Federal Lending Legislation

Chapter 4
Federal
Lending Legislation
Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009 1

Chapter 4: Federal Lending Legislation
Overview
• Federal and state laws regulate real estate

financing and include laws that:
– Require financial disclosures
– Protect privacy
– Prohibit discrimination
– Prohibit predatory lending

Key Terms
• 3/7/3 Rule • Fair and Accurate Credit
• Affiliated Business Transactions Act (FACT
Arrangement Act)
• Annual Percentage Rate • Fair Credit Reporting Act
(APR) (FCRA)
• Community • Good Faith Estimate
Reinvestment Act • Gramm-Leach-Bliley Act
• Disclosure Statement • Home Mortgage
• Equal Credit Opportunity Disclosure Act (HMDA)
Act (ECOA) • Home Ownership and
Equity Protection Act
(HOEPA)

Key Terms
• Homeowners Protection • Rescind
Act (HPA) • RESPA
• Housing and Economic • Secure and Fair
Recovery Act of 2008 Enforcement for
(HERA) Mortgage Licensing Act
• HUD Uniform Settlement (SAFE Act)
Statement (HUD-1) • Settlement Statement
• Mortgage Disclosure
• Truth in Lending Act
Improvement Act (MDIA)
(TILA)
• Red Flag Rules
• Truth in Lending
• Regulation Z Disclosure Statement
(TIL)

Laws Requiring
Financial Disclosures
Related to real estate finance and mortgage
loans, specifically those required under federal
law include:
• Regulation Z of the Truth in Lending Act (TILA)
• Mortgage Disclosure Improvement Act (MDIA)
• Real Estate Settlement Procedures Act
(RESPA)
• Homeowners Protection Act (HPA)

Truth in Lending Act (TILA)

• Enacted in 1968 to prevent abuses in
consumer credit cost disclosures
• Amended most recently by the Mortgage
Disclosure Improvement Act.
• Requires lenders to disclose consumer credit
costs to promote informed use of consumer
credit
• Enables consumers to compare credit costs
and shop around for the best credit terms
• Administered by the Board of Governors of the
Federal Reserve System (specific provisions
implemented by Regulation Z)
Truth in Lending Act (TILA)
• Provisions apply to primarily to lenders extending

credit for personal, family, or household
purposes
• Credit offered must be subject to a finance
charge or payable by written agreement in more
than four installments
• Includes all real estate loans made to consumers
if loan is for other than business or commercial
purposes

TILA Disclosures
TILA disclosures required in two general

areas:
– When lenders offer credit but before the
transaction in consummated
– When credit terms are advertised to
potential customers

Required TILA Disclosures

• Truth in Lending Disclosure Statement (TIL) and guide on
how to read the TIL
• When Your Home is on the Line booklet (for home equity
loans and HELOCs)
• Consumer Handbook on ARMs (CHARM booklet)
• ARM Disclosure (if applicable)
• Balloon Disclosure (if applicable)
• Prepayment Disclosure
• Notice of Right to Rescind
Lenders must retain evidence of compliance for 2 years

Annual Percentage Rate (APR)

• The total cost of financing a loan in percentage
terms, as a relationship of the total finance charges
to the total amount financed (not the note rate)
• APR must be disclosed to consumer whenever the
interest rate is quoted
• If you cannot determine the APR in advance, other
cost information for the consumer's specific
transaction may be given, as well as:
– Open-end credit: Corresponding annual percentage rate
– Closed-end credit: APR for a sample transaction

Finance Charges
• Cost of consumer credit as a dollar amount

• Includes:
– Any charge payable directly or indirectly by the
borrower
– Any charge that the lender imposes directly or
indirectly as a condition of extending credit
– Fees charged by a mortgage broker—including
fees that the borrower pays directly to the broker
or to the lender for the broker

Truth in Lending
Statement (TIL)
• Required for mortgage loans subject to RESPA
secured by consumer’s dwelling (other than
HELOCs)
• Must be given (along with other required
disclosures) no later than 3 business days after
consumer’s application
• Once delivered, imposes a waiting period of 7
business days before loan can close
• No fee, other than credit report, may be charged
prior to delivery of TIL and other required
disclosures

Truth in Lending
Statement (TIL)
Data in the “Federal Box”
− Finance charge expressed as an APR
− Total finance charges
− Amount financed
− Total of payments paid at the end of loan term
Mandatory statement:
You are not required to complete this agreement
merely because you have received these
disclosures or signed a loan application.

Truth in Lending
Statement (TIL)
• Name of lender/creditor
• Notice of a right to receive itemization of
amount financed
• Number, amount, and due dates of payments
• Variable rates, if applicable
• New payment, late payment, and prepayment
provisions
• Acceleration clauses, default procedures
• Description and identification of the security
• Whether the loan may be assumed by a
subsequent buyer
TIL – Additional Waiting Period

• New disclosures required if changes to initial
APR exceeds:
• 1/8% (.125) for fixed rate transaction
• 1/4% (.25) for adjustable rate transaction
• New disclosure trigger a waiting period of
three business days before loan can close
• 3/7/3 Rule:
• Initial disclosure within 3 business days of applying
• Earliest close on the 7th business day after
disclosures are delivered/mailed
• An additional waiting period of 3 business days after
borrower receives the redisclosure before closing
Right of Rescission
• Borrower may rescind the credit transaction of
principal residence until midnight of the third
business day after loan closes
• Applies to home equity loan and lines of credit,
home improvement loans, and refinances from
different lenders
• Lenders must inform consumers of this right and
terms in a separate document
• Borrowers with bona fide reason may be able to
waive right to rescind
• If rescinded, the loan is void, lender must return any
money collected, borrower is relieved of liability

Extended Right of Rescission

Extended right of rescission period of three years if:
• Lenders fail to properly inform borrowers of their
right to rescind
• Truth in Lending Statement not given to borrower
• Disclosures made on the Truth in Lending
Statement are understated by:
– The greater of 0.5% of the amount financed or
$100
– The greater of 1% of the amount financed or
$100 for some refinances

Advertising and Triggering Terms
• Clear and conspicuous disclosure of terms

• Accurate use of the term “fixed”
• Advertised terms must be actually available
• Annual percentage rate required if triggering
terms used:
– The amount of the down payment
– The amount of any payment
– The number of payments
– The period of repayment
– The amount of any finance charge

Required Advertising Disclosures
• Use of any triggering term requires these

disclosures:
– Amount or percentage of down payment
– Terms of repayment
– APR (or annual percentage rate); if the rate
may increase (e.g., ARMs), that fact must also
be disclosed
• If only the APR is advertised, additional
disclosures are not required

