TIB 2014 Annual Conference

Transcription

OWELTY:
QUESTIONS AND ANSWERS
By Jennifer Swearingen Patterson
OWELTY:
1. What is an Owelty Lien?
– An owelty is a “specialized form of purchase-money lien.”
2. In what circumstances does it apply?
– A Texas homestead is involved;
– The owners are cotenants (must be the homestead of the borrower);
– The cotenants want to divide the real property and buy out the other;
– The property can’t be divided equally; and
– A division occurs either by contract or court order.
OWELTY:
2. In what circumstances does it generally apply (continued)?
• Examples are:
– Divorce, and
– Probate/inheritance
OWELTY:
3. How does it work?
– The difference in the value of property (as divided) is adjusted by a payment from one
cotenant to another;
– The difference in this value is known as owelty;
– The lien to secure the owelty payment is called an owelty lien; and
– The owelty lien impress the entirety of the homestead property (instead of only the
interest purchased).
OWELTY:
3. How does it work (continued)?
– Here’s an Example:
• A and B own Blackacre (they’re cotenants);
• Blackacre is A’s homestead (A lives on Blackacre);
• A wants to purchase B’s interest in the property;
• The property can’t be divided equally;
• This results in A owing B an owelty payment;
• The owelty can be financed by A executing a note to B;
• B secures the note with a lien on his newly partitioned tract; and
• Because the lien is an owelty and a specialized form of purchase money, B has a
lien on the entirety of A’s homestead.
OWELTY:
3. How does it Work (continued)?
– Some Good Owelty Scenarios:
• H and W are divorced. H is awarded 100% of the house secured by an owelty
lien to W included in the divorce decree. A subsequent lender can refinance that existing owelty lien into a normal rate‐term refinance.
• H and W are divorced. H and W continue to own the house as cotenants. A subsequent lender can create an owelty lien via a post‐divorce owelty deed and then simultaneously refinance that new owelty lien into a normal rate‐
term refinance.
– A Bad owelty scenario:
• H and W are divorced. H is awarded the 100% of the house, with only a general obligation to later pay W X$. There is no owelty language in the divorce decree regarding the amount owed W. H and W are no longer co‐
tenants. Only a Texas home equity A6 loan can fund the unpaid amount due W if lender wants a lien on 100% and not 50% of the property.
OWELTY:
3. Is an owelty lien always necessary when cotenants are involved?
– The answer is no
• Examples and how to issue-spot:
– The property isn’t the borrower’s homestead;
– One co-tenant simply purchases the interest of the other (the property
isn’t divided by court order or contract); and
– No longer co-tenants.
• Why? Because certain sales/purchases (such as the ones mentioned above)
don’t require a true division of the property. Therefore, a lien securing the
purchase may not encumber the entirety of the property.
OWELTY:
4.
In an owelty transaction, does the owelty payment result in an inadvertent Texas home equity
loan?
– No, however, if done as a Texas home equity, then an owelty lien isn’t needed. A Texas
home equity stands on its own.
• Note: Schedule A of a title commitment should show that all cotenants are vested in
title.
5.
How is an owelty lien created?
– An owelty agreement not based on a court order should be documented by both a deed and a
separate agreement;
– The owelty deed should either refer to the court order or a separate agreement on which it’s
based; or
– An agreement can be created within the deed itself (all parties should execute the deed to
show consent to the agreement).
OWELTY:
A NOTE ON LIEN SPREADING AND OVERBURDENING
Lien Spreading and Overburdening of Texas Homestead:
• In 1999, SJR22 allowed the Texas Constitution to be amended to eliminate lenders concerns with "overburdening the homestead" issues (see lines 1‐19 thru 1‐23 at http://www.capitol.state.tx.us/tlodocs/76R/billtext/html/SJ00022F.htm.
• In that same year with the passage of SB496 the Texas Constitution was allowed to be amended to permit an existing lien on a homestead to effectively extend to another part of the homestead (see lines 2‐26 thru 3‐3) at http://www.capitol.state.tx.us/tlodocs/76R/billtext/html/SB00496F.htm.
• With the passing of these two constitutional amendments, and if not increasing debt on the homestead (other than purchase money and reasonable and necessary closing costs), a resulting Texas home equity loan should not be concern.
SAME SEX MARRIAGES AND
LOAN DOCUMENTATION ISSUES
I. Background (U.S. v. Windsor 6/2013):
•
On 6/26/2013, in United States v. Windsor, 133 S.Ct. 2675, the Supreme Court struck down Section 3 of the Defense of Marriage Act (DOMA) for violating principles of equal protection under the Fifth Amendment of the Constitution. •
DOMA amended the Dictionary Act – a law providing rules of construction for over 1,000 federal laws and a spectrum of federal regulations when it defined “marriage” as “only a legal union between one man and one woman as husband and wife, and the word 'spouse' refers only to a person of the opposite sex who is a husband or a wife (see United States v. Windsor, 133 S.Ct. 2675)."
•
Accordingly, the IRS, FHA, VA, and the CFPB now interpret the terms “spouse,” marriage,” “married,” “husband,” “wife,” and any other similar language to include same‐sex marriages and same‐sex spouses (see supplemental CFPB memo). By Jennifer Swearingen Patterson
II. IRS ‐ US Dept of Treasury (After Windsor ‐ 8/29/2013):
•
All Legal Same‐Sex Marriages Legally Are Recognized for Federal Tax Purposes
– Windsor resulted in the IRS ruling that legally married same sex couples (whether married in the U.S. or a foreign country) are now recognized for federal tax purposes. – The ruling provides equal access to benefits and protections under federal tax law for same‐sex married couples.
II. IRS ‐ US Dept of Treasury (After Windsor‐ 8/29/2013):
– Applies to All Federal Tax Provisions Where Marriage is a Factor:
• Those provisions include:
– filing status, – claiming personal and dependency exemptions, – taking the standard deduction, – employee benefits, – contributing to an IRA, and
– claiming the earned income tax credit or child tax credit. By Jennifer Swearingen Patterson
II. IRS ‐ US Dept of Treasury (After Windsor‐ 8/29/2013):
– Exemptions from the Ruling: However, the ruling does not apply to:
• registered domestic partnerships, • civil unions, or • similar formal relationships recognized under state law. By Jennifer Swearingen Patterson
III.
VA Benefits under Title 38; Letter from the U. S. Attorney General (9‐4‐
2013):
The U.S. Attorney General in his letter to Congress reasoned:
•
Although the Supreme Court did not directly address VA benefits for same sex couples in Windsor, the opinion strongly supports the conclusion that Title 38 provisions are unconstitutional. •
Like Section 3 of DOMA, the provisions of Title 38 have the effect of departing from [a] history . . . of reliance on state law to define marriage."
•
The Court's conclusion in Windsor would seem to apply equally to Title 38 and reinforces the Executive’s decision that Title 38 is unconstitutional and unenforceable.
IV. VA Announcement/Circular dated 9‐26‐2013)
• V.A. Circular 26‐13‐18: After the U.S. Attorney’s announcement, the VA stated that it would begin reviewing applications for the home loan guaranty benefit for same‐sex married couples in a manner consistent with processes currently used for opposite‐sex married couples. V. CFPB Bulletin dated 6‐25‐2014): The CFPB now recognizes all same sex marriages as valid at the time of the marriage in the jurisdiction where the marriage was celebrated. • Accordingly, if legally married, state of residence doesn’t matter.
V.
•
CFPB Bulletin (6‐25‐2014) CONTINUED: The CFPB applies this policy to:
–
–
–
–
•
Equal Credit Opportunity Act (ECOA) and Regulation B;
Fair Debt Collection Practices Act (FDCPA);
Interstate Land Sales Full Disclosure Act (ILSA) and Regulation J; and
Truth in Lending Act (TILA) and Regulation Z.
Exceptions:
– Domestic partnership, – Civil union, or – Other relationship not denominated by law as a marriage.
VI. Status of Same Sex Marriage in Texas:
•
Summary of Background/Current Status: – Texas: In DeLeon v. Perry, Texas Governor, Rick Perry and Attorney General, Greg Abbott defended Texas’ constitutional prohibition of same‐sex marriages.
– Background: Plaintiffs in the lawsuit included two couples: a homosexual couple who wished to marry in the State of Texas but who were unable to do so because the Texas Constitution prohibits same‐sex marriage, and a lesbian couple who married in Massachusetts, a state that allows same‐sex marriage, and who sought to have their marriage recognized in Texas.
• Holding of the Federal District Court: that the prohibition is in conflict with federal guarantees of equal protection and due process under the United States Constitution and the Supreme Court’s holding in Windsor. By Jennifer Swearingen Patterson
VI. Status of Same Sex Marriage in Texas (continued):
•
Summary of Background/Current Status: – Texas: In DeLeon v. Perry
– Appeal: The Texas case is on a slow path to the 5th Circuit Court of Appeals. “The plaintiffs’ briefs are due on September 2nd and Abbot will have two additional weeks after that to file a reply.” (See Statesman.com, “Abbot argues that gay marriage ban is in Texas’ Interest” at http://www.statesman.com/news/news/abbott‐argues‐that‐gay‐marriage‐
ban‐is‐in‐texas‐in/ngqPb/).
– Other States/Federal Jurisdictions: Other federal judges have since made similar rulings in 10 states. To date, two federal appeals courts have upheld pro same‐sex marriage decisions in the lower courts. By Jennifer Swearingen Patterson
VII. Texas Law Application of CFPB 6‐25‐2014 Announcement:
– Equal Credit Opportunity Act (ECOA) and Regulation B:
• Comment: Texas community property laws are not changed so “spouse joinder” requirement to “perfect the security interest in the collateral” is not applicable to the non‐vested partner.
– Fair Debt Collection Practices Act (FDCPA):
• No comment
– Interstate Land Sales Full Disclosure Act (ILSA) and Regulation J:
• No comment
– Truth in Lending Act (TILA) and Regulation Z:
• Comment: Texas community property laws are not changed so “right of rescission” to the non‐vested partner is not required.
VIII. P&P Vesting Recommendation
•
If the parties request to be vested as “married” accommodate their request by adding after their names “, married in the State of [applicable state of the marriage ceremony outside of Texas] on [date of out of state marriage]. If data input lines do not allow that vesting immediately after their names add “,married*” and below their names add the remainder with an “*”.
•
Check with title company and investor for any contrary requirements.
Appraisals Deadlines & Waivers Thereof
Venessa Snell
Appraisal Requirements : ECOA
I.
ECOA §1002.1‐ Authority, Scope and Purpose
a. Applies to all persons who are creditors as defined in 1002.2(l); Creditor means a person who, in the ordinary course of business, regularly participates in a credit decision, including setting the terms of the credit. b. Purpose: To promote nondiscriminatory availability of credit to all creditworthy applicants. Additionally, to notify applicants of changes, report credit history, retain records, collect information on race and personal characteristics, and to provide applicants with copies of appraisal reports used in connection with credit transactions.
Appraisal Deadlines & Waivers Thereof
By Venessa Snell
II. Previous Rule 1002.14‐ through year ending 2013
a. A creditor shall provide a copy of the appraisal report used in connection with an application for credit secured by a dwelling. To be provided by;
(1) Routine Delivery ‐whether credit is granted, denied or withdrawn; or
(2 )Upon Request ‐A creditor shall provide a copy of appraisal reports upon applicants written request. (i)Notice must be provided to the borrower in writing of the right to receive a copy of the appraisal report any time prior to statement of action taken under 1002.9.
(ii)Delivery must be within 30 days of the last to occur of either the borrower’s written request, or reimbursement from the applicant.
By Venessa Snell
III. 1002.14 Changes as of January 18, 2014
a. A creditor shall provide an applicant a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling. To be provided;
(1) Promptly upon completion; or
(2) Three days prior to consummation.
(i) Any waiver of such timing requirement must be obtained three days prior to closing and agree to receive any copy at or before consummation or account opening.
(ii) If waiver is obtained and consummation does not occur, copy must be provided within 30 days after determination.
By Venessa Snell
III. 1002.14 Changes as of January 18, 2014‐(continued)
b. Disclosure must be by mail or delivered to applicant no later then the third business day after receipt of an application for credit secured by a first lien on a dwelling. Copies may be provided in electronic form, subject to compliance with the E‐Sign Act (15 U.S.C. 7001 et seq.)
c. Reimbursement cannot be required by creditors for providing copies of any report, only the reasonable fee for the cost of the appraisal or valuation itself. Appraisal Deadlines & Waivers Thereof
By Venessa Snell
Appraisal Requirements: Section 35
IV. 1026.35 (HPML)Changes as of January 18, 2014
a. Excepting exemptions indicated; and appraisal is required on any extension of an HPML loan. Appraisals must be performed by a licensed appraiser, and consist of a physical visit to the interior of the property (c)(3)(i)
b. As noted in 1002.14 disclosure must be given within three days of application.
c. A copy of the appraisal must be delivered promptly upon receipt or within 3 days of closing.
d. There is no allowance for waiver of the 3 day prior to consummation requirement for any HPML loan which does not meet exemption.
