Tag Archives: RESPA

Prospect Mortgage to Pay $3.5 Million Fine for Illegal Kickback Scheme

The CFPB’s investigation found that ReMax Gold Coast and Keller Williams Mid-Willamette accepted illegal payment for referrals

By Jeff Sorg, OnlineEd Blog

kickback bills(February 1, 2017) –  The Consumer Financial Protection Bureau (CFPB) on Tuesday took action against Prospect Mortgage, LLC, a major mortgage lender, for paying illegal kickbacks for mortgage business referrals. The CFPB also took action against two real estate brokers and a mortgage servicer that took illegal kickbacks from Prospect. Under the terms of the action announced today, Prospect will pay a $3.5 million civil penalty for its illegal conduct, and the real estate brokers and servicer will pay a combined $495,000 in consumer relief, repayment of ill-gotten gains, and penalties.

“Today’s action sends a clear message that it is illegal to make or accept payments for mortgage referrals,” said CFPB Director Richard Cordray. “We will hold both sides of these improper arrangements accountable for breaking the law, which skews the real estate market to the disadvantage of consumers and honest businesses.”

Prospect Mortgage, LLC, headquartered in Sherman Oaks, Calif., is one of the largest independent retail mortgage lenders in the United States, with nearly 100 branches nationwide. RGC Services, Inc., (doing business as ReMax Gold Coast), based in Ventura, Calif., and Willamette Legacy, LLC, (doing business as Keller Williams Mid-Willamette), based in Corvallis, Ore., are two of more than 100 real estate brokers with which Prospect had improper arrangements. Planet Home Lending, LLC is a mortgage servicer headquartered in Meriden, Conn., that referred consumers to Prospect Mortgage and accepted fees in return.

The CFPB is responsible for enforcing the Real Estate Settlement Procedures Act, which was enacted in 1974 as a response to abuses in the real estate settlement process. A primary purpose of the law is to eliminate kickbacks or referral fees that tend to increase unnecessarily the costs of certain settlement services. The law covers any service provided in connection with a real estate settlement, such as title insurance, appraisals, inspections, and loan origination.

Prospect Mortgage

Prospect Mortgage offers a range of mortgages to consumers, including conventional, FHA, and VA loans. From at least 2011 through 2016, Prospect Mortgage used a variety of schemes to pay kickbacks for referrals of mortgage business in violation of the Real Estate Settlement Procedures Act. For example, Prospect established marketing services agreements with companies, which were framed as payments for advertising or promotional services, but in this case actually served to disguise payments for referrals. Specifically, the CFPB found that Prospect Mortgage:

  • Paid for referrals through agreements: Prospect maintained various agreements with over 100 real estate brokers, including ReMax Gold Coast and Keller Williams Mid-Willamette, which served primarily as vehicles to deliver payments for referrals of mortgage business. Prospect tracked the number of referrals made by each broker and adjusted the amounts paid accordingly. Prospect also had other, more informal, co-marketing arrangements that operated as vehicles to make payments for referrals.
  • Paid brokers to require consumers – even those who had already prequalified with another lender – to prequalify with Prospect: One particular method Prospect used to obtain referrals under their lead agreements was to have brokers engage in a practice of “writing in” Prospect into their real estate listings. “Writing in” meant that brokers and their agents required anyone seeking to purchase a listed property to obtain prequalification with Prospect, even consumers who had prequalified for a mortgage with another lender.
  • Split fees with a mortgage servicer to obtain consumer referrals: Prospect and Planet Home Lending had an agreement under which Planet worked to identify and persuade eligible consumers to refinance with Prospect for their Home Affordable Refinance Program (HARP) mortgages. Prospect compensated Planet for the referrals by splitting the proceeds of the sale of such loans evenly with Planet. Prospect also sent the resulting mortgage servicing rights back to Planet.

Under the consent order issued today, Prospect will pay $3.5 million to the CFPB’s Civil Penalty Fund for its illegal kickback schemes. The company is prohibited from future violations of the Real Estate Settlement Procedures Act, will not pay for referrals, and will not enter into any agreements with settlement service providers to endorse the use of their services.

The consent order filed against Prospect Mortgage is available at: http://files.consumerfinance.gov/f/documents/201701_cfpb_ProspectMortgage-consent-order.pdf

ReMax Gold Coast and Keller Williams Mid-Willamette

ReMax Gold Coast and Keller Williams Mid-Willamette are real estate brokers that work with consumers seeking to buy or sell real estate. Brokers or agents often make recommendations to their clients for various services, such as mortgage lending, title insurance, or home inspectors. Among other things, the Real Estate Settlement Procedures Act prohibits brokers and agents from exploiting consumers’ reliance on these recommendations by accepting payments or kickbacks in return for referrals to particular service providers.