Advertising Closed-End Credit

• If more than one interest rate will apply, disclose:
– Each rate; if variable, a reasonably current index and
margin
– The period of time each will apply
– The APR for the loan
• Payment amount must include amount of each
(balloon if applicable) and period payment will apply
• Restrictions on comparing actual or hypothetical
payments/rates with “teaser” payments/rates
• Guidelines on the use of the terms “variable” and
“fixed”
Advertising Open-End Credit

• Additional disclosures if triggering terms are used:
– Loan fees
– Any periodic rate used to compute the finance charge
expressed as an annual percentage rate
– Maximum annual percentage rate that may be imposed
in a variable-rate plan
• Balloon payment (if applicable)
• If promotional rates and payments used, disclose:
– Period during which promotional rate/payment applies
– If rate, any APR that will apply (if a variable rate, APR
within established accuracy standards)
– If payment, the amounts and time periods of any
payments that will apply (if variable index and margin,
based on a reasonable current index and margin)
Other Advertising Provisions

• Any ad stating tax implications—such as whether or not
interest is tax-deductible—cannot be misleading;
consumer must be advised to consult tax adviser
• TV and radio ads may provide toll free number for more
information
• Misrepresentations prohibited, for example:
– Loan product being government endorsed
– Misleading use of the current lender’s name
– Misleading claims of debt elimination
– Prohibits use of “counselor” to reference for-profit mortgage
broker or lender
– In foreign language ads, prohibits making some required
disclosures only in English

Appraisal Practices
Addressed by TILA
• Lenders, mortgage brokers, and their
affiliates are prohibited from coercing,
influencing, or encouraging appraiser to
misstate the value of the dwelling
• Lender cannot extend credit if improper
coercion has occurred unless it can show
appraisal did not materially misrepresent
value
• Lender may ask appraiser to consider
additional information or correct errors
Servicing Practices
That Violate TILA
• Failing to credit a payment as of the date of
receipt (unless the delay results in no
adverse consequences to the borrower)
• Pyramiding late fees by imposing late fee
or delinquency charges in connection with
a payment under certain circumstances
• Failing to provide statements showing
payoff amounts

Real Estate Settlement

Procedures Act (RESPA)
• Promulgated in 1975 by the U.S. Department of
Housing and Urban Development (HUD) as
Regulation X
• Enforced by HUD's Office of Consumer and
Regulatory Affairs and Interstate Land Sales
• Intended to:
– Help consumers become better shoppers for settlement
services
– Eliminate increases in the costs of certain settlement
services due to kickbacks and referral fees

Settlement Services
• Loan origination • Settlement services
• Mortgage broker • Insurance
services • Property
• Processing or funding taxes/assessments
• Title services • Real estate brokerage
services
• Attorney services • Any other service
• Document required by borrower
preparation/recording or seller
• Inspections

RESPA Transactions
• Covers loans on property secured designed for occupancy of
from one to four families:
– Most purchase loans, assumptions, refinances, property improvement
loans, home equity lines of credit, some construction loans
• Does not cover:
– An all-cash sale
– A sale where the individual home seller takes back the mortgage
– A rental property transaction
– Temporary construction loans
– Other business purpose transaction
– Property of 25 acres or more
– Vacant or unimproved property unless a dwelling will be constructed or
moved onto the property within two years

Kickbacks and Unearned Fees

• Section 8 prohibits:
− Giving/accepting a fee, kickback, or anything of value in
exchange for referrals
− Fee splitting and receiving unearned fees for services not
actually performed
• Fees, salaries, compensation, or other payments for services
actually rendered and that are not based on a referral do not
violate RESPA
• Violators may be fined up to $10,000 and/or be imprisoned up
to one year; in civil lawsuit, violators may be liable for
damages equal to three times the amount of the charge paid
for the service.

Affiliated Business Arrangement
• Situation where an individual or entity or associate in a

position to refer settlement services:
– Has affiliate relationship with or direct/beneficial
ownership interest of more than 1% in provider of
settlement services
AND WHO THEN
– Refers business to that provider or in some way
influences the selection of that provider
• Someone with ownership interest may accept legitimate
fees/wages for actual services rendered/hours worked, bona
fide compensation unless for referral or unearned

Other RESPA Provisions

• Section 9: Seller Required Title Insurance
• Prohibits seller from requiring home buyer to use a
particular title insurance company, directly or indirectly,
as a condition of sale
• Section 10: Limits on Escrow Accounts
• Sets limits on escrow accounts
• Allows a cushion not to exceed 2 months
• Requires annual analysis
• Any excess over $50 be returned
• Prohibits lenders/servicers from charging for
preparation of any disclosures required by
RESPA or TILA
Loan Application
• Submission of a borrower‘s financial information in anticipation of
a credit decision, which includes:
– Borrower‘s name
– Borrower‘s monthly income
– Borrower‘s SSN (to obtain a credit report)
– Property address
– Estimate of value of the property
– Loan amount
– Any other information deemed necessary
• RESPA requires lender (or mortgage broker) to provide certain
disclosures at application or within three business days, unless
– Applicant withdraws application
– Lender turns down the loan within three business days

Disclosures At Application
• Special Information Booklet
• Good Faith Estimate (GFE) of Settlement
Costs
– Not a loan commitment
– No fee other than credit report may be charged
until GFE and TIL are provided
• Mortgage Servicing Disclosure Statement

Disclosures Before Settlement

• Affiliated Business Arrangement (AfBA)
Disclosure
– Required if settlement service provider refers
to another provider with whom there’s an
affiliated business arrangement
– Must be given at or prior to the time of referral
• HUD-1 Settlement Statement
– Details all closing costs
– Borrower may request 1 day prior to settlement

Disclosures At Settlement
– Details all closing costs
– Separate forms may be used for borrower and
seller
• Initial Escrow Statement
– Itemizes estimated taxes, insurance premiums,
and other charges to be paid from escrow
account for first 12 months of loan
– Lender has 45 days from settlement to deliver

Disclosures After Settlement

• Annual Escrow Statement
– Summarizes all escrow deposits and payments
– Must be delivered to borrower once a year
– Notifies borrower of any shortages
• Servicing Transfer Statement
– Required if servicer sells or assigns servicing rights
– Generally must notify borrower 15 days before
effective date
– Borrower making timely payment to old servicer within
60 days can’t be penalized
– Bona fide transfer in the secondary market not covered
Good Faith Estimate (GFE)

• States the amount of, or range of, settlement
charges the borrower is likely to pay
• May be provided by the lender or the mortgage
broker, if applicable
• Ultimately lender’s responsibility to determine
applicant received GFE
• Must be provided no later than 3 business days
after receipt of written application
• Must be provided at no cost to borrower

GFE – Page 1
• Explains the purpose of disclosure
• Summarizes critical data necessary to “shop” for
settlement services and the best loan
• Important dates
– Date through which interest rate available
– Estimate for all other settlement charges must
be available for at least 10 business days
• Loan summary
• Escrow account information
• Summary of settlement services

