CHANGES IN TRUTH IN LENDING
JOE WALLACE
ASSOCIATE FINANCIAL EXAMINER
STATE OF CONNECTICUT
[email protected]
Phone 860 240-8181
State of Connecticut,
Department of Banking
MY BACKGROUND
• Started with the Department in 2007
• Licensing of mortgage loan originators,
brokers, and lenders
• Performed a variety of investigations and
examinations
State of Connecticut, Department of Banking
SAFE ACT
• Regulation G, section 1007.101(b) - Purpose. This part
implements the S.A.F.E. Act's Federal registration
requirement for mortgage loan originators. The S.A.F.E.
Act provides that the objectives of this registration
include aggregating and improving the flow of
information to and between regulators; providing
increased accountability and tracking of mortgage loan
originators; enhancing consumer protections;
supporting anti-fraud measures; and providing
consumers with easily accessible information at no
charge regarding the employment history of, and
publicly adjudicated disciplinary and enforcement
actions against, mortgage loan originators.
State of Connecticut, Department of Banking
SAFE ACT
• Keep NMLSR registration information up-todate
• Renew registrations annually
• Disclose individual actions as required on
NMLSR
• Use of unique identifier
• Policies and procedures
State of Connecticut, Department of Banking
ABILITY TO REPAY & QUALIFIED MORTGAGES
• In 2008, higher-priced mortgages became
subject to “ability to repay” standards
• In 2010, Dodd-Frank (Wall Street Reform and
Consumer Protection Act) adopted the
standard for most closed-end residential
mortgages
• In 2013, CFPB adopted the rule
• Rule became effective on 1/10/14
State of Connecticut, Department of Banking
ABILITY TO REPAY & QUALIFIED MORTGAGES
• Applications taken on or after 1/10/14
• Excludes open-end mortgages, timeshares,
reverse mortgages, construction loans for less
than 12 months, and certain mortgages
related to community wellness
• Most 1-4 family residential mortgages
including co-ops, condos and secondary
mortgages
State of Connecticut, Department of Banking
ABILITY TO REPAY
• Must consider and verify 8 underwriting factors:
1) Borrower’s income and assets
2) Current employment
3) Monthly payment for subject loan
4) Monthly payment on other loans related to subject
property
5) Taxes and Insurance on subject property
6) Other debts
7) Debt to Income (on gross monthly income)
8) Credit History
State of Connecticut, Department of Banking
ABILITY TO REPAY
• Must maintain documentation to demonstrate
consideration and verification of the 8 items
• Records must be maintained for a minimum of
3 years
• No specific numeric threshold given for DTI
(must be considered though)
• Special mention of monthly payment review
for Negative-Amortization, Interest-Only, and
Balloon Payment
State of Connecticut, Department of Banking
ABILITY TO REPAY
• 3 year liability and exposure
• Consumer finance charges, consumer fees
paid, consumer legal fees paid
• After 3 years, may be disputed in foreclosure
proceedings
State of Connecticut, Department of Banking
QUALIFED MORTGAGES
• A way of demonstrating Ability To Repay
requirements have been met
• Better liability protection in the form of Safe
Harbor Presumption
• Higher-Priced qualified mortgages have a
Rebuttable Presumption with respect to
liability protection
• 4 types of qualified mortgages
State of Connecticut, Department of Banking
QUALIFED MORTGAGES
• Safe Harbor – consumer would have to
demonstrate that creditor made an error in
Safe Harbor designation; otherwise
conclusively presumed that ATR standard was
met
• Rebuttable Presumption – presumed to have
met ATR standards, but it does allow the
consumer to demonstrate why he/she could
not have paid the loan back
State of Connecticut, Department of Banking
QUALIFED MORTGAGES
• Points and Fees can’t exceed 3% of loan
amount
• No interest-only or negative amortization
feature
• Loan term can’t exceed 30 years
State of Connecticut, Department of Banking
4 TYPES OF QM’S
•
•
•
•
General QM
Agency/GSE QM
Small Creditor QM
Small Creditor Balloon Payment QM
State of Connecticut, Department of Banking
GENERAL QM
• Debt to income of 43% or less
• Consider consumer’s debt and income
obligations
• Underwriting to a fully amortized payment
schedule with the maximum interest rate of
the first 5 years of the loan
State of Connecticut, Department of Banking
AGENCY QM
• Eligible for purchase by GSE, or insured or
guaranteed by a federal agency
• 30 year or less term, 3% max in points and
fees, no Neg-Am/Int-Only features
• No 43% DTI threshold
• Valid recommendation from agency
automated UW system
• Expires on 1/10/21
State of Connecticut, Department of Banking
SMALL CREDITOR QM
• Less than $2 billion in assets as of the end of
the last calendar year (to be adjusted)
• Entity (and affiliates) originated no more than
500 loans subject to ATR regs in the preceding
calendar year
• Same standard requirement (term, risky
features, points and fees)
• No 43% DTI threshold
State of Connecticut, Department of Banking
SMALL CREDITOR QM continued
• Underwrite to fully amortized payment
schedule with max rate in first 5 years
• Cannot have a forward commitment with a
non-qualifying small creditor
• Lose small creditor QM status if sold within 3
years of consummation to a non-qualifying
small creditor (keeps status if it’s the result of
a merger or acquisition)
State of Connecticut, Department of Banking
BALLOON PAYMENT QM
• Open to all “small creditors” up to 1/10/16
• After that, only small creditors operating in rural
or underserved counties
• Same standard requirements (term, risky
features, points and fees)
• Fixed rate
• 5 year term or longer
• Same requirement for commitment/sale of loan