The CFPB’s investigation found that ReMax Gold Coast and Keller Williams Mid-Willamette accepted illegal payment for referrals. Both companies were among more than 100 brokers who had marketing services agreements, lead agreements, and desk-license agreements with Prospect, which were, in whole or in part, vehicles to obtain illegal payments for referrals.

Under the consent orders filed today, both companies are prohibited from violating the Real Estate Settlement Procedures Act, will not pay or accept payment for referrals, and will not enter into any agreements with settlement service providers to endorse the use of their services. ReMax Gold Coast will pay $50,000 in civil money penalties, and Keller Williams Mid-Willamette will pay $145,000 in disgorgement and $35,000 in penalties.

The consent order filed against ReMax Gold Coast is available at: http://files.consumerfinance.gov/f/documents/201701_cfpb_RGCServices-consent-order.pdf

The consent order filed against Keller Williams Mid-Willamette is available at:http://files.consumerfinance.gov/f/documents/201701_cfpb_Willamette-Legacy-consent-order.pdf

Planet Home Lending

In 2012, Planet Home Lending signed a contract with Prospect Mortgage that facilitated the payment of illegal referral fees. The company’s practices violated the Real Estate Settlement Procedures Act and the Fair Credit Reporting Act. Specifically, the CFPB found that Planet Home Lending:

  • Accepted fees from Prospect for referring consumers seeking to refinance: Under their arrangement, Planet Home Lending took half the proceeds earned by Prospect for the sale of each mortgage loan originated as a result of a referral from Planet. Planet also accepted the return of the mortgage servicing rights of that consumer’s new mortgage loan.
  • Unlawfully used “trigger leads” to market to Prospect to consumers: Planet ordered “trigger leads” from one of the major consumer reporting agencies to identify which of its consumers were seeking to refinance so it could market Prospect to them. This was a prohibited use of credit reports under the Fair Credit Reporting Act because Planet was not a lender and could not make a firm offer of credit to those consumers.

Under the consent order filed against Planet Home Lending, the company will directly pay harmed consumers a total of $265,000 in redress. The company is also prohibited from violating the Fair Credit Reporting Act and the Real Estate Settlement Procedures Act, will not pay or accept payment for referrals, and will not enter into any agreements with settlement service providers to endorse the use of their services.

The consent order filed against Planet Home Lending is available at: http://files.consumerfinance.gov/f/documents/201701_cfpb_PlanetHomeLending-consent-order.pdf

[Source: CFPB press release]

 

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For more information about OnlineEd and their education for real estate brokers, principal brokers, property managers, and mortgage brokers, visit www.OnlineEd.com.

All information contained in this posting is deemed correct as of the date of publication, but is not guaranteed by the author and may have been obtained from third-party sources. Due to the fluid nature of the subject matter, regulations, requirements and laws, prices and all other information may or may not be correct in the future and should be verified if cited, shared or otherwise republished.

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CFPB Guidance About RESPA, MSAs, Kickbacks, and Referral Fees

Violations of the Real Estate Settlement Procedures Act have resulted in more than $75 million in fines

By Jeff Sorg, OnlineEd Blog

kickback bills(October 22, 2015) – The Consumer Financial Protection Bureau (CFPB) recently issued a bulletin providing guidance to the mortgage industry regarding marketing services agreements. The bulletin offers an overview of the federal prohibition on mortgage kickbacks and referral fees, and describes examples from the Bureau’s enforcement experience as well as the risks faced by lenders entering into these agreements. During the course of supervising mortgage lenders and enforcing federal law, the Bureau has found that marketing services agreements (MSAs) carry legal and regulatory risk for lenders.

“We are deeply concerned about how marketing services agreements are undermining important consumer protections against kickbacks,” said CFPB Director Richard Cordray. “Companies do not seem to be recognizing the extent of the risks posed by implementing and monitoring these agreements within the bounds of the law.”

The CFPB is responsible for enforcing the Real Estate Settlement Procedures Act, which was enacted in 1974 as a response to abuses in the real estate settlement process. A primary purpose of the law is to eliminate kickbacks or referral fees that tend to increase unnecessarily the costs of settlement services. The law covers any service provided in connection with a real estate settlement, such as title insurance, appraisals, inspections, and loan origination.

The bulletin explains that while marketing services agreements are usually framed as payments for advertising or promotional services, in some cases the payments are actually disguised compensation for referrals. Any agreement that entails exchanging a thing of value for referrals of settlement service business likely violates federal law, regardless of whether a marketing services agreement is part of the transaction.

The bulletin describes a number of legal violations the Bureau has encountered in investigations involving kickbacks and referral fees. For example, the CFPB found a title insurance company that entered into marketing services agreements where the fees paid by the company were based in part on the number of referrals it received, as well as the revenue generated by those referrals. In another case, a settlement service provider did not disclose its affiliate relationship with an appraisal management company and did not tell consumers that they had the option of shopping for services before directing them to the affiliate.

