Real Estate Finance Unit 15

Front 1

Teaser rate

Back 1

An unusually low introductory interest rate

Front 2

Glass-Steagall Act

Back 2

Prohibited commercial banks from collaborating with full-service brokerage firms or participating in investment banking activities. In addition, before deregulation in the early 1980s, lending institutions were restricted on their activities, such as what interest rates they could pay on their deposits and where branches could be set up

Front 3

Depository Institutions Deregulation and Monetary Control Act (DIDMCA

Back 3

1980 had sweeping changes, one of which was to raise deposit insurance from $40,000 to $100,000. It also permitted Savings and Loans to offer a much wider range of services than ever before. The deregulatory measures allowed savings and loan associations to enter the business of commercial lending, trust services, and non-mortgage consumer lending

Front 4

Garn-St Germain Depository Institutions Act

Back 4

Designed to complete the process of giving expanded powers to federally chartered S&Ls and to enable them to diversify their activities with the view of increasing profits. Major provisions included elimination of deposit interest rate ceilings and elimination of the previous statutory limit on loan to value ratio

Front 5

Alternative Mortgage Transaction Parity Act

Back 5

Allowed lenders to originate adjustable-rate mortgages, and mortgages with balloon payments and negative amortization

Front 6

Gramm-Leach-Bliley Act (GLBA

Back 6

Repealed part of the Glass–Steagall Act prohibiting banks from affiliating with securities firms. This allowed commercial banks, investment banks, insurance companies, and securities firms to consolidate. Additionally, it created a new “financial holding company” that could engage in insurance and securities underwriting and agency activities, merchant banking, and insurance company portfolio investment activities

Front 7

Financial Privacy Rule, the Safeguards Rule, and Pretexting Protection

Back 7

Under GLBA, protections were put in place to safeguard consumers’ non-public personal information

Front 8

Privacy Rule

Back 8

Requires clear disclosure by all financial institutions of their privacy policy regarding the sharing of non-public personal information with both affiliates and third parties. Consumers must be given a notice to “opt-out” of sharing of non-public personal information with nonaffiliated third parties

Front 9

Safeguards Rule

Back 9

Requires financial institutions to develop a written information security plan that describes how the company is prepared for, and plans to continue to protect clients’ nonpublic personal information

Front 10

Pretexting Protection

Back 10

Requires financial institutions to have a plan in place to prevent unauthorized people from accessing non-public personal information based on some pretext.

Front 11

Housing and Economic Recovery Act (HERA), known as the Housing Stimulus Bill

Back 11

Authorized temporary measures to stimulate the housing market—homebuyer tax credits, additional property tax deductions, seller-funded down payment assistance programs, and neighborhood revitalization funds for communities to purchase foreclosed homes. It also established the Federal Housing Finance Agency (FHFA). On September 7, 2008, Fannie Mae and Freddie Mac came under the conservatorship of the FHFA in a attempt to stabilize the floundering mortgage markets

Front 12

Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act)

Back 12

Part of the Housing and Economic Recovery Act. The SAFE Act required all states to have a loan originator licensing and registration system in place by August 1, 2010. The SAFE Act provides uniform national licensing standards, including minimum licensing and education. It created a comprehensive national licensing database to enable government and consumers to track loan originators and help prevent fraud

Front 13

Loan originator

Back 13

Defined as an individual who “takes a residential mortgage loan application and also offers or negotiates terms of a residential mortgage loan for compensation or gain”

Front 14

Residential mortgage loan

Back 14

Includes a loan secured by a consensual security interest on a dwelling as defined by the Truth in Lending Act

Front 15

Dwelling

Back 15

“A residential structure that contains 1 to 4 units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.”