GFE – Page 2
• Block 1-Origination charges • Block 7-Government
• Block 2-Your credit or charge recording charges
(points) for the specific • Block 8-Transfer taxes
interest rate chosen
• Line A-Your adjusted • Block 9-Initial deposit for
origination charges your escrow account
• Block 3-Required services we • Block 10-Daily interest
select charges
• Block 4-Title services and • Block 11-Homeowner’s
lender’s title insurance insurance
• Block 5-Owner’s title
insurance • Line B-Your charges for
• Block 6-Required services all other settlement
that you can shop for services
• Line A+B-Total estimated
settlement charges

GFE – Page 3
• Summarizes the categories of charges
• Tradeoff table
– Shows relationship between total estimate
settlement charges and interest rate/monthly
payment
– Allows comparison of loan alternatives
• Shopping cart
– Allows consumer to compare other GFEs

Other GFE Provisions: Terms

Availability of terms:
• Charges/terms for settlement services must be
available for at least 10 business days
• 10-day provision does not apply to:
• Interest rate
• Charges related to interest rate
• Rates may be locked for pre-determined period

Other GFE Provisions: Tolerances

• Charges that may not exceed GFE amount
– Origination charge
– Credit or charge for interest rate chosen/adjusted origination
charge while interest rate locked
– Transfer taxes
• Charges that cannot exceed 10% of GFE amount
– Lender-required settlement services, where the lender selects
– Lender-required services, title services and required title
insurance, and owner's title insurance, when borrower uses
provider identified by loan originator
– Government recording charges
• Amounts charged for all other settlement services may
change at settlement

Other GFE Provisions: Binding

• Loan originator bound to terms unless new GFE
provided
• Updated GFE usually required within 3 business days
of learning of changed circumstances
• Document reason for change and retain for at least 3
years
• Reasons for changing GFE:
– Changed circumstances that increase settlement costs to
exceed tolerances
– Changed circumstances affecting eligibility
– Borrower-requested changes affecting charges/terms
– Changes if interest rate not locked/lock expires

Changed Circumstances
• Changed circumstances:
– Acts of God, war, disaster, or other emergency
– Information relied on in providing the GFE that
changes or is found to be inaccurate
– New information not relied on in providing the GFE
– Other circumstances that are particular to the
borrower or transaction
• Market fluctuations by themselves are not considered
to be changed circumstances

Other GFE Provisions

• Original GFE expires in 10 days (or longer as
specified by loan originator) if borrower does not
intend to continue with an application
• If charges at settlement exceed the charges listed
on the GFE by more than the permitted tolerances,
loan originator may cure by reimbursing to the
borrower the amount of the excess :
• At settlement
• Within 30 calendar days after settlement

HUD-1 Uniform
Settlement Statement
• Required for RESPA compliance
• Completed by person conducting closing
• Itemizes all charges related to transaction
• Must be prepared for both borrower & seller
• HUD-1A may be used when no seller
• Not required for open-end home equity loans
• Loan owner must retain for 5 years

Paid Outside of Closing

• Charges paid outside of settlement by the
borrower, seller, loan originator, real estate
agent, or any other person, must be
included
• Marked "P.O.C." for "Paid Outside of
Closing" (settlement)
• Must not be included in computing totals
• Indirect payments from a lender to a
mortgage broker may not be disclosed as
P.O.C.
HUD-1 Page 1
• Section J Summary of Borrower's Transaction
– Line 303 indicates either the cash required
from the borrower at settlement or cash
payable to the borrower at settlement with the
appropriate box checked
• Section K, Summary of Seller's Transaction
– Line 603 indicates either the cash required to
be paid to the seller at settlement or the cash
payable by the seller at settlement, with the
appropriate box checked

HUD-1 Page 2
• Itemizes settlement charges paid by the
borrower and the seller:
– Items paid in connection with the loan
– Items required by the lender to be paid in
advance
– Reserves deposited with the lender
– Title charges
– Government recording and transfer charges
– Any additional settlement charges

HUD-1 Page 3
• Compares exact amounts from GFE and
actual settlement charges on HUD-1
• Charges that cannot increase
• Charges that cannot increase more than
10%
• Charges that can change
• Loan terms

Homeowners
Protection Act (HPA)
• Requires lenders or servicers to provide certain
disclosures and notifications concerning private
mortgage insurance (PMI) on residential mortgage
transactions
• Most provisions do not apply to home loans made
before July 29, 1999
• Requires lenders that refinance or service home
mortgages to comply with its terms
• Does not cover loans that do not have PMI or
loans secured by 2nd or multi-family homes
Disclosure Provisions
of the HPA
• Lenders must provide initial written disclosure
regarding PMI cancellation and annual reminders
• Borrower cancellation-request when LTV is 80% or
less and borrower has good payment history
• Automatic termination-when LTV is 78% when
borrower current with payments
• Final disclosure confirming borrower no longer
required to pay PMI premiums

Laws Related to Privacy and

Consumer Identification
• Financial information gathered as part of the loan
process must be kept confidential
• This section discusses the following federal laws:
– Fair Credit Reporting Act (FCRA)
– Fair and Accurate Credit Transactions Act
(FACT Act)
– Gramm-Leach-Bliley Act
– U.S. Patriot Act
– National Do Not Call Registry

Fair Credit
Reporting Act (FCRA)
• Regulation V, enforced by FTC
• Federal law dealing with:
– Granting of credit
– Access to credit information
– Rights of debtors
– Responsibilities of creditors
• Gives consumers access to the same
information about themselves that lenders use
when making credit decisions

Consumer Rights
•Adverse action, provide name, address, and phone number

of reporting agency
•Free copy of credit report from credit agency if:
– Information resulted in adverse action.
– Victim of identify theft; fraud alert inserted
– File contains inaccurate data because of fraud
– Public assistance or unemployed
•Request credit score (not free)
•Dispute incomplete or inaccurate information
•Limit prescreened offers

Consumer Reporting Agency

Obligations
• May not report outdated negative information
– Negative credit data more than 7 years old
– Bankruptcy more than 10 years old
– No time limit on criminal convictions
• Must limit access to a credit file to those with
legitimate business need
• May not give out consumer credit information to
an employer, or potential employer, without
written consent from consumer to employer

Fair and Accurate Credit

Transaction Act (FACT Act)
• Amended the Fair Credit Reporting Act in 2003
• Helps consumers fight identity theft
• Contains 7 major titles:
– Identity Theft Prevention and Credit History Restoration
– Improvements in Use of and Consumer Access to Credit
Information
– Enhancing the Accuracy of Consumer Report Information
– Limiting the Use and Sharing of Medical Information in the
Financial System
– Financial Literacy and Education Improvement
– Protecting Employee Misconduct Investigations
– Relation to State Laws