The CFPB’s enforcement actions against companies and individuals for violations of the Real Estate Settlement Procedures Act have resulted in more than $75 million in penalties to date. The payment of improper kickbacks and referral fees has been the basis of almost all of those actions. As the bulletin notes, the CFPB intends to continue actively scrutinizing the use of such agreements and related arrangements in the course of its enforcement and supervision work.

The bulletin is available at:http://files.consumerfinance.gov/f/201510_cfpb_compliance-bulletin-2015-05-respa-compliance-and-marketing-services-agreements.pdf

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For more information about OnlineEd and their education for real estate brokers, principal brokers, property managers, and mortgage brokers, visit www.OnlineEd.com.

 All information contained in this posting is deemed correct as of the date of publication, but is not guaranteed by the author and may have been obtained by third-party sources. Due to the fluid nature of the subject matter, regulations, requirements and laws, prices and all other information may or may not be correct in the future and should be verified if cited, shared or otherwise republished.

CFPB Finalizes Rule to Improve Information About Access to Credit in the Mortgage Market

Bureau Takes Steps to Simplify the Reporting Process for Financial Institutions

By Jeff Sorg, OnlineEd Blog

canstockphoto4707670 FINAL StampWASHIGTON, D.C. (October15, 2015) – Today, the Consumer Financial Protection Bureau (CFPB) finalized a rule to improve information reported about the residential mortgage market. The rule will shed more light on consumers’ access to mortgage credit by updating the reporting requirements of the Home Mortgage Disclosure Act (HMDA) regulation. The Bureau is working with other federal agencies to streamline the reporting process for financial institutions.

“The Home Mortgage Disclosure Act helps financial regulators, the public, housing officials, and even the industry itself keep a watchful eye on emerging trends and problem areas in the nation’s mortgage market – the largest consumer financial market in the world,” said CFPB Director Richard Cordray. “With today’s final rule we are shedding more light to foster better understanding of the market, and also ensuring that lenders have sufficient time to come into compliance.”

HMDA, which was originally enacted in 1975, requires many lenders to report information about the home loans for which they receive applications or that they originate or purchase. The public and regulators can use the information to monitor whether financial institutions are serving the housing needs of their communities, to assist in distributing public-sector investment so as to attract private investment to areas where it is needed, and to identify possible discriminatory lending patterns.

Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) in 2010 in response to the mortgage market crisis. The Dodd-Frank Act directed the CFPB to expand the HMDA dataset to include additional information about applications and loans that would be helpful to better understand the mortgage market. The CFPB convened a panel of small businesses to provide feedback on potential changes to the rule in February 2014, and issued a proposed rule in July 2014.

In 2014, 7,062 financial institutions reported information about approximately 11.9 million mortgage applications, preapprovals, and loans. While the HMDA dataset is the leading source of information about the mortgage market, it has not kept pace with the market’s evolution. For example, the HMDA data do not provide adequate information about certain loan features that helped contribute to the mortgage crisis, such as adjustable-rate mortgages and non-amortizing loans.

The final rule issued today will improve the quality and type of HMDA data. The CFPB is also working to reduce the reporting burden for lenders, by streamlining and modernizing the submission of the data.

Better Information About the Mortgage Market

The final rule changes what data financial institutions are required to provide in order to improve the quality of HMDA data in today’s housing market. The changes include:

  • Improving market information: In the Dodd-Frank Act, Congress directed the Bureau to update the HMDA regulation by having lenders report specific new information that improves public understanding of market conditions and could help identify emerging risks and potential discriminatory lending practices in the marketplace. This new information includes the property value, term of the loan, and the duration of any teaser or introductory interest rates.
  • Monitoring fair lending compliance and access to credit: Financial institutions will be required to provide more information about mortgage loan underwriting and pricing, such as an applicant’s debt-to-income ratio, the interest rate of the loan, and the discount points charged for the loan. This information will enhance the ability to screen for possible fair lending problems, helping both institutions and regulators focus their attention on the riskiest areas where fair lending problems are most likely to exist. This information will also help the Bureau and other stakeholders monitor developments in specific markets such as multifamily housing, affordable housing, and manufactured housing. The rule also requires that covered lenders report, with some exceptions, information about all applications and loans secured by dwellings, including reverse mortgages and open-end lines of credit.

