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Upon completion of the chapter, you will be able to: • Understand how Federal laws are made and Coded • Learn about Dodd Frank and CFPB • Understand the importance of RESPA, TILA & TRID • Develop an understanding of the other Federal laws

Edition v.110817 | Ameritrain Mortgage Institute | All Rights Reserved

Introduction Federal regulations are the actual enforceable laws authorized by legislation enacted by congress and provide the legal framework for the residential mortgage industry.

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The “Rules” of Rulemaking Regulatory agencies create regulations through a rule making process

Congress The U.S. Congress is the legislative branch of the federal government and makes laws for the nation. Congress has two legislative bodies (houses): the U.S. Senate and the U.S. House of Representatives. Anyone elected to either body can propose a new law. Proposals for new laws are called bills.

The United States Code (U.S.C) Is a consolidation and codification by subject matter of the general and permanent laws of the United States.

▪ It is prepared by the Office of the Law Revision Counsel of the United States House of Representatives. ▪ Contains the general and permanent federal laws of the United States.

Federal Register The official daily publication for rules, proposed rules and notices of Federal agencies and organizations, as well as executed orders and other presidential documents.

Code of Federal Regulations (CFR) An arrangement of the general and permanent rules published in the Federal Register by the executive departments and agencies of the Federal Government. The electronic version of the CFR is updated daily.

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Primary Federal law regulating the residential mortgage industry

Dodd Frank Wall Street Reform and Consumer Protection Act: 12 U.S.C 5301 Title XIV – Mortgage Reform and Anti Predatory Lending Act

On July 21, 2010, president Obama signed into law the Dodd-Frank Wall Street Reform Act. The bill was designed to provide increased consumer protections over the entire financial services industry. However, for purposes of this course, there will be a concentration on the bill’s impact on the residential mortgage financing industry. Consumer Financial Protection Bureau (CFPB) or the (Bureau) Title X of the Act provides the authority to create a new bureau – the Consumer Financial Protection Bureau - to ensure provisions of the bill are implemented and enforced. The “Bureau” serves as an independent agency under the Federal Reserve System. Title XIV, “Mortgage Reform and Anti-Predatory Lending Act”, directly addresses the residential mortgage financing industry. It is designed to provide greater consumer protections relating to residential mortgage financing. Effectively, the Reform Act has become the single regulatory authority on a number of agencies that were under different regulatory entities. RESPA and TILA, the two most overreaching pieces of legislation along with other areas of regulation relating to residential mortgage financing, are now under the authority of CFPB. Housing and Urban Development (HUD) Originally HUD was the regulatory authority over RESPA that authority has now been transferred to the CFPB and HUD still remains the enforcement agency over fair housing laws and the Federal Housing Administration (FHA). Federal Reserve Board (Board) Originally, TILA was under the authority of the Board. That authority has now been transferred to the CFPB. The Bureau’s specific regulatory authority affecting the residential mortgage industry includes the following laws:

▪ Alternative Mortgage Transactions Parity Act (AMTPA) ▪ Truth in Lending Act (TILA) pronounced TILA ▪ Real Estate Settlement Procedures Act (RESPA) ▪ TILA/RESPA Integrated Disclosure Act (TRID) ▪ The Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) Pronounced SAFE Act ▪ Equal Credit Opportunity Act (ECOA) ▪ Homeowners Protection Act (HPA) ▪ Gramm-Leach-Bliley Act (GLBA) ▪ Home Mortgage Disclosure Act (HMDA) ▪ Home Ownership & Equity Protection Act (HOEPA) ▪ Fair Credit Reporting Act (FCRA)

Primary Federal Laws

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Edition v.021918 | Ameritrain Mortgage Institute | All Rights Reserved

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Originally under the authority of the Housing and Urban Development, RESPA was transferred to the Consumer Financial Protection Bureau (CFPB) and codified under the Code of the Federal Registry as Title 12 Banks and Banking on January 1, 2012 as 12 CRF 1024 (Regulation X).

The purposes and coverages of RESPA are: 1. To help consumers become better shoppers for settlement services. 2. To eliminate kickbacks and referral fees that unnecessarily increase the costs of certain settlement services.

(RESPA Section 8)

RESPA covers federally related loans secured with a mortgage or other security instrument placed on one-to-four family residential properties.