• Allows access of credit reports to spot possible
identity theft, allow dispute of inaccurate
information
• Requires Home Loan Applicant Credit Score
Information Disclosure notice
• Allows consumer to place a fraud alert or a
credit freeze
• Provides for truncation of customer's card
number


• Requires measures to responsibly secure
and dispose of sensitive personal
information found in a consumer’s credit
report:
– Burning or shredding papers
– Destroying or erasing electronic files or media
– Placing all pending loan documents in locked
desks, cabinets, or storage rooms at the end of
the work day

Red Flags Rules (Section 114)
• Financial institutions and creditors must

implement written identity theft prevention
program
• Card issuers must assess validity of address
change requests
• Users of consumer reports must reasonably
verify identity of consumer report subject if
notified of address discrepancy

Red Flags
• Alerts, notifications, or warnings from a

consumer reporting agency
• Suspicious documents
• Suspicious personally identifying information
• Unusual use of a covered account
• Notices from customers, victims of identity
theft, law enforcement authorities, or other
businesses about possible identity theft in
connection with covered accounts

Gramm-Leach-Bliley
Act (GLB Act)
• Financial Modernization Act of 1999
• Includes provisions in Title V to protect and
regulate the disclosure of consumers’ personal
financial information
• Three principal parts to the privacy requirements:
1. The Financial Privacy Rule
2. Safeguards Rule
3. Pretexting Provisions

GLB: Financial Privacy Rule

• Governs collection and disclosure of customers’ nonpublic
personal information:
– What a consumer or customer puts on an application
– Data from another source, such as a credit bureau
– Transactions between the individual and the company
– Whether someone is a consumer/customer of financial
institution
• Consumer Privacy Policy notice explains lender’s information
gathering and sharing practices
– Before disclosing nonpublic personal information to a third
party
– Annually during the financial relationship
• Consumer may opt out of having information shared

GLB: Safeguards Rule
• Requires all financial institutions to design,

implement, and maintain safeguards to protect
customer information
• Written policy must:
– Ensure security and confidentiality of customer
records
– Protect against any anticipated threats or
hazards to security of such records
– Protect against unauthorized access or use of
such records
U.S. Patriot Act
• Enacted in 2001
• Federal legislation designed to curb terrorist
activities
• Expands the definition of terrorism
• Impacts real estate and mortgage
transactions because of the disclosure
requirements associated with it

National Do Not Call Registry

• Managed by the Federal Trade Commission; enforced
by the FTC, Federal Communications Commission, and
states
• Applies to sales/marketing via interstate phone calls
• Requires regular maintenance of national (every 3
months) and internal (every 30 days) lists
• Violators can be fined up to $11,000 per incident
• Established business relationship (EBR)-call up to 18
months after last transaction
• Inquiries/applications-call up to 3 months
• May not call someone on internal list, even if EBR

Laws Prohibiting Discrimination
• Fair and equitable treatment in housing and real

estate transactions is a right by law
• Federal anti-discrimination statutes related to
housing and lending include:
– Civil Rights Act of 1866
– Title VII of the Civil Rights Act of 1968 (Fair Housing
Act)
– The Equal Credit Opportunity Act (ECOA)
– The Community Reinvestment Act (CRA)
– The Home Mortgage Disclosure Act (HMDA)

Civil Rights Act of 1866

• Prohibits public and private discrimination based
on race or ancestry in any property transaction in
the United States
• Applies to all property—real or personal, residential
or commercial, improved or unimproved
• Person unlawfully discriminated against can sue
only in federal district court
• Remedies include injunctions, compensatory or
punitive damages

Fair Housing Act

• Federal Fair Housing Act or Title VIII of the
Civil Rights Act of 1968
• Prohibits discrimination in the sale or lease of
residential property, including vacant land intended for
residential housing, based on:
• Race • National Origin

• Color • Disability
• Religion • Familial Status
• Sex

Fair Housing Act

• Prohibits discrimination in advertising, real estate
brokerage, lending, and other services associated with
residential transactions
• Requires:
• “Equal housing lender” slogan in any broadcast
advertisement
• Equal Housing Opportunity poster in every branch
where mortgage loans are made
• Equal Housing Opportunity logo on all printed
promotional material

Fair Housing Act Violations

• Refusing to rent or sell residential property after receiving a good
faith offer.
• Refusing to negotiate for the sale or rental of residential property.
• Taking any action that would otherwise make residential property
unavailable or deny it to any person.
• Using discriminatory advertising or any other notice that indicates
a limitation or preference or intent to make any limitation,
preference, or discrimination.
• Making any representation that property is not available for
inspection, sale, or rent when it is, in fact, available.
• Coercing, intimidating, threatening, or interfering with anyone
because of his enjoyment, attempt to enjoy, or encouragement and
assistance to others in their enjoyment of the rights granted by the
Fair Housing Act.
• Discriminating in the terms or conditions of any sale or rental of
residential property or in providing any services or facilities in
connection with such property.

Discrimination in
Mortgage Lending
• Refusing to make a mortgage loan
• Refusing to provide information regarding
loans
• Imposing different terms or conditions on a
loan
• Discriminating in the appraisal of property
• Refusing to purchase a loan
• Setting different terms or conditions for
purchasing a loan
Discriminatory Practices
• Blockbusting: Inducing owners to sell homes by

suggesting the ethnic or racial composition of the
neighborhood is changing, implying property
values will decline (also called panic selling)
• Steering: Channeling prospective buyers/tenants
to neighborhoods based on race, religion, or ethnic
background
• Redlining: Refusing to make loans on property
located in a particular neighborhood for
discriminatory reasons

Equal Credit Opportunity

Act of 1974 (ECOA)
• Ensures all consumers (individuals and businesses)
are given an equal chance to obtain credit
• Also known as Regulation B
• Prohibits discrimination in granting credit/prohibits
discouraging credit application to people based on:
•Sex •Religion
•Age
•National origin
•Marital status
•Race •Receipt of public assistance
•Color •Rights exercised rights under
Consumer Credit Protection Act
Equal Credit Opportunity

Act of 1974 (ECOA)
• Applies to anyone who grants credit or arranges financing,
including bankers and mortgage brokers
• Requires credit bureaus to maintain separate credit files on
married spouses, if requested
• May not ask about spouse unless:
– Joint application and spouse will use account or be liable
– Relying on spouse’s income, child support, alimony to qualify
– In a community property state
• Can use only these terms: Married, unmarried, separated
• May not ask about intent related to children, but can ask about
expenses related to dependents

ECOA: Loan Application

• Section X of Uniform Residential Loan Application:
– Ethnicity (Hispanic or Latino/Not Hispanic or Latino)
– Race (American Indian or Alaska Native, Native
Hawaiian or Other Pacific Islander, Asian, White, Black
or African American)
– Sex (Male or Female)
• Applicant may refuse to supply; lender cannot
discriminate
• Interviewer required to note data based on visual
observation and surname if application made in
person
ECOA: Evaluating Income