Simplifying Reporting Requirements

One of the goals in updating the reporting requirements is to identify opportunities to streamline reporting and make it easier for financial institutions to comply with the law. The final rule issued today will:

  • Ease reporting requirements for some small banks and credit unions:The final rule retains the existing provisions that ease the burden on small banks and credit unions. For example, small depository institutions that are located outside a metropolitan statistical area remain excluded from coverage. In addition, under a new standardized reporting threshold in the rule, small depository institutions that have a low loan volume will no longer have to report HMDA data. For small lenders with few staff members, this change could make a significant impact in easing compliance costs. The new threshold will reduce the overall number of banks and credit unions required to report HMDA data by an estimated 22 percent. However, because those lenders receive a low volume of applications and originate a low volume of mortgage loans, the change will not compromise the usefulness of the dataset.
  • Align reporting requirements with industry data standards: In addition to collecting data under HMDA, many financial institutions are collecting the same or similar data for their own processing, underwriting, and pricing of loans, or to facilitate the sale of loans on the secondary market. Many of the amended requirements align with well-established industry data standards, including definitions that are already in use by a significant portion of the mortgage market. The Bureau anticipates that this alignment will mitigate the burden on many lenders, and improve the quality and the value of the information reported.

The Bureau is working with the other members of the Federal Financial Institutions Examination Council and the Department of Housing and Urban Development to modernize the HMDA data submission process to collect information more efficiently. Feedback from financial institutions and their vendors has helped the Bureau identify ways to reduce the burden of this information collection on industry. The Bureau has completed a pilot of a new web-based tool to collect HMDA information more efficiently. Industry stakeholders have tested the pilot and the feedback has been very positive – the new tool is simple and easy to use. Implementing this technology will reduce manual and paper-based systems currently used by regulators and reporting financial institutions. These changes will ultimately reduce associated compliance costs.

The final rule adopts many of the provisions proposed in 2014. However, a number of changes were made after considering comments received from the public. For example, the final rule does not include several of the data points proposed by the Bureau (such as the “risk-adjusted, pre-discounted interest rate”), and does not adopt the proposal to require reporting of all dwelling-secured transactions made for commercial purposes.

The CFPB is looking at ways to improve public access to HMDA data that has been modified to protect applicant and borrower privacy. The CFPB is exploring various strategies and techniques to address both borrower and applicant privacy and users’ interests in public disclosure and market transparency. The Bureau continues to update an online tool that helps the public better use available mortgage loan data. The tool allows users to filter information, create summary tables, download the data, and save their results.

Most of the provisions of the final rule will take effect on January 1, 2018. Lenders will collect the new information in 2018 and then report this information by March 1, 2019.

A copy of the final rule is available at:
http://files.consumerfinance.gov/f/201510_cfpb_final-rule_home-mortgage-disclosure_regulation-c.pdf

Resources that explain and facilitate implementation of the rule are available at:
consumerfinance.gov/regulatory-implementation/hmda/

The CFPB’s online HMDA tool is available at:
consumerfinance.gov/hmda/

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For more information about OnlineEd and their education for real estate brokers, principal brokers, property managers, and mortgage brokers, visit www.OnlineEd.com.

 All information contained in this posting is deemed correct as of the date of publication, but is not guaranteed by the author and may have been obtained by third-party sources. Due to the fluid nature of the subject matter, regulations, requirements and laws, prices and all other information may or may not be correct in the future and should be verified if cited, shared or otherwise republished.

Will TRID Delay My Real Estate Closings?

The answer is NO for just about everybody. 

By Jeff Sorg, OnlineEd Blogwill trid delay my closings october 3

PORTLAND, Ore. (September 21, 2015) – Download our free informational poster for display or handout in your real estate office.

Three things can require a 3-day delay in your closings:

.PDF Version, .JPG Version

 

 

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For more information about OnlineEd and their education for real estate brokers, principal brokers, property managers, and mortgage brokers, visit www.OnlineEd.com.

 All information contained in this posting is deemed correct as of the date of publication, but is not guaranteed by the author and may have been obtained by third-party sources. Due to the fluid nature of the subject matter, regulations, requirements and laws, prices and all other information may or may not be correct in the future and should be verified if cited, shared or otherwise republished.

TILA – RESPA Integrated Disclosure – Part 5 of 5: Special Information Booklet

Special Information Booklet

 (Part 5 of 5)

booklet1(Jeff Sorg, OnlineEd) – A creditor must provide the special information booklet, specifically the RESPA Settlement Costs Booklet, to the consumer who applies for a consumer credit transaction secured by real property no later than three business days after receiving the consumer’s loan application. The booklet does not have to be given to a consumer who applies for a refinance, subordinate lien, or reverse mortgage loan.

The Consumer Financial Protection Bureau has issued an updated version of the Special Information Booklet that incorporates the new Loan Estimate and Closing Disclosure. The new guide is titled “Your Home Loan Toolkit: A Step-by-step Guide.” The CFPB has made this guide available as a PDF download, or it can be ordered from the U.S. Government Printing Office (GPO):

The updated Special Information Booklet will be used starting October 3, 2015.

(Part 1. Part 2. Part 3. Part 4. Part 5)

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For more information about OnlineEd and their education for real estate brokers, principal brokers, property managers, and mortgage brokers, visit www.OnlineEd.com.

