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
3
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
4
Rule Making Authority
Who Has It?
• Consumer Financial Protection Bureau (CFPB).
Who Had It?
Federal Reserve Board.
Regulation Z - Truth in Lending Compliance Training
5
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.
Regulation Z - Truth in Lending Compliance Training
6
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.
Regulation Z - Truth in Lending Compliance Training
7
Liability Provisions
What is the scope of this law?• Criminal liability
• Fines• Imprisonment• Or Both
Restitution!
Penalties Monetary Damages Restitution
Exceptions
Regulation Z - Truth in Lending Compliance Training
Regulation Z Rule Changes
9
Regulation Z Rule Changes
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
Regulation Z - Truth in Lending Compliance Training
10
Regulation Z Rule Changes
And Last but NOT Least
• TILA-RESPA Integrated Disclosures
Regulation Z - Truth in Lending Compliance Training
Closing DisclosureLoan Estimate
11
Regulation Z Rule Changes
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;
Regulation Z - Truth in Lending Compliance Training
Regulation Z Rule Changes
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.
12 Regulation Z - Truth in Lending Compliance Training
13
Regulation Z Rule Changes
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.
Regulation Z - Truth in Lending Compliance Training
Regulation Z Rule Changes
Qualified Mortgage (QM) Standards
• 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.
14 Regulation Z - Truth in Lending Compliance Training
Regulation Z Rule Changes
Qualified Mortgage (QM) Standards
• 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.
15 Regulation Z - Truth in Lending Compliance Training
Regulation Z Rule Changes
Qualified Mortgage (QM) Standards
• 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.
16 Regulation Z - Truth in Lending Compliance Training
Regulation Z Rule Changes
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.
17 Regulation Z - Truth in Lending Compliance Training
18
Regulation Z Rule Changes
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
Regulation Z - Truth in Lending Compliance Training
Regulation Z Rule Changes
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
19 Regulation Z - Truth in Lending Compliance Training
20
Regulation Z Rule Changes
Mortgage loan origination (MLO) standards
Effective January 10, 2014.
Prohibits steering incentives and dual
compensation.
Additional SAFE Act duties on Credit Unions
- Character, fitness and background
standards.
- Appropriate training.
- NMLS# on loan documents.
Regulation Z - Truth in Lending Compliance Training
Regulation Z Rule Changes
Appraisals
Effective January 18, 2014.
• Loans secured by first lien on a dwelling.
• Notification requirements.
• Applicants right to waive timing for providing copy.
• Free copy.
21 Regulation Z - Truth in Lending Compliance Training
22
Regulation Z Rule Changes
Appraisals for “higher price” mortgage loans
Effective January 18, 2014.
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
Regulation Z - Truth in Lending Compliance Training
Regulation Z Rule Changes
HOEPA Restrictions
Effective January 10, 2014.
Expands protection of “high cost mortgages”.
Preloan counseling requirements.
23 Regulation Z - Truth in Lending Compliance Training
Regulation Z Rule Changes
Counseling
Home Ownership Counseling.
Preloan Counseling.
Negative Amortization Counseling.
24 Regulation Z - Truth in Lending Compliance Training
TILA-RESPA Integrated Disclosures
26
TILA-RESPA Integrated Disclosures
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.
Regulation Z - Truth in Lending Compliance Training
27
TILA-RESPA Integrated Disclosures
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.
Regulation Z - Truth in Lending Compliance Training
Loan Estimate
29
TILA-RESPA Integrated Disclosures
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.
Regulation Z - Truth in Lending Compliance Training
TILA-RESPA Integrated Disclosures
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).
30 Regulation Z - Truth in Lending Compliance Training
31
TILA-RESPA Integrated Disclosures
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.
Regulation Z - Truth in Lending Compliance Training
32
TILA-RESPA Integrated Disclosures
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.
Regulation Z - Truth in Lending Compliance Training
33
TILA-RESPA Integrated Disclosures
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.
Regulation Z - Truth in Lending Compliance Training
34
TILA-RESPA Integrated Disclosures
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.
Regulation Z - Truth in Lending Compliance Training
35
TILA-RESPA Integrated Disclosures
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.
Regulation Z - Truth in Lending Compliance Training
TILA-RESPA Integrated Disclosures
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.
36 Regulation Z - Truth in Lending Compliance Training
TILA-RESPA Integrated Disclosures
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.
37 Regulation Z - Truth in Lending Compliance Training
TILA-RESPA Integrated Disclosures
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.
38 Regulation Z - Truth in Lending Compliance Training
TILA-RESPA Integrated Disclosures
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.
39 Regulation Z - Truth in Lending Compliance Training
TILA-RESPA Integrated Disclosures
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.
40 Regulation Z - Truth in Lending Compliance Training
TILA-RESPA Integrated Disclosures
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.
41 Regulation Z - Truth in Lending Compliance Training
Closing Disclosure
TILA-RESPA Integrated Disclosures
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.
43 Regulation Z - Truth in Lending Compliance Training
TILA-RESPA Integrated Disclosures
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.
44 Regulation Z - Truth in Lending Compliance Training
TILA-RESPA Integrated Disclosures
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.
45 Regulation Z - Truth in Lending Compliance Training
TILA-RESPA Integrated Disclosures
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.
46 Regulation Z - Truth in Lending Compliance Training
TILA-RESPA Integrated Disclosures
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.
47 Regulation Z - Truth in Lending Compliance Training
TILA-RESPA Integrated Disclosures
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.
48 Regulation Z - Truth in Lending Compliance Training
TILA-RESPA Integrated Disclosures
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).
49 Regulation Z - Truth in Lending Compliance Training
TILA-RESPA Integrated Disclosures
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.
50 Regulation Z - Truth in Lending Compliance Training
TILA-RESPA Integrated Disclosures
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.
51 Regulation Z - Truth in Lending Compliance Training
TILA-RESPA Integrated Disclosures
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.
52 Regulation Z - Truth in Lending Compliance Training
TILA-RESPA Integrated Disclosures
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
53 Regulation Z - Truth in Lending Compliance Training
TILA-RESPA Integrated Disclosures
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.
54 Regulation Z - Truth in Lending Compliance Training
TILA-RESPA Integrated Disclosures
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
55 Regulation Z - Truth in Lending Compliance Training
Thank You!
GBQ Partners LLC230 West Street, Suite 700Columbus, Ohio 43215
Karen M. Janota, AAP, BSACS, CUCE
Assurance Manager
614-947-5288 cell 614-419-3711
Top Related