2-14-2 TRID - Pre-Qualification, Pre-Approval and …...Pre-Qualification, pre-approval and...

BD MORTGAGE GROUP LLC 1

2-14-2 TRID - Pre-Qualification, Pre-Approval and Application

Pre-Qualification, pre-approval and qualification calculations used by the loan originator must follow standard

loan program guidelines. Whether the borrower submits an application determines which cost estimate process

to use.

A prospect or applicant may provide income documentation for evaluating financing ability, but this act does not

create an application. Regardless, we require all borrowers to document ability to repay through our complete

application process.


Application Paths and Requirements

Understanding the difference between the different application paths will guide the originator as to which path to

choose. The MOST IMPORTANT POINT is that a transaction is not an application until the borrower has

selected a property.

Application (Closed End) Processes

Product

Discussion Pre-Qualification Pre-Approval Application

Description No Prequalification, just rates and points

Pre-Qualification Certificate

Binding Commitment

Specific Request for Mortgage

Process Get Product Discussion Worksheet Emphasize NOT application

Product Discussion Worksheet Credit Authorization Pull Credit

Pre-Property loan Approval (Underwriting Only) Complete Application Except Property

Pre-Approval, including obtain sales contract and property info

Credit Report

NO YES YES YES

Property NO NO NO YES

LOS Status Pre-Qualification Pre-Qualification Pre-Approval Application Taken

Disposition No application – simply destroy per Privacy Policy

Issue Certificate or send to underwriting for denial

Underwriting Issues Pre-approval or Denial (unless customer withdraws)

Issue Loan Commitment

Regulations None Reg. B Equal Credit – for denial/adverse

Reg. B Equal Credit Opportunity - Adverse HMDA Reporting (unless withdrawn) If Product Selection is ARM – Charm Booklet, ARM Disclosure FCRA – Credit Score Notice

HUD Settlement Booklet (Purchases) Servicing Transfer Disclosure ( ARMs - CHARM Booklet, ARM Disclosure Interest Only - Non-Traditional Mortgage Booklet, Illustrations FACT Act Notice of Credit Score Privacy Policy Application Disclosure (appraisal and privacy notices) General Conditions Letter State specific disclosures

Cost Disclosures

None Estimate of Costs Form

Estimate of Costs Form

Loan Estimate Process


2-14-3 Loan Estimate Step-by-Step Application Procedure

Party Step Description

Borrower Contacts Lender Expresses interest in interest rates in general

Loan Originator

Qualifies Request – Qualification or Pre-Qualification?

Does the borrower have a specific property or loan amount? If yes: Purchase: In a pending purchase the originator should request a copy of the sales contract. At minimum the borrower must provide Property Address Sales Price Real Estate Taxes Until there is an accepted contract, the transaction remains in pre-qualification/inquiry status. Originator should ALWAYS list property address as “TBD-to be determined”. Refinance: In a refinance, the originator should request a copy of the deed, title insurance policy and homeowner’s insurance policy. At a minimum borrower must provide Property Address Existing Loan Amount Real Estate Taxes Insurance Premium All Transactions: Borrower must provide proof of income, assets and credit history for qualification – see Complete Application Checklist process. At a minimum borrower must provide: Social Security Number to authorize credit report Complete Legal Name Verifiable Gross Monthly Income LOAN ESTIMATE Process IS required within 3 business days of providing information If No: Originator may quote general interest rates and program information and offer to pre-qualify. LOAN ESTIMATE is NOT required

Borrower Confirms Documentation Requirement

Acknowledges documentation request and agrees to provide documentation Agrees to participate in qualification process.



Loan Originator

Performs Qualification Process (Ability to Repay)

Obtains credit report and reviews total obligations. Total Obligations are listed under #2 of Qualification Worksheet. See Exhibit Income is entered in #5 of Qualification worksheet. If verbal income is provided, confirm income calculation follows industry standard. Hourly = Rate x 40 x 52 / 12 Weekly = Rate x 52 / 12 Bi-Weekly = Rate x 26 / 12 Calculate Mortgage Payment, taxes insurance, Homeowner’s Association/Condo, PMI and total in #1 Divide #1 by #5 for Housing Expense Ratio – Should not exceed program guidelines (28% Conv., 31% FHA/Modification) Divide #2 – Monthly Obligations, by Income #5 for Total Debt Ratio – should not exceed program guidelines (38% - conv, 43% FHA/Modification

Loan Originator

Identify Programs and Loan Amounts Eligible

Based on current pricing, identify 3 pricing options for the individual loan type for which borrower qualifies. For Broker – O point to borrower – Above Par Par Price to Lender – Par Price Discounted Rate – Below Par

Loan Originator

Identifies Estimate Track

If closed-end transaction – Know Before You Owe KBYO If HELOC, Reverse, or Mobile Home - GFE

Borrower Acknowledges Qualification Results

Acknowledges Qualification Results – if acceptable, proceed to KBYO LOAN ESTIMATE.