  This article was published on July 17, 2015. All information contained in this posting is deemed correct and current as of this date, but is not guaranteed by the author and may have been obtained by third-party sources. Due to the fluid nature of the subject matter, regulations, requirements and laws, prices and all other information may or may not be correct in the future and should be verified if cited, shared or otherwise republished.

 

TILA – RESPA Integrated Disclosure – Part 4 of 5: Curing Tolerances

Curing Tolerances

 (Part 4 of 5)

(Jeff Sorg, OnlineEd) – On the Loan Estimate, certain charges are not subject to a tolerance limitation. This means that the amount charged the consumer may exceed the amount disclosed on the Loan Estimate by any amount. Examples of these charges are:

  • Prepaid interest, property insurance premiums, amounts placed into escrow, impound, reserve, or similar type accounts;
  • Services required by the creditor if the creditor permits the consumer to shop for such services and the consumer selects a third-party service provider not on the creditor’s written list of service providers; and
  • Charges paid to third-party service providers for services not required by the creditor.

However, at consummation, creditors may only charge more than the amount disclosed on the Loan Estimate, provided the original estimate was based on the best information reasonably available at the time of the Loan Estimate disclosures.

Some charges are subject to a 10% cumulative tolerance. The charges subject to this tolerance limit are:

  • Recording fees;
  • Charges for third-party services where the charge is not paid to the creditor or the creditor’s affiliate; and
  • Charges that arise out of the consumer’s shopping for required services where the creditor allows the consumer to shop for and contract with that service provider that is not on the creditor’s written list of providers.

There are other charges that are subject to the zero tolerance rule. In the case of these items, the creditor may never charge more than the estimated amount, unless there is a changed circumstance or other triggering event. The items in this zero tolerance category are:

  • Fees paid to the creditor, mortgage broker, or affiliate of either;
  • Fees paid to an unaffiliated third party if the creditor did not permit the consumer to shop for a required service and had to use the service provider of the creditor; and
  • Transfer taxes.

If the amounts paid by the consumer at closing exceed the amounts disclosed on the Loan Estimate beyond the permissible applicable tolerance threshold, the creditor is required to refund the excess to the consumer no later than 60 days after consummation and deliver or place in the mail to the consumer a corrected Closing Disclosure that reflects the refund.

For zero tolerance charges, any amount charged beyond the amount disclosed on the Loan Estimate must be refunded to the consumer. With regard to the 10% tolerance charges, to the extent that the total sum of the charges added together exceeds the sum of all such charges disclosed on the Loan Estimate by more than 10%, the difference must be refunded to the consumer.

 

(Part 1. Part 2. Part 3. Part 4. Part 5)

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For more information about OnlineEd and their education for real estate brokers, principal brokers, property managers, and mortgage brokers, visit www.OnlineEd.com.

  This article was published on July 21, 2015. All information contained in this posting is deemed correct and current as of this date, but is not guaranteed by the author and may have been obtained by third-party sources. Due to the fluid nature of the subject matter, regulations, requirements and laws, prices and all other information may or may not be correct in the future and should be verified if cited, shared or otherwise republished.

It’s Official! CFPB Moves TRID Implementation Date to October 3, 2015

(Jeff Sorg, OnlineEd) – The Consumer Financial Protection Bureau has issued a final rule moving the effective date of the Know Before You Owe mortgage disclosure rule, also called the TILA-RESPA Integrated Disclosures, or TRID, to October 3, 2015.

The final rule issued today also includes technical corrections to two provisions of the Know Before You Owe mortgage disclosure rule.

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For more information about OnlineEd and their education for real estate brokers, principal brokers, property managers, and mortgage brokers, visit www.OnlineEd.com.

  This article was published on July 21, 2015. All information contained in this posting is deemed correct and current as of this date, but is not guaranteed by the author and may have been obtained by third-party sources. Due to the fluid nature of the subject matter, regulations, requirements and laws, prices and all other information may or may not be correct in the future and should be verified if cited, shared or otherwise republished.

TILA – RESPA Integrated Disclosure – Part 3 of 5: The Closing Disclosure Form

The New Closing Disclosure Form

(Part 3 of 5)

(Jeff Sorg, OnlineEd) – The Closing Disclosure integrates and replaces the final Truth-in-Lending disclosures and the RESPA HUD-1. In general, the Closing Disclosure sets forth the actual terms and costs of the transaction. The Closing Disclosure must be in writing and contain all of the information required. In many ways, the new Closing Disclosure presents most of the same information as existing disclosures, but in a brand new format.

A creditor is responsible for ensuring that the consumer receives the Closing Disclosure no later than three business days before consummation.