• A creditor may consider the amount and probability of any
income continuing
• A creditor may NOT:
– Refuse to consider public assistance income the same
way as other income.
– Discount income because of sex or marital status.
– Discount or refuse to consider income because it
comes from part-time employment or pension, annuity,
or retirement benefits programs.
– Refuse to consider regular alimony, child support, or
separate maintenance payments.
• An applicant is not required to disclose such income.
• A loan officer may not discriminate against someone for
exercising the right of nondisclosure.
ECOA: Considering Age
• The applicant is too young to sign contracts,

generally under age 18.
• The creditor would favor applicants age 62 and
older.
• It is used to determine the meaning of other factors
important to creditworthiness, such as to determine
if an applicant’s income might drop because of
impending retirement.
• It may be used in a valid credit scoring system that
favors applicants depending on their age.
ECOA: Required Disclosures
• Notify applicants of lending decision within 30

days of filing a complete application
– If approved, may provide a Commitment Letter
– If incomplete, send a Notice of Incomplete
Application
– When adverse action is taken, send a Statement
of Adverse Action, in writing
• Disclose customer’s rights, including right to
appraisal report used in the decision process

ECOA: Record Retention

• After notification of action taken, creditor must
maintain for 25 months (12 months for business
credit):
– Any application it receives
– Any information required to be obtained concerning
characteristics of the applicant to monitor compliance
– Any other written or recorded information used in
evaluating the application and not returned to the
applicant at the applicant's request
– The notification of action taken and the statement of
specific reasons for adverse action
– Any written statement submitted by the applicant
alleging a violation of ECOA
ECOA: Enforcement
• Enforced by the Federal Trade Commission; each
financial institution further falls under the authority
of its respective regulatory agency
• Creditors subject to civil liability for actual and
punitive damages in individual or class actions
• Punitive liability applies only to nongovernmental
entities
• Damages limited to $10,000 in individual actions;
lesser of $500,000 or 1% of the creditor's net worth in
class actions
• Civil action must be brought within 2 years of
alleged violation
Community
Reinvestment Act (CRA)
• Enacted by Congress in 1977 to encourage
financial institutions to help meet the credit
needs of their respective communities
• Requires each insured depository institution’s
record be evaluated periodically
• In some states, these requirements have been
extended to mortgage lenders. Make sure you
know your state’s laws

Home Mortgage Disclosure

Act of 1975 (HMDA)
• Enforced by the Fed's Regulation C
• Provides loan data from certain financial institutions
to be used by the public to:
− Determine if financial institutions are serving
community housing needs
− Aid public officials in distributing public funds in
order to attract private investment where needed
− Identify possible discriminatory lending patterns
• Relies on public scrutiny for effectiveness
• Does not establish quota system
HMDA: Covered Properties
• Affects applications for residential loans,

including:
– Home purchase
– Home improvement
– Refinancing
– Subordinate financing
• Does not apply to loans on vacant land, new
construction, or on loans sold as part of a
pool for servicing
HMDA: Data Reporting

• Requires financial institutions to submit a
Loan/Application Register (or LAR) to their
supervisory agencies every March
• Data for LAR is collected on loan originations,
applications, loan purchases, requests under a
pre-approval program
• LARs may be used to discover discriminatory
practices, including redlining
• LAR data must be maintained and made
available upon request for 3 years

HMDA: Role of the FFIEC
• Supervisory agencies, through the Federal

Financial Institutions Examination Council
(FFIEC), compile HMDA data for each
institution
• Produces other aggregate reports that show
lending patterns by home age and property
location
• Data analysis helps determine compliance of
with ECOA, fair lending laws
• Reg C requires notice about availability of
HMDA data to be posted in lobbies of lending
institutions
Laws Against
Predatory Lending
• Predatory lending involves loans that take advantage of ill-
informed consumers through:
– Excessively high fees
– Misrepresented loan terms
– Frequent refinancing that does not benefit the borrower
– Other prohibited acts
• Amendments to Truth in Lending Act:
– Home Ownership and Equity Protection Act (HOEPA)
– Higher-priced loans definition

Home Ownership and Equity

Protection Act of 1994 (HOEPA)
• Amends the Truth in Lending Act
• Establishes disclosure requirements for certain loans with
high interest rates and/or fees
• Prohibits deceptive and unfair practices in lending
• Enforced by the Federal Trade Commission and each state’s
attorney general
• Gives broad regulatory authority to Federal Reserve Board
• Allows consumers to sue violators and recover statutory and
actual damages, court costs, and attorney fees
• Violations may invoke a three-year rescission period

HOEPA: High Cost Loan Triggers
•High cost: closed-end loan secured by a borrower’s

principal residence, excluding purchase loans,
construction loans, and reverse mortgages
•APR trigger when it exceeds the yield on comparable
Treasury securities by more than:
– 8% on a 1st lien mortgage
– 10% on a second lien mortgage
•Total finance charge trigger when total points and fees
exceed:
– Larger of 8% of the loan amount or the current designated dollar
amount
•HOEPA calculates total finance charges differently than
standard Reg Z calculation

HOEPA: Prohibited Terms

• Balloon payments on loans less than 5 years
except for bridge loans less than 1 year used to
build or purchase a home
• Negative amortization
• Repayment schedule that consolidates more than
2 periodic payments that are due to be paid in
advance from the proceeds of the loan
• Default interest rates higher than pre-default
• Rebates
• Prepayment penalties (generally prohibited but
may be allowed under certain circumstances)
• Demand clauses
HOEPA: Prohibited Practices
• Disbursing proceeds from home improvement

loans except as provided for in the contract
• Selling or otherwise assigning the loan without
furnishing a mandated statement to the purchaser
or assignee related to liability of a high-cost loan
• Refinancing a HOEPA loan into another HOEPA
loan within the first 12 months, unless new loan is
in borrower’s best interest

HOEPA: Verifying Ability to Pay

• May not grant loans on collateral value of property
without regard to borrower’s ability to repay
• Must consider current and reasonably expected
income and assets
– Cannot be materially greater than could have verified
when loan was consummated
• Must use largest payment of principal and interest
scheduled in first 7 years and consider either:
– Debt-to-income ratio
– Income after paying all debt obligations
• Does not apply to temporary or bridge loans of 12
months or less

HOEPA: Required Disclosures

At least three business days prior to consummation of a
mortgage transaction:
– Written notice:
You are not required to complete this agreement merely because you
have received these disclosures or have signed a loan application. If you
obtain this loan, the lender will have a mortgage on your home. You could
lose your home, and any money you have put into it, if you do no meet
your obligations under the loan.
– APR
– Payment amount (including balloon, if allowed by law)
– Loan amount
– Maximum monthly payment (if variable) and fact that it may
increase
– Total amount borrowed (for refinance)

