"Monopoly was originally rejected by Parker Bros. but when sales became too much for its inventor, Charles Darrow, he went back again. It is the world's best-selling board game, sold in 80 countries and produced in 26 languages including Croatian."
Summary: Conforming to Federal, state and local regulations is a must! This page only touches on a few of the many Federal regulatory issues. Please consult with experts to learn more about regulatory compliance. We welcome any inquiries or concerns that you might have in respect to our compliance models as well as our corporate policies and procedures. In this document "we" refers to AMB, "you" refers to the loan office and "they" to your borrowers.
"Monopoly was originally rejected by Parker Bros. but when sales became too much for its inventor, Charles Darrow, he went back again. It is the world's best-selling board game, sold in 80 countries and produced in 26 languages including Croatian."
We are not attorneys and don't purport to give anyone legal advice, especially when compliance matters can vary dramatically from state to state. This material here covers major Federal laws as they apply to mortgage lending and it is presented for educational purposes only. You must consult with experts in the area of compliance if you are interested in learning more.
Most companies want to comply with the laws that regulate them. Many violations are unintentional. Unfortunately, ignorance of the law isn't a defense. While regulatory agencies conduct random checks and spot inspections, consumers and other mortgage companies turn in most violators. The bottom line is it's far easier to comply all the time than try to figure out when you don't have to comply. When in doubt, comply. When not in doubt, comply. You have nothing to lose by obeying the law.
When a new law is passed it often takes effect after regulations have been created by the law's enforcement agency. Therefore, you will sometimes hear a law called a regulation. For example the Truth-in-Lending Act is often called Reg Z. The law and its regulations are essentially the same thing. However, regulations can be redone without passing a new law. We now focus on the Federal consumer statutes and their corresponding regulations that apply to the mortgage industry.
Here are a list of topics covered below:
RESPA is all about disclosures, closing costs and settlement procedures. RESPA is a HUD-enforced consumer protection statute designed to borrowers be better shoppers in the home lending process. Among other things, RESPA requires that consumers receive disclosures at various times in the transaction and outlaws kickbacks that increase the cost of settlement services.
We are required by provide borrowers with a good faith estimate, special HUD booklet (for purchases), servicing transfer notice, list of any required providers and disclose any affiliated business arrangements near the beginning of the application process. To make life easy, we expect you to provide all of these items at time of application.
Additionally, certain documents are required at closing. These include the HUD-1 Settlement Statement, an Initial Escrow Account Statement and a final servicing notice. During servicing, an annual escrow accounting is required.
AMB's policy calls for disclosures to be sent to borrowers within three business days of receiving a loan application, as permitted by law. If a loan is turned down within three days, you need not burden the borrowers with these initial disclosures as RESPA does not require you to provide them.
An Affiliated Business Arrangement (AfBA) Disclosure is required whenever you refer borrowers to a provider with whom we have an ownership or other beneficial interest. Our standard AfBA disclosure is called our Conflicting Interests Disclosure. You must provide the disclosure prior to making the referral. You must also describe the business arrangement that exists between the parties and give the borrowers an estimate of the other provider's charges (done on the broker agreement and GFE). We cannot require borrowers to use a particular provider except in cases where we refer them to an attorney, title company, credit reporting agency or real estate appraiser that represents our interest in the transaction.
The HUD-1 Settlement Statement is a standard form that clearly shows all charges imposed on borrowers and sellers in connection with the settlement. RESPA allows borrowers the privilege to see the HUD-1 Settlement Statement one day before the actual settlement. A settlement agent must provide them with a completed HUD-1 Settlement Statement based on information known to the agent at that time. We heartily recommend that you contact borrowers prior to closing and review the HUD-1 Settlement Statement to make sure that the figures are what they expect.
The HUD-1 Settlement Statement shows the actual settlement costs of the loan transaction. It is prepared for the borrower (and seller, if purchase). The HUD-1 is mailed or delivered as soon as practical after settlement where it is not the practice that the borrower and/or seller attend settlement.
Although the lender has 45 days from settlement to deliver an Initial Escrow Statement, they usually do so at closing. This statement itemizes the estimated taxes, insurance premiums and other charges anticipated to be paid from the borrowers' escrow account during the first twelve months of the loan. It lists the escrow payment amount and any required cushion.
Loan servicers must deliver an Annual Escrow Statement. This statement summarizes all escrow deposits and payments during the servicer's twelve month computation year. It also notifies borrowers of any shortages or surpluses in the account and advises them about the alternative courses of action available.
A Servicing Transfer Statement is required if the loan servicer sells or assigns the servicing rights to a loan to another loan servicer. Generally, the loan servicer must notify a borrower 15 days before the effective date of the loan transfer. Borrowers cannot be penalized as long as they make a timely payment to the old servicer within 60 days of the loan transfer. The notice must include the name and address of the new servicer, toll-free telephone numbers, and the date the new servicer will begin accepting payments.
Section 8 of RESPA prohibits anyone from giving or accepting a fee, kickback or any thing of value in exchange for referrals of settlement service business involving a Federally related mortgage loan (many states have similar provisions). In addition, RESPA prohibits fee splitting and receiving unearned fees for services not actually performed. One exemption to Section 8 is the employer-employee relationship. In a 1999 Federal Register, HUD issued a statement clarifying that RESPA allows employees of mortgage companies (even if they are real estate professionals) to be compensated for performing services required in the mortgage process.