If delivery of the Closing Disclosure is by mail, the “mailbox rule” will apply. This rule means you have to add three days to account for mail delivery time to the three days required prior to consummation. The Closing Disclosure would need to be placed in the mail six business days prior to consummation. For purposes of counting days, Saturday is counted as a business day under the mailbox rule.

Remember, consummation is not the same thing as closing or settlement. Consummation occurs when the consumer becomes contractually obligated to the creditor. The exact time when consummation occurs is based upon state law. Consummation generally occurs when the borrower signs the promissory note, the security instrument, such as a mortgage or trust deed, and any other legal documents required by the creditor. Consummation is NOT when the final steps in the settlement or closing process occur, such as recording and disbursement of funds.

In most cases, the settlement agent, on behalf of the creditor, provides the borrower with the Closing Disclosure. In transactions involving a seller, the settlement agent will also provide the seller with a Closing Disclosure.

Another issue is how revisions and corrections to the Closing Disclosure should to be dealt with. The general rule is that creditors must redisclose terms or costs on the Closing Disclosure if certain changes occur to the transaction that causes disclosure inaccuracies. There are three categories of changes that require a corrected Closing Disclosure containing all changed terms.

There are specific changes that can occur before consummation that require a new three-day waiting period. In this case, consummation may need to be postponed to comply with the three-day rule to. Changes that require a new three-day waiting period are usually triggered by the following:

  1. The disclosed APR becomes inaccurate. However, there is a 10% tolerance allowed before a new waiting period is required.
  2. The loan product changes.
  3. A prepayment penalty is added.

Any changes not triggered by one of the three specified events do not require a new three-business day waiting period, but do require a revised Closing Disclosure be provided the consumer no later than consummation.

Sometimes, an event will occur after settlement that causes the Closing Disclosure to become inaccurate, resulting in a change to the amount the borrower or seller paid that is different from what was disclosed. An example would be a when the actual recording fee differs from the estimated amount.

Another event that triggers a revised Closing Disclosure relates to documenting refunds for tolerance violations. In other words, the amount charged exceeded the legal tolerance limits. A revised Closing Disclosure is also to be used to correct non-numerical clerical errors. An error is considered clerical if it does not affect a numerical disclosure and does not affect timing or delivery requirements.

In these instances, a revised Closing Disclosure must be delivered or placed in the mail to the consumer no later than 30 days after receiving sufficient information to determine that changes to the Closing Disclosure is required.

In all cases, the consumer has the right to inspect a revised Closing Disclosure during the business day before consummation.

 

(Part 1. Part 2. Part 3. Part 4. Part 5)

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For more information about OnlineEd and their education for real estate brokers, principal brokers, property managers, and mortgage brokers, visit www.OnlineEd.com.

  This article was published on July 17, 2015. All information contained in this posting is deemed correct and current as of this date, but is not guaranteed by the author and may have been obtained by third-party sources. Due to the fluid nature of the subject matter, regulations, requirements and laws, prices and all other information may or may not be correct in the future and should be verified if cited, shared or otherwise republished.

TILA – RESPA Integrated Disclosure – Part 2of 5: The Loan Estimate Form

The New Loan Estimate Form

(Part 2 of 5)

TRID Loan_Estimate_3-page_image(Jeff Sorg, OnlineEd) – The Loan Estimate is a three-page form that replaces the initial Truth-in-Lending disclosure and the RESPA Good Faith Estimate (GFE). The purpose of this new form is to provide consumers with a good faith estimate of credit costs and transaction terms in simple and easily understood language. The form must be presented to the consumer in writing and must contain the information prescribed by the TILA-RESPA integrated disclosure rule. Mortgage loan originators must also satisfy the rule’s timing and delivery requirements.

A quick overview of the three-page new form will show that page one provides the following information:

  • General information relating to the loan applicants;
  • General information relating to the property to be financed;
  • Loan and rate lock status;
  • Loan terms;
  • Projected payments during the term of the loan; and
  • Costs at closing, including the total estimated closings and the estimated cash to close.

The second page of the form goes into more detail relating to:

  • Loan costs relating to origination charges, services the borrower cannot shop for, and services the borrower can shop for; and
  • Other costs such as taxes and government fees, prepaids, initial escrow payment at closing, miscellaneous costs (such as owner’s title insurance), calculation of cash to close, and an adjustable-interest rate table when applicable.

The third page of the form provides:

  • The contact information for the creditor and loan originator;
  • Basic information to compare the loan with other loans;
  • Other loan considerations relating to appraisal, assumption, homeowner’s insurance, late payment, refinance, and loan servicing; and
  • Confirmation of receipt by borrower.

The first issue we must address is what event triggers the required delivery of the Loan Estimate to the consumer. The answer to that question is when a loan originator receives a loan application, the requirement to deliver the Loan Estimate to the consumer is triggered. In order to be considered a loan application, the consumer must provide the following information:

  1. Name;
  2. Income;
  3. Social Security Number (to obtain a credit report);
  4. The address of the property being financed;
  5. An estimate of the value of the property being financed; and
  6. The mortgage loan amount sought.