Originator

Proceed to issue LOAN ESTIMATE

ONLY provide LOAN ESTIMATE if terms are acceptable and borrower meets program guidelines. ONLY proceed to application if terms are acceptable

Borrower Intent to Proceed Borrower provides signed “intent to proceed”


2-14-4 TRID - Transaction Type - Know Before you Owe OR GFE 2010


2-14-5 Process Not Subject to LE/GFE Pre-Qualification

An accurate Pre-Qualification is BD Mortgage Group LLC’s solution to preventing predatory lending allegations.

Although there are products with features that are, by themselves, considered predatory most predatory lending

takes place when the originator does not take into account whether the applicant can afford the proposed financing.

We may initially rely on the borrower’s representations of income, debt and other qualifications. When we do

this, we must stipulate that we have not reviewed the documentation, and that any terms we provide are subject

to change based on changes in the initial assumptions.

For this reason, the “Pre-Qualification Worksheet” or an equivalent must be maintained in the originator’s loan

file and presented at the time the loan is underwritten.

A "Pre-Qualification" is based upon the borrower representations of his or her financial situation. The lender

then states, based upon the information provided, what type of financing the borrower can qualify for. A Pre-

Qualification MAY NOT include a property address. If the borrower has a property address, you must begin the

application process.


2-14-51 Pre-Qualification Worksheet

A Pre-Qualification worksheet must be included in every submission to document that the loan originator did

review the initial proposed financing and found it to meet guidelines. If it is a specialty program, other than

conventional conforming FHA, VA, State Bond or Generic Non-Conforming, the loan originator must include

investor’s underwriting guidelines or pre-qualification. 1. PROPOSED MONTHLY PAYMENTS 2. TOTAL MONTHLY OBLIGATIONS

First Mortgage P & I * $ Housing Payment (#1) $

Second Mortgage P & I $ Other Mortgages (Rent Income-

Mo. Hazard Insurance $ Payments = Negative) $

Mo. Real Estate Taxes $ Auto Loans $

Condo/Association Fees $ Other Installment Loans $

Mortgage Insurance(PMI) $ Charge Card (5% of Balance) $

TOTAL HOUSING PAYMENT $ Other Monthly Payments $

TOTAL MONTHLY OBLIGATIONS $

3. FRONT RATIO CALCULATION 4. BACK RATIO CALCULATION

(#1) Total Housing Payment (#2) Total monthly obligation divided by

divided by(#5) Total Income ___________%(#5) total income _________%

5. MONTHLY INCOME 6. DOWN PAYMENT

Borrower Co-Borrower Down Payment $

Base Income $ $ Closing Costs $

Other Income $ $ Less Seller Contribution $

Total Income $ $ Total Cash Required $

Borrower must qualify at the note rate (or fully

indexed rate, if ARM)


2-14-52 Pre-Qualification with Credit Review

See “Obtaining a Credit Report” from “Loan Application Process”

The Real Estate Settlement Procedures Act (RESPA) Loan Estimate (LOAN ESTIMATE) process requires the

lender to perform a credit review as part of the pre-qualification process in order to be able to provide the Loan

Estimate within 3 days of the inquiry.

BD Mortgage Group LLC requires that a credit report be obtained on all borrowers making an inquiry. Once you

have given the borrower the credit review, credit related issues that come up in the processing, underwriting and

approval process cannot be the basis for changing the closing costs or terms of the financing. See the “Pre-

Qualification Letter” sample provided for the approved form showing which underlying documents have been

reviewed.

In addition, it is critical that you provide an “Items Required to Complete Application” checklist to the borrower

in order to document the items that were not reviewed in issuing the initial LOAN ESTIMATE.


2-14-53 Sample Pre-Qualification Letter

If a property has been selected, this is a qualification process. If a property has been selected, request a copy of the contract. If there is no contract, do not add a property address. If a property address is included you MUST provide Loan Estimate

Any information that the borrower provides or that we review in performing the qualification must be indicated here.

Figure 1 - Pre-Qualification Letter to be used with GFE Process and Anti-Predatory Lending Process (Lending without regard for ability to repay)


Pre-Qualification Disclosure Policy

You must provide customers with written disclosures of all loan types discussed prior to submitting the loan

application for processing. The borrower will receive actual loan disclosures upon final determination of the

product selection from processing. However, you must be sure to deliver initial disclosures as part of your sales

process, even if the borrower may not apply with you.


