Regulation Z Compliance Training Webinar 4-14-2016...Current debt obligations, alimony, and child...

Regulation Z - Truth in Lending Compliance Training

1 Regulation Z - Truth in Lending Compliance Training

Introduction

Karen M. JanotaAssurance Manager

Today’s presenters:

Disclaimer: The contents of this presentation are intended toprovide you with a general understanding of the subjectmatter. However, it is not intended to provide legal,accounting, or other professional advice, and should not berelied on as such.

Introduction to Regulation Z - Truth in Lending

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Truth in Lending Act History

Enacted by Title 1 of the Consumer Credit Protection Act of 1968.

Later amended by acts of Congress:- Fair Credit Billing Act of 1974

- Consumer Leasing Act of 1976

- Truth in Lending Simplification and Reform Act of 1980

- Competitive Equality Banking Act of 1987

- Fair Credit and Charge Card Disclosure Act of 1988

- Home Equity Loan Consumer Protection Act of 1988

- Home Ownership and Equity Protection Act of 1994

- Economic Growth and Regulatory Paperwork Reduction Act of 1996

- Mortgage Disclosure Improvement Act of 2008

- Credit Card Accountability Responsibility and Disclosure Act (or CARD Act) of 2009

- Helping Families Save Their Homes Act of 2009

- Wall Street Reform and Consumer Protection Act, or Dodd-FrankRegulation Z - Truth in Lending Compliance Training

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Rule Making Authority

Who Has It?

• Consumer Financial Protection Bureau (CFPB).

Who Had It?

Federal Reserve Board.


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Purpose of the Truth in Lending Act

Promote the informed use of Consumer Credit.

Gives consumers the right to cancel certain credit transactions.

Regulates certain credit card practices.


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Scope and Exemptions

Scope Covers Consumers. Credit primarily for personal, family or household

purposes. Subject to a finance charge or payable in more

than four installments.

Exempt Business, commercial, agricultural, or organizational

credit. Credit over a specified threshold. Extension of credit not secured by real property, or

by personal property. Certain student loans.


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Liability Provisions

What is the scope of this law?• Criminal liability

• Fines• Imprisonment• Or Both

Restitution!

Penalties Monetary Damages Restitution

Exceptions


Regulation Z Rule Changes

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Seven mortgage lending regulations finalized in January 2013.

• Ability-to-Repay (ATR) and “qualified mortgages” (QM)

• Mortgage Servicing

• Mortgage loan origination (MLO) standards

• Appraisals

• Appraisals for “higher-priced” mortgage loans

• HOEPA

• Counseling


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And Last but NOT Least

• TILA-RESPA Integrated Disclosures


Closing DisclosureLoan Estimate

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Ability to Repay Effective January 10, 2014.

• Applies to all consumer-purpose, closed-end mortgage

loans secured by a dwelling.

Does not apply to:

Home equity lines of credit (HELOCs);

Mortgages secured by a timeshare;

Reverse mortgages;

Temporary or bridge loans;

Construction loans;

Business purpose loans;



Ability to Repay Factors

1. Current or reasonably expected income or assets;2. Current employment status;3. The monthly payment on the covered transaction;4. The monthly payment on any simultaneous loan that the

Credit Union knows or has reason to know will be made;5. The monthly payment for mortgage-related obligations;6. Current debt obligations, alimony, and child support;7. The monthly debt-to-income ratio or residual income; and8. Credit history.


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Qualified Mortgage (QM) Standards

Types of Qualified Mortgages

- General and Temporary

- Small Creditor and Balloon

“Qualified Mortgage” requirements

- Regular periodic payments

- Prohibits certain risky features and practices.




• QMs for “high-priced loans”

- First lien mortgage, APR over 1.5% over APOR.

- Subordinate-lien mortgage, APR exceeded APORby 3.5% or more.

- Small creditor or Balloon-Payment, APR exceedsAPOR by 3.5% or more, for 1st and subordinate-lien mortgages.




• Prepayment penalties.

- Certain limitations apply.

Not apply after the 3 year period followingconsummation;

Must not exceed 2% of outstanding loanamount during the first 2 years followingconsummation; and

Must not exceed 1% if incurred during thethird year following consummation.




• Balloon payment mortgage loans.

- Originated and held in portfolio for at least threeyears by “small creditors”;

- Must have term of at least 5 years, have a fixedinterest rate, and meet certain underwritingstandards.

- Regular periodic payments, loan term not to exceed 30 years, points and fees do not exceedthresholds, and satisfy consideration and verification requirements.



