TILA Presentation Slides From The Mortgage Bankers Association

Truth In Lending
Old Dog, New Tricks

TILA Newcomer Workshop
Truth In Lending
Consumer Credit Protection Act (1968)

Truth In Lending Act (Title 1)
Regulation Z (1969)
2
Title: Click View then Master then Slide Master to edit
Subtitle: Click View then Master then Slide Master to edit
The Basics
Finance Charge
APR
Tolerance for Accuracy
Rescission
Disclosure
Advertising
HOEPA
3
Finance Charge
Section 226.4
(a) Definition
(b) Examples of F/C
(c) Exclusions from F/C
(c) (7) Real Estate Exclusions
4
Definition
The FINANCE CHARGE is the cost of consumer

credit expressed as a dollar amount. It includes
any charge payable directly or indirectly by the
consumer and imposed directly or indirectly by the
creditor as an incident to or a condition of the
extension of credit. It does not include any charge
of a type payable in a comparable cash
transaction.
5
Any Fee not specifically

excluded from the Finance
Charge in 226.4(c)(7) is, in fact,
a Finance Charge.
6
Annual Percentage Rate (APR)
• Modifies the rate of interest applicable to a loan,

considering the effect of non-interest Finance
Charges paid by the consumer.
• TILA requires the disclosure of an APR whenever

an Interest Rate is referenced, either orally or in
writing.
7
• Tolerance for Accuracy (Fin. Chg)
Lender open to civil liability if Finance Charge is

understated by $100.00 or more.
Lender open to Rescission liability if Finance

Charge is understated by $35.00 or more.
No Liability if Finance Charge is Overstated on

Disclosure.
8
• Tolerance for Accuracy (APR)
• Accurate if within .00125 for Regular

Transaction.
• Accurate if within .00250 for Irregular

Transaction.
9
• Borrower’s Right to Rescind
• Borrower is given 3 Business Days after

closing to reconsider the loan and cancel
the transaction.
• Applies to
» Refinance & Subordinate Lien Loans
» Owner Occupied Primary Residence
10
• TILA’s Disclosures
• Truth In Lending Disclosure

• Adjustable Rate Disclosure
• Right to Cancel Disclosure
• HOEPA Disclosure
• New Disclosures
11
• Advertising Guidelines
• FTC’s “How to Advertise Consumer Credit &

Lease Terms”
http://www.ftc.gov/bcp/conline/pubs/buspubs/creditad.htm
12
• HOEPA
• Section 32 of Reg Z – added in 1994 to address

abusive lending practices.
• Under HOEPA, a mortgage is considered to be a High

Cost Loan if it includes terms that exceed certain
thresholds established for the Points & Fees and
Annual Percentage Rate.
13
• Read the Regs
• TILA (Reg Z) is best understood, ultimately, by

taking the time to read the regulation and
commentary.
• http://www.fdic.gov/regulations/laws/rules/6500-14
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• Upcoming Regulatory Changes
• TILA will be impacted by two significant regulatory

changes in 2009.
- HERA - the Housing & Economic

Recovery Act of 2008; and,
- New Update to HOEPA
15
• HERA – The Housing & Economic
Recovery Act
» Final Rule Still Pending, But Law is to be

effective before the end of July 2009.
» Early Disclosure Requirements – all mortgage

loans subject to TILA.
» New Pre Closing Requirements
16
Early Disclosure Requirements
• Before the Consumer can be required to pay any fee,

they must receive a copy of the Preliminary Truth In
Lending Disclosure.
• If the Disclosure is delivered by regular mail, it will be

presumed to have been delivered to the consumer on
the third business day after mailing.
• Cannot close loan until at least Seven (7) business

days after early disclosures have been received.
17
• New Pre Closing Disclosures
• If the APR has changed beyond TOLERANCE since the previous

disclosure, a New TILA Disclosure must be delivered to the
applicant at least three business days prior to closing.
• APR Tolerance is affected regardless of whether the change is in

the form of an Increase or a Decrease.
18
• New Pre Closing Disclosures
• The APR Tolerance is different that the test that would be

applied to the TILA Disclosure for purposes of accuracy.
• Disclosure is considered accurate if Finance Charge is

within tolerance.
• Pre Closing redisclosure requirement is only based on

APR accuracy, which has only secondary importance in
consideration of overall accuracy of the disclosure.
19
• New HOEPA Regulations
• Most changes become effective on Oct 1, 2009
• Amends Old Rules & Creates New Rules
• Designed to Address Subprime Lending Concerns
20
HPML – Higher Priced Mortgage Loan
• First there was just plain PRICING.
• Then with HOEPA in 1994, we got HIGH COST