RESPA amended for TILA-RESPA Integrated Disclosure Rule (TRID) The TILA-RESPA Integrated Disclosure Rule (TRID) amended RESPA Section 4 (HUD-1) and Section 5 (GFE and Special Information Booklet) disclosure requirements. These initial disclosure requirements (HUD-1, GFE and Special Information Booklet) are now limited to reverse mortgage loans and loans made by a lender who makes five or fewer loans in a year. All other RESPA disclosure requirements apply to loans covered under RESPA and TRID.

RESPA Required Disclosures • RESPA Section 4: HUD-1 Settlement Statement: Required at closing or settlement. Amended under TRID

• RESPA SECTION 5: Special Information Booklet, (Required for purchase transactions only) three days after receiving the loan application. Amended under TRID.

• RESPA SECTION 5: Good Faith Estimate (GFE) of settlement costs required three days after receiving the loan application. Amended under TRID. RESPA Section 6: Mortgage Servicing Disclosure Statement, which discloses to the borrower whether the lender intends to service the loan or transfer it to another lender.

Tip: Remember RESPA Sections 4 and 5 do not apply to creditors that make more

than 5 loans annually.

Real Estate Settlement Procedures Act

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Lenders and brokers originating mortgage loans are required to provide borrowers with certain disclosures under RESPA Sections 4 and 5 depending on the number of loans they make in a year or whether they provide financing for reverse mortgages. The table below provides an overview:

The terms "settlement" and "closing" can be and are used interchangeably under RESPA and within the mortgage industry.

Other RESPA Disclosure Requirements and Prohibited Practices

Affiliated Business Arrangement (ABA) Disclosure: This disclosure is required whenever a settlement service provider involved in a RESPA covered transaction refers a consumer to a provider with whom the referring party has:

▪ a greater than 1% ownership ▪ other beneficial interest ▪ an associate relationship, meaning the transaction would not qualify as “arms-length”

The referring party must give the ABA disclosure to the consumer at or prior to the time of referral. The disclosure: ▪ describes the business arrangement that exists between the two providers ▪ gives the borrower an estimate of the second provider's charges ▪ not required when a lender refers a borrower to an attorney, consumer reporting agency or real estate appraiser

to represent the lender's interest in the transaction

What is a Sham Affiliated Business Arrangement?

It is a business relationship created between settlement service providers for the sole purpose of splitting fees. When splitting of fees occur when no service is provided, it is a violation of RESPA Section 8.

RESPA Section 8: This section of RESPA mandates the elimination of kickbacks and referral fees that unnecessarily

increase the costs of certain settlement services. We will cover Section 8 in more detail in the Ethics portion of this course.

If a creditor makes 5 or fewer loans annually or Reverse Mortgages

If a creditor makes 6 or more loans annually

Provide borrower with:

• Good Faith Estimate (GFE) (Under RESPA)

• HUD 1 (Under RESPA)

Provide borrower with:

• Loan Estimate (Under TRID)

• Closing Disclosure (Under TRID)

Real Estate Settlement Procedures Act

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RESPA Section 9 - Seller Required Title Insurance: RESPA prohibits a seller from requiring the home buyer

to use a particular title insurance company, either directly or indirectly, as a condition of sale. Buyers may sue a seller who violates this provision for an amount equal to three times all charges made for the title insurance.

RESPA Section 10- Limits on Escrow Accounts: Section 10 of RESPA sets limits on the amount that a lender

may require a borrower to put into an escrow account for purposes of paying taxes, hazard insurance and other charges related to the property.

The Initial Escrow Statement itemizes the estimated taxes, insurance premiums and other charges anticipated to be paid from the Escrow Account during the first twelve months of the loan. It lists the Escrow payment amount and any required cushion. Although the statement is usually given at settlement, the lender has 45 days from settlement to deliver it.

The Annual Escrow Statement once a year due within 30 days of the end of the year used for escrow computation. The annual Escrow account statement summarizes all escrow account deposits and payments during the servicer's twelve-month computation year. It also notifies the borrower of any shortages or surpluses in the account and advises the borrower about the course of action being taken.

Servicing Disclosure 12 CFR 1024.21

Mortgage Servicing Transfers Definitions– Reference Sec. 12 CFR 1024.21 (RESPA Section 6)

Term or Phrase Definition Under RESPA Master Servicer The owner of the right to perform servicing, which may actually perform the

servicing itself or may do so through a subservicer Mortgage servicing loan

A federally-related mortgage loan, when the mortgage loan is secured by a first lien. The definition does not include subordinate lien loans or open-end lines of credit (home equity plans) covered by the Truth in Lending Act and Regulation Z, including open-end lines of credit secured by a first lien.