By Venessa Snell
IV. 1026.35 (HPML)Changes as of January 18, 2014 (cont.)
e. Exemptions;
1. A QM as defined in 1026.43(e);
2. A transaction secured by a new manufactured home (chattel);
3. A transaction secured by a mobile home, boat or trailer, without land;
4. A transaction for the initial construction of a dwelling ;
5. Certain “streamlined” refinances;
6. A bridge loan of 12 months or less; 7. A reverse‐mortgage transaction; or 8. A transaction of $25,000 or less. Appraisal Deadlines & Waivers Thereof
By Venessa Snell
f. Anti‐Flipping Rules‐The creditor shall not extend an HPML without obtaining an additional appraisal at no cost to the borrower if;
1. The seller obtained the property 90 days or less prior to the date of purchase agreement, and the sales price exceeds seller’s acquisition cost by 10%; or 2. The seller obtained the property 90‐180 days prior to the date of purchase agreement, and the sales price exceeds seller’s acquisition cost by 20%
By Venessa Snell
g. Exceptions to additional appraisal requirement include ones where the seller is; 1. A local, State or Federal government agency;
2. A person who acquired title through foreclosure deed‐in‐lieu 3. A non‐profit entity as part of a local, State or Federal program. 4. A person whom acquired title by inheritance or court order. 5. An employer or relocation agency in connection with relocation of employee; 6. A service member who received a deployment; or permanent change of station; or property is located in 7. A federal disaster area as designated by the President; or
8. Located in a rural county as defined in 1026.35(b)(2)(iv)(A)
By Venessa Snell
Appraisal Requirements‐Integrated Disclosure Rule
V. 1026.37(m) (Loan Estimate)Changes as of August 1, 2015
a. The required verbiage as implemented in Regulation B CFR part 1002 (ECOA) and this part, must be provided on page 3 of the Loan Estimate (RESPA/TILA Integrated Form) under Other Considerations section and titled “Appraisal”: 1. The creditor may order an appraisal to determine the value of the property identified and may charge the consumer for that appraisal;
2. The creditor will promptly provide the consumer a copy of any appraisal, even if the transaction is not consummated; and
3. The consumer may choose to pay for an additional appraisal of the property for the consumer's use.
b. If loan is not subject to 1026.37 or 1026.38, and is a 1st lien the standard ECOA disclosure will still be required. Appraisal Deadlines & Waivers Thereof
By Venessa Snell
Other Considerations
Appraisal
Assumption
Homeowner’s
Insurance
Late Payment
Refinance
Servicing
We may order an appraisal to determine the property’s value and charge you for this
appraisal. We will promptly give you a copy of any appraisal, even if your loan does not close.
You can pay for an additional appraisal for your own use at your own cost.
If you sell or transfer this property to another person, we
will allow, under certain conditions, this person to assume this loan on the original terms.
x will not allow assumption of this loan on the original terms.
This loan requires homeowner’s insurance on the property, which you may obtain from a
company of your choice that we find acceptable.
If your payment is more than 15 days late, we will charge a late fee of 5% of the monthly
principal and interest payment.
Refinancing this loan will depend on your future financial situation, the property value, and
market conditions. You may not be able to refinance this loan.
We intend
to service your loan. If so, you will make your payments to us.
x to transfer servicing of your loan.
By Venessa Snell
Appraisals-Deadlines & Waivers Thereof
By Venessa Snell 1. Appraisal Requirements‐ ECOA Part 1002 — Equal Credit Opportunity Act (Regulation B/ECOA) §1002.1‐ Authority, Scope and Purpose (a) Authority and scope. This part, known as Regulation B, is issued by the Bureau of Consumer Financial Protection (Bureau) pursuant to Title VII (Equal Credit Opportunity Act) of the Consumer Credit Protection Act, as amended (15 U.S.C. 1601 et seq.). Except as otherwise provided herein, this part applies to all persons who are creditors, as defined in §1002.2(l), other than a person excluded from coverage of this part by section 1029 of the Consumer Financial Protection Act of 2010, Title X of the Dodd‐Frank Wall Street Reform and Consumer Protection Act, Public Law 111–203, 124 Stat. 1376. Information collection requirements contained in this part have been approved by the Office of Management and Budget under the provisions of 44 U.S.C. 3501 et seq. and have been assigned OMB No. 3170–0013. (b) Purpose. The purpose of this part is to promote the availability of credit to all creditworthy applicants without regard to race, color, religion, national origin, sex, marital status, or age (provided the applicant has the capacity to contract); to the fact that all or part of the applicant's income derives from a public assistance program; or to the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The regulation prohibits creditor practices that discriminate on the basis of any of these factors. The regulation also requires creditors to notify applicants of action taken on their applications; to report credit history in the names of both spouses on an account; to retain records of credit applications; to collect information about the applicant's race and other personal characteristics in applications for certain dwelling‐related loans; and to provide applicants with copies of appraisal reports used in connection with credit transactions. Effective January 18, 2014‐ § 1002.14 Rules on providing appraisals and other valuations; (a) Providing appraisals and other valuations. (1) In general. A creditor shall provide an applicant a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling. A creditor shall provide a copy of each such appraisal or other written valuation promptly upon completion, or three business days prior to consummation of the transaction (for closed‐end credit) or account opening (for open‐end credit), whichever is earlier. An applicant may waive the timing requirement in this paragraph (a)(1) and agree to receive any copy at or before consummation or account opening, except where otherwise prohibited by law. Any such waiver must be obtained at least three business days prior to consummation or account opening, unless the waiver pertains solely to the applicant's receipt of a copy of an appraisal or other written valuation that contains only clerical changes from a previous version of the appraisal or other written valuation provided to the applicant three or more business days prior to consummation or account opening. If the applicant provides a waiver and the transaction is not 1 2310 West Interstate 20, Suite 100 | Arlington, Texas 76017
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By Venessa Snell consummated or the account is not opened, the creditor must provide these copies no later than 30 days after the creditor determines consummation will not occur or the account will not be opened. (2) Disclosure. For applications subject to paragraph (a)(1) of this section, a creditor shall mail or deliver to an applicant, not later than the third business day after the creditor receives an application for credit that is to be secured by a first lien on a dwelling, a notice in writing of the applicant's right to receive a copy of all written appraisals developed in connection with the application. In the case of an application for credit that is not to be secured by a first lien on a dwelling at the time of application, if the creditor later determines the credit will be secured by a first lien on a dwelling, the creditor shall mail or deliver the same notice in writing not later than the third business day after the creditor determines that the loan is to be secured by a first lien on a dwelling. (3) Reimbursement. A creditor shall not charge an applicant for providing a copy of appraisals and other written valuations as required under this section, but may require applicants to pay a reasonable fee to reimburse the creditor for the cost of the appraisal or other written valuation unless otherwise provided by law. (4) Withdrawn, denied, or incomplete applications. The requirements set forth in paragraph (a)(1) of this section apply whether credit is extended or denied or if the application is incomplete or withdrawn. (5) Copies in electronic form. The copies required by § 1002.14(a)(1) may be provided to the applicant in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E‐Sign Act) (15 U.S.C. 7001 et seq.). (b) Definitions. For purposes of paragraph (a) of this section: (1) Consummation. The term "consummation" means the time that a consumer becomes contractually obligated on a closed‐end credit transaction. (2) Dwelling. The term "dwelling" means a residential structure that contains one to four units whether or not that structure is attached to real property. The term includes, but is not limited to, an individual condominium or cooperative unit, and a mobile or other manufactured home. (3) Valuation. The term "valuation" means any estimate of the value of a dwelling developed in connection with an application for credit. 2 2310 West Interstate 20, Suite 100 | Arlington, Texas 76017
By Venessa Snell 2. Appraisal Requirements‐ Section 35 §1026.35 Requirements for higher‐priced mortgage loans (HPML) (Effective June 1, 2013, Additional Appraisal Requirements‐January 18, 2014) (a) Definitions. For purposes of this section: (1) "Higher‐priced mortgage loan" means a closed‐end consumer credit transaction secured by the consumer's principal dwelling with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set: (i) By 1.5 or more percentage points for loans secured by a first lien with a principal obligation at consummation that does not exceed the limit in effect as of the date the transaction's interest rate is set for the maximum principal obligation eligible for purchase by Freddie Mac; (ii) By 2.5 or more percentage points for loans secured by a first lien with a principal obligation at consummation that exceeds the limit in effect as of the date the transaction's interest rate is set for the maximum principal obligation eligible for purchase by Freddie Mac; or (iii) By 3.5 or more percentage points for loans secured by a subordinate lien. (2) "Average prime offer rate" means an annual percentage rate that is derived from average interest rates, points, and other loan pricing terms currently offered to consumers by a representative sample of creditors for mortgage transactions that have low‐risk pricing characteristics. The Bureau publishes average prime offer rates for a broad range of types of transactions in a table updated at least weekly as well as the methodology the Bureau uses to derive these rates. (c) Appraisals for higher‐priced mortgage loans. (1) Definitions. For purposes of this section: (i) Certified or licensed appraiser means a person who is certified or licensed by the State agency in the State in which the property that secures the transaction is located, and who performs the appraisal in conformity with the Uniform Standards of Professional Appraisal Practice and the requirements applicable to appraisers in title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as amended (12 U.S.C. 3331 et seq.), and any implementing regulations in effect at the time the appraiser signs the appraiser's certification. (ii) Credit risk means the financial risk that a consumer will default on a loan. (iii) Manufactured home has the same meaning as in 24 CFR 3280.2. (iv) Manufacturer's invoice means a document issued by a manufacturer and provided with a manufactured home to a retail dealer that separately details the wholesale (base) prices at the factory for specific models or series of manufactured homes and itemized options(large appliances, built‐in items and equipment), plus actual itemized charges for freight from the factory to the dealer's lot or the homesite (including any rental of wheels and axles) and for any sales taxes to be paid by the dealer. The invoice may recite such prices and charges on an itemized basis or by stating an aggregate price or charge, as appropriate, for each category. 3 2310 West Interstate 20, Suite 100 | Arlington, Texas 76017
By Venessa Snell (v) National Registry means the database of information about State certified and licensed appraisers maintained by the Appraisal Subcommittee of the Federal Financial Institutions Examination Council. (vi) New manufactured home means a manufactured home that has not been previously occupied. (vii) State agency means a “State appraiser certifying and licensing agency” recognized in accordance with section 1118(b) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 3347(b))and any implementing regulations. (2) Exemptions. The requirements in paragraphs (c)(3) through (6) of this section do not apply to the following types of transactions: (i) A qualified mortgage as defined pursuant to 15 U.S.C. 1639c; (ii) An extension of credit for which the amount of credit extended is equal to or less than the applicable threshold amount, which is adjusted every year to reflect increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers, as applicable, and published in the official staff commentary to this paragraph(c)(2)(ii); (iii) A transaction secured by a mobile home, boat, or trailer. (iv) A transaction to finance the initial construction of a dwelling. (v) A loan with maturity of 12 months or less, if the purpose of the loan is a “bridge” loan connected with the acquisition of a dwelling intended to become the consumer's principal dwelling. (vi) A reverse‐mortgage transaction subject to 12 CFR 1026.33(a). (vii) An extension of credit that is a refinancing secured by a first lien, with refinancing defined as in § 1026.20(a) (except that the creditor need not be the original creditor or a holder or servicer of the original obligation), provided that the refinancing meets the following criteria: (A) Either— (1) The credit risk of the refinancing is retained by the person that held the credit risk of the existing obligation and there is no commitment, at consummation, to transfer the credit risk to another person; or (2) The refinancing is insured or guaranteed by the same Federal government agency that insured or guaranteed the existing obligation; (B) The regular periodic payments under the refinance loan do not (1) Cause the principal balance to increase; (2) Allow the consumer to defer repayment of principal; or (3) Result in a balloon payment, as defined in § 1026.18(s)(5)(i); and 4 2310 West Interstate 20, Suite 100 | Arlington, Texas 76017
By Venessa Snell (C) The proceeds from the refinancing are used solely to satisfy the existing obligation and amounts attributed solely to the costs of the refinancing; and (viii) A transaction secured in whole or in part by a manufactured home. Note: Effective July 18, 2015, § 1026.35(c)(2)(viii) is revised to read as follows. (viii) A transaction secured by: (A) A new manufactured home and land, but the exemption shall only apply to the requirement in paragraph (c)(3)(i) of this section that the appraiser conduct a physical visit of the interior of the new manufactured home; or (B) A manufactured home and not land, for which the creditor obtains one of the following and provides a copy to the consumer no later than three business days prior to consummation of the transaction— (1) For a new manufactured home, the manufacturer's invoice for the manufactured home securing the transaction, provided that the date of manufacture is no earlier than 18 months prior to the creditor's receipt of the consumer's application for credit; (2) A cost estimate of the value of the manufactured home securing the transaction obtained from an independent cost service provider; or (3) A valuation, as defined in § 1026.42(b)(3), of the manufactured home performed by a person who has no direct or indirect interest, financial or otherwise, in the property or transaction for which the valuation is performed and has training in valuing manufactured homes. (3) Appraisals required. (i) In general. Except as provided in paragraph (c)(2) of this section, a creditor shall not extend a higher‐priced mortgage loan to a consumer without obtaining, prior to consummation, a written appraisal of the property to be mortgaged. The appraisal must be performed by a certified or licensed appraiser who conducts a physical visit of the interior of the property that will secure the transaction. (ii) Safe harbor. A creditor obtains a written appraisal that meets the requirements for an appraisal required under paragraph (c)(3)(i) of this section if the creditor: (A) Orders that the appraiser perform the appraisal in conformity with the Uniform Standards of Professional Appraisal Practice and title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as amended (12 U.S.C. 3331 et seq.), and any implementing regulations in effect at the time the appraiser signs the appraiser's certification; (B) Verifies through the National Registry that the appraiser who signed the appraiser's certification was a certified or licensed appraiser in the State in which the appraised property is located as of the date the appraiser signed the appraiser's certification; (C) Confirms that the elements set forth in appendix N to this part are addressed in the written appraisal; and (D) Has no actual knowledge contrary to the facts or certifications contained in the written appraisal. 5 2310 West Interstate 20, Suite 100 | Arlington, Texas 76017