Front 16

Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)

Back 16

Was enacted into law as a response to the financial turbulence and recession in the late 2000s. It made sweeping changes to financial regulatory agencies that affected almost every aspect of the nation's financial services industry.
The Dodd-Frank Act created new agencies and changed others, amended the Federal Reserve Act, and established rigorous standards and supervision to protect consumers, investors, and businesses. Its goal was to end taxpayer bailouts of financial institutions and to eliminate the loopholes that led to the economic recession.
The Dodd-Frank Act has sixteen titles, two of which—Title X-Bureau of Consumer Financial Protection and Title XIV-Mortgage Reform and Anti-Predatory Lending Act—directly impact the mortgage industry

Front 17

Fair housing, credit protection, MLO compensation, and settlement procedures

Back 17

Federal laws are organized into four categories:

Front 18

Fair Housing

Back 18

While home ownership has become a reality for many Americans over the last 140 years, the process has not always been fair to everyone. Over the years, laws have been created to make the housing market equitable to level the playing field for all Americans. Many of these laws have been aimed at discriminatory practices in the sale, financing, and rental of homes. The federal government has taken an active role in the prohibition of discriminatory housing practices

Front 19

1866 Civil Rights Act

Back 19

A federal law that prohibits discrimination based on race in all property transactions

Front 20

U.S. Supreme Court Case of Jones v. Mayer of 1968

Back 20

The Supreme Court Case of Jones v. Mayer prohibits discrimination based on race by upholding the 1866 Civil Rights Act and the 13th Amendment to the U.S. Constitution, which prohibits slaver

Front 21

Title VIII of the Civil Rights Act of 1968

Back 21

Provided anti-discriminatory protection in education, housing, and employment for five protected classes of people based on their race, color, religion, sex, or national origin

Front 22

Protected class

Back 22

A group guarded from discrimination under federal or state law

Front 23

Fair Housing Amendments Act of 1988 (effective March 12, 1989)

Back 23

Further broadens the definition of discrimination to seven areas by including familial status and disability

Front 24

Fair Housing Act

Back 24

Title VIII of the Civil Rights Act of 1968 and the Fair Housing Amendments Act of 1988, taken together, constitute the _______. The act prevents discrimination in specific types of housing

Front 25

Types of Housing Covered by the Fair Housing Act

Back 25

-Single-family homes owned by private persons, including corporations or partnerships, even if the seller does not employ a broker to sell or rent the home
-Multi-family dwellings with four or more units, including rooming houses
-Multi-family dwellings with four or less units, if the owner does not live in one of the units

Front 26

Practices Prohibited Under the Fair Housing Act

Back 26

The Fair Housing Act prohibits coercing, threatening, intimidating, or interfering with a person's enjoyment or exercise of housing rights based on discriminatory practices, or retaliating against a person who or organization that aids or encourages the exercise or enjoyment of fair housing rights

Front 27

Practices Prohibited Under the Fair Housing Act

Back 27

-Refusing to make a mortgage loan
-Refusing to provide information regarding loans
-Imposing different terms or conditions on a loan, such as different interest rates, points, or fees
-Discriminating when appraising property
-Refusing to purchase a loan
-Setting different terms or conditions for purchasing a loan
-Redlining

Front 28

Redlining

Back 28

The illegal use of a property’s location to deny financing or insurance

Front 29

Discipline, Civil Damages, Criminal Suit

Back 29

Penalties for Violating the Fair Housing Act

Front 30

Home Mortgage Disclosure Act of 1975 (HMDA)

Back 30

Implemented by Regulation C, requires most mortgage lenders to gather data from their borrowers when they apply for a loan. The purpose of HMDA is to determine whether financial institutions are serving the housing needs of their communities and to identify any possible discriminatory lending patterns. The data tracked include the type and amount of the loan, the type of property with its location and the borrower’s ethnicity, race, sex, and income. The financial institutions must state whether the application was approved or denied. Additionally, they must submit annual reports with the date to the Federal Financial Institutions Examination Council (FFIEC)

Front 31

Fair Housing Assistance Program (FHAP)