2-14-55 Cost Disclosures by Loan Type Disclosure – Pre-Qualification

Loan Originators must be able to give applicants disclosures for all types of loans discussed at the time of

application. Under Regulation Z, Truth-in-Lending, the borrower must receive disclosures for the type of loan

which they applied for within 3 Actual Business days of application. This is normally done at the time the

application is opened for processing. However, at the time of application, when the borrower is choosing between

loans, he or she must still be provided with disclosures for all loan types discussed.

Depending on the type of loan the applicant is considering, the following disclosures must be provided, in addition

to all standard disclosures:

Fixed Rate 1st and 2nd Mortgage Disclosures

• Your Home Loan Tool Kit

• Loan Estimate

• Required Providers

• Prepayment Penalty Disclosure

• Balloon Disclosure

• Interest Only Disclosure

• Temporary Buydown Disclosure

Adjustable Rate 1st Mortgage Disclosures

• Your Home Loan Tool Kit

• Loan Estimate

• Required Providers

• ARM Disclosure for all products considered

• Consumer Handbook on Adjustable Rate Mortgages

• Pre-Payment Penalty Disclosure

• Refinance Agreement

• Worst Case Scenario Disclosure

Home Equity Lines of Credit

• HELOC Disclosure

• When Your Home Is On the Line Handbook

Land Loan, Mobile Home

Use 2010 GFE and Settlement Costs Booklet


2-14-6 TRID – LE or GFE Process Product-Transaction

Use this process to determine which disclosure set to use.


2-14-6 TRID Process for Determining “Average Costs”

Lenders must survey their approved providers to provide evidence that the costs documented on the GFE-2010

are in-line with the provider’s actual charges.


Originator/Lender Identify Providers Identify the providers you have used over the past 24 months – choosing at least 1 reputable provider, but preferably 3

Originator/Lender Provide Survey Obtain a blank closing cost estimate, HUD-1 Settlement statement or 2010-GFE Request that each provider estimate costs as applicable to its service

Service Provider Estimate Costs Estimate costs based on ACTUAL figures Provide supporting evidence – i.e. premium tables, settlement statements, etc. Return survey along with any other supporting materials

Originator/Lender Evaluate Survey Using a spreadsheet for each area of closing costs where an estimate has been provided, enter data for the cost element Choose the median numbers based on Eliminate aberrational high or low estimates Identify providers who provide the best value Identify whether individual elements are more effectively purchased, or whether the consumer gains an advantage in a package

Originator Lender Compile List Compile the list of all providers who participate in the survey. It is acceptable to indicate only Barred Participants on a list, but this implies that all other providers are acceptable.

Originator/Lender Provide list At the time of preparing the GFE-2010, you must also provide the List of Providers.

Originator/Lender Maintain Records Lenders must maintain average cost mechanism data for 5 years.

Those providers form the basis of the costs used in preparing the GFE, even if the borrower selects his or her own

provider.


2-14-7 Completing the 2015 Loan Estimate

The LOAN ESTIMATE includes a disclosure of loan terms, lock-in period and defines the services that the

borrower can shop for, exempting them from the fees cap. Lender charges and charges for services from providers

selected by the lender cannot change between application and closing, creating a “firm Loan Estimate”. If the

borrower cannot shop for a third party service, those fees cannot change by more than 10%.


Interest Rate – if floating, rate is valid through the time that the GFE is completed – ie.; RIGHT NOW. If locked, until midnight of the lock expiration date (Make sure that this is not a weekend or Federal Holiday)

The settlement cost estimate – the costs themselves – must be valid for at least 10 business days.


The APR disclosure, consolidated into the new form. You no longer have to explain that the APR is not the Interest Rate!

TIP – Total Interest Percentage is a brainchild of the regulator that shows the total amount of interest consumer pays over the life of the loan – a concession for the removal of the Total of Payments box on the TIL

The “Other Considerations” consolidates a number of required disclosures, such as transfer of servicing and appraisal requirement.


Disclosing Originator Compensation and Closing Costs

Total originator compensation, including Yield Spread Premiums, commitment fees and originations fees or

points are all aggregated into line 1. Only actual discount points or credits appear in section 2. There can be no

tolerance variance in costs between application and closing, except in the instance of documented changed

circumstances.

You will disclose all 3rd party loan related charges in section B and C. In addition to lender fees, you must provide

the name and contact information for the settlement service providers in association with the fees listed on the

Loan Estimate addition, aggregating costs and limiting changes in costs between application and closing creates

a requirement for a VERY accurate, “firm” estimate of closing costs.