By Venessa Snell (4) Additional appraisal for certain higher‐priced mortgage loans. (i) In general. Except as provided in paragraphs (c)(2) and (c)(4)(vii) of this section, a creditor shall not extend a higher‐priced mortgage loan to a consumer to finance the acquisition of the consumer's principal dwelling without obtaining, prior to consummation, two written appraisals, if: (A) The seller acquired the property 90 or fewer days prior to the date of the consumer's agreement to acquire the property and the price in the consumer's agreement to acquire the property exceeds the seller's acquisition price by more than 10 percent; or (B) The seller acquired the property 91 to 180 days prior to the date of the consumer's agreement to acquire the property and the price in the consumer's agreement to acquire the property exceeds the seller's acquisition price by more than 20 percent. (ii) Different certified or licensed appraisers. The two appraisals required under paragraph (c)(4)(i) of this section may not be performed by the same certified or licensed appraiser. (iii) Relationship to general appraisal requirements. If two appraisals must be obtained under paragraph (c)(4)(i) of this section, each appraisal shall meet the requirements of paragraph (c)(3)(i) of this section. (iv) Required analysis in the additional appraisal. One of the two required appraisals must include an analysis of: (A) The difference between the price at which the seller acquired the property and the price that the consumer is obligated to pay to acquire the property, as specified in the consumer's agreement to acquire the property from the seller; (B) Changes in market conditions between the date the seller acquired the property and the date of the consumer's agreement to acquire the property; and (C) Any improvements made to the property between the date the seller acquired the property and the date of the consumer's agreement to acquire the property. (v) No charge for the additional appraisal. If the creditor must obtain two appraisals under paragraph (c)(4)(i) of this section, the creditor may charge the consumer for only one of the appraisals. (vi) Creditor's determination of prior sale date and price. (A) Reasonable diligence. A creditor must obtain two written appraisals under paragraph (c)(4)(i) of this section unless the creditor can demonstrate by exercising reasonable diligence that the requirement to obtain two appraisals does not apply. A creditor acts with reasonable diligence if the creditor bases its determination on information contained in written source documents, such as the documents listed in appendix O to this part. (B) Inability to determine prior sale date or price‐modified requirements for additional appraisal. If, after exercising reasonable diligence, a creditor cannot determine whether the conditions in paragraphs (c)(4)(i)(A) and (c)(4)(i)(B) are present and therefore must obtain two written appraisals in accordance with paragraphs (c)(4)(i) through (v) of this section, one of the two appraisals shall include an analysis of the factors in paragraph (c)(4)(iv) of this section only to the extent that the information necessary for the appraiser to perform the analysis can be determined. (vii) Exemptions from the additional appraisal requirement. The additional appraisal required under paragraph (c)(4)(i) of this section shall not apply to extensions of credit that finance a consumer's acquisition of property: 6 2310 West Interstate 20, Suite 100 | Arlington, Texas 76017
By Venessa Snell (A) From a local, State or Federal government agency; (B) From a person who acquired title to the property through foreclosure, deed‐in‐lieu of foreclosure, or other similar judicial or non‐judicial procedure as a result of the person's exercise of rights as the holder of a defaulted mortgage loan; (C) From a non‐profit entity as part of a local, State, or Federal government program under which the non‐profit entity is permitted to acquire title to single‐family properties for resale from a seller who acquired title to the property through the process of foreclosure, deed‐in‐ lieu of foreclosure, or other similar judicial or non‐judicial procedure; (D) From a person who acquired title to the property by inheritance or pursuant to a court order of dissolution of marriage, civil union, or domestic partnership, or of partition of joint or marital assets to which the seller was a party; (E) From an employer or relocation agency in connection with the relocation of an employee; (F) From a servicemember, as defined in 50 U.S.C. Appx. 511(1), who received a deployment or permanent change of station order after the servicemember purchased the property; (G) Located in an area designated by the President as a federal disaster area, if and for as long as the Federal financial institutions regulatory agencies, as defined in 12 U.S.C. 3350(6), waive the requirements in title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as amended (12 U.S.C. 3331 et seq.), and any implementing regulations in that area; or (H) Located in a rural county, as defined in 12 CFR 1026.35(b)(2)(iv)(A). (5) Required disclosure. (i) In general. Except as provided in paragraph (c)(2) of this section, a creditor shall disclose the following statement, in writing, to a consumer who applies for a higher‐priced mortgage loan: "We may order an appraisal to determine the property's value and charge you for this appraisal. We will give you a copy of any appraisal, even if your loan does not close. You can pay for an additional appraisal for your own use at your own cost." Compliance with the disclosure requirement in Regulation B, 12 CFR 1002.14(a)(2), satisfies the requirements of this paragraph. (ii) Timing of disclosure. The disclosure required by paragraph (c)(5)(i) of this section shall be delivered or placed in the mail no later than the third business day after the creditor receives the consumer's application for a higher‐priced mortgage loan subject to paragraph (c) of this section. In the case of a loan that is not a higher‐
priced mortgage loan subject to paragraph (c) of this section at the time of application, but becomes a higher‐
priced mortgage loan subject to paragraph (c) of this section after application, the disclosure shall be delivered or placed in the mail not later than the third business day after the creditor determines that the loan is a higher‐
priced mortgage loan subject to paragraph (c) of this section. (6) Copy of appraisals. (i) In general. Except as provided in paragraph (c)(2) of this section, a creditor shall provide to the consumer a copy of any written appraisal performed in connection with a higher‐priced mortgage loan pursuant to paragraphs (c)(3) and (c)(4) of this section. (ii) Timing. A creditor shall provide to the consumer a copy of each written appraisal pursuant to paragraph (c)(6)(i) of this section: 7 2310 West Interstate 20, Suite 100 | Arlington, Texas 76017
By Venessa Snell (A) No later than three business days prior to consummation of the loan; or (B) In the case of a loan that is not consummated, no later than 30 days after the creditor determines that the loan will not be consummated. (iii) Form of copy. Any copy of a written appraisal required by paragraph (c)(6)(i) of this section may be provided to the applicant in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E‐Sign Act) (15 U.S.C. 7001 et seq.). (iv) No charge for copy of appraisal. A creditor shall not charge the consumer for a copy of a written appraisal required to be provided to the consumer pursuant to paragraph (c)(6)(i) of this section. Official Commentary 1026.35(c)(6)ii Timing;. 1. "Provide." For purposes of the requirement to provide a copy of the appraisal within a specified time under § 1026.35(c)(6)(ii), "provide" means "deliver." Delivery occurs three business days after mailing or delivering the copies to the last‐known address of the applicant, or when evidence indicates actual receipt by the applicant (which, in the case of electronic receipt, must be based upon consent that complies with the E‐Sign Act), whichever is earlier. 2. No waiver. Regulation B, 12 CFR 1002.14(a)(1), allowing the consumer to waive the requirement that the appraisal copy be provided three business days before consummation, does not apply to higher‐priced mortgage loans subject to § 1026.35(c). A consumer of a higher‐priced mortgage loan subject to § 1026.35(c) may not waive the timing requirement to receive a copy of the appraisal under § 1026.35(c)(6)(i). 3. Appraisal Requirements‐ Integrated Disclosure Rule § 1026.37 Content of disclosures for certain mortgage transactions (Loan Estimate). Effective August 1, 2015 (m) Other considerations. Under the master heading “Additional Information About This Loan” required by paragraph (k) of this section and under the heading “Other Considerations”: (1) Appraisal. For transactions subject to 15 U.S.C. 1639h or 1691(e), as implemented in this part or Regulation B, 12 CFR part 1002, respectively, a statement, labeled “Appraisal,” that: (i) The creditor may order an appraisal to determine the value of the property identified in paragraph (a)(6) of this section and may charge the consumer for that appraisal; (ii) The creditor will promptly provide the consumer a copy of any appraisal, even if the transaction is not consummated; and 8 2310 West Interstate 20, Suite 100 | Arlington, Texas 76017
By Venessa Snell (iii) The consumer may choose to pay for an additional appraisal of the property for the consumer's use. Official Commentary 1026.37(m)(1) Appraisal. 1. Applicability. The disclosure required by § 1026.37(m)(1) is only applicable to transactions subject to § 1026.19(e) that are also subject either to 15 U.S.C. 1639h or 1691(e) or both, as implemented by this part or Regulation B, 12 CFR part 1002, respectively. Accordingly, if a transaction is not also subject to either or both of these provisions, as implemented by this part or Regulation B, respectively, the disclosure required by § 1026.37(m)(1) may be omitted from the Loan Estimate as described by comment 37‐1 as illustrated by form H‐24 of appendix H to this part. For transactions subject to section 1639h but not section 1691(e), the creditor may delete the word “promptly” from the disclosure required by § 1026.37(m)(1)(ii). 2. Consummation. Section 1026.37(m)(1) requires the creditor to disclose that it will provide a copy of any appraisal, even if the transaction is not consummated. On form H‐24, the disclosure required by § 1026.37(m)(1) states that the creditor will provide an appraisal, even if the “loan does not close.” Pursuant to § 1026.37(o)(3), the disclosure required by § 1026.37(m)(1) is that illustrated by form H‐24. Sources; Bankers Online http://www.bankersonline.com/regs/12‐1002/12‐1002‐000.html http://www.bankersonline.com/regs/12‐1026/12‐1026‐000.html 9 2310 West Interstate 20, Suite 100 | Arlington, Texas 76017
By Venessa Snell Comparison of Section 35(HPML) & Section 32(HOEPA) Regulations
Including CFPB 2013 & 2014 Updates
As of 01/07/2014
HPML (12 CFR §1026.35)
Higher-Priced Mortgage Loans
General
Consumer
Loan Type
HOEPA (12 CFR § 1026.32)
High-Cost Mortgage Loans
As of January 10, 2014
A closed-end consumer credit transaction
secured by the consumer’s principal dwelling
with annual percentage rate (APR) that exceeds
the APOR by indicated thresholds for a
comparable transaction as of the date the
interest rate is set.
Principal dwelling only -1st and 2nd liens
fixed rate or adjustable rate mortgages including:
“ANY Closed-End Consumer Credit Transaction
secured by a principal dwelling”
• Closed-end purchase money loan
• Refinancing of closed-end purchase
money or home equity loan
• Closed-end home equity loan
2013 CFPB TILA amendments apply to Borrowers
that purchase or already own their homes and
entered into loans that met or exceeded specific
cost parameters. These amendments enhance
existing HOEPA protections to align with the QM
and ATR restrictions effective 01/10/14.
Principal dwelling only -1st and 2nd liens
fixed rate or adjustable rate mortgages including:
•
•
•
•
•
•
•
Not
Applicable
HPML definitions does not include;
•
•
•
•
•
HOEPA definitions will not include;
Initial Construction Loans (Borrower
Interim)
Temporary or Bridge loans with terms of
12 months or less*
Home Equity Lines of Credit (open-end)
Reverse mortgages
Non-owner occupied transactions
•
•
•
•
•
Thresholds
Purchase Money Loans
Refinancing of closed-end Purchase Money
or home equity loan
Closed-end Home Equity Loan
Home Equity Lines of Credit (HELOC)
Actual “Bridge Loans” to obtain principal
dwelling
Home Improvement(interest or P&I)
Temporary
No Prepayment Penalty Test
Initial Construction Loans(Borrower
Interim)
Reverse mortgages
Originated or directly financed by Housing
Financing Agency (HFA)
Originated or directly financed USDA Rural
Development Section 502 Direct Loan
Program
Non-owner occupied and second home
purchases and refinance mortgages
Prepayment Penalty Coverage Test: Loan is highcost if you charge a prepayment penalty;
•
•
1
More than 36 months after consummation
or account opening; or
In an amount more than 2% of the amount
prepaid.
HPML (12 CFR §1026.35)
Thresholds
HOEPA (12 CFR § 1026.32)
Thresholds based on average prime offer rate
(APOR) as published via the FFIEC’s rate spread
calculator on website
www.ffiec.gov/ratespread/newcalc.aspx :
Final APR that exceed the APOR as of the final
interest rate lock by at least
• 1.5 percentage points or more for firstlien loans; or
• 2.5 or more percentage points for loans
which exceed Agency maximum loan
limits (jumbo)
• 3.5 percentage points or more for
subordinate-lien loans.
•
3.5 percentage points as of January 10,
2014 for “Small Creditors” pertains to
Higher Priced Covered Transactions;
through January 10, 2016 per §1026.43.
(See Sec 43)
2
Thresholds based on either APR Test or Points & Fees
Test:
www.ffiec.gov/ratespread/newcalc.aspx
APR Test: A closing date APR that exceeds the APOR
as of the date the interest rate was set
• 6.5 % points for first-lien loans or
• 8.5 % points for subordinate-lien loans
• 8.5 % points for first-lien loans if dwelling is
personal property and less than $50,000
-ORPoints and Fees Test: Points and fees exceeding the
greater of
• 5 % of the total loan amount if loan amount is
$20,000 or more; or
• The lesser of 8% or $1,000 for loan amounts
less than $20,000 (adjusted annually); or
Points and Fees include;
• All items required to be disclosed in
§1026.4(a) and §1026.4(b);
-Except for interest or time-price differential;
and any Federal or State agency guaranty or
mortgage insurance; Non-Agency MI payable
after consummation; or for Non-Agency MI
payable at or prior to closing, the amount in
excess of FHA UFMIP;
• Less excludable discount points;
• All fees paid directly or indirectly to creditor,
loan originator or its affiliates known at
consummation;
• All compensation paid by creditor to a
mortgage broker
• All items listed in §1026.4(c)(7), unless
reasonable, and creditor or affiliate receives
no direct or indirect compensation for charge;
• Premiums for any credit insurance payable at
or before consummation;
• Maximum Prepayment Penalty that may be
collected if allowable; and
• Total Prepayment penalty incurred if the
borrower refinances with creditor or its
affiliate.
Open-End additionally includes
• Participation fees payable at or before
account opening;
• Fees charged to consumer to draw funds
from the credit line.
HPML (12 CFR §1026.35)
Disclosure
HOEPA (12 CFR § 1026.32)
No separate additional disclosures required;
other then as required by Reg. B 1002.14(a)(2)Borrowers Right to Receive Appraisal-A creditor
shall mail or deliver a copy of the appraisal report
promptly (generally within 30 days) after the
creditor receives an applicant's request.