Higher-Priced Loans
• Defined by Housing and Economic

Recovery Act of 2008, amending Truth in
Lending Act
• Closed-end loans secured by borrower’s
principal dwelling where APR exceeds
average prime offer rate by at least:
– 1.5 percentage points for first lien loans, or
– 3.5 percentage points for junior lien loans

Higher-Priced Loans
• Includes home purchase loans

• Does NOT include:
– The initial construction of a dwelling
– A temporary or "bridge" loan with a term of 12 months or
less, such as a loan to purchase a new dwelling where the
consumer plans to sell a current dwelling within 12 months
– A reverse-mortgage transaction
– A home equity line of credit

Higher-Priced Loans: Restrictions
• Lenders must verify repayment ability

• Prepayment penalties are generally prohibited unless limited to
first 2 years of loan. Prepayment penalty is prohibited if:
– Amount of the periodic payment of principal, interest, or both can change at
any time during first 4 years of loan
– The source of prepayment funds is a refinance by the lender or its affiliate
• Escrow account must be established for required property taxes
and mortgage-related insurance premiums a 1st lien securing
borrower’s principal dwelling; not required for loans on coops or
condo units where association maintains a master insurance policy
• Not subject to the extended right of rescission that is available to
borrowers with HOEPA-defined high cost loans

Housing and Economic

Recover Act of 2008 (HERA)
• Major housing law designed to assist with the
recovery and revitalization of America’s residential
housing market
• Multiple purposes:
– Modernization of the Federal Housing
Administration
– Foreclosure prevention
– Enhancement of consumer protections
• Title V, the Secure and Fair Enforcement for
Mortgage Licensing Act or SAFE Act, is a key
component
The SAFE Mortgage

Licensing Act Requirements
• States must establish minimum standards for
mortgage training (prelicensing and continuing
education)
• All MLOs must be state-licensed or federally
registered
• All MLOs must pass national SAFE Mortgage
Loan Originator test (may be a state component)
• States must implement licensing process
meeting NMLS standards

Objectives of the SAFE Act
• Provide uniform license applications and reporting

requirements for state licensed-loan originators
• Provide comprehensive licensing and supervisory
database
• Aggregate and improve flow of information to and
between regulators
• Provide increased accountability and tracking of loan
originators
• Streamline the licensing process and reducing regulatory
burden
• Enhance consumer protections and support anti-fraud
measures

Objectives of the SAFE Act

• Provide consumers with free, easy-to-access
information about a loan originator’s employment
history and any public disciplinary and enforcement
actions
• Establish a means by which residential mortgage loan
originators would be required to act in the best
interests of the consumer
• Facilitate responsible behavior in the subprime
mortgage market place
• Provide comprehensive training related to
nontraditional mortgage products
• Facilitate collection and disbursement of consumer
complaints on behalf of state mortgage regulators

SAFE Act
Licensing Requirements
• Applicants:
– Must submit a background check
– Can never have had a revoked loan originator
license
– Can never have been convicted of a felony involving
fraud, dishonesty, breach of trust, or money
laundering
– Cannot have been convicted of any other felony
within the past 7 years
• All licensed or registered loan originators will have
a unique ID number
Prelicensing
Education Requirements
• New loan originators must complete at least 20
hours of approved prelicensing education
• Must include these topics:
– Federal law and regulation (3 hours)
– Ethics, fraud, consumer protection, and fair
lending (3 hours)
– Nontraditional mortgage products (2 hours)
• States may require state-specific topics

Mortgage Loan
Originator Exam
• Mortgage loan originators must pass a national
licensing exam covering these topics:
– Federal mortgage-related laws (35%)
– General mortgage knowledge (25%)
– Mortgage loan origination activities (25%)
– Ethics (15%)
• States may determine how to handle state-
specific portions of the exam

Renewal Requirements
• Loan originators must take at least 8 hours of

CE every year including these topics:
– Federal Law and Regulation (3 hours)
– Ethics, fraud, consumer protection, and fair
lending (2 hours)
• Cannot get credit for the same CE class twice
in consecutive years

Summary: TILA
• Truth in Lending Act (Regulation Z, TILA), 1968; amended by
Mortgage Disclosure Improvement Act (MDIA) 2009
• Promotes the informed use of credit by disclosing costs in a
uniform manner
• Applies to loans with more than four installments
• Provides right of rescission for three business days after close
on refinance of owner-occupied property
• TIL statement discloses APR, down payment and repayment
terms in advertising when triggering terms are used
• Imposes a prescribed tolerance between TIL APR and final APR
• 3/7/3 Rule: Initial disclosures 3 business days after application;
loan cannot close until 7th business day after disclosures
delivered; if redisclosure required, there’s a waiting period of
three business days

Summary: TILA Disclosures

Within 3 Business Days of Application:
• TIL disclosure statement (credit terms, including
APR and total finance charges, payment amounts,
and due dates)
• Guide to the TIL statement
• Notice of rescission rights
• Prepayment disclosure
• ARM disclosure (if applicable)
• CHARM booklet (if applicable)
• Balloon disclosure (if applicable)
• When Your Home is on the Line disclosure (home
equity loans such as HELOCs)
Summary: RESPA
• Real Estate Settlement Procedures Act (Regulation X, RESPA),
1974
• Helps consumers compare settlement services and eliminate
unnecessary increases in the costs of certain settlement services
• Covers loans secured with a mortgage placed on a one- to four-
family residential property
• Prohibits kickbacks, fee-splitting, and unearned fees
• Sets limits on escrow accounts
• Prohibits sellers from requiring home buyers to use a particular title
insurance company
• Requires Good Faith Estimate (GFE) showing amount of, or range
of, settlement charges the borrower is likely to pay; includes tools
for consumers to compare
• Requires use of HUD-1 or HUD-1A Settlement Statement to clearly
show all charges imposed on borrowers and sellers in connection
with the settlement (except for open-end home equity)

Summary: RESPA Disclosures

• Within 3 Business Days of Application:
• Good Faith Estimate
• Mortgage Servicing Disclosure
• HUD Booklet on Settlement Costs
• Before Settlement:
• Affiliated Business Arrangement Disclosure
• HUD-1 Settlement Statement (within 1 business day of
settlement if requested)
• At Settlement:
• Initial Escrow Statement
• After Settlement:
• Annual Escrow Statement
• Servicing Transfer Statement

