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MLO - CHAPTER 3
The Truth in Lending Act
| Question | Answer |
|---|---|
| When was the Truth in Lending Act (TILA) enacted? | 1968 |
| Who is the Truth in Lending Act (TILA) implemented by? | Regulation Z RegZilla the TILA |
| Which Title of the Consumer Credit Protection Act is TILA? | Title 1 |
| What do TILA and Reg Z ensures that credit terms are ________ | disclosed so consumers can compare credit terms more readily and knowledgably |
| Reg Z applies to any individual or business that offers or extends credit when what 4 conditions are met? | 1. credit is offered 2. offering of credit is done regularly 3. credit is subject to a finance charge or payable in more than 4 installments 4. credit is for personal/family/household |
| As defined, a creditor is a person who | regularly extends consumer credit |
| How many times does a person have to extend credit to a consumer to be considered a creditor? | 5 or more times in preceding calendar year |
| What transactions are exempt from Reg Z? | - Business, commercial, or agricultural purpose - Credit not to a person (government agencies) - credit in excess, not secured by real estate, or expected to be used as principal dwelling |
| Regulation Z makes sure what are on the loans? | material disclosures |
| Disclosures must contain what 20 items? | -name/address -$ finan. -itemiz. -APR -variable rate info -pay. sched -total pay. -demand feat -sale price -prepayment pol -late pol -security inter -HOI -secur inter charges -contract refer -assump pol -deposit info -rate -norefi g p85 |
| The measure of the cost of credit that must be reported by lenders under Regulation Z | Annual Percentage Rate (APR) |
| What is the APR? | the annual rate charged for borrowing and is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan |
| What is difference in interest rate and APR? | interest rate refers only to the interest charged on a loan APR is the combination of the nominal interest rate and certain costs or fees involved APR is usually higher |
| What is included in the APR? | prepaid finance charges (fees that the lender benefits from) |
| APR does not include _________ fees | third party |
| certain charges made in connection with the loan and which must be paid upon the close of the loan | Prepaid Finance Charges (PFC) |
| How does CFPB define PFC charges in Reg Z? | charged that must be paid by the borrower |
| What is the "amount financed" as defined by Reg Z? | loan amount applied for minus the prepaid finance charges |
| THe amount finances is the figure on which the ______ is based | APR |
| Total of all interest the borrower will pay over the loan's lifetime plus the original mortgage amount | Total of Payments |
| What does the Payment Schedule include? | number, dollar amount, and timing of payments scheduled amount excludes property taxes and insurance, even if they are escrowed |
| Days on which the creditor's officers are open to the public for carrying on "substantially all" of its business functions | General Business Days |
| all calendar days except Sunday and Legal Holidays | Rescission Business Days |
| General business days are usually used at the ____________ | beginning of a transaction |
| Rescission business days are usually used at the_________ | end of transaction during consummation |
| Early TILA disclosures must be deliver or mailed : | - not later than 3 business days (general definition) after the creditor receives the consumer's written app - no less than seven business days (rescission definition) prior to consummation |
| If APR disclosed becomes inaccurate, creditor must provide the consumer with corrector disclosures when? | no later than 3 business days before consummation |
| The annual percentage rate for a_____________ is considered accurate if it varies in either direction by not more than 1/8 of 1 percentage point from the actual annual percentage rate. | regular transaction |
| The annual percentage rate for an ___________ is considered accurate if it varies in either direction by not more than 1/4 of 1 percentage point from the actual annual percentage rate | irregular transaction |
| An irregular transaction includes one or more of the following 3: | - multiple advances -irregular payment periods -irregular payment amounts |
| simple explanation for regular transaction | mortgage in which the borrower is paying, regular scheduled P/I payments |
| simple explanation for irregular transaction | paying interest only |
| example of irregular transaction loan | construction loan, or home equity line of credit -- only when you pay them the money, reverse mortgages |
| Irregular transactions do NOT apply to | loans with variable rate feature |
| What is the TILA rule? | 3-7-3 3 days to get them out, cant close for 7 days, 3 days later they are assumed to have gotten them in the mail |
| When may consumer waive or modify 7 or 3 business day timing requirement? | only in narrow circumstances in which the consumer determines the extension of credit is necessary to meet a bona fide personal family emergency |
| The final disclosure is provided at the time of _____ | closing |
| Who is responsible for ensuring that the consumer receives final disclosure? | generally, the creditor |
| When an MLO discusses an ARM product, Reg Z requires: | they provide to the borrower a CHARM booklet (at application or within 3 days of application) |