3
HOEPA disclosure must be given 3 business days
prior to closing. If transaction is rescindable, give to
each consumer who has the right to rescind. The
following must be included in HOEPA disclosures:
• “You are not required to complete this
agreement merely because you have received
these disclosures or 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 not meet your
obligations under this loan”
PLUS
• APR;
• Amount of the regular monthly (or other
periodic) payment and the amount of any
balloon payment;
-Open-end ;based on borrowing full line of
credit with no further extensions, borrower
making minimum payments, and APR
remaining constant during both draw
period and any repayment period.
-Examples to include; first minimum periodic
for draw period, first minimum periodic for
repayment, and balance outstanding at the
beginning of any repayment period.
-Example section must include a statement
indicating that these are not the consumer’s
actual payments and that actual minimum
periodic payments will depend on amount
borrowed, interest rate applicable to that
period and whether the consumer pays
more than the required minimum periodic
payment
• Variable rate transaction, statement that
interest rate and payment may increase and
the maximum rate and payment possible;
• Amount borrowed ; Credit limit (note
amount with notation if amount includes
optional credit insurance or debtcancellation coverage. )
-Open-end amount must indicate the
borrower’s total credit limit for the plan at
the time the account is opened.
HPML (12 CFR §1026.35)
Underwriting
Prohibition
HOEPA (12 CFR § 1026.32)
May not rely on the collateral securing the loan
<Same as HPML
without regard to consumer’s ability to repay.
Lender may consider current and reasonably
expected income, employment, assets other than
collateral, current obligations and mortgagerelated obligations.
Mortgage related obligations include; but are
not limited to, property taxes, insurance
premiums including PMI, HOA or condo fees,
secondary mortgage payments taken at or
before closing in addition to this transaction’s
mortgage payment.
May not fail to escrow for property taxes and
mortgage-related insurance for a minimum of
FIVE YEARS (including insurance against loss of
or damage to property, protecting mortgage
lender against default or other credit loss, and
flood insurance) when the high priced mortgage
loan is secured by a first lien.
Escrows requirements effective:
• June 1, 2013
Exemptions to Escrow Rule Requirement:
• Loans originated by creditor or affiliates
whom meets “Rural or Underserved”
definitions.
However, they are still considered HPML
loans and must follow all other HPML rules
and requirements, if threshold is exceeded.
<NONE
Notwithstanding the 5 year mark and
borrower’s hand written request to cancel,
escrow accounts may not be canceled unless the
unpaid principal balance is less than 80% of
original value of the property securing
underlying debt obligation; and the consumer is
not delinquent or in default.
Prohibition
May not structure a home-secured loan as an
open-end plan to evade Regulation Z’s HPML
provisions.
4
*Open-end plan now included in definitions.
HPML (12 CFR §1026.35)
Prohibition
HOEPA (12 CFR § 1026.32)
** 1026.35(e)
May not impose a prepayment penalty at any time
May not impose a prepayment penalty at any
if the loan violates any of the HOEPA rules.
time if any of the following is true:
• Other applicable law prohibits such
penalty;
• The penalty will apply after the two year
period following consummation.
• The consumer’s principal and/or interest May not
• impose, with limited exception, a balloon
mortgage payment can change during
payment on loans with a term of less than
the first 4 years of the loan term (i.e.,
5 years;
adjustable rate mortgage with first
• Balloon exception for “bridge loans of 12
change during first 4 years) ; or
months or less”
• The source of the prepayment funds is a
refinancing by the same mortgage lender
• impose negative amortization;
or an affiliate.
• collect advance payments, i.e., the
consolidation and collection of more than 2
periodic payments, paid in advance from
the loan proceeds;
** Will sunset January 9, 2014. Prepayment
• increase an interest rate upon default;
penalty restrictions have been restructured in
• include, with limited exception, a due-on§1026.43, and in newly established Ability to
demand clause;
• unfairly calculate interest due to be
Repay (ATR) requirements.
rebated to a consumer in connection with
loan acceleration resulting from default;
Specified restrictions that HPML loans must
• make, with limited exception, a direct
follow effective January 10, 2014;
payment of loan proceeds to a home
improvement contractor, payable solely in
May not impose a prepayment penalty at any
the name of the contractor;
time which exceeds the following parameters:
• fail to furnish the required Regulation Z
notice to an assignee of a high-cost
mortgage (informs the assignee this
• More than 36 months after
mortgage is subject to special TILA
consummation or account opening; or
protections and the assignee could be
• In an amount more than 2% of the
liable for claims and defenses the
amount prepaid.
consumer could assert against the lender);
Refinance a high-cost mortgage made by
the same lender into another high-cost
mortgage to the same homeowner within 1
year of consummation unless the
refinancing is in the homeowner’s interest,
e.g., a lower interest rate.
5
HPML (12 CFR §1026.35)
Prohibitions
HOEPA (12 CFR § 1026.32)
Effective January 18, 2014:Appraisal
Requirements
Exemptions;
• A QM as defined in 1026.43(e);
• Transaction secured by a new
manufactured home (chattel);
• A transaction secured by a mobile home,
boat or trailer, without land;
• A transaction for the initial construction
of a dwelling ;
• Certain “streamlined” refinances;
• A bridge loan of 12 months or less;
• A reverse-mortgage transaction; or
• A transaction of $25,000 or less.
A full appraisal must be obtained on any loan
meeting HPML requirements; including a physical
inspection of the interior of the property.
The creditor shall not extend an HPML without
obtaining an additional appraisal at no cost to the
borrower if;
• The seller obtained the property 90 days
or less prior to the date of purchase
agreement, and the sales price exceeds
seller’s acquisition cost by 10%
• The seller obtained the property 90-180
days prior to the date of purchase
agreement, and the sales price exceeds
seller’s acquisition cost by 20%
Exceptions to additional appraisal requirement
include ones where the seller is;
• A local, State or Federal government
agency;
• A person who acquired title through
foreclosure,, deed-in-lieu
• A non-profit entity as part of a local, State
or Federal program.
• A person whom acquired title by
inheritance or court order.
• An employer or relocation agency in
connection with relocation of employee;
• A service member who received a
deployment; or permanent change of
station; or property is located in
• A federal disaster area as designated by
the President; or
• Located in a rural county as defined in
1026.35(b)(2)(iv)(A)
6
>N/A
QM and ATR Tips and Traps
A. Temporary/Construction ATR exemption
1) definition:
Reg. Z, Section 1026.43(a)(3)(ii) provides the following exemption from ATR for a “temporary or bridge”
loan (emphasis).
(ii) A temporary or "bridge" loan with a term of 12 months or less, such as a loan to finance the
purchase of a new dwelling where the consumer plans to sell a current dwelling within 12 months
or a loan to finance the initial construction of a dwelling;
The CFPB’s Official Staff Commentary to the rule states:
1. Renewable temporary or "bridge" loan. Under § 1026.43(a)(3)(ii), a temporary or "bridge" loan with a
term of 12 months or less is exempt from § 1026.43(c) through (f). Examples of such a loan are a loan to
finance the purchase of a new dwelling where the consumer plans to sell a current dwelling within 12
months and a loan to finance the initial construction of a dwelling. Where a temporary or "bridge loan" is
renewable, the loan term does not include any additional period of time that could result from a renewal
provision provided that any renewal possible under the loan contract is for one year or less. For example,
if a construction loan has an initial loan term of 12 months but is renewable for another 12‐month loan
term, the loan is exempt from § 1026.43(c) through (f) because the initial loan term is 12 months.
When we read the rule and commentary, it kind of leaves the impression that the only types of “temporary
loans” are a bridge or interim for initial construction. But what about other types of short‐term loans with
terms of 12 months or less (like a 12 month interim for home improvement)?
By Mike Patterson
We have reviewed the preamble to the final rule and found this passage from the CFPB (emphsis):
One industry trade association commented on the wording of the temporary financing exemption, suggesting
that the inclusion of the two examples, bridge loans and construction loans, would create uncertainty as to
whether the exemption would apply to temporary financing of other types. However, the Bureau believes further
clarification is not required because the exemption applies to any temporary loan with a term of 12 months or
less, and the examples are merely illustrative. The Bureau is aware of and provides clarifying examples of certain
common loan products that are temporary or “bridge” loans. The commenter did not note other common types
of temporary loan products. The Bureau further believes that the rule permits other types of temporary
financing as long as the loan satisfies the requirements of the exemption.
Accordingly, we know that the CFPB specifically included bridge loans and interims for initial constructions in
the rule as “illustrative” examples of a temporary loan. We also know that CFPB believes that the rule permits
other types of temporary financing to qualify for the exemption. What we do not have, however, is a definitive
statement from CFPB that an interim construction loan for home improvement can qualify as a temporary loan
under Section 43(a)(3)(ii). So the best we can do is say that we think such a loan likely qualifies if 12 months or
less and is exempt from ATR. But we cannot definitively advise one way or the other. Whether to treat the
loan as ATR exempt is the lender’s call. We will handle as instructed.
By Mike Patterson
2) 365 days maximum...Jan 1st due next Jan 1st=1 year and 1 day!!!!!!!!
By Mike Patterson
3) built in extensions:…The Big House construction loan that will take 18 mos???
We can either add the following to the bottom of the note:
Option to Extend At the maturity date of the Note and Security Instrument (the “Note
Maturity Date”), I will be able to extend the Note Maturity Date to _______, (the “Extended
Maturity Date”) on its same terms and conditions if the following conditions are met. If
those conditions are not met, I understand that the Note Holder is under no obligation to
refinance the Note or to modify the Note, or extend the Note Maturity Date, and that I will
have to repay the Note from my own resources or find a lender willing to lend me the
money to repay the Note. The conditions are: (a) I must still be the owner and occupant of
the property subject to the Security Instrument (the “Property”); (b) I must be current in my
monthly payments and cannot have been more than 30 days late on any of the 12 scheduled
monthly payments immediately preceding the Note Maturity Date; (c) there are no liens,
defects, or encumbrances against the Property, or other adverse matters affecting title to
the Property (except for taxes and special assessments not yet due and payable) arising after
the Security Instrument was recorded; and (d) I must make a request to the Note Holder,
sign a loan modification agreement provided by Lender and pay any expenses associated
with the preparation and recording of the modification.
Or we can attach an addendum to the note that has similar provisions.
By Mike Patterson
4)the unanswered question…”Can our bank only do
“temporary” 12 month loans with built in options to extend
and avoid ATR liability completely?????????
Our official P&P legal opinion: We can only quote that great
philosopher Clint Eastwood when playing Inspector Harry
Callahan in the 1971 classic “Dirty Harry”:
Harry Callahan: I know what you're thinking, punk. You're
thinking "did he fire six shots or only five?" Now to tell you the
truth I forgot myself in all this excitement. But being this is a .44
Magnum, the most powerful handgun in the world and will blow
you head clean off, you've gotta ask yourself a question: "Do I
feel lucky?" Well, do ya, punk?
By Mike Patterson
B. 3% limit, no tolerance , no cure like other Reg Z disclosures ‐classifications of escrow fees and attorney fees???
1.PeirsonPatterson Doc Prep Attorney Fee
Although Reg. Z states that a fee for “preparing loan‐related
documents” may be excluded from the finance charge, our
default is to include our fee as a finance charge. We do this in
an abundance of caution and because of past experience
with various investors and differing interpretations of the
services we provide.
By Mike Patterson
Section 1026.4I lists fees that are excluded from the finance charge, including fees for preparing loan‐related
documents under 1026.4I(7)(ii).
Charges excluded from the finance charge. The following charges are not finance charges (emphasis):
(1) Application fees charged to all applicants for credit, whether or not credit is actually extended.
(2) Charges for actual unanticipated late payment, for exceeding a credit limit, or for delinquency, default, or a
similar occurrence.
(3) Charges imposed by a financial institution for paying items that overdraw an account, unless the payment of
such items and the imposition of the charge were previously agreed upon in writing.
(4) Fees charged for participation in a credit plan, whether assessed on an annual or other periodic basis.
(5) Seller’s points.
(6) Interest forfeited as a result of an interest reduction required by law on a time deposit used as security for
an extension of credit.
(7) Real‐estate related fees. The following fees in a transaction secured by real property or in a residential
mortgage transaction, if the fees are bona fide and reasonable in amount:
(i) Fees for title examination, abstract of title, title insurance, property survey, and similar purposes.
(ii) Fees for preparing loan‐related documents, such as deeds, mortgages, and reconveyance or settlement
documents.
(iii) Notary and credit‐report fees.
(iv) Property appraisal fees or fees for inspections to assess the value or condition of the property if the service is
performed prior to closing, including fees related to pest‐infestation or flood‐hazard determinations.
(v) Amounts required to be paid into escrow or trustee accounts if the amounts would not otherwise be included
in the finance charge.
(8) Discounts offered to induce payment for a purchase by cash, check, or other means, as provided in section
167(b) of the Act.
By Mike Patterson
Accordingly, Reg. Z permits the exclusion of a document preparation fee from the finance
charge. As long as the fee is for document preparation and is correctly labeled as such, for
Reg. Z “legal” purposes it may be excluded from the finance charge (but see below
regarding potential investor requirements).
In addition to legal considerations, however, it is also important for the lender to align with
investor requirements in order to ensure salability. In our experience, some investors have
balked at excluding our fee from the finance charge unless it is specifically labeled as a
“document preparation” fee. In other cases, investors have required that our fee be
included in the finance charge regardless of how it is labeled. Accordingly, the lender will
need to communicate with investors regarding the manner in which the investor will allow
the fee to be labeled if it is to be excluded from the finance charge. If your investor will
permit our fee to be excluded from the finance charge if properly labeled, then it is your
business decision whether you want to include it or not.
Also note that the exception is only for the “preparing” of “loan related documents” and
not for the “review” of your prepared “loan related documents” by Texas legal counsel to
be compliant with Texas “unauthorized practice of law” requirements.
