

ECOAEqual Credit Opportunity Act

FCRAFair Credit Reporting Act

SAFESecure and Fair Enforcement Act

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Federal Laws

The laws shown in pink 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.

TILA2009 Changes to TILA = MDIA2011 FRB Rule on LO CompRESPA2009 Changes to RESPAECOAFCRA

Fair HousingOther Fed Laws

2008 SAFE Act2010 Dodd Frank ActMini Final

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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

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Purpose: To promote informed use of credit. (Instead, creates mass confusion.) Gives consumers the right to cancel some transactions (owner occupied refi), regulates variable rate loans

TILA Disclosures: 3 days from date of application, final disclosure at settlement

Disclosure content: variable rate features, payment schedule, demand feature, prepayment penalty,security interest in the property, insurance cancellation, assumption policy, contract loan number

CHARM Booklet required on ARM loans

Section 16 Truth in Lending ActModules 16.1-16.3

Truth in Lending Acthttp://www.fdic.gov/regulations/laws/rules/6500-200.html


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Four Government Boxes

This info must be presented in clear and conspicuous place:

Annual Percentage Rate/APR (the cost of the loan expressed in the form of a rate)

Finance Charge Interest + closing costs

Amount Financed Loan amount less closing costs

Total of Payment All P&I if all payments made

Section 16 Truth in Lending ActModules 16.3



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Rescission: on an o.o. refinance, the borrower has 3 days after signing the final loan documents to cancel and receive a full refund from the lender. LOs must refund any money collected for third party services, even if spent.

For TILA RESCISSION purposes, business days include Saturday.

Can the 3 day right of rescission ever be waived?

Section 16 Truth in Lending ActModules 16.4



Section 16 TILA Module 16.4

Case Study: What is the first business day onwhich funds may be disbursed if:

Signing date: Thurs, May 2

1st bus. day: Fri, May 32nd bus. day: Sat, May 4

Sun, May 53rd bus. day: Mon, May 6

The loan can fund on Tuesday May 7th

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How many copies of the rescission notice?

3

1---stays in the escrow closer’s file

2 are mailed to the borrower

If the borrower rescinds, one is signed and mailed to escrow, and the other the borrower keeps

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Section 16 TILA Module 16.4


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APR is a measure of the cost of credit, expressed as a nominal yearly rate. It relates the amount and timing of value received by the consumer to the amount and timing of payments made.

Disclosure of the APR is central to the uniform credit cost disclosure envisioned by the TILA.

Section 16 Truth in Lending Act A closer look at APR (Annual Percentage Rate)



Common consumer question: What costs are included when calculating APR?

At a typical mortgage company, software systems are already programmed to do this for LOs. However, customers ask questions about the TILA disclosure forms and regulators expect licensees to know how to answer basic questions about the information contained in the TILA disclosure form.

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IncludedPrepaid interestMortgage insurance

premiumsWire transfer fees

Recording feesLoan origination feeMortgage broker fee

Escrow (closing fee)Discount pointsPest inspection (VA only when prop

is located in mod to high probability of area of pest infestation and lender is paying for it.

Flood Ins. premiums104

Hazard Insurance (IF obtained from a neutral company)

Seller paid pointsDocument prep fee

Title insurance (lender policy)

Notary feeAppraisalCredit reportImpounds for taxes & insFlood Hazard Check

Excluded

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


Sample APR questions 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.

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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.



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


Section 16 a closer look at APR Prepaids Prepaid finance charges = CLOSING COSTS

Impounds = a few months payments of real estate taxes, hazard insurance

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Section 16What items are included when calculating APR?

Closing Costs (prepaid finance charges)

Loan termNote rate

Loan Amount

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Section 16What is the APR for the following loan?

Closing costs: $2,000Loan term: 360 months

Note rate: 5.0%Loan amount: $200,000

a) 5.0b) 4.9

c) 5.08d) 6.98

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Section 16 Module 16.5HOEPA =Home Ownership and Equity Protection Act

A loan is covered by HOEPA if it meets the following tests:*On a first mortgage, the APR exceeds by more than eight points of Treasury maturity rates.*For a second mortgage, the APR exceeds by more than ten points the rates of on Treasury maturity rates.