Back 31

The purpose of the Fair Housing Assistance Program (FHAP) is to strengthen nationwide fair housing efforts by helping individual state and local governments administer laws of their own that are consistent with the Federal Fair Housing Act. HUD provides FHAP grants annually to state and local government agencies that have entered into cooperative agreements with HUD and that have housing discrimination laws substantially equivalent to the federal fair housing laws. Funding is provided to these agencies to assist in carrying out activities such as complaint processing, administrative costs, special enforcement efforts, training, and other projects related to the administration and enforcement of their fair housing laws

Front 32

Fair Housing Initiatives Program (FHIP)

Back 32

The Fair Housing Initiatives Program (FHIP) was established by the Housing and Community Development Act of 1987 (HCD Act of 1987) and was amended by the HCD Act of 1992. The FHIP provides funding to public and private entities that formulate or carry out programs to prevent or eliminate discriminatory housing practices. Funding from the FHIP supports programs and activities designed to enhance compliance with the Act and substantially equivalent state and local laws that prohibit housing discrimination. These programs include enforcement, voluntary compliance, education, and outreach

Front 33

Credit Protection

Back 33

Real estate finance is based on credit so it makes sense that consumers must have certain protections and guarantees. Good credit is a valuable intangible asset. Since 1968, many laws have been written to reduce the problems and confusion and to protect consumers

Front 34

Consumer Financial Protection Bureau (CFPB or Bureau)

Back 34

Title X of the Dodd-Frank Act established the Consumer Financial Protection Bureau (CFPB or Bureau) within, but not controlled by, the Federal Reserve Board. The CFPB is headed by a Director appointed by the President and confirmed by the Senate for a five-year term. The Bureau is comprised of six Divisions that enforce the federal consumer financial laws, promote consumer financial education, and handle consumer complaints and inquiries

Front 35

The Supervision, Enforcement, and Fair Lending Division

Back 35

Provides oversight and enforcement of federal fair lending laws, including the Equal Credit Opportunity Act (ECOA) and the Home Mortgage Disclosure Act (HMDA), coordinates fair lending efforts of the Bureau with other Federal agencies and with state regulators, and works with financial institutions and consumer groups on the promotion of fair lending compliance

Front 36

The Bureau

Back 36

Has expansive authority to adopt and enforce new regulations that will apply to covered persons or service providers offering any consumer financial product or service

Front 37

Covered person

Back 37

Any person (or its affiliate) that engages in offering or providing a consumer financial product or service

Front 38

Truth in Lending Act (TILA

Back 38

Title 1 of the Consumer Credit Protection Act of 1968. Aimed at promoting the informed use of consumer credit by requiring disclosures about its terms and costs. Requires creditors to state the cost of borrowing in a common language so that consumers can figure out what the charges are, compare the costs of loans, and shop for the best credit deal. The law also requires the lender to state a maximum interest rate in variable rate contracts secured by a borrower’s dwelling. Finally, it requires the lender to inform the consumer of the maximum interest rate that may apply during the term of a mortgage loan. The Act also establishes disclosure standards for advertisements that refer to certain credit terms. It requires disclosure of the finance charge, the annual percentage rate, and certain other costs and terms of credit. This allows a consumer to compare the prices of credit from different sources

Front 39

Regulation Z

Back 39

Implements the Federal Truth in Lending Act. It requires creditors to give certain disclosures to the consumer before making a loan contract

Front 40

Creditor

Back 40

A lender (person or company) who regularly makes real estate loans that are secured by a dwelling. These loans are subject to a finance charge or are payable in more than four installments, excluding the down payment

Front 41

3/7/3 rule

Back 41

According to the Mortgage Disclosure Improvement Act (MDIA), the disclosures are classified as early disclosures, re-disclosures, and final disclosures and the timing of the disclosures can be remembered by the