Lastly, do you know what a doc prep fee is that is “reasonable in amount” is?
By Mike Patterson
2. Title Escrow Fee Title escrow fees are considered finance charges under Reg. Z to the
extent they exceed the amount paid in a comparable cash transaction.
“Title company/settlement fees”: “Settlement”, “closing” and/or
“escrow” fees are not “fees for title examination, abstract of title, title
insurance, property survey, and similar purposes”, which can be
excluded from the finance charge under Reg. Z, Section 1026.4(c)(7).
Rather, title escrow fees are “fees charged by a third party that
conducts the loan closing (such as a settlement agent, attorney, or
escrow or title company)” for the escrow services that the lender
requires and that the lender requires the borrower to pay for in a loan
closing. This means it is a finance charge under Reg. Z, Section
1026.4(a)(2).
By Mike Patterson
The hard question is how much …if any…of the fee …for every title company
the lender deals with…is to be included as a prepaid finance charge. Closings
involving loans are of normally more involved and costly to a settlement
agent than a simple cash sale. Because we don’t automatically know how
much more the escrow fee is in a loan closing than in a cash sale…to be safe…
we consider the whole amount as a prepaid finance charge. However, the
lender client can instruct us not to consider any of the escrow fee as a
prepaid finance charge if that is their preference. The client should remember
that currently a violation of the 3% QM limits cannot be cured …even if $1
under‐disclosed….and TILA‐Reg Z has $100 and $35 accuracy requirements for
the required prepaid finance charge disclosure….much less than a
misclassified escrow fee. There is not a penalty for over‐disclosure of the
prepaid finance charge.
By Mike Patterson
Re “title company/settlement fees”: Reg Z in pertinent part provides (emphasis):
Truth in Lending Act
Regulations
Regulation Z – Truth In Lending (12 CFR Part 1026) (01/18/14)
Part 1026, Supplement I: Official Staff Interpretations (12/22/11)
Supplement I, 1026.4: Finance Charge (12/22/11)
4(a) Definition
1.Charges in comparable cash transactions. Charges imposed uniformly in cash and credit
transactions are not finance charges. In determining whether an item is a finance charge, the
creditor should compare the credit transaction in question with a similar cash transaction. A
creditor financing the sale of property or services may compare charges with those payable
in a similar cash transaction by the seller of the property or service…..
iii.If the charge in a credit transaction exceeds the charge imposed in a comparable cash
transaction, only the difference is a finance charge. For example:
A.If an escrow agent is used in both cash and credit sales of real estate and the agent’s
charge is $100 in a cash transaction and $150 in a credit transaction, only $50 is a finance
charge.
By Mike Patterson
Re courier charges:
4(a)(2) Special Rule; Closing Agent Charges
1.General. This rule applies to charges by a third
party serving as the closing agent for the particular
loan. An example of a closing agent charge
included in the finance charge is a courier fee
where the creditor requires the use of a courier.
Payoffs??? Creditor required????
By Mike Patterson
3. Overstated Finance Charge on a Mortgage Loan is Still Considered Accurate Under Reg. Z
Significantly, if the finance charge for a mortgage loan is
overstated then it is not considered inaccurate under Reg.
Z, Section 1026.18(d)(1). If the APR was overstated
because of the finance charge, and the finance charge is
considered accurate under 1026.18(d)(1) (which it is if
overstated on a mortgage loan), then the APR is also
considered accurate under Section 1026.22(a)(4)
By Mike Patterson
Summary:
1.
Our default is to include our doc prep attorney fee in the APR. If you would like
to exclude it, however, that is permissible under Reg. Z and we will accommodate your
wishes. Please note that the investor community has many different interpretations of our
fee and whether it should be a finance charge; hence our conservative default position to
include it.
2.
A title escrow fee is properly included in the finance charge because it is not one
of the excluded title fees under Reg. Z, Section 1026.4(c)(7) (see below). Technically, only
the part of the fee that exceeds the amount paid in an equivalent cash transaction is part of
the finance charge. Since this is very difficult to determine, however, our default it to
include the full fee as a finance charge.
3.
It is very important to remember that an overdisclosed finance charge on a
mortgage loan is considered accurate under TILA/Reg. Z. If the APR is overdisclosed due to
an overdisclosed finance charge, then the APR is likewise considered accurate. So if your
loans had overdisclosed APRs based on an overdisclosed finance charge, you do not have a
compliance issue.
By Mike Patterson
‐future cure???? Being talked about, but not available now.
By Mike Patterson
C. Assumptions and other transfers
July 8, 2014‐Washington, D.C. – Today, the Consumer Financial Protection
Bureau (CFPB) is issuing an interpretive rule to clarify that when a borrower
dies, the name of the borrower’s heir generally may be added to the
mortgage without triggering the Bureau’s Ability‐to‐Repay rule. This
clarification will help surviving family members who acquire title to a
property to take over their loved one’s mortgage, and to be considered for a
loan workout, if necessary, to keep their home.
“Losing a loved one should not mean also losing your home. Today’s
interpretive rule makes it clear that when family members inherit property,
they can take over the mortgage without jumping through unnecessary
hoops,” said CFPB Director Richard Cordray. “This gives heirs an opportunity
to work with the lender to pay off the loan or seek a loan modification.”
A kinder gentler CFPB 
By Mike Patterson
The ATR rules do not apply to inheritances or
“other transfers, including transfers to living
trusts, transfers during life from parents to
children, transfers resulting from divorce or
legal separation, and other family‐related
transfers.”
It is a little unclear…but I think the key is not
releasing the original borrower(s) from
liability….no ”new primary obligor”.
By Mike Patterson
Texas Home Equity Update
A. Modifications
Sims v. Carrington Mortg. Servs., L.L.C. , No. 13‐0638, 2014 WL 1998397 (Tex. May 16, 2014).
The restructuring of a home equity loan that involves capitalization of past‐due amounts owed under the terms
of the initial loan and the amount of installment payments but does not involve the satisfaction or replacement
of the original note, an advancement of new funds, or an increase in the obligations created by the original
note is not a new extension of credit that must meet the requirements of§ 50 of the Texas Constitution.
Summary:
‐As long as the original home equity note is not satisfied and replaced with a new note, a lender may as part of a
home equity loan modification capitalize past due amounts into the loan principal, advance money to pay
delinquent property taxes and insurance premiums (which are likewise capitalized into the principal), and
restructure payments under the loan accordingly, if those amounts were obligations assumed by the borrower
under the terms of the original loan.
‐A lender may not, however, use a modification to advance new money to the borrower, or to secure other
indebtedness, that was not contemplated under the terms of the original home equity loan.
By Mike Patterson
B. ACORN case
Fin. Comm'n of Tex. v. Norwood, 418 S.W.3d 566 (Tex. 2013}.
"Interest" for purposes of § 50(a)(6) means the amount determined by multiplying the loan principal by the
interest rate. The supreme court said the definition provided in the Finance Code should not be used in the
home equity lending context.
Summary:
Like before ACORN….
‐bona fide discount is excludable from the 3% cap
‐per diem interest is excludable from the 3% cap
Executing the required consent or a power of attorney is part of the closing process and must occur only at one
of the locations allowed by the constitutional provision, i.e., only at the office of the lender, an attorney at law,
or a title company.
Summary:
Change post ACORN…
‐no POAs unless the POA is signed at the lender’s, title company’s or attorney’s office. Most
investors and/or title companies will not insure this exception to the exception.
‐no mail outs
By Mike Patterson
C. TAC proposed amendments:
On July 4, 2014 the Finance Commission of Texas and the Texas Credit Union Commission
proposed amendments to the following home equity lending interpretations: §153.1,
concerning Definitions, §153.5, concerning Three percent fee limitation, §153.15,
concerning Location of Closing, and §153.51, concerning Consumer Disclosure.
The amendments apply the administrative interpretation of the home equity lending
provisions of Article XVI, Section 50 of the Texas Constitution ("Section 50") allowed by
Section 50(u) and Texas Finance Code, §11.308 and §15.413.
The main purpose of the proposed amendments is to implement the Texas Supreme Court's
decision in Finance Commission of Texas v. Norwood, 418 S.W.3d 566 (Tex. 2013). In
Norwood, the court held that portions of three interpretations adopted by the commissions
were invalid: §§153.1, 153.5, and 153.15.
By Mike Patterson
• §153.1.Definitions.
• Any reference to Section 50 in this interpretation
refers to Article XVI, Texas Constitution, unless
otherwise noted. These words and terms have the
following meanings when used in this chapter
[section], unless the context indicates otherwise:
• (1) ‐ (10) (No change.)
• (11) Interest‐‐As used in Section 50(a)(6)(E),
"interest" means the amount determined by
multiplying the loan principal by the interest rate
over a period of time. [interest as defined in the
Texas Finance Code §301.002(4) and as interpreted
by the courts.]
• (12) ‐ (15) (No change.)
By Mike Patterson
•
•
•
•
•
•
§153.5.Three percent fee limitation: Section 50(a)(6)(E).
An equity loan must not require the owner or the owner's spouse to pay, in
addition to any interest, fees to any person that are necessary to originate,
evaluate, maintain, record, insure, or service the extension of credit that exceed, in
the aggregate, three percent of the original principal amount of the extension of
credit.
(1) ‐ (2) (No change.)
(3) Charges that are Interest. Charges an owner or an owner's spouse is required to
pay that constitute interest under §153.1(11) of this title (relating to Definitions)
[the law, for example per diem interest and points,] are not fees subject to the
three percent limitation.
(A) Per diem interest is interest and is not subject to the three percent limitation.
(B) Legitimate discount points are interest and are not subject to the three percent
limitation. Discount points are legitimate if the discount points truly correspond to
a reduced interest rate and are not necessary to originate, evaluate, maintain,
record, insure, or service the loan. A lender may rely on an established system of
verifiable procedures to evidence that the discount points it offers are legitimate.
This system may include documentation of options that the owner is offered in the
course of negotiation, including a contract rate without discount points and a
lower contract rate based on discount points.
By Mike Patterson
•
•
•
•
•
•
(4) Charges that are not Interest. Charges an owner or an owner's spouse is
required to pay that are not interest under §153.1(11) of this title are fees subject
to the three percent limitation.
(5) (No change.)
(6) Charges to Originate. Charges an owner or an owner's spouse is required to pay
to originate an equity loan that are not interest under §153.1(11) of this title are
fees subject to the three percent limitation.
(7) (No change.)
(8) Charges to Evaluate. Charges an owner or an owner's spouse is required to pay
to evaluate the credit decision for an equity loan, that are not interest under
§153.1(11) of this title, are fees subject to the three percent limitation. Examples
of these charges include fees collected to cover the expenses of a credit report,
survey, flood zone determination, tax certificate, title report, inspection, or
appraisal.
(9) Charges to Maintain. Charges paid by an owner or an owner's spouse [at the
inception of an equity loan] to maintain an equity [the] loan that are not interest
under §153.1(11) of this title are fees subject to the three percent limitation if the
charges are paid at the inception of the loan, or if the charges are customarily paid
at the inception of an equity loan but are deferred for later payment after closing.
[Charges that are not interest that an owner pays at the inception of an equity
loan to maintain the equity loan, or that are customarily paid at the inception of
an equity loan to maintain the equity loan, but are deferred for later payment
after closing, are fees subject to the three percent limitation.]
By Mike Patterson
• (10) ‐ (11) (No change.)
• (12) Charges to Service. Charges paid by an owner or an owner's
spouse [at the inception of an equity loan] for a party to service an
equity [the] loan that are not interest under §153.1(11) of this title are
fees subject to the three percent limitation if the charges are paid at
the inception of the loan, or if the charges are customarily paid at the
inception of an equity loan but are deferred for later payment after
closing. [Charges that are not interest that an owner pays at the
inception of an equity loan to service the equity loan, or that are
customarily paid at the inception of an equity loan to service the
equity loan, but are deferred for later payment after closing, are fees
subject to the three percent limitation.]
• (13) ‐ (16) (No change.)
• §153.15.Location of Closing: Section 50(a)(6)(N).
• An equity loan may be closed only at an office of the lender, an
attorney at law, or a title company. The lender is anyone authorized
under Section 50(a)(6)(P) that advances funds directly to the owner or
is identified as the payee on the note.
By Mike Patterson
• (10) ‐ (11) (No change.)
• (12) Charges to Service. Charges paid by an owner or an
owner's spouse [at the inception of an equity loan] for a party
to service an equity [the] loan that are not interest under
§153.1(11) of this title are fees subject to the three percent
limitation if the charges are paid at the inception of the loan,
or if the charges are customarily paid at the inception of an
equity loan but are deferred for later payment after closing.
[Charges that are not interest that an owner pays at the
inception of an equity loan to service the equity loan, or that
are customarily paid at the inception of an equity loan to
service the equity loan, but are deferred for later payment
after closing, are fees subject to the three percent limitation.]
• (13) ‐ (16) (No change.)
By Mike Patterson
•
•
•
•
•
•
•
•
§153.15.Location of Closing: Section 50(a)(6)(N).
An equity loan may be closed only at an office of the lender, an attorney at law, or a title company. The
lender is anyone authorized under Section 50(a)(6)(P) that advances funds directly to the owner or is
identified as the payee on the note.
(1) (No change.)
(2) Any [A lender may accept a properly executed] power of attorney allowing an [the] attorney‐in‐fact to
execute closing documents on behalf of the owner or the owner's spouse must be signed by the owner or
the owner's spouse at an office of the lender, an attorney at law, or a title company. A lender may rely on
an established system of verifiable procedures to evidence compliance with this paragraph. For example,
this system may include one or more of the following:
(A) a written statement in the power of attorney acknowledging the date and place at which the power of
attorney was executed;
(B) an affidavit or written certification of a person who was present when the power of attorney was
executed, acknowledging the date and place at which the power of attorney was executed; or
(C) a certificate of acknowledgement signed by a notary public under Chapter 121, Civil Practice and
Remedies Code, acknowledging the date and place at which the power of attorney was executed.