*Total fees and points payable by the consumer at or before closing exceed the larger of $583 or eight percent of the total loan amount.

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Section 16Module 16.6

Truth In Lending Act Quiz

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Section 17Mortgage Disclosure Improvement ActMDIA

Module 17.1Module 17.2Module 17.3Module 17.4Module 17.5Module 17.6 --take the TILA/MDIA Quiz

Truth in Lending AmendmentsRegulation Z, Subpart C, Closed End Credit, Section 226.17,General Disclosure Requirements Effective July 30, 2009


Section 17 MDIA Module 17.3 We now have three categories of mortgage loans

HOEPA (Added in 1994 as Section 32 of TILA)High cost/2nd mtg/HELOC

Higher Priced (Added in 2009 as part of MDIA)1.5 or more points higher (APR) FRM3.5 or more points higher for a subordinate lien

QRM Qualified Residential Mortgage (Added as part of the Dodd Frank Act of 2010)

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Truth in Lending AmendmentsRegulation Z, Subpart C, Closed End Credit, Section 226.17,General Disclosure Requirements Effective July 30, 2009


Section 17 Module 17.6 MDIA Quiz

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Section 17 Module 17.6 Quiz Review

TILA Quiz Question 6

Mon July 9 Consumer must receive disclosuresTues July 10Wed July 11Thurs July 12 Signing is scheduled


Section 18 Federal Reserve Board (FRB) ruleon Loan Originator Compensation

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Module 18.1Background

FTC v. Golden Empire Mortgage

Federal ReserveRegulation Z: Loan Originator Compensation and Steering 12 CFR 226http://edocket.access.gpo.gov/2010/pdf/2010-22161.pdf


Section 18 Federal Reserve Board Rule onLoan Originator Compensation

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Module 18.2 Three main prohibitions:P1: Compensation based on a transaction’s term

or conditions.

P2: Compensation by someone other than the consumer.

P3: Prohibitions against steering.Federal ReserveRegulation Z: Loan Originator Compensation and Steering 12 CFR 226http://edocket.access.gpo.gov/2010/pdf/2010-22161.pdf



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Module 18.2 Three main prohibitions:P1: Compensation based on a transaction’s term

or conditions:> Payment based on transaction terms or conditions.

> Compensation cannot go up or down based on the loan’s terms or conditions.

> Minimum or max dollar amount of compensation may not vary with each loan.




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Module 18.2 Three main prohibitions:P2: Compensation by someone other than the

consumer.If an LO will be compensated by the consumer, the LO may not also receive compensation from the lender funding the loan, or any other person connected with that transaction.




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Module 18.2 Three main prohibitions:P3: Prohibitions against steering.

LOs may not steer a consumer to a loan only because the LO will be compensated at a higher rate by selling that product, unless the loan is in the best interest of the consumer.




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Module 18.3Review the Section 18 Handout:RESPA Roundup

RESPA Roundup: Compliance Guide for REPA as it applies to the Federal Reserve Board’s MLO Compensation Rules Published on Sept 24, 2010


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Section 19 Real Estate Settlement and Procedures ActRESPAModules 19.1-19.2

Applies to all federally related loans; sale or refi, primary market loans only.

Exemptions: 25 acres or more, temporary financing, assumptions with lender approval, conversions (contract to deed), secondary market transactions, vacant property.

Which entities must comply?