The information required for the Loan Estimate is similar to the information necessary to meet the RESPA definition of a loan application. A mortgage loan originator may collect additional information beyond the six items we just outlined, but cannot require that the borrower provide verifying documentation at this stage or require that the borrower pay any sum as a deposit except for credit report fees.

The mortgage loan originator must deliver a Loan Estimate to the consumer [either by hand or mail] no later than three business days of the receipt of an application. A business day is a day on which the creditor’s or loan originator’s office is open to the public for carrying out substantially all of its business functions.

Generally, the Loan Estimate is binding and revisions cannot be issued because of discovered technical errors, miscalculations, or underestimations of charges. The Loan Estimate can be revised only under certain, specific circumstances. The integrated rule defines a change in circumstance as:

  • An extraordinary event beyond the control of any interested party or other unexpected event specific to the consumer or transaction;
  • Information specific to the consumer or transaction that the creditor relied upon when providing the Loan Estimate and that was inaccurate or changed after the Loan Estimate disclosure was initially provided; or
  • New information specific to the consumer or transaction that the creditor did not rely on when providing the loan estimate.

Some examples that allow for a revised Loan Estimate after it has been initially given to a consumer are:

  • Any changed circumstance that cause settlement charges to increase more than permitted.
  • Any changed circumstance that affect the consumer’s eligibility for the terms for which the consumer applied for or the value of the security of the loan. For example, if a married couple applied jointly for a loan, and then one of them lost their job, then the income information used on the original loan application is no longer possible.
  • Any revisions requested by the consumer.
  • An interest rate that was not locked at delivery of the Loan Estimate and subsequently locking the rate causes the points or lender credits to change.
  • The consumer indicates intent to proceed with the transaction more than 10 business days after delivery of the original Loan Estimate.
  • The loan is for new construction and settlement is hampered by construction delays.

In each of these changes in circumstances, the revised Loan Estimate must be delivered to the consumer within three business days after becoming aware of a change in circumstance that was the basis for the original Loan Estimate. A revised Loan Estimate must be provided to the borrower no later than seven business days before loanconsummation.

Under the integrated rules, consummation is not the same thing as closing or settlement. Consummation is when the consumer becomes contractually obligated to the creditor. This usually occurs when the borrower signs the promissory note and other agreements such as the security instrument. The moment a borrower becomescontractually obligated is a matter of state law, and precise legal definitions may vary from state to state.

5Mortgage loan originators are required to calculate the Loan Estimate figures in good faith and consistent with the best information reasonably available to them at the time of the disclosures. To determine whether they have prepared the disclosures in good faith, a consumer will have to compare the difference between the estimated charges originally provided in the Loan Estimate and the actual charges paid by or imposed on the consumer. Generally, if the charge paid by or imposed on the consumer exceeds the amount originally disclosed on the Loan Estimate, it is not in good faith.

This is true under the integrated rules, whether a loan originator later discover a technical error, miscalculation, or underestimation of a charge. In all of these cases, the lender will have to pay the borrower the difference between the charge listed on the Loan Estimate and the charge actually paid by the borrower. We will discuss tolerance limitations in more detail a little later in this segment. For now, be aware that there is little room for error.

 

(Part 1. Part 2. Part 3. Part 4. Part 5)

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For more information about OnlineEd and their education for real estate brokers, principal brokers, property managers, and mortgage brokers, visit www.OnlineEd.com.

  This article was published on July 17, 2015. All information contained in this posting is deemed correct and current as of this date, but is not guaranteed by the author and may have been obtained by third-party sources. Due to the fluid nature of the subject matter, regulations, requirements and laws, prices and all other information may or may not be correct in the future and should be verified if cited, shared or otherwise republished.

The New TILA-RESPA Integrated Disclosure – Part 1of 5: Summary and Background

The Consumer Financial Protection Bureau is requiring the use of a new TILA-RESPA integrated disclosure as of October 3, 2015

(Part 1 of 5)

(Jeff Sorg, OnlineEd) – The Consumer Financial Protection Bureau (CFPB) is requiring the use of a new TILA-RESPA integrated disclosure as of October 3, 2015.

In 2012, the Dodd-Frank Wall Street Reform and Consumer Protection Act directed the newly created CFPB to integrate the mortgage loan disclosures required under the Truth In Lending Act (Regulation Z), known as TILA  and the Real Estate Settlement Procedures Act (Regulation X), known at RESPA. The TILA and RESPA loan disclosures have been used for the past 30 years. These disclosures continue to create confusion for borrowers because of their overlapping and inconsistencies.