(3) The [A lender may receive] consent required under Section 50(a)(6)(A) must be signed by the owner
and the owner's spouse, or an attorney‐in‐fact described by paragraph (2) of this subsection, at an office
of the lender, an attorney at law, or a title company [by mail or other delivery of the party's signature to an
authorized physical location and not the homestead].
By Mike Patterson
• §153.51.Consumer Disclosure: Section 50(g).
• An equity loan may not be closed before the 12th
day after the lender provides the owner with the
consumer disclosure on a separate instrument.
• (1) ‐ (4) (No change.)
• (5) If the owner has executed a power of attorney
described by §153.15(2) of this title (relating to
Location of Closing: Section 50(a)(6)(N)), then the
lender may provide the consumer disclosure to the
attorney‐in‐fact instead of providing it to the owner.
• Earliest possible date of adoption: August 3,
2014….but not adopted yet 
By Mike Patterson
Mike Patterson Handout TIB 2014 Legal Compliance Seminar I.QM and ATR Tips and Traps A. Temporary/Construction ATR exemption 1) definition: Reg. Z, Section 1026.43(a)(3)(ii) provides the following exemption from ATR for a “temporary or bridge” loan. (ii) A temporary or "bridge" loan with a term of 12 months or less, such as a loan to
finance the purchase of a new dwelling where the consumer plans to sell a current
dwelling within 12 months or a loan to finance the initial construction of a dwelling;
Source: http://www.bankersonline.com/regs/12-1026/12-1026-043.html
The CFPB’s Official Staff Commentary to the rule states:
1. Renewable temporary or "bridge" loan. Under § 1026.43(a)(3)(ii), a temporary or
"bridge" loan with a term of 12 months or less is exempt from § 1026.43(c) through (f).
Examples of such a loan are a loan to finance the purchase of a new dwelling where
the consumer plans to sell a current dwelling within 12 months and a loan to finance the
initial construction of a dwelling. Where a temporary or "bridge loan" is renewable, the
loan term does not include any additional period of time that could result from a renewal
provision provided that any renewal possible under the loan contract is for one year or
less. For example, if a construction loan has an initial loan term of 12 months but is
renewable for another 12-month loan term, the loan is exempt from § 1026.43(c) through
(f) because the initial loan term is 12 months. Source: http://www.bankersonline.com/regs/12‐1026/12‐1026‐043.html When we read the rule and commentary, it kind of leaves the impression that the only types of “temporary loans” are a bridge or interim for initial construction. But what about other types of short‐term loans with terms of 12 months or less (like a 12 month interim for home improvement)? We have reviewed the preamble to the final rule and found this passage from the CFPB: One industry trade association commented on the wording of the temporary financing exemption, suggesting that the inclusion of the two examples, bridge loans and construction loans, would create uncertainty as to whether the exemption would apply to temporary financing of other types. However, the Bureau believes further clarification is not required because the exemption applies to any temporary loan with a term of 12 months or less, and the examples are merely illustrative. The Bureau is aware of and provides clarifying examples of certain common loan products that are temporary or “bridge” loans. The commenter did not note other common types of temporary loan products. The Bureau further believes that the rule permits other 1 Mike Patterson Handout TIB 2014 Legal Compliance Seminar types of temporary financing as long as the loan satisfies the requirements of the exemption. Accordingly, we know that the CFPB specifically included bridge loans and interims for initial constructions in the rule as “illustrative” examples of a temporary loan. We also know that CFPB believes that the rule permits other types of temporary financing to qualify for the exemption. What we do not have, however, is a definitive statement from CFPB that an interim construction loan for home improvement can qualify as a temporary loan under Section 43(a)(3)(ii). So the best we can do is say that we think such a loan likely qualifies if 12 months or less and is exempt from ATR. But we cannot definitively advise one way or the other. Whether to treat the loan as ATR exempt is the lender’s call. We will handle as instructed. 2) 365 days maximum...Jan 1st due next Jan 1st=1 year and 1 day!!!!!!!! 3) built in extensions: We can either add the following to the bottom of the note: Option to Extend At the maturity date of the Note and Security Instrument (the “Note Maturity Date”), I will be able to extend the Note Maturity Date to _______, (the “Extended Maturity Date”) on its same terms and conditions if the following conditions are met. If those conditions are not met, I understand that the Note Holder is under no obligation to refinance the Note or to modify the Note, or extend the Note Maturity Date, and that I will have to repay the Note from my own resources or find a lender willing to lend me the money to repay the Note. The conditions are: (a) I must still be the owner and occupant of the property subject to the Security Instrument (the “Property”); (b) I must be current in my monthly payments and cannot have been more than 30 days late on any of the 12 scheduled monthly payments immediately preceding the Note Maturity Date; (c) there are no liens, defects, or encumbrances against the Property, or other adverse matters affecting title to the Property (except for taxes and special assessments not yet due and payable) arising after the Security Instrument was recorded; and (d) I must make a request to the Note Holder, sign a loan modification agreement provided by Lender and pay any expenses associated with the preparation and recording of the modification. Or we can attach an addendum to the note that has similar provisions. 4)the unanswered question…”Can our bank only do “temporary” 12 month loans with built in options to extend and avoid ATR liability completely????????? Our official P&P legal opinion: We can only quote that great philosopher Clint Eastwood when playing Inspector Harry Callahan in the 1971 classic “Dirty Harry”: Harry Callahan: I know what you're thinking, punk. You're thinking "did he fire six shots or only five?" Now to tell you the truth I forgot myself in all this excitement. But being this is a .44 Magnum, the most powerful handgun in the world and will blow you head clean off, you've gotta ask yourself a question: "Do I feel lucky?" Well, do ya, punk? 2 Mike Patterson Handout TIB 2014 Legal Compliance Seminar B. 3% limit, no tolerance and/or cure like other Reg Z disclosures ‐classifications of escrow fees and attorney fees 1.PeirsonPatterson Doc Prep Attorney Fee Although Reg. Z states that a fee for “preparing loan‐related documents” may be excluded from the finance charge, our default is to include our fee as a finance charge. We do this in an abundance of caution and because of past experience with various investors and differing interpretations of the services we provide. Section 1026.4I lists fees that are excluded from the finance charge, including fees for preparing loan‐related documents under 1026.4I(7)(ii). I Charges excluded from the finance charge. The following charges are not finance
charges:
(1) Application fees charged to all applicants for credit, whether or not credit is
actually extended.
(2) Charges for actual unanticipated late payment, for exceeding a credit limit, or
for delinquency, default, or a similar occurrence.
(3) Charges imposed by a financial institution for paying items that overdraw an
account, unless the payment of such items and the imposition of the charge were
previously agreed upon in writing.
(4) Fees charged for participation in a credit plan, whether assessed on an
annual or other periodic basis.
(5) Seller’s points.
(6) Interest forfeited as a result of an interest reduction required by law on a time
deposit used as security for an extension of credit.
(7) Real-estate related fees. The following fees in a transaction secured by real
property or in a residential mortgage transaction, if the fees are bona fide and
reasonable in amount:
(i) Fees for title examination, abstract of title, title insurance, property
survey, and similar purposes.
(ii) Fees for preparing loan-related documents, such as deeds,
mortgages, and reconveyance or settlement documents.
(iii) Notary and credit-report fees.
(iv) Property appraisal fees or fees for inspections to assess the value or
condition of the property if the service is performed prior to closing,
including fees related to pest-infestation or flood-hazard determinations.
3 Mike Patterson Handout TIB 2014 Legal Compliance Seminar (v) Amounts required to be paid into escrow or trustee accounts if the
amounts would not otherwise be included in the finance charge.
(8) Discounts offered to induce payment for a purchase by cash, check, or other
means, as provided in section 167(b) of the Act.
Source:http://www.ecfr.gov/cgi-bin/textidx?SID=c3b89e198598174ef0c7d2a091bb28d4&node=12:3.0.1.1.7.1.8.4&rgn=
div8
Accordingly, Reg. Z permits the exclusion of a document preparation fee from the finance charge. As long as the fee is for document preparation and is correctly labeled as such, for Reg. Z “legal” purposes it may be excluded from the finance charge (but see below regarding potential investor requirements). In addition to legal considerations, however, it is also important for the lender to align with investor requirements in order to ensure salability. In our experience, some investors have balked at excluding our fee from the finance charge unless it is specifically labeled as a “document preparation” fee. In other cases, investors have required that our fee be included in the finance charge regardless of how it is labeled. Accordingly, the lender will need to communicate with investors regarding the manner in which the investor will allow the fee to be labeled if it is to be excluded from the finance charge. If your investor will permit our fee to be excluded from the finance charge if properly labeled, then it is your business decision whether you want to include it or not. Also note that the exception is only for the “preparing” of “loan related documents” and not for the “review” of your prepared “loan related documents” by Texas legal counsel to be compliant with Texas “unauthorized practice of law” requirements. Lastly, do you know what a doc prep fee is that is “reasonable in amount” is? 2. Title Escrow Fee Title escrow fees are considered finance charges under Reg. Z to the extent they exceed the amount paid in a comparable cash transaction. “Title company/settlement fees”: “Settlement”, “closing” and/or “escrow” fees are not “fees for title examination, abstract of title, title insurance, property survey, and similar purposes”, which can be excluded from the finance charge under Reg. Z, Section 1026.4(c)(7). Rather, title escrow fees are “fees charged by a third party that conducts the loan closing (such as a settlement agent, attorney, or escrow or title company)” for the escrow services that the lender requires and that the lender requires the borrower to pay for in a loan closing. This means it is a finance charge under Reg. Z, Section 1026.4(a)(2). The hard question is how much …if any…of the fee …for every title company the lender deals with…is to be included as a prepaid finance charge. Closings involving loans are of normally more involved and costly to a settlement agent than a simple cash sale. Because we don’t 4 Mike Patterson Handout TIB 2014 Legal Compliance Seminar automatically know how much more the escrow fee is in a loan closing than in a cash sale…to be safe… we consider the whole amount as a prepaid finance charge. However, the lender client can instruct us not to consider any of the escrow fee as a prepaid finance charge if that is their preference. The client should remember that currently a violation of the 3% QM limits cannot be cured …even if $1 under‐disclosed….and TILA‐Reg Z has $100 and $35 accuracy requirements for the required prepaid finance charge disclosure….much less than a misclassified escrow fee. There is not a penalty for over‐disclosure of the prepaid finance charge. Re “title company/settlement fees”: Reg Z in pertinent part provides (emphasis): Truth in Lending Act
Regulations
Regulation Z – Truth In Lending (12 CFR Part 1026) (01/18/14)
Part 1026, Supplement I: Official Staff Interpretations (12/22/11)
Supplement I, 1026.4: Finance Charge (12/22/11) 4(a) Definition 1.Charges in comparable cash transactions. Charges imposed uniformly in cash and credit transactions are not finance charges. In determining whether an item is a finance charge, the creditor should compare the credit transaction in question with a similar cash transaction. A creditor financing the sale of property or services may compare charges with those payable in a similar cash transaction by the seller of the property or service….. iii.If the charge in a credit transaction exceeds the charge imposed in a comparable cash transaction, only the difference is a finance charge. For example: A.If an escrow agent is used in both cash and credit sales of real estate and the agent’s charge is $100 in a cash transaction and $150 in a credit transaction, only $50 is a finance charge. Re title company courier charges: 4(a)(2) Special Rule; Closing Agent Charges 1.General. This rule applies to charges by a third party serving as the closing agent for the particular loan. An example of a closing agent charge included in the finance charge is a courier fee where the creditor requires the use of a courier. Payoffs??? Creditor required???? 3. Overstated Finance Charge on a Mortgage Loan is Still Considered Accurate Under Reg. Z Significantly, if the finance charge for a mortgage loan is overstated then it is not considered inaccurate under Reg. Z, Section 1026.18(d)(1) (see below). If the APR was overstated because of the finance charge, and the finance charge is considered accurate under 1026.18(d)(1) (which 5 Mike Patterson Handout TIB 2014 Legal Compliance Seminar it is if overstated on a mortgage loan), then the APR is also considered accurate under Section 1026.22(a)(4) (see below). I’ve attached the relevant sections of Reg. Z below. § 1026.22 Determination of annual percentage rate. (a) Accuracy of annual percentage rate. …… (4) Mortgage loans. If the annual percentage rate disclosed in a transaction secured by real property or a dwelling varies from the actual rate determined in accordance with paragraph (a)(1) of this section, in addition to the tolerances applicable under paragraphs (a)(2) and (3) of this section, the disclosed annual percentage rate shall also be considered accurate if: (i) The rate results from the disclosed finance charge; and (ii)(A) The disclosed finance charge would be considered accurate under §1026.18(d)(1); or (B) For purposes of rescission, if the disclosed finance charge would be considered accurate under § 1026.23(g) or (h), whichever applies. (5) Additional tolerance for mortgage loans. In a transaction secured by real property or a dwelling, in addition to the tolerances applicable under paragraphs (a)(2) and (3) of this section, if the disclosed finance charge is calculated incorrectly but is considered accurate under § 1026.18(d)(1) or § 1026.23(g) or (h), the disclosed annual percentage rate shall be considered accurate: (i) If the disclosed finance charge is understated, and the disclosed annual percentage rate is also understated but it is closer to the actual annual percentage rate than the rate that would be considered accurate under paragraph (a)(4) of this section; (ii) If the disclosed finance charge is overstated, and the disclosed annual percentage rate is also overstated but it is closer to the actual annual percentage rate than the rate that would be considered accurate under paragraph (a)(4) of this section. Source: http://www.bankersonline.com/regs/12‐1026/12‐1026‐022.html § 1026.18 Content of Disclosures. (d) Finance charge. The finance charge, using that term, and a brief description such as
“the dollar amount the credit will cost you.”