Even before you take an application, Truth-in-Lending (TIL) has implications on how you do business. Sections of TIL impact how you advertise interest rates and terms. TIL defines advertisements as any commercial messages that promote owner-occupied consumer credit. and covers the following media:
When you advertise directly to a consumer, TIL requires that you disclose the credit terms and rate in a certain manner. When you advertise to professionals for referrals, you ads are not subject to Reg Z (that is why you will see the not for consumer distribution language on many professional flyers).
Since TIL's primary goal is to give consumers an easy way to compare options, you may include the Annual Percentage Rate (APR) without triggering the need for additional information. However, you cannot state the simple or periodic rate more conspicuously than the APR. Also, if you use a "teaser" rate in an advertisement you must also state with equal prominence the current annual percentage rate that would have been applied using the index or formula if the "teaser" rate had not been offered. You must also quote the period of time the initial rate will be in effect.
Please update your advertisement as to rate when you quote one. TIL requires that the rate be current as of a reasonable time given the media involved. You can only state terms that you actually have to offer unless you specifically include something to the effect that "rates are subject to change without notice."
When you imply a finance charge rate by including the monthly payment, term of the loan or the amount of any finance charge, your ad must also include:
NOTE: Including any one of the above items triggers the need to include the others.
Keep these rules in mind when you write your ad:
Special care is taken for adjustable or variable rate transactions; ones in which a future interest rate is uncertain. This definition includes both traditional ARMS and two-step mortgages (versus a balloon). ARM ads must quote the APR based on market conditions and the program's caps. Suggested language is "rate subject to increase after closing." You can advertise a buydown and quote the start rate if you also show how long the bought down rate will last, what the simple interest rate will be for the remainder of the loan and the APR.
If open-ended credit advertising, such as Home Equity Lines of Credit ad, sets forth any specific terms of that plan, the ad must also clearly and conspicuously set forth all of the following items:
If the open-ended credit facility advertisement will be secured by the borrower's primary residence and the advertisement sets forth (either affirmatively or negatively) any of the specific terms of the plan, then it shall also clearly set forth the following information:
Finally, you cannot make specific claims as to tax deducibility, Your advertisements may contain a general statement that any interest expense incurred with respect to the loan may be tax deductible.
TIL requires initial disclosures pertaining to APR, ARM program disclosure and CHARM booklet. To simplify things, they should be done at application.
For high-cost loans, a Section 32 disclosure is required three days prior to closing.
A final TIL disclosure and right to cancel (for refinances of primary residences) are provided at closing.
At application, the Equal Credit Opportunity Act (ECOA) requires that borrowers should declare whether they want to apply for credit individually or jointly and that they be given a notice explaining their right to receive a copy of their appraisal. It also states that loan decisions should be made within 30 days of a complete application and that a notice of action taken is required for all denied loans, withdrawn and incomplete, unless the borrower acknowledges that incomplete files after a period of time are automatically denied.
You cannot make any statements, in advertising or otherwise, to applicants or prospective applicants that would discourage, on a prohibited basis, a reasonable person from making or pursuing an application. While you can't discriminate in your advertising, you may affirmatively solicit or encourage members of traditionally disadvantaged groups to apply for credit, especially groups that might not usually seek credit from you (i.e., Hispanics or Blacks).
We file a Home Mortgage Disclosure (HMDA) report annually. We only include mortgages on which we make the underwriting decision. Loan officers are not underwriters and cannot extend a guaranty of credit to borrowers. Many states have specific legal clauses that preclude a mortgage broker form rendering a commitment. These states also disallow a broker from turning a loan down as such action is considered to be making a negative commitment as opposed to a non-commitment.
We are not and do not ever want to be considered as a consumer reporting agency (CRA), an entity that assembles credit information for the purpose of furnishing it to others. This definition is construed broadly to encompass any person or organization that gathers and reports information on consumers. Please do not share borrowers' credit information with anyone other than the borrower, another employee or an employee for one of our lenders or MI companies. Doing so, jeopardizes our status as a non-CRA.
We encourage you to share a copy of the credit report you obtain with the borrowers and help them understand how their credit score was computed. In fact, changes to the Fair Credit Reporting Act that took effect in late 2004 require lenders to provide borrowers with their credit score and with a disclosure on key factors that lower credit scores. The required disclosures are best provided by the CRA that generated the report.
The Federal government (as well as many states) has moved towards protecting the confidentiality of private, nonpublic information. Borrowers must be given a privacy disclosure before you can engage them as customers. Our notice informs consumers that we do not sell their nonpublic information. Therefore, we do not have an opt-out clause in our notice since there is nothing a consumer can opt out of. Annual disclosures are required for any on-going business relationship (usually applies only when we service a mortgage).
While mortgage brokers have not been named as an industry segment that the FTC is requiring Patriot Act compliance, a number of our investors are required to comply because of industry segmentation. Our Certification and Authorization form helps explain why consumers are now asked to provide proper identification when applying for a loan. Additionally, lenders may have specific forms of their own that they want you to complete on their behalf. We recommend that you submit AMB's instructions to the closing agent being used so that you are on record as to having instructed the closer to verify the identity of the parties involved in the transaction (usually a notary requirement). It is worth noting that the statute does not require you to copy the items used to identify a borrower.
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