Front 42

Early disclosure

Back 42

Creditors are required to give a good faith estimate disclosure of mortgage loan costs at the time the borrower completes the application for a mortgage loan or within 3 business days after receiving an application. Neither the lender nor anyone else may charge a fee, other than a reasonable fee for obtaining the consumer's credit history, until after the borrower has received this disclosure. In addition, creditors must wait 7 business days after they provide the early disclosures before closing the loan. A consumer can waive the 7-day waiting period if the consumer can show that it is a bona fide personal financial emergency

Front 43

Re-disclosure

Back 43

Will be required if the annual percentage rate (APR) provided in the good faith estimate changes beyond a specified tolerance for accuracy since the last disclosure. Required if the APR changes by more than .125% for a regular transaction (fixed mortgages) or more than .25% for an irregular transaction, such as an adjustable rate mortgage. If the borrower is re-disclosed, the transaction cannot be closed for 3 business days from last disclosure. If the APR changes, then the borrower must be re-disclosed

Front 44

Final Disclosure

Back 44

The final disclosure of the APR is found in the final Truth in Lending statement

Front 45

Disclosure Statement

Back 45

TILA requires lenders to disclose the important terms and costs of their loans, including the annual percentage rate, finance charge, the payment terms, and information about any variable rate feature

Front 46

Finance charge

Back 46

The dollar amount the credit will cost, and, as a condition to obtaining credit, is composed of any direct or indirect charges. Those include interest, loan fees, finder fees, credit report fees, insurance fees, and mortgage insurance fees. IN REAL ESTATE, the finance charge does NOT include fees for appraisals or credit reports, title insurance, notary services, or for preparing loan-related documents, such as deeds or mortgages

Front 47

Annual percentage rate (APR

Back 47

The relative cost of credit expressed as a yearly rate. Expressed as a percentage, it is the relationship of the total finance charge to the total amount financed

Front 48

The penalties for failure to comply with the Truth in Lending Act

Back 48

A creditor who violates the disclosure requirements may be sued for twice the amount of the finance charge. In the case of a consumer lease, the amount is 25% of the total of the monthly payments under the lease, with a minimum of $100 and a maximum of $1,000. Costs and attorney’s fees may also be awarded to the consumer. The consumer must begin a lawsuit within a year of the violation

Front 49

Right to rescind (cancel)

Back 49

A real estate loan applies to most consumer credit loans (hard money loans) or refinance loans. Loans used for the purchase or construction of the borrower’s personal residence (purchase money loans) have no right of rescission. The lender must provide a written rescission disclosure to every borrower who is entitled to rescind. When the right of rescission applies, the borrower has a right to rescind the agreement until midnight of the 3rd business day after the promissory note is signed

Front 50

Advertising

Back 50

The Truth in Lending Act establishes disclosure standards for advertisements that refer to certain credit terms. If the annual percentage rate (APR) is disclosed in the advertisement, no other disclosures are required. If the APR is not stated, then the specifics of all credit terms must be disclosed. An advertisement that discloses the number of payments must also disclose the amount or percentage of the down payment, amount of any payment, finance charge, interest rate, property description, and so forth. In fact, if the advertisement states the interest rate, it must also disclose the APR. For example, ads that require complete disclosure include No money down or 100% financing

Front 51

No

Back 51

Can the advertisement include only the interest rate?

Front 52

Yes, but if the rate varies, that must be disclosed

Back 52

Can the annual percentage rate be advertised without disclosure of other terms?

Front 53

No, use the annual percentage rate

Back 53

Is using APR in place of the term annual percentage rate allowed in advertising?

Front 54

No, the annual percentage rate and other terms must be disclosed

Back 54

Is advertising $10,000.00 down without disclosing other terms allowed?

Front 55

Yes

Back 55

Is advertising no closing costs without disclosing other terms permitted?

Front 56

Yes

Back 56

Is advertising that mentions a small down payment without disclosing other terms allowed?

Front 57

Yes

Back 57

Can advertising disclose liberal rates without disclosing other terms?