6 Mike Patterson Handout TIB 2014 Legal Compliance Seminar (1) Mortgage loans. In a transaction secured by real property or a dwelling, the disclosed
finance charge and other disclosures affected by the disclosed finance charge (including
the amount financed and the annual percentage rate) shall be treated as accurate if the
amount disclosed as the finance charge:
(i) Is understated by no more than $100; or
(ii) Is greater than the amount required to be disclosed.
Source: http://www.bankersonline.com/regs/12‐1026/12‐1026‐018.html Summary: 1. Our default is to include our doc prep attorney fee in the APR. If you would like to exclude it, however, that is permissible under Reg. Z and we will accommodate your wishes. Please note that the investor community has many different interpretations of our fee and whether it should be a finance charge; hence our conservative default position to include it. 2. A title escrow fee is properly included in the finance charge because it is not one of the excluded title fees under Reg. Z, Section 1026.4(c)(7) (see below). Technically, only the part of the fee that exceeds the amount paid in an equivalent cash transaction is part of the finance charge. Since this is very difficult to determine, however, our default it to include the full fee as a finance charge. 3. It is very important to remember that an overdisclosed finance charge on a mortgage loan is considered accurate under TILA/Reg. Z. If the APR is overdisclosed due to an overdisclosed finance charge, then the APR is likewise considered accurate. So if your loans had overdisclosed APRs based on an overdisclosed finance charge, you do not have a compliance issue. ‐future cure???? Being talked about, but not available now. C. Assumptions and other transfers July 8, 2014‐Washington, D.C. – Today, the Consumer Financial Protection Bureau (CFPB) is issuing an interpretive rule to clarify that when a borrower dies, the name of the borrower’s heir generally may be added to the mortgage without triggering the Bureau’s Ability‐to‐Repay rule. This clarification will help surviving family members who acquire title to a property to take over their loved one’s mortgage, and to be considered for a loan workout, if necessary, to keep their home. “Losing a loved one should not mean also losing your home. Today’s interpretive rule makes it clear that when family members inherit property, they can take over the mortgage without jumping through unnecessary hoops,” said CFPB Director Richard Cordray. “This gives heirs an opportunity to work with the lender to pay off the loan or seek a loan modification.” 7 Mike Patterson Handout TIB 2014 Legal Compliance Seminar Source: http://www.consumerfinance.gov/newsroom/cfpb‐clarifies‐mortgage‐lending‐rules‐to‐
assist‐surviving‐family‐
members/?utm_source=newsletter&utm_medium=email&utm_campaign=20140708+regimp The ATR rules do not apply to inheritances or “other transfers, including transfers to living trusts, transfers during life from parents to children, transfers resulting from divorce or legal separation, and other family‐related transfers.” It is a little unclear…but I think the key is not releasing the original borrower(s) from liability….no ”new primary obligor”. II. Texas Home Equity Update A. Modifications Sims v. Carrington Mortg. Servs., L.L.C. , No. 13‐0638, 2014 WL 1998397 (Tex. May 16, 2014). The restructuring of a home equity loan that involves capitalization of past‐due amounts owed under the terms of the initial loan and the amount of installment payments but does not involve the satisfaction or replacement of the original note, an advancement of new funds, or an increase in the obligations created by the original note is not a new extension of credit that must meet the requirements of§ 50 of the Texas Constitution. Summary: ‐As long as the original home equity note is not satisfied and replaced with a new note, a lender may as part of a home equity loan modification capitalize past due amounts into the loan principal, advance money to pay delinquent property taxes and insurance premiums (which are likewise capitalized into the principal), and restructure payments under the loan accordingly, if those amounts were obligations assumed by the borrower under the terms of the original loan. ‐A lender may not, however, use a modification to advance new money to the borrower, or to secure other indebtedness, that was not contemplated under the terms of the original home equity loan. B. ACORN case Fin. Comm'n of Tex. v. Norwood, 418 S.W.3d 566 (Tex. 2013}. "Interest" for purposes of § 50(a)(6)€ means the amount determined by multiplying the loan principal by the interest rate. The supreme court said the definition provided in the Finance Code should not be used in the home equity lending context. Summary: Like before ACORN…. ‐bona fide discount is excludable from the 3% cap 8 Mike Patterson Handout TIB 2014 Legal Compliance Seminar ‐per diem interest is excludable from the 3% cap Executing the required consent or a power of attorney is part of the closing process and must occur only at one of the locations allowed by the constitutional provision, i.e., only at the office of the lender, an attorney at law, or a title company. Summary: Change post ACORN… ‐no POAs unless the POA is signed at the lender’s, title company’s or attorney’s office. Most investors and/or title companies will not insure this exception to the exception. ‐no mail outs C. TAC proposed amendments: On July 4, 2014 the Finance Commission of Texas and the Texas Credit Union Commission proposed amendments to the following home equity lending interpretations: §153.1, concerning Definitions, §153.5, concerning Three percent fee limitation, §153.15, concerning Location of Closing, and §153.51, concerning Consumer Disclosure. The amendments apply the administrative interpretation of the home equity lending provisions of Article XVI, Section 50 of the Texas Constitution ("Section 50") allowed by Section 50(u) and Texas Finance Code, §11.308 and §15.413. The main purpose of the proposed amendments is to implement the Texas Supreme Court's decision in Finance Commission of Texas v. Norwood, 418 S.W.3d 566 (Tex. 2013). In Norwood, the court held that portions of three interpretations adopted by the commissions were invalid: §§153.1, 153.5, and 153.15. §153.1.Definitions.
Any reference to Section 50 in this interpretation refers to Article XVI, Texas
Constitution, unless otherwise noted. These words and terms have the following
meanings when used in this chapter [section], unless the context indicates otherwise:
(1) - (10) (No change.)
(11) Interest--As used in Section 50(a)(6)(E), "interest" means the amount determined by
multiplying the loan principal by the interest rate over a period of time. [interest as
defined in the Texas Finance Code §301.002(4) and as interpreted by the courts.]
(12) - (15) (No change.)
§153.5.Three percent fee limitation: Section 50(a)(6)(E).
An equity loan must not require the owner or the owner's spouse to pay, in addition to
any interest, fees to any person that are necessary to originate, evaluate, maintain, record,
9 Mike Patterson Handout TIB 2014 Legal Compliance Seminar insure, or service the extension of credit that exceed, in the aggregate, three percent of the
original principal amount of the extension of credit.
(1) - (2) (No change.)
(3) Charges that are Interest. Charges an owner or an owner's spouse is required to pay
that constitute interest under §153.1(11) of this title (relating to Definitions) [the law, for
example per diem interest and points,] are not fees subject to the three percent limitation.
(A) Per diem interest is interest and is not subject to the three percent limitation.
(B) Legitimate discount points are interest and are not subject to the three percent
limitation. Discount points are legitimate if the discount points truly correspond to a
reduced interest rate and are not necessary to originate, evaluate, maintain, record, insure,
or service the loan. A lender may rely on an established system of verifiable procedures
to evidence that the discount points it offers are legitimate. This system may include
documentation of options that the owner is offered in the course of negotiation, including
a contract rate without discount points and a lower contract rate based on discount points.
(4) Charges that are not Interest. Charges an owner or an owner's spouse is required to
pay that are not interest under §153.1(11) of this title are fees subject to the three percent
limitation.
(5) (No change.)
(6) Charges to Originate. Charges an owner or an owner's spouse is required to pay to
originate an equity loan that are not interest under §153.1(11) of this title are fees subject
to the three percent limitation.
(7) (No change.)
(8) Charges to Evaluate. Charges an owner or an owner's spouse is required to pay to
evaluate the credit decision for an equity loan, that are not interest under §153.1(11) of
this title, are fees subject to the three percent limitation. Examples of these charges
include fees collected to cover the expenses of a credit report, survey, flood zone
determination, tax certificate, title report, inspection, or appraisal.
(9) Charges to Maintain. Charges paid by an owner or an owner's spouse [at the inception
of an equity loan] to maintain an equity [the] loan that are not interest under §153.1(11)
of this title are fees subject to the three percent limitation if the charges are paid at the
inception of the loan, or if the charges are customarily paid at the inception of an equity
loan but are deferred for later payment after closing. [Charges that are not interest that an
owner pays at the inception of an equity loan to maintain the equity loan, or that are
customarily paid at the inception of an equity loan to maintain the equity loan, but are
deferred for later payment after closing, are fees subject to the three percent limitation.]
10 Mike Patterson Handout TIB 2014 Legal Compliance Seminar (10) - (11) (No change.)
(12) Charges to Service. Charges paid by an owner or an owner's spouse [at the inception
of an equity loan] for a party to service an equity [the] loan that are not interest under
§153.1(11) of this title are fees subject to the three percent limitation if the charges are
paid at the inception of the loan, or if the charges are customarily paid at the inception of
an equity loan but are deferred for later payment after closing. [Charges that are not
interest that an owner pays at the inception of an equity loan to service the equity loan, or
that are customarily paid at the inception of an equity loan to service the equity loan, but
are deferred for later payment after closing, are fees subject to the three percent
limitation.]
(13) - (16) (No change.)
§153.15.Location of Closing: Section 50(a)(6)(N).
An equity loan may be closed only at an office of the lender, an attorney at law, or a title
company. The lender is anyone authorized under Section 50(a)(6)(P) that advances funds
directly to the owner or is identified as the payee on the note.
(1) (No change.)
(2) Any [A lender may accept a properly executed] power of attorney allowing an [the]
attorney-in-fact to execute closing documents on behalf of the owner or the owner's
spouse must be signed by the owner or the owner's spouse at an office of the lender, an
attorney at law, or a title company. A lender may rely on an established system of
verifiable procedures to evidence compliance with this paragraph. For example, this
system may include one or more of the following:
(A) a written statement in the power of attorney acknowledging the date and place at
which the power of attorney was executed;
(B) an affidavit or written certification of a person who was present when the power of
attorney was executed, acknowledging the date and place at which the power of attorney
was executed; or
(C) a certificate of acknowledgement signed by a notary public under Chapter 121, Civil
Practice and Remedies Code, acknowledging the date and place at which the power of
attorney was executed.
(3) The [A lender may receive] consent required under Section 50(a)(6)(A) must be
signed by the owner and the owner's spouse, or an attorney-in-fact described by
paragraph (2) of this subsection, at an office of the lender, an attorney at law, or a title
company [by mail or other delivery of the party's signature to an authorized physical
location and not the homestead].
11 Mike Patterson Handout TIB 2014 Legal Compliance Seminar §153.51.Consumer Disclosure: Section 50(g).
An equity loan may not be closed before the 12th day after the lender provides the owner
with the consumer disclosure on a separate instrument.
(1) - (4) (No change.)
(5) If the owner has executed a power of attorney described by §153.15(2) of this title
(relating to Location of Closing: Section 50(a)(6)(N)), then the lender may provide the
consumer disclosure to the attorney-in-fact instead of providing it to the owner.
Source:
http://www.sos.state.tx.us/texreg/archive/July42014/Proposed%20Rules/7.BANKING%2
0AND%20SECURITIES.html#18
Earliest possible date of adoption: August 3, 2014….but not adopted yet  12 Mike Patterson Handout TIB 2014 Legal Compliance Seminar TIB 2014 Annual Conference
TILA‐RESPA INTEGRATED DISCLOSURES
By:
Matthew R. Filpi
Attorney ‐ PeirsonPatterson, LLP
* content based on Consumer Financial Protection Bureau’s Outlook Live Webinar entitled “TILA‐RESPA Integrated Disclosures”, presented by the Bureau on June 17, 2014
TILA‐RESPA INTEGRATED DISCLOSURES
I.
General Information
II.
Timing of the Disclosures
III.
The Loan Estimate
IV.
Pre‐disclosure Restrictions
V.
The Closing Disclosure
VI.
Curing Tolerance Violations
VII. Final Thoughts/Warnings
GENERAL INFORMATION
• Rule amends Reg. Z (TILA) and Reg. X (RESPA) to create
new “integrated disclosures” for most mortgages:
– Combines the initial TIL and the GFE into the new Loan Estimate, and
the final TIL and the HUD‐1 into the new Closing Disclosure;
– New timing requirements for disclosures;
– New tolerance levels for disclosed estimates; and
– New pre‐disclosures requirements.
• Integrated disclosures apply to applications received on or
after August 1, 2015 for “closed‐end credit transactions
secured by real property.”
GENERAL INFORMATION
• Applies to most closed‐end consumer credit
transactions secured by real property.
– Does not apply to: (1) HELOCS; (2) Reverse Mortgages; or (3)
Chattel‐dwelling loans (eg. unaffixed mobile home).
– A lender does not need to comply if he/she/it is not a
“creditor” as defined in Reg. Z (ie. the lender makes five or
fewer mortgages in a year).
– Some loans that are RESPA‐exempt today WILL BE subject to
the Rule, including: (1) Construction‐only loans; (2) Lot
Loans; and (3) Loans secured by 25 acres or more, if
consumer purpose.
TIMING OF THE DISCLOSURES
• Loan Estimate must be delivered or placed in the mail to the
consumer within 3 business days of application.
– “Application” means submission of: (1) the consumer’s name; (2) the
consumer’s income; (3) the consumer’s social security number to
obtain a credit report; (4) the property address; (5) an estimate of
the value of the property; and (6) the loan amount sought. (§
1026.2(a)(3)).
• The definition of “application” no longer includes catch‐all of
“any other information deemed necessary by the loan
originator.” Once the 6 pieces of information listed above are
collected, then there is an application for purposes of the Rule.
• For purpose of when the lender must deliver the LE (ie.
within 3 business days of application), “Business day”
means a day where the creditor’s offices are open to
the public for carrying out substantially all of it’s
business functions. (§ 1026.2(a)(6))
• Closing Disclosure must be provided to the consumer at least
3 business days prior to consummation.