Qualified written request

A written correspondence from the borrower to the servicer

Subservicer A servicer who does not own the right to perform servicing, but who does so on behalf of the master servicer

Transferee servicer

A servicer who obtains or who will obtain the right to perform servicing functions pursuant to an agreement or understanding

Transferor servicer

A servicer, who transfers or will transfer the right to perform servicing functions pursuant to an agreement or understanding

Service release premium (SRP)

The fee earned for selling the rights to service a residential real estate loan

Primary Federal Laws

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Servicing Disclosure Statement

Requirements

(1) Must be provided within three business days of receiving a loan application. It is included within the Loan Estimate disclosure and is not a standalone document.

(2) A lender must disclose if the servicing of the loan may be assigned, sold or transferred to any other person at any time while the loan is outstanding. Transfer of servicing means that the borrower will make payments to a new servicer.

Notices of Transfer

Loan servicing

(1) Each transferor servicer and transferee servicer of any mortgage servicing loan must deliver to the borrower a written Notice of Transfer, of any assignment, sale, or transfer of the servicing of the loan.

(2) Time of notice – 15-day notice (a) The transferor servicer must deliver the Notice of Transfer to the borrower no less than 15 days

before the effective date of the transfer of the servicing of the mortgage servicing loan (b) The transferee servicer must deliver the Notice of Transfer to the borrower no more than 15

days after the effective date of the transfer (c) The transferor and transferee servicers may combine their notices into one notice, which must

be delivered to the borrower not less than 15 days before the effective date of the transfer of the servicing of the mortgage servicing loan.

(d) Notices of Transfer delivered at settlement by the transferor servicer and transferee servicer, whether as separate notices or as a combined notice, will satisfy the disclosure timing requirements.

Consumer protection during transfer of servicing

During the 60-day period beginning on the effective date of transfer of the servicing of any mortgage servicing loan, if the transferor servicer (rather than the transferee servicer that should properly receive payment on the loan) receives payment on or before the applicable due date (including any grace period allowed under the loan documents), a late fee may not be imposed on the borrower with respect to that payment, and the payment may not be treated as late for any other purposes.

Primary Federal Laws

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Duty of loan servicer to respond to borrower inquiries

(1) Notice of receipt of inquiry. Within 5 business days of a servicer of a mortgage servicing loan receiving a written request identifying the name and account number of the borrower from the borrower for information relating to the servicing of the loan, the servicer must:

▪ provide to the borrower a written response acknowledging receipt of the qualified written response.

(2) No later than 30 business days after receiving a qualified written request from the borrower, and if applicable, before taking any action with respect to the inquiry, the servicer must:

▪ make appropriate corrections in the account of the borrower, including the crediting of any late charges or penalties, and transmit to the borrower a written notification of the correction.

▪ provide written notification to include the name and telephone number of a representative of the servicer who can assist the borrower.

(3) A servicer must notify a borrower of any delinquency by the 36th day of the delinquency on the loan payment.

Protection of credit rating

During the 60-business-day period beginning on the date of the servicer receiving from a borrower a qualified written request relating to a dispute on the borrower's payments, a servicer may not:

▪ provide adverse information regarding any payment that is the subject of the qualified written request to any consumer reporting agency.

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Damages and costs

(1) Whoever fails to comply with any provision of this section will be liable to the borrower for each failure in the following amounts:

(a) Individuals. In the case of any action by an individual, an amount equal to the sum of any actual damages sustained by the individual as the result of the failure, and when there is a pattern or practice of noncompliance with the requirements of this section, any additional damages in an amount not to exceed $1,000.

(b) Class Actions. In the case of a class action, an amount equal to the sum of any actual damages to each borrower in the class that result from the failure, and when there is a pattern or practice of noncompliance with the requirements of this section, any additional damages in an amount not greater than $1,000 for each class member. However, the total amount of any additional damages in a class action may not exceed the lesser of $500,000, or 1% of the net worth of the servicer.

(c) Costs. In addition, in the case of any successful action, the costs of the action and any reasonable attorneys' fees incurred in connection with the action.

Timely payments by servicer

If the terms of any mortgage servicing loan require the borrower to make payments to the servicer of the loan for deposit into an escrow account for the purpose of assuring payment of taxes, insurance premiums and other charges with respect to the mortgaged property, the servicer will:

▪ make payments from the escrow account in a timely manner for the taxes, insurance premiums and other charges as the payments become due, as governed by the requirements.