| What does the CHARM booklet discuss? | "interest-only" and "payment option" ARMS general info on how ARMS work and some of the issues you may face when financing or refinancing |
| Adjustable Rate Loan Disclosures: If applicable, shall be provided | p93 |
| The Right of Rescission applies to | all consumers who have an ownership interest in the property |
| Lenders are required under Reg Z to deliver: | - 2 copies of the Notice of the Right to Rescind - 1 copy of the Truth in Lending Disclosure Statement to each consumer entitled to rescind |
| Reg Z requires that lenders must wait _______________ before disbursing loan proceeds | at least 3 business days |
| The consumer may exercise the right to rescind until midnight of the 3rd business day: | - following consummation - delivery of the notice of right to rescind - delivery of all material disclosures, whichever occurs last |
| ____________ is considered a business day for rescission purposes, regardless of whether the office is open | Saturday |
| Within __________ after receipt of a notice of rescission, the lender is required to return any money or property that was given to anyone in connection with the transaction and take action necessary to reflect termination | 20 calendar days |
| to modify or waive the right to rescind IF | -consumer determines extension of credit is need to meet personal financial emergency - must give written statement describing emergency |
| Right of rescission ONLY apples to | refinances of a primary dwelling |
| 4 Trigger Terms of advertisements in TILA | 1. Amount of the Down Payment (in percent or dollar) 2. Amount of Any Payment (in dollar) 3. NUMBER of Payments or the Period of Repayment 4. Amount of any Finance Charge (numbers) p97 |
| If an ad uses a trigger term, it must also include the following info: | - amount or percent of down payment - terms of repayment - APR |
| Examples of terms that do not trigger required disclosures: | - no down payment - easy monthly payments - low down payment -terms to fit your budget -financing available |
| If only the __________ is disclosed, additional disclosures are NOT required or triggered | APR |
| Reg Z prohibits 7 deceptive or misleading practices in advertisements | p99 |
| Enacted to provide protection from predatory lending | Home Ownership and Equity Protection Act of 1994 (HOEPA) |
| What does HOEPA address? | certain deceptive practices used by mortgage lenders in home equity refinance transactions |
| What does HOEPA amend? | TILA and establishes requirements for certain loans with high rates and/or high fees |
| What are the types of transactions that HOEPA covers? | - purchase-money mortgages -refinances -closed-end home equity loans -open-end credit plans (HELOCs) |
| What types of transactions are EXEMPT from HOEPA? | - reverse mortgages -construction loans -loans originated and financed by a Housing Finance Agency - US Department of Agriculture -mortgages secured by vacation or second homes |
| A transaction is a high-cost mortgage or HOEPA loan if any of the following tests are met: | 1. APR Coverage Test 2. Points-and-Fees Coverage Test 3. Prepayment Penalty Coverage Test |
| means an APR is derived from average interest rates, points, and other loan pricing terms currently offered to consumers by a representative sample of credits that have low-risk pricing characteristics | Average Prime Offer Rate |
| Points and Fees Coverage Test | - exceeds 5 percent of total loan amount for an amount of $22,052 or more -exceeds 8 percent of total loan amount or $1,103 (whichever is less) |
| APR Coverage Test | - APR exceeds APOR by more than 6.5 points if transaction is over $50,000 -8.5 points if transaction is less than $50,000 - 8.5 points for sub or junior mortgages |
| Points and fees include | all items included in the finance charge p101 |
| Excluded fees | - interest or the time-price differential - mortgage insurance premiums |
| Prepayment Penalty Coverage Test | - if charged more than 36 months after consummation or account opening - prepayment penalties that exceed more than 2 percent of amount prepaid |
| Features that are banned from high-cost loans | 1. balloon payments 2. negative amorization 3. advance payments 4. increased interest rate 5. rebates 6. prepayment penalties 7.acceleration of debt 8. refinancing 9. late fees |
| an increase in the principal balance of a loan caused by making payments that fail to cover the interest due | negative amortization |
| a payment schedule that consolidates more than two periodic payments and pays them in advance | advance payments |
| a refund calculated by a method less favorable than the actuarial method | rebates |
| charge imposed for paying all or part of the transaction’s principal before the date on which the principal is due, | Prepayment penalties |
| a due-on-demand clause | acceleration of debt |
| A creditor shall not extend credit based on the | value of a consumer's collateral without regard to repayment ability |
| a creditor shall not extend a high-cost mortgage unless | creditor has received written certification that the consumer has obtained counseling (CFPB does this) |
| higher-priced mortgage loans defined by Reg Z: | By 1.5 or more points for loans secured by a first lien with a principal obligation at consummation that does not exceed the limit in effect as of the date the transaction’s interest rate |