CFPB Broadens Definition of “Small Creditor”

- Effective March 31, 2016

- Amends definition of “rural area”

- Changes eligibility of certain small creditors thatoperate in rural or underserved areas to qualify foran exemption.


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Mortgage Servicing

Effective January 10, 2014.

Exemptions.

Reg Z changes.- Periodic Statement Requirements- Interest Rate Adjustment Notice for ARMs- Prompt crediting of mortgage payments Applies to 1st lien, subordinate-lien, &

HELOCs



Mortgage Servicing

Reg X changes.

- Forced-placed insurance

- Error resolution and information requests

- Servicing policies and procedures

- Early intervention with delinquent borrowers

- Continuity of contact for delinquent borrowers

- Loss mitigation procedures


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Mortgage loan origination (MLO) standards


Prohibits steering incentives and dual

compensation.

Additional SAFE Act duties on Credit Unions

- Character, fitness and background

standards.

- Appropriate training.

- NMLS# on loan documents.



Appraisals


• Loans secured by first lien on a dwelling.

• Notification requirements.

• Applicants right to waive timing for providing copy.

• Free copy.


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Appraisals for “higher price” mortgage loans


Physical inspection of property.

Appraiser independence.

Requirements to provide applicants regarding appraisals.

Second written appraisal.

Exemptions.

“Qualified mortgages” Loans for initial construction

Reverse mortgages Bridge loans – 12 mon. or less

Loans secured by newly manufactured home, mobilehome, boat, or trailer



HOEPA Restrictions


Expands protection of “high cost mortgages”.

Preloan counseling requirements.



Counseling

Home Ownership Counseling.

Preloan Counseling.

Negative Amortization Counseling.


TILA-RESPA Integrated Disclosures

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Basic Overview and Scope

The TILA-RESPA Integrated Disclosure rule consolidatesfour existing disclosures required under TILA and RESPAfor most closed-end consumer credit transactions secured by real estate into two forms:

Loan Estimate given 3 business days after application

Closing Disclosure given 3 business days prior toconsummation.


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Basic Overview and Scope

The rule does not apply to: Reverse mortgages Home-equity lines of credit (HELOCs) Mobile home loans Loans made by a person who makes five or fewermortgages in a year Certain no-interest loans secured by subordinate liensmade for the purpose of down payment or similar homebuyer assistance, property rehabilitation, energyefficiency, or foreclosure avoidance or prevention

GFE, HUD-1, and Truth-in-Lending disclosures required underthe law must continue to be used.


Loan Estimate

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Loan Estimate (§§ 1026.19(e) and .37)

Integrates and replaces the Initial Truth-in-Lendingdisclosure and the RESPA GFE.

Loan Estimate must:

Provide consumers with a good faith estimate of creditcosts and transaction terms. Be in writing and contain the information prescribed in1026.37 (as shown in Appendix H-24). Satisfy timing and delivery requirements set forth in therule.



Loan Estimate: General Content (§§ 1026.37)

Page 1: General General information related to applicants, property, loan, and rate

lock status; Loan Terms; Projected Payments during term of theloan; Costs at Closing, including the total estimated closing costsand the estimated cash to close.

Page 2: Costs Loan Costs; Other Costs; Calculating Cash to Close; Adjustable

Interest Rate Table (when applicable); Adjustable Payment Table(when applicable).

Page 3: Other Contact information for creditor and loan officer, Comparisons, Other

Considerations, and Confirm Receipt (optional).


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Loan Estimate: Alternative (§ 1026.37(d)(2))

An Alternative Loan Estimate may be used if thetransaction does not have a seller .

Checkboxes are used to indicate if the Cash to Close isbeing paid by or to the consumer on Page 1.

An Alternative Calculating Cash to Close table is usedwith fewer entries on Page 2.


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Loan Estimate Delivery Requirements

• A creditor must deliver or place the Loan Estimate in the mailnot later than the third business day after the creditor receives the consumer’s application.

If a mortgage broker receives a consumer’s application,either the creditor or the mortgage broker may provide a consumer with the Loan Estimate.

If the Loan Estimate is not provided to the consumer in person, the consumer is considered to have received it three business days after it is delivered or placed in the mail.


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Application

An application consists of the submission of:

the consumer’s name, � the consumer’s income, � the consumer’s social security number to obtain a

credit report, � the property address, � an estimate of the value of the property, and � the mortgage loan amount sought.