Summary: HPA
• Homeowners Protection Act (HPA), 1998
• Applies to single-family residential dwellings
• Allows borrowers to request PMI cancellation when LTV
reaches 80%
• Automatically terminates PMI when LTV reaches 78% if
borrower is not delinquent
• Allows borrowers to accelerate the cancellation date by
making additional payments that bring the LTV to 80%
• Disclosures:
– Initial disclosure of HPA provisions with annual
reminders
– Disclosure of cancellation and automatic termination
dates for fixed rate loans
Summary: FCRA
• Fair Credit Reporting Act (Regulation V, FCRA), 1968
• Gives consumers access to the same information about
themselves that lenders use when making credit decisions.
• Entitles consumers to free credit report upon adverse
action or identity theft.
• Allows consumers to dispute credit report.
• Provides additional rights for identity theft victims and
active duty military personnel.
• Disclosures:
– One-time written notice of derogatory information,
separate from Truth in Lending disclosures
– Access to free credit report upon adverse action

Summary: FACTA
• Fair and Accurate Credit Transaction Act of 2003 (FACT Act)
• Amends the federal Fair Credit Reporting Act to help consumers
fight identity theft.
• Mandates limits on information sharing.
• Entitles consumers to annual free credit report.
• Allows consumers to place fraud alerts and credit freezes.
• Requires businesses to truncate credit/debit card numbers on
receipts.
• Mandates businesses to secure and properly dispose of
sensitive personal information in a consumer’s credit report.
• Red Flag Rules require financial institutions and creditors to
implement a written identity theft prevention program.
• Disclosure when applying for credit: Home Loan Applicant Credit
Score Information Disclosure

Summary: GLB
• Gramm-Leach-Bliley Act or Financial Modernization Act of 1999 (The
Privacy Act)
• Financial Privacy Rule:
– Restricts when and under what circumstances personal financial
information may be disclosed to non-affiliated third parties.
– Allows consumers to opt out of allowing information to be shared.
• Safeguards Rule:
– Requires all financial institutions to design, implement, and
maintain safeguards to protect customer information while it is in
the custody and control of the institution and its agents.
• Before Disclosing Information to Non-Affiliated Third Parties:
– Consumer Privacy Policy (and annually as long as the relationship
continues)

Summary: Do Not Call

• Allows consumers to put phone numbers on a
national Do Not Call list
• Applies to any plan, program, or campaign to sell
goods or services through interstate phone calls
• Requires companies to maintain national and
internal lists of customers and prospects and keep
them updated regularly
• Allows business to call a consumer with whom it
has an established business relationship (EBR) for
up to 18 months after the consumer's last
purchase, delivery, or payment; or up to 90 days
after an inquiry
• Imposes fines of up to $11,000 per violation
Summary: Civil Rights/Fair Housing
• Civil Rights Act of 1866

– Prohibits all racial discrimination, private or public, in the
sale and rental of property
– Allows someone claiming unlawful discrimination to sue
only in federal district court
• Fair Housing Act of 1968
– Prohibits any discrimination in the sale, lease, or loan
terms for residential property based on race, color,
religion, sex, national origin, disability, or familial status
– Allows someone claiming discrimination to file a written
complaint to the nearest HUD office within one year of
the alleged violation
– Requires Fair Housing/Lending posters and logos

Summary: ECOA
• Equal Credit Opportunity Act (Regulation B, ECOA), 1974
• Prohibits discrimination in granting credit to people based on
sex, age (if at least 18), marital status, race, color, religion,
national origin, receipt of public assistance, or exercised rights
under the Consumer Credit Protection Act
• Requires credit bureaus to keep separate files on married
spouses, if requested
• Implemented by the Federal Trade Commission; each financial
institution falls under the authority of its respective regulatory
agency
• Disclosures:
– ECOA statement of rights, including right to receive a copy of
appraisal report
– Notification of credit decision within 30 days of application
(statement of adverse action if declined, incomplete, or
change of terms offered)

Summary: HMDA
• Home Mortgage Disclosure Act (Federal Reserve
Board’s Regulation C, HMDA), 1975
• Determines if financial institutions are serving the
housing needs of their communities
• Identifies possible discriminatory lending patterns
through the collection and disclosure of data about
applicant and borrower characteristics
• Loan Application Register (LAR): Report to
supervisory agencies on a loan-by-loan and
application-by-application basis every March

Summary: HOEPA
• Home Ownership and Equity Protection Act (HOEPA) 1994
• Amends the Truth in Lending Act to prohibit deceptive and
unfair practices in lending
• Establishes disclosure requirements for high cost loans
• Defines high cost loan as: The APR exceeds the rates on
Treasury securities of comparable maturity by more than
eight percentage points for a first mortgage or more than ten
percentage points for a second mortgage; or the total points
and fees exceed 8% of the loan amount.
• Uses some different criteria to define total finance charges,
e.g., counts optional credit insurance premiums
• Prohibits balloon payments (on loans of less than 5 years),
negative amortization, demand clauses
• Limits prepayment penalties
• Allows three business-day right of rescission
Summary: HOEPA Disclosures

• Notice that consumer is not required to complete the
transaction
• Warning that the lender will have a mortgage on the home
and the borrower could lose it and equity if in default
• The annual percentage rate (APR)
• The regular payment amount (including any balloon
payment where the law permits balloon payments)
• The loan amount
• Credit insurance premiums, if applicable
• For variable rate loans, the amount of the maximum
monthly payment and the fact that the rate and monthly
payment may increase

Summary: Higher-Priced Loans

• Truth in Lending Act as amended by Housing and
Economic Recovery Act of 2008
• Closed-end mortgage loan secured by borrower’s
principal dwelling where APR exceeds applicable
average prime offer rate by at least 1.5% for first
lien loans or 3.5% for junior lien loans
• Lenders obligated to verify repayment ability
• Prepayment penalties generally prohibited
• Escrow account must be established for property
taxes and mortgage-related insurance premiums
required by lender
• No extended right of rescission
Summary: SAFE Act

• The Secure and Fair Enforcement for Mortgage Licensing
Act of 2008 (SAFE Act), Title V of Housing and Economic
Recovery Act (HERA)
• Establishes minimum standards for licensing, registration of
state-licensed mortgage loan originators
• Provides for establishment and maintenance of nationwide
mortgage licensing system and registry
• Requires 20 hours of prelicensing education for new loan
originators including:
– Federal law (3 hours)
– Ethics (3 hours)
• Requires background checks for applicants
• Requires passage of national loan originators exam
• Requires 8 hours of annual continuing education
Quiz
1. The Civil Rights Act of 1866 prohibits
what type of discrimination in property
transactions?
a. race
b. religion
c. sex
d. all of the above

Quiz
2. The federal Fair Housing Act prohibits discrimination
based on race, color, religion, sex, and
a. age, national origin, disability/handicap,
or familial status.
b. ancestry, national origin, disability, or familial status.
c. marital status, national origin, disability/handicap,
or familial status.
d. national origin, disability/handicap, or familial status.

Quiz
3. While law requires lenders to provide
borrowers with a Good Faith Estimate of
closing costs?
a. FCRA
b. HMDA
c. RESPA
d. TILA

Quiz
4. The most important disclosure requirement
under the Truth in Lending Act is the
a. amount of index.
b. amount of the loan origination fee.
c. APR.
d. name of the secondary market purchaser.