Front 58

Yes

Back 58

Can terms be advertised without disclosing other terms?

Front 59

No

Back 59

Can the deferred payment price or the total of loan payments be disclosed in any residential real estate advertisement?

Front 60

No, but if the rate is advertised, the advertisement must expressly state whether it is an annual percentage rate or a variable rate

Back 60

If only the sales price or loan amount and the annual percentage rate are advertised, must the advertisement include other terms?

Front 61

Yes, but the additional disclosure requirements must be met

Back 61

Can a $350.00 monthly payment be advertised?

Front 62

Yes, but ALL additional disclosure requirements must be met

Back 62

Can an advertisement state, “Assume a 9% loan.” or “11.9% Financing is available.”?

Front 63

No

Back 63

Can MLS sheets be used as credit advertising?

Front 64

Mortgage Acts and Practices–Advertising Rule (MAP Rule), implemented by Regulation N

Back 64

Applies only to non-depository mortgage lenders, state-chartered credit unions, and entities that market and advertise mortgage products, such as mortgage brokers, real estate brokers, advertising agencies, lead generators, and rate aggregators. The MAP Rule lists specific deceptive acts and practices that cannot be used when advertising mortgage loan products and prohibits misrepresenting loan terms in commercial communications

Front 65

Equal Credit Opportunity Act (ECOA)

Back 65

Ensures that all consumers are given an equal chance to obtain credit. The Act bars discrimination based on characteristics such as the borrower’s race, color, gender, or the race or national origin of the people in the neighborhood in which a borrower lives or wants to buy a home. In addition, a borrower is entitled to receive a copy of an appraisal report that he or she paid for in connection with an application for credit by submitting a written request for the report. The creditor must provide a copy of the appraisal report promptly (generally within 30 days)

Front 66

Handling Borrowers’ Applications

Back 66

Creditors must treat all potential borrowers equally and fairly when handling loan applications. Therefore, it is inappropriate and illegal to question potential borrowers about their age, gender, marital status, national origin, religion, race, sexual orientation, or because they receive public assistance income. Creditors may ask borrowers to disclose information voluntarily regarding their ethnicity, race, and sex if the borrower is applying for a real estate loan

Front 67

Credit Application Denial

Back 67

A creditor must tell the applicant if the application was accepted or rejected within 30 days of having received a complete application. If the application is rejected, the applicant must be given the reasons for the rejection. Acceptable reasons include inadequate income, length of employment, or a low credit score. Indefinite or vague reasons are illegal so the lender should be specific. Creditors must give borrowers a notice of the rejection. It must state the specific reason(s) for the rejection or tell the borrower he or she has the right to learn the reason within 60 days of receipt of the letter

Front 68

Right to Financial Privacy Act

Back 68

States that customers of financial institutions have a right to expect that their financial activities have a reasonable amount of privacy from federal government scrutiny. The Act specifies that, before any information is released to the federal government, certain procedures, exemptions, limitations, and requirements concerning the release of customer financial records must be met

Front 69

Home Equity Loan Consumer Protection Act of 1988

Back 69

Requires lenders to disclose terms, rates, and conditions (APRs, miscellaneous charges, payment terms, and information about variable rate features) for home equity lines of credit with the applications and before the first transaction under the home equity plan. If the disclosed terms change, the consumer can refuse to open the plan and is entitled to a refund of fees paid in connection with the application. The Act also limits the circumstances under which creditors may terminate or change the terms of a home equity plan after it is opened

Front 70

Home Ownership and Equity Protection Act of 1994 (HOEPA)