PRICING.
• Now, HOEPA 2009 brings us HIGHER COST

PRICING.
21
- Grammatically Incorrect.
- One might surmise that, as superlatives go,
rates for HIGHER Priced loans would be
greater than those for HIGH Priced Loans.
- One would be wrong.
22
• Old HOEPA –
» If APR for First Lien loan is greater than 8

points above applicable Treasury Index,
then loan would be considered to be a
High Cost Loan, and subject to HOEPA
restrictions.
23
• Old HOEPA –
» Treasury Index = 4.50 %

» APR = 12.51%
» Loan is a High Cost Loan per HOEPA because

the APR exceeds the Applicable Index by more
than 8 pts.
24
• New HOEPA
» If APR for First Lien Loan is greater than
1.50 % above the Prime Offer Rate, then it
is a Higher Priced Mortgage Loan, and
subject to all the restrictions implied.
25
• New HOEPA –
» Prime Offer Rate = 4.50%

» APR = 6.50%
» Loan is a HPML because the APR exceeds

the Prime Offer Rate by more than 1.50%.
26
• HPML Restrictions
» Ability to Repay
» Prepayment Penalties
» Escrow Accounts
27
• Ability to Repay
Applies to HPMLs only, but likely to wield a

broader brush.
- Verify & Document Repayment Ability.

- Use Highest Scheduled Payment for first seven
years of the loan.
- Stated Income loans prohibited
- No Doc loans prohibited.
28
HPML – Higher Priced Mortgage
Loan
• Prepayment Penalties
» No Prepayment Penalties if monthly payment

amount can change during the first 4 yrs of the
loan.
» No Prepayment Penalties when refinanced by
same creditor.
» Otherwise, 2 yr maximum Prepay period.
29
• Escrow Accounts (for HPMLs)
» Escrow Accounts required for all new loans

that meet HPML threshold.
» Cannot be waived by borrower.
» Borrower can discontinue after one year.
30
TILA NEWCOMERS
In a way, we’re all newcomers to this revised TILA.

The game has fundamentally changed, and the
old rules and requirements have been tweaked for
a new paradigm, that may in fact already be Old.
31

TILA Presentation Slides From The Mortgage Bankers Association

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Truth In Lending

Old Dog, New Tricks

Consumer Credit Protection Act (1968)

The FINANCE CHARGE is the cost of consumer

Any Fee not specifically

• Modifies the rate of interest applicable to a loan,

• TILA requires the disclosure of an APR whenever

Lender open to civil liability if Finance Charge is

Lender open to Rescission liability if Finance

No Liability if Finance Charge is Overstated on

• Accurate if within .00125 for Regular

• Accurate if within .00250 for Irregular

• Borrower is given 3 Business Days after

• Truth In Lending Disclosure

• FTC’s “How to Advertise Consumer Credit &

• Section 32 of Reg Z – added in 1994 to address

• Under HOEPA, a mortgage is considered to be a High

• Read the Regs

• TILA (Reg Z) is best understood, ultimately, by

• TILA will be impacted by two significant regulatory

- HERA - the Housing & Economic

- New Update to HOEPA

» Final Rule Still Pending, But Law is to be

» Early Disclosure Requirements – all mortgage

» New Pre Closing Requirements

• Before the Consumer can be required to pay any fee,

• If the Disclosure is delivered by regular mail, it will be

• Cannot close loan until at least Seven (7) business

• If the APR has changed beyond TOLERANCE since the previous

• APR Tolerance is affected regardless of whether the change is in

• The APR Tolerance is different that the test that would be

• Disclosure is considered accurate if Finance Charge is

• Pre Closing redisclosure requirement is only based on

• Most changes become effective on Oct 1, 2009

• Amends Old Rules & Creates New Rules

• Designed to Address Subprime Lending Concerns

• First there was just plain PRICING.

• Then with HOEPA in 1994, we got HIGH COST

• Now, HOEPA 2009 brings us HIGHER COST

» If APR for First Lien loan is greater than 8

» Treasury Index = 4.50 %

» Loan is a High Cost Loan per HOEPA because

» Prime Offer Rate = 4.50%

» Loan is a HPML because the APR exceeds

Applies to HPMLs only, but likely to wield a

- Verify & Document Repayment Ability.

» No Prepayment Penalties if monthly payment

» Escrow Accounts required for all new loans

» Cannot be waived by borrower.

» Borrower can discontinue after one year.

In a way, we’re all newcomers to this revised TILA.

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