In A.) the total fee to the originator is disclosed – it cannot change. In 2.) The lender compensation, or discount charges indicate whether the borrower is receiving a higher rate to pay the originator. A.) is the adjusted (net) origination fee.

In B.) Services that we select are Appraisal fees, credit report fees, flood certifications and tax service fees. This was NOT intended to itemize other lender charges like processing, underwriting or document preparation, which are part of A.

In C) all title related services are combined into one fee, with a line for “optional” owner’s title insurance.

In C) Services that you can shop for includes termite reports, survey, inspections, etc.

In E) Recording Fees can change and Transfer Taxes CANNOT change

F.) Prepaid items paid to escrow – escrow for real estate taxes, insurance and PMI 10) per diem interest 11) One years’ Homeowner’s insurance policy.


The Loan Estimate Process

The Loan Estimate must be used in providing the customer with a comparison shopping tool. The rules of this

new consumer tool are straightforward:

The Loan Estimate is a lock-in of closing costs. Costs may only change if circumstances that were initially

unverified change as the result of subsequently verified information. Only those elements that are affected by

any changes may change so, for example, a title issue change can only change title costs, not the entire closing

cost regime.

Since the Origination Charge (broker compensation) is set by the originator, there is no borrower related

circumstance that would cause this element to change. Changed interest rate and any other circumstance do not

affect the broker’s compensation. The LOAN ESTIMATE forces the broker to lock-in his or her compensation

in advance and honor it for at least 10 days.

The delivery of the Loan Estimate does not necessarily eliminate the need for a closing cost worksheet. Closing

cost worksheets represent useful tools to allow us to educate a consumer without inappropriately committing to a

particular cost structure. In addition, because the loan estimate is a shopping tool that starts the formal application

process, we may not provide one automatically to every applicant, such as applicants for pre-approval. Refer to

the application process matrix to determine when we must provide the Loan Estimate.


2-14-8 RESPA TRID Changed Circumstances

Originally verified information cannot constitute a basis for a change to the GFE-2010. If it is later determined

that the originally verified information is inaccurate then BD Mortgage Group LLC will provide a “Notice of

Changed Circumstances” and a new GFE-2010 within 3 days of discovering the changed information.

We retain documentation of the changed circumstance in the loan file for a period of 3 years from closing.

2-14-81 Examples of Changed Circumstances

Not Changed Circumstances

Maybe, depending Yes

Any accurate information provided prior to GFE borrower Broker issued GFE inconsistent with wholesaler’s No property address at application Broker changes from one investor to another Market changes

Borrower delays closing Original vendor goes out of business (e.g. appraiser, title company)

Acts of God, war, disaster, emergency Borrower changed: credit quality, loan amount, property value New information, not initially verified MIP/PMI factors changed Credit policy/Regulatory change Incorrect legal address initially supplied Undisclosed title or property issues Borrower changes occupancy status Borrower selects POA closing AVM – “No hit” Credit score change

2-14-82 Changed Circumstances Process

Step Process

Discovery of Changed Circumstance

Using standard checklist process for origination, processing, underwriting or closing, during loan status update or daily business operations a distinction is made as to initial information or subsequently verified information.

Immediately Identify if Circumstances change loan terms or closing cost element

Loan Terms – Qualification impacted – Address with underwriting/operations manager or investor (for brokered transactions) Closing Costs – consult with Title Agency or other closing service vendor to determine if changed circumstances result in changed costs

Within 3 days - Provide letter of Changed Circumstance

Issue the “Notification of Changed Circumstance” letter using the form. Attach Copy of Changed Circumstance Attach Revised GFE-2010


2.14.71 Completing The 2010 Good Faith Estimate


The GFE includes a disclosure of loan terms, lock-in period, and a “shopping cart” showing the tradeoff between

upfront fees and closing costs. For consumers and lenders familiar with previous forms, this document represents

more of an overall loan terms disclosure. The form eliminates the detailed itemization of most charges and

aggregates them into main categories. HUD felt that over-itemization tended to inflate closing costs. In addition,

originator compensation is clearly outlined so that, whether compensation comes from above par pricing (yield

spread), borrower paid fees, or a combination of these, borrowers will see the total compensation paid to the

originator. Lender charges and charges for services from providers selected by the lender cannot change between

application and closing, creating a “reasonable and bona-fide Good Faith Estimate”. If the borrower cannot shop

for a third party service, those fees cannot change by more than 10%.

2-14-2 TRID - Pre-Qualification, Pre-Approval and …...Pre-Qualification, pre-approval and...

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