Back 70

Deals with high-rate, high-fee home loans that are refinance or home equity installment loans. The law addresses certain deceptive and unfair practices in home equity lending. It amends the Truth in Lending Act (TILA) and establishes requirements for certain loans with high rates and/or high fees. Since the rules for these loans are contained in Section 32 of Regulation Z, they are called Section 32 Mortgages.
Beginning in 2014, most types of mortgage loans secured by a consumer’s principal dwelling, including purchase money mortgage loans, refinances, closed-end home-equity loans, and open-end credit plans (i.e., home-equity lines of credit, or HELOCs) are potentially subject to HOEPA coverage. Reverse mortgages and construction loans would still be excluded.
A high-cost mortgage is a consumer credit transaction secured by a consumer's 1-4 unit principal dwelling, including purchase and non-purchase money closed-end credit transactions and HELOCs that meet certain thresholds

Front 71

Average prime offer rate

Back 71

An estimate of the rate that people with good credit pay for a similar first mortgage

Front 72

Fair Credit Reporting Act (FCRA

Back 72

one of the most important laws that protects consumer identity and credit information. It is designed to promote the accuracy, fairness, and privacy of the information collected and maintained by credit reporting agencies.

The Fair Credit Reporting Act establishes procedures for correcting mistakes on a person’s credit record and requires that a consumer’s record only be provided for legitimate business needs. It also requires that the record be kept confidential. A credit record for judgments, liens, suits, and other adverse information may be retained for 7 years. The exception is bankruptcies, for which the record may be retained for 10 years. If a consumer has been denied credit, a cost-free credit report may be requested within 30 days of denial.
Any person who obtains a credit report without proper authorization, or a credit reporting agency employee who gives a credit report to an unauthorized person, may be fined up to $5,000 or imprisoned for 1 year, or both

Front 73

Fair and Accurate Credit Transactions Act (FACTA)

Back 73

If a lender refuses credit to a borrower because of unfavorable information in his or her credit report, a borrower has a right to get the name and address of the agency that keeps the report. A borrower may request information from the credit bureau by mail or in person. The law also says that the credit bureau must help a borrower interpret the data in the report because the raw data may be difficult for the average person to analyze. If a borrower is questioning a credit refusal made within the past 60 days, the bureau cannot charge a fee for explaining the report. The Fair and Accurate Credit Transactions Act of 2003 allows consumers to request and obtain a free credit report once every 12 months from each of the three nationwide consumer-credit reporting companies—Equifax®, Experian®, and TransUnion™. If a borrower notifies the bureau about an error, generally the bureau must investigate and resolve the dispute within 30 days after receiving the notice

Front 74

Section 114 of FACTA – Red Flag Rules

Back 74

In 2007, several agencies (Office of the Comptroller of the Currency, Federal Reserve Board, Federal Deposit Insurance Corporation, Office of Thrift Supervision, National Credit Union Administration, and Federal Trade Commission) passed the Interagency Guidelines on Identity Theft Detection, Prevention, and Mitigation as Section 114 of the Fair and Accurate Credit Transactions Act (FACTA). This law is known as the FTC Red Flag Rules. Under the FTC Red Flags Rules, financial institutions and creditors must develop a written “Identity Theft Prevention Program” to detect, prevent, and mitigate identity theft in covered accounts

Front 75

Covered account

Back 75

Any personal account, such as checking and savings accounts, credit card accounts, mortgage loans, automobile loans, margin accounts, and cell phone or utility accounts

Front 76

Red flags

Back 76

Suspicious patterns or practices or specific activities that indicate the possibility of identity theft. The law lists five categories of warning signs

Front 77

Categories of Red Flags

Back 77

1, Alerts, Notifications, & Warnings from a Credit Reporting Agency
2, Suspicious Documents
3, Suspicious Personal Identifying Information
4, Suspicious Account Activity
5, Notice from Other Sources

Front 78

The YSP, or yield spread premium

Back 78

The difference between the wholesale rate on the loan and the rate paid by the borrower and is credited to the borrower for accepting a higher than current market interest rate