State of Connecticut, Department of Banking
OTHER TALKING POINTS ON QM’s
• Point and Fee Cap for QM’s – Check regulation for
loan amounts under $100,000; Mortgage
insurance premiums and fees not retained by
broker/creditor are not included; Maximum on
any pre-payment penalty fee is included
• Prepayment Penalty and QM’s – Only on non
higher-priced QM’s with a fixed or step interest
rate; 2% first 2 years and 1% for year 3; Must
offer consumer a comparable product without
the penalty
State of Connecticut, Department of Banking
NON-STANDARD TO STANDARD REFINANCE
• Do not have to meet ATR criteria
• Only for those mortgages currently held or
serviced by the entity
• Check guidance on criteria
State of Connecticut, Department of Banking
POINT & FEE CURE FOR QM’S
• Payment within 210 days of consummation
• Consumer not 60 days past due on the
transaction
• Creditor, assignee or servicer have not been
notified by the consumer about overage
• Pay the overage and interest on the overage
using the contract interest rate
State of Connecticut, Department of Banking
TILA-RESPA INTEGRATED DISCLOSURE
• 2 New Forms
• Loan Estimate Disclosure - combine the Initial
TIL and GFE
• Closing Disclosure - combine final TIL and HUD
settlement statement
• Applications taken on or after 8/1/15
State of Connecticut, Department of Banking
TILA-RESPA INTEGRATED DISCLOSURE
• Includes most closed-end residential
mortgages
• Does not include HELOCs, Reverse Mortgages,
Mobile Homes, or lenders making 5 or fewer
loans in a calendar year
State of Connecticut, Department of Banking
TILA-RESPA INTEGRATED DISCLOSURE
• Closing Document required to be retained for
5 years by creditor and investors, if loan is sold
• Loan Estimate form, and other relevant
documentation related to the Loan Estimate
form, must be maintained for 3 years
• Form is not to be used prior to 8/1/15
State of Connecticut, Department of Banking
DEFINITION OF APPLICATION
•
•
•
•
•
•
Name
Property Address
Income
Property Value
Social Security Number
Loan Amount
State of Connecticut, Department of Banking
LOAN ESTIMATE DISCLOSURE
• Must be provided once broker or creditor has
the 6 pieces of information
• Must be provided within 3 business days
• Business Day is any day in which the creditor is
open for most of its business activities
• Use best information available
State of Connecticut, Department of Banking
LOAN ESTIMATE DISCLOSURE
• Fees cannot be imposed until consumer has
provided an intent to proceed (this excludes a
bona fide credit report fee)
• Requesting documentation of the consumer
to verify information cannot be done until the
disclosure has been provided
State of Connecticut, Department of Banking
LOAN ESTIMATE DISCLOSURE
• Must be provided 7 business days prior to
consummation
• Borrower may waive this under certain
circumstances
• Does not have to be provided if withdrawn or
denied within 3 business days
State of Connecticut, Department of Banking
LOAN ESTIMATE DISCLOSURE
• The disclosure may be revised only when
changed circumstances have occurred
resulting in an increase in charges
• Not intended for miscalculation, technical
errors, or underestimate of charges
• 3 business days to revise when becoming
aware of the change
State of Connecticut, Department of Banking
TOLERANCES
• No tolerance requirements – examples would
be prepaid interest, amounts going into
escrow, 3rd parties selected by the consumer
not on the creditor’s provider list
• 10% cumulative tolerance – 3rd parties on the
creditors provider list
• Zero Tolerance – fees to the broker, lender, 3rd
parties where consumer could not choose
State of Connecticut, Department of Banking
LOAN ESTIMATE REVISIONS
• Changed Circumstances causing tolerance
violations
• Changed Circumstances affecting consumer’s
eligibility
• Revisions/changes requested by the consumer
• “Rate Locking” when it causes a change to
points/credits
• Intent to Proceed occurs after 10 business
days from mailing out the disclosure
State of Connecticut, Department of Banking
CLOSING DISCLOSURE
• Contain actual costs and terms of the
transaction
• Estimate of good faith may be provided on
certain charges
• Consumer should receive the disclosure 3
business day before consummation
• A corrected disclosure may be provided at or
before consummation
State of Connecticut, Department of Banking
CLOSING DISCLOSURE
• Settlement Agent may provide the disclosure,
but the creditor is responsible
• Borrower may waive the 3 day waiting period
• A Loan Estimate Disclosure cannot be
provided after a Closing Disclosure has been
provided
• Any changes at that point must be done
through a revised Closing Disclosure
State of Connecticut, Department of Banking
CHANGES THAT REQUIRE 3 DAY WAIT PERIOD
• Changes that result in an inaccurate APR, in
accordance with TIL APR tolerance
• Change in loan product
• Addition of a pre-payment penalty
• 3 day wait period required unless waived by
the borrower(s) due to a financial emergency
State of Connecticut, Department of Banking
POST CONSUMMATION
• Should the disclosure become inaccurate due
to events occurring after settlement, a new
disclosure may be required
• Depending upon the inaccurate information, it
would be required to be provided to the
consumer either within 30 days or 60 days
• Tolerance cures also require a new disclosure
State of Connecticut, Department of Banking
INFORMATION SOURCE
• Disclaimer: the law itself should always be
consulted
• CFPB – guidance material and sample forms,
from the perspective of a non-CFPB examiner
• Another CFPB source for Truth in Lending –
consumerfinance.gov/eregulations
State of Connecticut, Department of Banking
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2015-01-07_DOB_Presentation - Bcac