| a creditor may not extend a higher priced mortgage loan secured by a consumer's principle dwelling unless | an escrow account is established before consummation for payment of property taxes and premiums for mortgage-related insurance required by the creditor |
| _______ does not need to be included in escrow accounts for loans secured by dwellings in condominiums, planned unit developments, or other common interest communities | insurance premiums |
| creditor shall NOT cancel an escrow account pursuant to a consumer's request unless | the unpaid principal balance is less than 80 percent of the original value of the property securing the underlying debt obligation and the consumer is not delinquent or in default on the underlying debt obligation |
| HPML sometimes triggers | 2 appraisals one is paid for by the lender |
| When is a second appraisal required? | p107 |
| a higher-priced mortgage loan MAY not have | a prepayment penalty |
| term "Loan Originator" means a person who, in expectation of compensation or other monetary gain, performs any of the following: | - takes loan application - offers or negotiates terms of residential loan for gain - assists consumer in obtain or applying for loan |
| Mortgage Originator does NOT include: | - administrators - employee of manufacture homes - real estate brokers - financing 3 properties within 12 months planning to repay - servicer, agent or contractor |
| Requirement under 12 CFR is no LO shall received compensation based on: | 1. term of transaction 2. term of multiple transactions by individual LO 3. term of multiple transaction by multiple LO |
| mortgage broker CANNOT received compensation based on | interest rate |
| Loan originators are prohibited from _________ consumers to loans based on the fact that the originator will receive greater compensation for the loan | directing or steering |
| Regulation Z provides a _________ to facilitate compliance. This met if the consumer is presented with loan offers for each type of transaction in which the consumer expresses an interest | safe harbor p114 |
| The anti steering provisions do not apply to | open-end HELOCs or to loans secured by a timeshare plan |
| requires that a creditor make a “reasonable and good faith determination at or before consummation that the consumer will have a reasonable ability to repay the loan according to its terms.” | Ability-to-Repay Rule |
| Ability to Repay Rule must evaluate at least the following eight factors: | 1. Income and Assets 2. Employment Status 3. Monthly Payment 4. Monthly Payments on Simultaneous Loan 5. Payment for Mort-related obligations 6. debt obligations, child support 7. DTI 8. credit history |
| Therefore, a creditor may give _____________________ as is appropriate to reach a reasonable, good faith determination of ability to repay. | various aspects of a consumer’s credit history as much or as little weight |
| TILA may permit borrower to assert a defense to foreclosure against creditor when | there is a violating of anti-steering and ability to repay provisions |
| Qualified Mortgages are | mortgages that meet certain product-feature prerequisites and are based on affordability-related underwriting requirements. Regulation Z establishes a safe harbo |
| Of the two types of QM loans __________ gives lenders the highest level or legal protection | Safe Harbor |
| Under 12 CFR, a qualified mortgage must provide for | regular periodic payments that may not result in an increase of the principal balance, deferral of principle payment, or a balloon payment |
| Reg Z provides QM status to certain balloon-payment loans originated by | "small creditors" |
| A loan cannot exceed _______ if it is a QM | 30 years |
| Criminal Liability if failing to comply with TILA | not more than $5,000 or imprisoned not more than 1 year |
| The ______ is the cost of a borrower's credit calculated an an annual rate | APR |
| Reg Z requires an HPML creditor to obtain a written ____ based on interior inspection of the property, at no cost to the borrower, in connection with certain flipped properties | Appraisal |
| Rescission business days are defined as Reg Z to include all calendar days except | Sunday and Federal Holidays |
| Regulation Z provides a presumption of compliance with the ability-to-repay requirement for creditors making | Qualified Mortgages |
| TILA requires LO's to make certain material disclosures on loans subject to the RESPA within __________ after receipt of a written application | 3 business days |
| Section 32 loans are also known as __________ loans | High-cost |
| The Truth in Lending Act’s advertising provisions require that if an advertisement contains a ____, then it must also include a number of prescribed disclosures | Triggering Term |
| The category of _____ mortgage loans is defined as a consumer credit transaction that for first-lien loans are 1.5 percentage points above the average prime offer rate issued by Freddie Mac | Higher Priced |
| An essential requirement under TILA is that no loan originator shall receive, directly or indirectly, ______ for a consumer purpose loan secured by a dwelling that is based on terms of a transaction | Compensation |
| The Truth in Lending Act permits a borrower to assert a defense to foreclosure against a creditor when there is a violation of the ____ and the ability to repay provisions | anti steering |
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