Front 79

Amendment to Reg. X - Disclosing YSP

Back 79

Pursuant to Regulation X, the mortgage broker must disclose the YSP on both the Good Faith Estimate (GFE) and the HUD-1 Settlement Statement. The requirement to disclose the YSP on the GFE and HUD-1 is intended to demonstrate the relationship between the settlement costs and the interest rates.
The GFE includes a tradeoff table that shows the borrower the relationship between the interest rate and the credit or charge that either reduces or increases their total settlement charges. This gives borrowers the ability to compare loan programs and shop for the lowest costs. The Regulation X disclosure requirement will help borrowers understand which type of interest rate and loan terms best suit their needs. Additionally, mortgage brokers will not be able to quietly “pocket” a YSP by bumping up the borrower’s interest rate

Front 80

Amendment to Reg. Z

Back 80

Final rule (R-1366) of the Board of Governors of the Federal Reserve System (Board) amending Regulation Z became effective on April 6, 2011. The purpose of this final rule is to protect consumers in the mortgage market from unfair or abusive lending practices that can arise from certain loan originator compensation practices, while preserving responsible lending and sustainable homeownership. The final rule applies to closed-end transactions secured by a dwelling where the creditor receives a loan application on or after April 6, 2011. It excludes transactions secured by real property if such property does not include a dwelling, HELOCs extended under open-end credit plans, and timeshare transactions. The rule requires creditors and other persons who compensate loan originators to retain records for at least 2 years after a mortgage transaction is consummated

Front 81

Prohibited Practices

Back 81

Effective April 6, 2011 mortgage brokerage firms are reclassified as loan originators. This means that mortgage brokerage firms will be prohibited from collecting both origination fee and indirect compensation (YSP) in the same transaction. The mortgage brokerage firms will only be allowed to collect processing fees and either an origination fee or indirect compensation, but not both.
Payments to loan originators (includes loan originators and loan officers) based on the terms or conditions of the transaction (interest rate, APR, or existence of a prepayment penalty), other than on the amount of credit extended, are prohibited.
Loan originators are prohibited from also receiving compensation from the creditor or any other person, if the borrower pays the loan originator directly.
Loan originators are prohibited from steering consumers to a loan simply because the loan originator will receive greater compensation for the loan

Front 82

-Takes a residential mortgage loan application;
-Assists a consumer in obtaining or applying for such a loan (inclusive of advising on loan terms, preparing loan packages, or collecting information); or
-Offers or negotiates the terms of the loan.

Back 82

The Reform Act defines a mortgage originator as a person who, for compensation or gain, does any of the following:

Front 83

Settlement

Back 83

Known as closing in some states, is the process by which ownership of real property or title to the property is passed from seller to buyer

Front 84

Real Estate Settlement Procedures Act (RESPA)

Back 84

Protects consumers by mandating a series of disclosures that prevent unethical practices by mortgage lenders and that provide consumers with the information to choose the real estate settlement services most suited to their needs. The disclosures must take place at various times throughout the settlement process. RESPA applies to all federally related home loans used to purchase or refinance real property or improved real property of one-to-four units, provided the property includes the principal residence of the borrower

Front 85

RESPA’s Purposes

Back 85

. To help consumers get fair settlement services by requiring that key service costs be disclosed in advance
· To protect consumers by eliminating kickbacks and referral fees that will unnecessarily increase the costs of settlement services
· To further protect consumers by prohibiting certain practices that increase the cost of settlement services

Front 86

Special Information Booklet, Good Faith Estimate, and a Mortgage Servicing Disclosure Statement

Back 86

When a potential homebuyer applies for a home loan, the lender must give the buyer a

Front 87

Special Information Booklet

Back 87

Contains consumer information on various real estate settlement services

Front 88

Good Faith Estimate of Settlement Costs

Back 88

Lists the charges the buyer is likely to pay at settlement and states whether or not the lender requires the buyer to use a particular settlement service

Front 89

Mortgage Servicing Disclosure Statement

Back 89

States whether the lender intends to sell the real estate loan servicing immediately, if the loan servicing can be sold at any time during the life of the loan, and the percentage of loans the lender has sold previously