Real Estate Settlement and Procedures Act http://www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm


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Section 19 RESPA Modules 19.1-19.2Which entities must comply?Lenders (banks, brokers, etc.)Real estate agents/RealtorsTitle and XOAppraisersHome inspectorsMortgage insurance companiesCredit reporting agenciesFlood hazard check companiesAttorneysHazard insurance companiesHome warranty companiesBuilders



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Section 19 RESPA Modules 19.1-19.2

PurposeTimely disclosure of settlement costsLimits on escrow reserve accounts* see next slide

Prohibits seller-directed title insuranceForbids kickbacks (Section 8. See next slide)GFE and HUD 1Disclosure of Affiliated Business ArrangementsDisclosure of potential loan servicing charges“Settlement Cost Booklet”Lender required use agreements



Escrow Account/Loan Servicing RESPA statute has allowed lenders to maintain a

cushion equal to one-sixth of the total amount of items paid out of the account, or approximately two months of escrow payments.

Also called “impounds” Real estate taxes and hazard insurance are paid

twice a year. So we collect the amount of the bill, divided by 12 each month as part of the monthly mortgage payment.

PITI Principal, interest, taxes, insurance

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Section 8 Referral Fees

Prohibits the giving or taking of a fee or other thing of value for a referral involving a federally related loan

Un-earned fee (also called a kickback)A fee we receive but we have performed no work in exchange for receiving the fee.





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.

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TILA/RESPA Definition of “an Application”Financial DataBorrower’s NameSoc

IncomeEstimated valueLoan Amount…..Prop address (will have this if refi, might not have

this right away if borrower is still house-shopping.)

…..Any other info deemed necessary by the LO

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Section 19 Module 19.4Learn how to complete a Good Faith Estimate

See instructions from HUDInstructions for Completing Good Faith Estimate (GFE) Form

Code of Federal RegulationsTitle 24, Volume 5

Section 19 RESPA Module 19.3Take the RESPA Quiz


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2010 Good Faith EstimateMortgage Brokers who table fund are mortgage brokersAll yield spread premium dollars credited from the

lender when a borrower selects a higher note rate is for the borrower’s benefit.

This was a huge change for mortgage broker LOs and many fled to non-depository lenders after these 2009 changes were enacted. Then FRB rule on LO Comp (which went into effect April 5, 2011) disallowed steering borrowers into a higher rate loan, solely for the purpose of LOs making more money for all LOs no matter where they work.

Section 20RESPA Amendments in 2009Modules 20.1

Real Estate Settlement and Procedures Act (2009 Changes)http://www.federalreserve.gov/boarddocs/supmanual/cch/respa.pdf


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GFE tolerancesViolations, penaltiesDefinition of “An Application”GFE delivery, loan term availabilityChanged circumstancesSeller paid feesRequired useAverage charge pricing, volume discounting

RESPA Amendments Quiz

Section 20RESPA Amendments in 2009Modules 20.1-20.7

Real Estate Settlement and Procedures Act (2009 Changes)http://www.federalreserve.gov/boarddocs/supmanual/cch/respa.pdf


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Section 21 Module 21.1 and 21.2Equal Credit Opportunity Act ECOA 1974ECOA points us toward the evaluation based on

creditworthiness only.

Nine categories; the prohibited bases:RaceColorReligionSexMarital StatusNational OriginIncome from Public Assistance(Age)Whether an applicant has exercised his or her

rights under this act.

Equal Credit Opportunity Acthttp://www.fdic.gov/regulations/laws/rules/6500-1200.html


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Section 21 ECOA Module.21.2It is a violation to discourage an applicant

from making an application for credit on a prohibited basis.

Cannot ask an applicant if he or she receives alimony, child support. The applicant may volunteer such information.

You must ask if he or she PAYS alimony or child support.

Unmarried…ECOA requires the lender to provide a copy

of the appraisal report.Application need not be in writing for this act

to apply.Can we ask questions NOT related to

creditworthiness? Adverse Action Form



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Section21Module 21.2Equal Credit Opportunity Act ECOAMarital Status

1. Unmarried =SingleDivorcedWidowed

2. Married

3. Separated



ECOA comparison to RaceColorReligionSexNational OriginMarital StatusIncome from PublicAssistanceAgeWhether an applicanthas exercised his orHer rights under thisAct.