• For purposes of when the lender must deliver the CD (ie. at
least 3 business days prior to consummation), “Business
day” means all calendar days except Sundays and federal
legal public holidays.
• The “all calendar days. . .” definition also applies to other
requirements, such as calculating when a lender may impose
fees, provision of a revised LE, etc.
THE LOAN ESTIMATE
• Must provide the consumer with a good faith estimate of credit
costs and transaction terms, be in writing, and contain the
information prescribed in Reg. Z, Section 1026.37 (as shown in
Appendix H‐24).
•
Page 1: General
– General information related to applicants, property, loan, and rate lock status;
loan terms; projected payments during the term of the loan; costs at closing,
including the total estimated closing costs and the estimated cash to close.
•
Page 2: Costs
– Loan costs; other costs; calculating cash to close; adjustable interest rate table
(when applicable); adjustable payment table (when applicable).
•
Page 3: Other
– Contact information for creditor and loan officer; comparisons; other
considerations; and confirm receipt (optional).
THE LOAN ESTIMATE (CONTD.)
• Differences between existing disclosures and the new LE:
– Information that CFPB deems most helpful to the consumer is on page 1;
– Contains additional information, such as estimated cash to close;
– Costs can be itemized, but each category is subtotaled;
– Certain information removed from the Loan Estimate (e.g. finance charge,
approximate cost of funds, etc.);
– Annual percentage rate (APR) is de‐emphasized, and now is disclosed on the 3rd
page;
– Consumer’s signature to confirm receipt is permitted.
•
If a mortgage broker receives the consumer’s application, either the
creditor or the mortgage broker may provide the consumer with the LE.
(§ 1026.19(e)(1)).
•
If the LE is not provided to the consumer in person, the consumer is
presumed to have received it three business days after it is delivered or
placed in the mail. This includes electronic delivery. (§ 1026.19(e)(1)).
• Creditors are bound by the LE. Revisions are only permitted
in limited circumstances (§ 1026.19(e)(3)(iv)):
– Changed circumstances that occur: (1) after the LE is provided is provided that
cause settlement charges to increase more than permitted; or (2) after the LE is
provided that affect the consumer’s eligibility for the loan or the value of the
collateral.
– Consumer‐requested revisions to the loan terms or charges.
– Changes in the points or lender credits disclosed on the LE as a result of a
subsequent rate lock.
– Consumer indicates an intent to proceed more than 10 days after the LE was
provided.
• An “alternative” format for the LE may be provided on loans where
the transaction does not include a seller.
• The alternate format includes different tables for “costs at closing” on page 1 of
the LE (§ 1026.37(d)(2)) and for “calculating cash to close” on page 2 (§
1026.37(h)(2)).
• Written List of Service Providers (§ 1026.19(e)(1)(vi)(C)):
• If the creditor permits the consumer to shop for a settlement service, then the
creditor must provide a written list identifying at least one provider for that
service and include a statement that the consumer may choose a different
provider for that service.
• Creditor may also identify providers for services that the consumer may not shop
for on the written list, but must clearly and conspicuously distinguish these from
services for which the consumer may shop.
•
Tolerance Limitations (§ 1026.19(e)(3))
– Just like the current GFE/HUD‐1, there are “buckets” for zero tolerance, 10%
tolerance, and no tolerance.
•
NO TOLERANCE BUCKET (Charges may exceed amount disclosed by any amount):
– Prepaid interest; property insurance premiums; amounts placed into an escrow,
impound, reserve, or similar account.
– Services required by the creditor if the creditor permits the consumer to shop and
the consumer selects a third‐party service provider not on the creditor’s written
list of service providers.
– Charges paid to third‐party service providers for services not required by the
creditor.
•
10% TOLERANCE BUCKET (Cumulative Tolerance):
– Recording fees;
– Charges for third‐party services where: (1) the charge is not paid to the creditor
or an affiliate; and (2) the consumer is permitted to shop, but selects a third‐
party service provider on the creditor’s written list of service providers.
•
ZERO TOLERANCE BUCKET (Creditor may never charge more than the amount
disclosed unless there is a changed circumstance or other triggering event):
– Fees paid to the creditor, mortgage broker, or an affiliate of either;
– Fees paid to an unaffiliated third party if the creditor did not permit the
consumer to shop;
– Transfer taxes.
• Changed Circumstances:
– An extraordinary event beyond the control of any interested party or other
unexpected event specific to the consumer or transaction;
– Information specific to the consumer or transaction that the creditor relied
upon when providing the LE and that was inaccurate or changed after the LE
was provided;
– New information specific to the consumer or transaction that the creditor
did not rely on when providing the LE.
•
Examples of changed circumstances: war, natural disaster, or unexpected event
specific to the consumer or transaction (eg. Loss of employment, low appraisal,
failure to qualify, etc.).
PRE‐DISCLOSURE RESTRICTIONS
•
No fees may be imposed on the consumer before the consumer has received
the LE and indicated to the creditor an intent to proceed:
– Exception for bona fide and reasonable fee for obtaining the consumer’s credit report.
•
If a consumer is provided with a written estimate of terms or costs before
receiving the LE:
– Top of the first page must contain a statement that “Your actual rate, payment, and
costs could be higher. Get an official Loan Estimate before choosing a loan.”;
– The estimate may not be made with headings, content, and format substantially
similar to the LE form and must be in no smaller than 12‐point font.
•
The creditor may not require a consumer to submit documents verifying
information related to the application before providing the LE.
CLOSING DISCLOSURE
•
General Contents (§ 1026.38):
– Page 1: General
• Information, Loan Terms, Projected Payments, Costs at Closing;
– Page 2: Costs
• Loan Costs, Other Costs;
– Page 3: Cash to Close and Summaries
• Calculating Cash to Close, Summaries of Transactions;
– Page 4: Additional Loan Information
• Loan Disclosures, Escrow Account, AP and AIR Tables (when applicable;
– Page 5: Other Information
• Loan Calculations, Other Disclosures, Contact Information, Confirm Receipt.
CLOSING DISCLSOURE (CONTD.)
• Differences between existing disclosures and the new CD:
– Page 1 mirrors the Loan Estimate’s Page 1;
– Costs itemized with columns indicating party and timing of payment on Page
2;
– Added information to show changes to costs and how cash to close was
calculated on Page 3;
– “Fed Box” disclosures and more contact information for the consumer on
Page 5;
– Signature of consumer to confirm receipt is permitted.
CLOSING DISCLOSURE (CONTD.)
•
CD delivery requirements (§ 1026.19(f)):
– A creditor is generally responsible for ensuring that the consumer receives
the CD no later than 3 business days before consummation.
• May contract with a settlement agent to provide the CD on the creditor’s behalf.
• “Consummation” is the time that the consumer becomes contractually obligated
on a credit transaction.
– The settlement agent must provide the Seller with the CD in purchase
transactions.
– If the CD is not provided to the consumer in person, the consumer is
considered to have received it 3 business days after it is delivered or placed
in the mail (including electronic delivery).
CLOSING DISCLSOURE (C0NTD.)
•
Revisions and corrections to CD before consummation (§ 1026.19(f)(2))
– Three categories of changes require a corrected CD containing all changed terms:
• Changes before consummation that require a new three‐business‐day
waiting period;
– If disclosed APR becomes inaccurate
– If the loan product changes
– If a prepayment penalty is added
• Changes before consummation that do not require a new three‐business‐day
waiting period;
– Other changes that are not one of the above.
– Consumer has the right to inspect the revised CD during the business day before
consummation.
CLOSING DISCLOSURE (CONTD.)
• Revisions and corrections to CD after consummation (§
1026.19(f)(2))
– A corrected CD is required after consummation:
• When an event in connection with the settlement that causes the CD to
become inaccurate and that results in a change to an amount paid by the
consumer or seller occurs within the 30‐day period after consummation;
• To document refunds for tolerance violations;
• To correct non‐numerical clerical errors
– An error is “clerical” if it does not affect a numerical disclosure and does not
affect the timing, delivery, or other requirements imposed by § 1026.19(e)
or (f).
Curing Tolerance Violations
•
Tolerance violations must be cured with appropriate refunds to the
consumer (§ 1026.19(f)(2)(v)):
– If amounts paid by the consumer at closing exceed the amounts disclosed on the LE
beyond the applicable tolerance threshold then:
• The creditor must refund the excess to the consumer no later than 60 days after
consummation; and
• The creditor must deliver or place in the mail a corrected CD that reflects the refund no
later than 60 days after consummation.
– If the excessive charge(s) fall into the zero tolerance category, then any amount
beyond the amount disclosed on the LE must be refunded to the consumer.
– If the excessive charge(s) are in the 10% tolerance category, then if the total sum of
the charges in this category added together exceed the sum of all such charges
disclosed on the LE by more than 10%, the difference must be refunded.
FINAL THOUGHTS/WARNINGS
•
The new rule presents challenges well beyond simply re‐formatting the
GFE/HUD‐1/TIL.
– Completely reconfigured disclosures means all applicable systems will have to be
changed/updated.
– The rule includes many substantive requirements beyond the disclosures
themselves: including timing of transactions, dealing with third‐party settlement
service providers (especially settlement agents!)
– Creditor is required to effective guarantee prices for certain third‐party fees that
the Creditor does not control.
– MUST ASSUME TILA LIABILITY!!! (STATUTORY PENALTIES,
PRIVATE CAUSE OF ACTION, ASSIGNEE LIABILITY, ETC.)
• Implementation Challenges:
– Numerous business rules necessary to properly complete
the LE and CD for a specific transaction:
• “Projected Payments” section on LE and CD can require either 1,
2, 3, or 4 columns;
• Presence or absence of AP and AIR tables;
• Presence or absence of certain notices (Appraisals and Liability
After Foreclosure)
• BOTTOM LINE IS THAT NOW IS THE TIME TO PREPARE!
– If you prepare disclosures in‐house, you need to make necessary
adjustments to your systems and begin necessary training now.
• You also need to begin training your origination staff on timing rules, fee
collection rules, etc.
– If you rely on vendors, reach out to them and ask where they are in
the process and their timeline for implementation.
• Can your vendors support these disclosures for all of the different types
of transactions you originate?
• Do they have something for you to test??
Matthew R. Filpi
Attorney ‐ PeirsonPatterson, LLP
[email protected]
* Licensed in Texas, North Carolina, and D.C.
Integrated Disclosures
TIB Mortgage Annual Conference 2014
Zack Boonjue
[email protected]
Loan Estimate – First Impression
Dynamic with MANY variations. Cannot do by hand.
Strict rules for term, purpose, and product description
No HUD numbers
Alphabetized list with limited number of lines
Difficult to complete Projected Payments
No longer possible to test APR with OCC APR tool
Inconsistent rounding
Let’s meet L.E.
30 years
2 yr, 6 mo.
Purchase
18 mo.
Refinance
Fixed Rate
1 year
Construction
10 yr. Interest Only, Fixed Rate
6 mo.
Home Equity
2.5 Year Interest Only, 5/1 Adjustable Rate
Year 15 Balloon Payment, 0/2.5 Adjustable Rate
18 mo./2 Adjustable Rate
LE – Loan Terms
LE – Projected Payments Table
Triggers
How to comply? You have to watch out for…
Easy for Dificult for Change in Principal & Interest
=
consumers to creditors to Balloon Payment
Rounding to nearest dollar
Events occurring mid‐year
Ignore odd days interest
Consumer buy‐down vs third party buy‐down
understand.
complete
MI Termination
Ranges of Payments
Max MI within range
Running out of columns
Best case scenario
Only interest statement
Worst case scenario
MI termination vs no MI
LE – Projected Payments
30 Year Fixed Rate ‐ No MI
30 Year Fixed Rate w/ MI
30 Year 5/1 ARM – No MI
15 Year Balloon ARM w/ MI
LE – Bottom Pg1
LE – Page 2
Closing Cost Details – Loan Costs
13 items max
Do not disclose compensation to a LO by creditor
Ex: Origination Fee and other items paid to creditor
13 items max
Ex: Appraisal, Credit Report, Doc‐Prep to PPDocs, VA Funding Fee, Lender’s Title Policy
14 items max OR Addendum
Must provide contact info for fee you quoted
Ex: Pest Inspection, Survey
LE – Page 2
Closing Cost Details – Other Costs
Both lines hard‐code. No additional lines
Per‐diem with pennies
4 lines hard‐coded. Max 3 additional lines
Show pennies
3 lines hard‐coded. Max 5 additional lines
Omit aggregate adjustment. See comment 1026.37(g)(3)‐2.
Other other. Max 5
All cost less lender credits (Blanket credit)
LE – Page 2
Transactions with Seller
Alternate Version
LE – Page 2
What is “Closing Costs Financed”?
In CFPB’s Guide to the Loan Estimate and Closing Disclosure forms
The loan amount less payoffs and payments, but only to the extent the amount is greater than zero and less than the Total Closing Costs
Warning: There is an error on page 42. Use definition on page 46 instead.
LE – Page 2
Adjustable Payment Table (AP)
Appear when • Interest Only
• Optional Payments
• Step Payment
• Seasonal Payments
Does not appear on ARM
Must be referenced on page 1
LE – Page 2
Adjustable Interest Rate Table (AIR)
Index description can be abbreviated, but the consumer must be able to reasonably identify it.
LE – Page 3
Additional Information About This Loan
LE – Page 3
Other Considerations
Questions about Loan Estimate?
Closing Disclosure – First Impression
1st page nearly identical to LE
Dedicated columns for borrower and seller POCs
Missing tolerance/variance.
Some new disclosures
Let’s Meet CD
CD Page 2
CD Page 3
CD Page 3 Cont.
CD Page 4
CD Page 5
Questions about CD?
Wait.. There is one more thing…
[email protected]

TIB 2014 Annual Conference

Transcription

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