Front 90

Affiliated Business Arrangement Disclosure

Back 90

Required whenever a settlement service refers a buyer to a firm with which the service has any kind of business connection, such as common ownership. Usually, the service cannot require the buyer to use a connected firm

Front 91

Disclosures During Settlement

Back 91

The HUD-1 Settlement Statement must show the actual charges at settlement. In addition, an Initial Escrow Statement is required at closing or within 45 days of closing. This statement itemizes estimated taxes, insurance premiums, and other charges to be paid from the escrow account during the first year of the loan

Front 92

Disclosures After Settlement

Back 92

The servicer must deliver an Annual Escrow Loan Statement to the borrower. This statement summarizes all escrow account deposits and payments during the past year. It also notifies the borrower of any shortages or surpluses in the account and tells the borrower how these can be paid or refunded. A Servicing Transfer Statement is required if the servicer transfers the servicing rights for a loan to another servicer

Front 93

Prohibited Practices Under RESPA

Back 93

-Kickbacks, Fee Splitting, and Unearned Fees
-Seller-Required Title Insurance
-Unlimited Deposits into Escrow Accounts

Front 94

Kickbacks, Fee Splitting, and Unearned Fees

Back 94

The Act prohibits anyone from giving or accepting a fee, kickback, or anything of value in exchange for referrals of settlement service business involving federally related mortgage loans. A kickback is an illegal payment made in return for a referral that results in a transaction. This applies to almost every loan made for residential property. RESPA also prohibits fee splitting and receiving fees for services not actually performed. Violation of these RESPA provisions can be punished with criminal and civil penalties

Front 95

Seller-Required Title Insurance

Back 95

A seller is prohibited from requiring a homebuyer to use a particular title insurance company. A buyer can bring a lawsuit against a seller who violates this provision

Front 96

Unlimited Deposits into Escrow Accounts

Back 96

A limit is set on the amount that a lender may require a borrower to put into an escrow account to pay taxes, hazard insurance, and other property charges. RESPA does not require lenders to impose an escrow account on borrowers, but some government loan programs or lenders do require an escrow account. During the loan term, RESPA prohibits a lender from charging excessive amounts for the escrow account. The lender must notify the borrower annually of any escrow account shortage and return any excesses of $50 or more

Front 97

National Flood Insurance Act

Back 97

States that federally regulated lenders are required to compel borrowers to purchase flood insurance in certain designated areas. Lenders also must disclose to borrowers if the property is located in a flood hazard area

Front 98

Fair Housing

Back 98

Fair housing laws and legal findings such as the 1866 Civil Rights Act, Jones v. Mayer, the Civil Rights Act of 1968, and the Fair Housing Amendments Act of 1988, make the housing market equitable. The Civil Rights Act of 1968 and the Fair Housing Amendments Act of 1988 make up the Fair Housing Act and provide anti-discriminatory protection in education, housing, and employment for 7 classes—race, color, religion, sex, national origin, familial status, and disability

Front 99

Credit

Back 99

Since 1968, the number of credit protection laws has multiplied rapidly. Some of these laws are the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, and the Fair and Accurate Credit Transaction Act. The concepts of fair and equal credit have been written into laws that prohibit unfair discrimination in credit transactions, require that consumers be told the reason credit is denied, give borrowers access to their credit records, and set up ways for consumers to settle billing disputes

Front 100

Settlement Issues

Back 100

Settlement (closing) is the process by which ownership of real property or title to the property is passed from seller to buyer. The federal Real Estate Settlement Procedures Act (RESPA) applies to all federally related home loans used to purchase or refinance real property or improved real property of one-to-four units. Certain practices are prohibited under RESPA, such as kickbacks, fee splitting, unearned fees, seller-required title insurance, and unlimited deposits into escrow accounts. Borrowers may file a complaint with the lender if they believe the lender has violated RESPA