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12 CFR 1024.17 RESPA (Section 10)

This section outlines requirements for an escrow account that a lender establishes in association with a federally-related mortgage loan. RESPA requires an initial escrow statement to be provided to the consumer:

• at closing

• on an annual basis.

Escrow Related Definitions Terms and Phrases Definition under RESPA Annual Escrow Account Statement

A statement containing all of the information set forth in 12 CFR 1024.17(i). As noted in 12 CFR 1024.17(i), a servicer shall submit an annual escrow account statement to the borrower within 30 calendar days of the end of the escrow account computation year, after conducting an escrow account analysis. aggregate analysis

Cushion or reserve (hereafter cushion)

Funds that a servicer may require a borrower to pay into an escrow account to cover unanticipated disbursements or disbursements made before the borrower's payments are available in the account. Limited to a 2 month cushion reserve. 12 CFR 1024.17(c).

Deficiency Is the amount of a negative balance in an escrow account? As noted in 12 CFR 1024.17(f), if a servicer advances funds for a borrower, the servicer must perform an escrow account analysis before seeking repayment of the deficiency.

Escrow account Any account that a servicer establishes or controls on behalf of a borrower to pay taxes, insurance premiums (including flood insurance), or other charges with respect to a federally-related mortgage loan including charges that the borrower and servicer have voluntarily agreed that the servicer should collect and pay.

Initial escrow account statement

The first disclosure statement that the servicer delivers to the borrower concerning the borrower's escrow account. The initial escrow account statement is provided at settlement or within 45 days of settlement. 12CFR 1024.17(g)

Shortage An amount by which a current escrow account balance falls short of the target balance at the time of escrow analysis. The servicer may do the following:

1. Allow a shortage to exist and do nothing to change it 2. Require the borrower to repay the shortage amount within 30 days 3. Require the borrower to repay the shortage amount in equal monthly payments

over at least a 12-month period. If the shortage amount is greater than one month escrow payment then only option 1 and 3 are available.

Continued next page…

Escrow Accounts

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Penalties. A servicer's failure to submit to a borrower an initial or annual escrow account statement meeting the requirements of this part will constitute a violation of RESPA. For each violation, the Secretary will assess a civil penalty of 75 dollars ($75), except that the total of the assessed penalties may not exceed $130,000 for any one servicer for violations that occur during any consecutive 12-month period.

Record Keeping, Violations, Enforcement

Record keeping Any documents provided in accordance with this section must be retained for five (5) years from the date of execution.

Violations of Section 8 ▪ Violations of Section 8 anti-kickback provisions fines: Up to $10,000 and/or imprisonment up to one year ▪ For civil law suits: Limited up to three times of the charge paid for the service. ▪ Civil penalties: Up to three time the amount of the service received

Again, we will explore RESPA Section 8 in more detail in the Ethics portion of this course.

Terms and Phrases Definition under RESPA Surplus An amount by which the current escrow account balance exceeds the target balance for

the account.

If an escrow account analysis discloses a surplus, the servicer shall, within 30 days from the date of the analysis, refund the surplus to the borrower if the surplus is greater than or equal to 50 dollars ($50). If the surplus is less than 50 dollars ($50), the servicer may refund such amount to the borrower, or credit such amount against the next year's escrow payments.

Target balance The estimated month-end balance in an escrow account that is sufficient to cover the remaining disbursements from the escrow account in the escrow account computation year, taking into account the remaining scheduled periodic payments and a cushion, if any.

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12 CFR 1024.37 “Force-placed insurance” means hazard insurance obtained by a servicer on behalf of the owner or assignee of a mortgage loan that insures the property securing such a loan.

Basis for Charging Borrower for Force-Placed Insurance A servicer may not assess on a borrower a premium charge or fee related to force-placed insurance unless the servicer has a reasonable basis to believe that the borrower has failed to comply with the mortgage loan contract's requirement to maintain hazard insurance. Before a servicer can assesses a borrower any premium charge or fee related to force-placed insurance, the servicer must:

▪ Deliver to a borrower or place in the mail a written notice at least 45 days before a servicer assesses on a borrower such charge or fee.

▪ If there is no evidence that the insurance is in place, the creditor may deliver a second notice 15 days after the initial notice.

12 CFR 1024.41

Prohibition on Foreclosure: A servicer may not make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process unless:

▪ A borrower's mortgage loan obligation is more than 120 days delinquent; ▪ The foreclosure is based on a borrower's violation of a due-on-sale clause; or ▪ The servicer is joining the foreclosure action of a subordinate lienholder

Loss Mitigation Procedures

Forced Placed Insurance