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Business Day

For purposes of providing the Loan Estimate, abusiness day is a day on which the creditor’s officesare open to the public for carrying out substantially all of its business functions.

For other purposes, including delivery of the ClosingDisclosure, business day means all calendar days except Sundays and legal public holidays.


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Loan Estimate: Good faith requirement

Loan Estimate figures must be made in good faith and consistent with the best information reasonably available tothe creditor at the time disclosed.

To determine good faith: Look at difference between the estimated charges originally

provided in the Loan Estimate and the actual charges paid byor imposed on the consumer. Generally (exceptions on next two slides), if the charge paid

by or imposed on the consumer exceeds the amountoriginally disclosed on the Loan Estimate it is not in good faith. -This is true regardless of whether the creditor later discovers a

technical error, miscalculation, or underestimation of a charge.



Loan Estimate: Tolerance Limitations

Certain charges are not subject to a tolerance limitation.� Prepaid interest; property insurance premiums; amounts

placed into an escrow, impound, reserve or similar account; � Services required by the creditor if the creditor permits the

consumer to shop and the consumer selects a third-partyservice provider not on the creditor’s written list of serviceproviders; and

� Charges paid to third-party service providers for services not required by the creditor (may be paid to affiliates of thecreditor).

However, creditors may only charge more than the amountdisclosed when the original estimate, or lack thereof, wasbased on the best information reasonably available at thetime of the disclosure.



10% Cumulative and Zero Tolerances

Some charges subject to a 10% cumulativetolerance. Recording fees, and Charges for third-party services where: Charge is not paid to credit union or affiliate, or Member is permitted to shop, but selects third-party

service provider on credit union’s written list of serviceproviders.

Other charges subject to zero tolerance. Fees paid to credit union, mortgage broker, or

affiliate, of either: Fees paid to unaffiliated third-party if credit union did

not permit member to shop. Transfer taxes.



Revisions and Corrections to Loan Estimates

General Rule.

Revised Loan Estimates permitted only in certain specific circumstances.

Changed circumstances cause estimated settlementcharges to increase more than is permitted; Changed circumstances affect member’s eligibility for the

terms applied for, or value of the security; Revisions requested by the member; Interest rate was not locked; Member indicates intent to proceed more than 10

business days after Loan Estimate was provided; New construction loan settlement delayed.



Changed Circumstances

A changed circumstance for purposes of a revised LoanEstimate is:

� An extraordinary event beyond the control of any interestedparty or other unexpected event specific to the consumer ortransaction;

� Information specific to the consumer or transaction that thecreditor relied upon when providing the Loan Estimate and that was inaccurate or changed after the disclosures were provided;or

� New information specific to the consumer or transaction thatthe creditor did not rely on when providing the Loan Estimate.



General Timing Requirement for Revised Loan Estimate

General Rule – 3 business days.

Restrictions – Not on or after date Closing Disclosure provided – No later than 4 business days prior toconsummation.



General Timing Requirement for Revised Loan Estimate

Changed Circumstance Less than 4 business days between the time a

revised Loan Estimate is required to be providedand consummation: May provide Closing Disclosure reflecting revised charges. May rely on those figures rather than on the Loan Estimate.

Triggering event between 4th and 3rd business day fromconsummation: May reflect revised charges on Closing Disclosure.

Event occurs after 1st Closing Disclosure provided: May use revised charges on Closing Disclosure provided at

consummation.


Closing Disclosure


Closing Disclosure

Integrates and replaces the Final Truth-in Lendingdisclosure and the RESPA HUD-1.

Closing Disclosure must:� Generally contain the actual terms and costs of the

transaction.� Be in writing and contain the information prescribed in

1026.38 (as shown in Appendix H-25). � Satisfy timing and delivery requirements set forth in the

rule.



Closing Disclosure: General Contents

Page 1: General Information, Loan Terms, Projected Payments, Costs at

Closing. Page 2: Costs Loan Costs, Other Costs. Page 3: Cash to Close and Summaries Calculating Cash to Close, Summaries of Transactions. Page 4: Additional Loan Information Loan Disclosures, Escrow Account, AP and AIR Tables

(when applicable). Page 5: Other Information Loan Calculations, Other Disclosures, Contact

Information, Confirm Receipt.



Closing Disclosure: Alternative

An Alternative Closing Disclosure may be used if thetransaction does not have a seller.

Checkboxes are used to indicate if the Cash to Close isbeing paid by or to the consumer on Page 1.