The new integrated disclosure forms, which cannot be put into use until October 3, 2015, provide one set of disclosures for all borrowers seeking closed-end consumer mortgages. These integrated forms combine the now existing four disclosure forms into one set of two disclosures.

  • The first new form, known as the Loan Estimate Disclosure, is a three-page form. In this form, the Truth In Lending (TIL) disclosure form, and the RESPA Good Faith Estimate (GFE), are combined into one disclosure form designed to help consumers understand the key features, costs, and risk associated with the mortgage loan. This Loan Estimate Disclosure form must be delivered to the consumer within three business days from loan application.
  • The second of the new forms is a five-page disclosure known as the Closing Disclosure. This form replaces the TILA and RESPA HUD-1 disclosures. It is designed to provide disclosures to help consumers understand the costs of the loan transaction. The Closing Disclosure should be delivered to consumers at least three business days prior to completing the loan.

These new forms will give consumers clear language information regarding a loan and include information such as interest rate, monthly payments, and all of the costs necessary to close the loan. In designing these forms, the CFPB had the goal of presenting information to consumers in a way to help the consumer decide if they can afford the loan. The forms also make comparing different loan products, including the cost of various loans over time, easier and less confusing.

Beyond understanding the content of the new forms, there is a business problem that arises from these changes. With the faster and more accurate delivery requirement of the charges between the Loan Estimate Disclosure and Closing Disclosure forms, constant and reliable communication will become key between lenders and title agents. During the new process, mortgage loan originators will have to:

  • Verify accuracy of the Loan Estimate at time of application;
  • Using the stricter RESPA tolerance guidelines, and on the final Closing Disclosure form, reconcile fees between the lender and title closing production systems;
  • Overcome challenges with the new requirement in order to support intelligent data standards. For instance, if a lender is not using the same system as the document provider for the initial Loan Estimate form or the final Closing Disclosure, it will not be easy for the mortgage loan originator to reconcile data, documents, and calculations in order to be compliant; and
  • the mortgage loan originator will want to provide an audit trail to prove compliance with the regulations that he or she must follow.

What this means is that lenders will need to recognize it is important that data and documents are shared and synced between the lender’s system and the title production systems, and that they are easily and quickly accessible. To achieve this, new electronic processes may be necessary to replace any leftover, traditional paper processes.

With the delivery deadlines and tolerance requirements, the lender is also on the hook for greater accuracy of the GFE/TIL at time of application.

A technology solution to be able to facilitate the electronic sharing and collaboration of data and documents is now critical. On top of that, loan originators will need to keep the process electronic in order to provide evidence and the proof of compliance around receipt of delivery, acceptance, and execution of documents, which the CFPB will eventually audit.

Be warned that mortgage lenders who do not comply with the new disclosure requirements will be subject to CFPB penalties. Theses penalties for violations of disclosure rules can be severe. The general penalties for violations include:

  • First Tier – Up to $5,000 per day for each day the violation or failure to pay continues
  • Second Tier – Up to $25,000 for each day that a person continues to recklessly engage in a violation of a federal consumer financial law
  • Third Tier – Up to $1,000,000 per day for each day that any person knowingly violates a federal consumer financial law

Under the provisions of Truth in Lending law, private lawsuits against the mortgage lender may also be brought.

The TILA-RESPA integrated rule applies to most closed-end mortgages and consumer credit transactions secured by real property. The rule does not apply to the following:

  • Home Equity Lines of Credit (HELOCs); and
  • Reverse Mortgages.
  • Chattel-dwelling loans, such as loans secured by a mobile home or by dwellings not attached to real property. These loans will continue to use the current disclosure forms required by TILA and RESPA.
  • Individuals or entities that make five or fewer mortgages in a calendar year, as they are not deemed a creditor under the rule.
  • Certain no-interest loans secured by subordinate liens made for the purpose of down payment home buyer assistance or a similar program, property rehabilitation, energy efficiency, or foreclosure avoidance prevention.

Under the previous TILA-RESPA integrated rule, certain loans were subject to TILA, but not RESPA. Under the updated TILA-RESPA integrated rule, the following loans are also subject to the disclosure rules:

  • Construction-only loans; and
  • Loans secured by vacant land or by 25 or more acres.

Unlike many of the CFPB mortgage rules, the final TILA-RESPA integrated rule does not include an exception for small creditors.

(Part 1. Part 2. Part 3. Part 4. Part 5)

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For more information about OnlineEd and their education for real estate brokers, principal brokers, property managers, and mortgage brokers, visit www.OnlineEd.com.

  This article was published on July 17, 2015. All information contained in this posting is deemed correct and current as of this date, but is not guaranteed by the author and may have been obtained by third-party sources. Due to the fluid nature of the subject matter, regulations, requirements and laws, prices and all other information may or may not be correct in the future and should be verified if cited, shared or otherwise republished.