Quiz
5. How many business days after closing
does the consumer have the right to
rescind a refinance of his personal
residence?
a. 2
b. 3
c. 5
d. There is no right of rescission.

Quiz
6. Which will trigger the required

disclosures of the Truth in Lending Act
if included in an advertisement for
credit?
a. “Affordable Financing”
b. “Easy Monthly Payments”
c. “No Down Payment”
d. “Only 360 Monthly Payments”

Quiz
7. If an advertisement discloses only the

APR, what additional disclosures are
required?
a. amount of any finance charges
b. no additional disclosures are required
c. percentage of down payment
d. terms of repayment

Quiz
8. Which act required mortgage lenders to

give consumers a reason and information
about obtaining their credit report when
they are turned down for a loan?
a. ECOA
b. FCRA
c. RESPA
d. TILA

Quiz
9. Under what circumstances does

RESPA allow a sale to be conditioned
on the use of a particular escrow
company chosen by the seller?
a. if full disclosure is made
b. if no kickbacks are involved
c. if no unearned fees are involved
d. under no circumstances
Quiz
10. Which law mandates the use of

the HUD-1 Settlement Statement?
a. Regulation B
b. Regulation C
c. Regulation X
d. Regulation Z

Quiz
11. Which law requires lenders to

document how they are serving the
lending needs within the communities
in which they do business?
a. Equal Credit Opportunity Act
b. Fair Credit Reporting Act
c. Fair Housing Act
d. Home Mortgage Disclosure Act

Quiz
12. For how many months after a loan

closes may a mortgage broker call a
customer whose phone number is on
the National Do Not Call Registry?
a. 3 months
b. 6 months
c. 18 months
d. No calls can be made to a number on the
registry.

Quiz
13. Which law includes Red Flag Rules that
require financial institutions and
creditors to implement procedures to
protect customer identity?
a. Fair and Accurate Credit Transaction Act
b. Fair Credit Reporting Act
c. Gramm-Leach-Bliley Act (The Privacy Act)
d. Homeowners Protection Act

Quiz
14. The SAFE Act requires new loan

originators to have how many hours of
approved prelicensing education?
a. 8
b. 12
c. 20
d. 24

Quiz
15. The Home Ownership and Equity

Protection Act
a. amends the Homeowners Protection Act.
b. does not consider optional credit insurance as
a finance charge.
c. gives borrowers with high-cost loans a three-
day right of rescission.
d. permits negative amortization only for the first
five years of a loan.

Quiz
16. According to the Homeowners

Protection Act, borrowers may request
cancellation of their mortgage
insurance premiums when the LTV
reaches
a. 75%.
b. 78%.
c. 80%.
d. 82%.

Quiz
17. As a result of the Mortgage Disclosure

Improvement Act, how soon can a
residential loan close?
a. the next business day
b. after three business days for a refinance or
home equity loan
c. within three business days of applying
d. on the seventh business day after delivery of
required disclosures

Quiz
18. Which fee can be collected prior to

delivery of a Truth in Lending Statement
and a Good Faith Estimate?
a. appraisal fee
b. credit report fee
c. origination fee
d. No fees can be collected prior to
delivery of these disclosures.

Quiz
19. A mortgage broker rents office space

from a title company at a discount in
exchange for referring customers for
settlement services. Which federal law
does this arrangement violate?
a. RESPA
b. SAFE Act
c. TILA
d. It does not violate any federal law.

Quiz
20. The APR on an initial TIL for a 30-year

fixed rate loan is 6.25%, and the APR on
the final TIL is 6.5%. After redisclosure,
how long must the borrower wait to close
the loan ?
a. 24 hours
b. three business days after redisclosure
c. seven business days after redisclosure
d. There is no waiting required since the
difference is within the acceptable tolerance.

Quiz
21. A “higher-priced loan” is one that has

a. an APR that exceeds the applicable average
prime offer rate by at least 1.5%.
b. an APR that exceeds the rates on Treasury
securities of comparable maturity by more
than 8%.
c. total points and fees greater than 8% of the
loan amount.
d. total points and fees greater than 10% of the
loan amount for junior liens.

Quiz
22. Which statement about loan origination

fees on a GFE is FALSE?
a. The fee cannot change unless there is a
changed circumstance.
b. The fee includes services performed by
or on behalf of the loan originator.
c. Lender and mortgage broker fees for the
same transaction must be itemized.
d. Origination fees must be expressed as
lump sum.
Quiz
23. According to the SAFE Act, which

incident from 10 years ago would NOT
automatically disqualify an applicant for
a loan originator license?
a. conviction for felony assault
b. conviction for fraud
c. conviction for money laundering
d. revocation by the state of a mortgage
broker’s license

Quiz
24. Which of these circumstances would NOT be an
acceptable reason to provide a revised GFE to a
borrower?
a. The borrower lost the income from a part-time job and
so was no longer eligible for the specific loan terms
identified in the GFE.
b. The borrower requested to change the loan term from
15 to 30 years.
c. The loan originator regretted overlooking certain
liabilities in order to qualify the borrower for a better
interest rate.
d. The title company discovered a junior lien on the
property that was not considered when preparing the
GFE.
Quiz
25. Of these settlement charges, which is

allowed to show a 10% tolerance
between the GFE and the actual charge
at closing?
a. charge for the interest rate chosen
when locked
b. government recording charges
c. origination fee
d. transfer taxes

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Federal Lending Legislation

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Chapter 4

Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009 1

• Federal and state laws regulate real estate

Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009 2

Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009 3

Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009 4

Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009 5

Truth in Lending Act (TILA)

Truth in Lending Act (TILA)

• Provisions apply to primarily to lenders extending

Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009 7

TILA disclosures required in two general

Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009 8

Required TILA Disclosures

Lenders must retain evidence of compliance for 2 years

Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009 9

Annual Percentage Rate (APR)

Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009 10

• Cost of consumer credit as a dollar amount

Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009 11

Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009 12

Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009 13

TIL – Additional Waiting Period

Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009 16

Extended Right of Rescission

Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009 17

Advertising and Triggering Terms

• Clear and conspicuous disclosure of terms

Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009 18

Required Advertising Disclosures

• Use of any triggering term requires these

Mortgage Lending P&P 3rd Edition/Updated Nov. 6, 2009 19

Advertising Closed-End Credit

Advertising Open-End Credit

Other Advertising Provisions

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Real Estate Settlement

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Kickbacks and Unearned Fees

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Affiliated Business Arrangement

• Situation where an individual or entity or associate in a

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Other RESPA Provisions

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Disclosures Before Settlement

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Disclosures After Settlement

Good Faith Estimate (GFE)

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Other GFE Provisions: Terms

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Other GFE Provisions: Tolerances

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Other GFE Provisions: Binding

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