The seller’s column for costs is deleted on Page 2. The Summaries of Transactions is deleted and Payoffs and

Payments are disclosed at the top of Page 3. An Alternative Calculating Cash to Close table is used with

fewer entries on Page 3.



Closing Disclosure Delivery Requirement

Credit union must ensure the member (buyer) receivesClosing Disclosure no later than 3 business days beforeconsummation. � May contract with a settlement agent to provide the

Closing Disclosure on the credit union’s behalf. Consummation defined under Regulation Z as the time

that a member becomes contractually obligated on acredit transaction.

If the Closing Disclosure is not provided to the memberin person, the member is considered to have received it 3 business days after it is delivered or placed in the mail.

Must be given separately to each member in rescindabletransactions.



Revisions and Corrections to Closing Disclosures

General Rule. Must redisclose terms or costs if certain changes

occur after Closing Disclosure was provided. Three categories of changes.

Changes before consummation that require newthree-business-day waiting period.

Changes before consummation that do notrequire new three-business-day waiting period.

Changes that occur after consummation. Member has right to inspect revised Closing

Disclosure during the business day beforeconsummation.



Changes Before Consummation

New three-business-day waiting period requiredwhen:

� Disclosed APR becomes inaccurate. � Loan product changes.� Prepayment penalty is added.

New three-business-day waiting period not required for other changes.



Changes After Consummation

A corrected Closing Disclosure is required afterconsummation:

� When an event in connection with the settlementcauses the Closing Disclosure to become inaccurateand that results in a change to an amount paid by the member or seller occurs within the 30-dayperiod after consummation.

� To document refunds for tolerance violations. � To correct non-numerical clerical errors.

• An error is clerical if it does not affect a numerical disclosure anddoes not affect the timing, delivery, or other requirements imposedby § 1026.19(e) or (f).



Changes After Consummation

Revised Closing Disclosure must be delivered or placed inthe mail no later than 30 days after receiving informationthat the event had occurred.

Clerical Errors – Revised Closing Disclosure must bedelivered or placed in the mail no later than 60 days afterconsummation.



Curing Tolerance Violations

If amounts paid by member at closing exceeds amounts disclosed on Loan Estimate beyond applicable tolerance threshold: Refund excess to member no later than 60 days after

consummation, and Deliver a corrected Closing Disclosure no later than 60 days

after consummation.

Zero tolerance charges – excess amount must berefunded.

10% cumulative tolerance charges – difference must berefunded.



Pre-Disclosure Restrictions No fees may be imposed on a member until the member has

received the Loan Estimate and indicated intent to proceed withthe transaction � Except for bona fide and reasonable fee for obtaining the member’s

credit report. If a member is provided with a written estimate of terms or costs

before receiving the Loan Estimate: � Top of first page must contain a statement that “Your actual rate,

payment, and costs could be higher. Get an official Loan Estimatebefore choosing a loan”.

� The estimate may not be made with headings, content, and formatsubstantially similar to the Loan Estimate form and must be in fontsize no smaller than 12-point.

May not require member to submit documents verifyinginformation related to application before providing Loan Estimate.



Special Information Booklet

Credit union must provide the special informationbooklet (REPSA Settlement Costs Booklet) to memberswho apply for a consumer credit transaction secured byreal property no later than 3 business days after receiving the member’s loan application.

Applicants for HELOCs get “When Your Home is On the Line: What You Should Know About Home Equity Lines of Credit” brochure.

Not required if the consumer is applying for: �Refinance �Subordinate lien �Reverse mortgage



Other Disclosures: Escrow Account Cancellation Notice

Provide notice no later than 3 business days before themember’s escrow account is canceled.

Other Disclosures: Partial Payment Policy in MortgageTransfer Notice

If notice of a mortgage ownership’s transfer is required, that notice must include information about the applicable partial payment policy.



CFPB Recourses

Dedicated Regulatory Implementation Website:http://www.consumerfinance.gov/regulatory-implementation/tila-respa/� Small Entity Compliance Guide � Guide to Forms � Sample and Annotated Forms � Links to Webinars � Additional Guidance Materials

eRegulations Tool: http://www.consumerfinance.gov/eregulations


Thank You!

GBQ Partners LLC230 West Street, Suite 700Columbus, Ohio 43215

Karen M. Janota, AAP, BSACS, CUCE

Assurance Manager

[email protected]

614-947-5288 cell 614-419-3711

Regulation Z Compliance Training Webinar 4-14-2016...Current debt obligations, alimony, and child...

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