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Fair HousingRaceColorReligion (Creed)SexNational Origin

Familial StatusSexual orientation

added in 2012 as a protected class in all 50 states to Fair Lending rules

Disability


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Section 21Module 21.3Equal Credit Opportunity Act ECOAQuiz


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Passed to ensure consumers have access to credit information used by lenders and others so that remedial steps could be taken when incorrect or outdated information remained in their file.

Purpose of a credit report:Insurance, licensing, instruction from consumer, extension of credit, employment, response to a court order, potential investor risk, other legitimate business needs.

Credit reports are deemed privileged info.A CRA has 30 days to respond to a disputed itemAdverse Action: Name, address and phone

number of the CRA, reason, and info on how to obtain a free copy of their report.

Section 22 Module 22.1 and 22.2Fair Credit Reporting Act FCRA Fair Credit Reporting Act

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


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Section 22Fair Credit Reporting Act FCRAModule 22.3 Quiz


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HMDA Home Mortgage Disclosure ActCRA Community Reinvestment ActGLB Gramm Leach Bliley Act AKA Privacy ActGLB FTC Safeguard RulesMARS RulesBank Secrecy ActU.S. Patriot ActPMI ActFACTA Fair and Accurate Credit Transactions

ActDo Not Call

Additional Federal Laws Quiz

Section 23 Modules 23.1-23.10Other Federal Laws Governing Mortgage Lending


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Section 24 SAFE Mortgage Licensing ActModule 24.1

The SAFE Act of 2008

SAFE = Secure and Fair Enforcement Act

Passed in order to increase uniformity, reduce regulatory burden, enhance consumer protection, and reduce fraud. Establishes the Nationwide Mortgage Licensing System and Registry.

Title V SAFE Mortgage Licensing Act of 2008http://mortgage.nationwidelicensingsystem.org/SAFE/NMLS%20Document%20Library/SAFE-Act.pdf


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Section 24 SAFE Act Module 24.2

“Registered Loan Originator”

An employee of:a depository institution;

a subsidiary that is:owned and controlled by a depositoryinstitution AND

regulated by a federal banking agency OR

An institution regulated by the Farm Credit Admin



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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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Issuance of a License:

Never revokedNo felony last 7 years

No felony at any time re fraud, dishonesty, breach of trust, money laundering

Financial responsibility

Pre-licensing educationWritten test

Net worth and surety bond Title V SAFE Mortgage Licensing Act of 2008http://mortgage.nationwidelicensingsystem.org/SAFE/NMLS%20Document%20Library/SAFE-Act.pdf


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LO exam:

75% to passCan 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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Continuing Ed

3 hours Federal Law2 hours Ethics, Consumer Protection, Fraud, Fair

Housing2 hours Non Traditional Lending1 hour Undefined

No carry-overs

Can’t take the same class each year.Title V SAFE Mortgage Licensing Act of 2008http://mortgage.nationwidelicensingsystem.org/SAFE/NMLS%20Document%20Library/SAFE-Act.pdf


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Take the SAFE Act Quiz


Section 25 Dodd Frank Act ChangesModule 25.1 Escrow RequirementsAPOR =Average Prime Rate Offering

Module 25.2Loan Originator Compensation RequirementsAdditional LO Qualifications under Dodd Frank

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Section 25 Dodd Frank Act ChangesModule 25.3 Ability to RepayModule 25.4 Qualified Mortgage

Module 25.5 Balloon Payment, QMsModule 25.6 High Cost MortgagesModule 25.7 Mortgage ServicingModule 25.8 Appraisal Disclosure and Delivery

Module 25.9 Test your knowledge!Take the Dodd Frank Act Changes Quiz

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Three types of loans

Agency productLoans that conform toFannieFreddieFHA/VA/USDA

Home

OwnersEquityProtection Act

“high cost”VERY expensive

Qualified Mortgages

HPMLHOEPAAHigher priced

mortgage loans

Non traditional

Non standard

Non prime

Subprime

High cost

Non-QM


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Section 26 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.


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Jillayne SchlickeCE Forward, Inc.National Assoc of Mortgage Fiduciaries206-931-2241jillayne@ceforward.commortgagefiduciaries.com

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