Regulation Z - Mortgages
Truth In Lending Disclosure Content
Itemization of Amount Financed
Good faith estimates of settlement costs provided for transactions subject to the Real Estate
Settlement Procedures Act may be substituted for the itemization of amount financed.
Finance charge
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) are considered accurate if the amount disclosed as the
finance charge:
 Is understated by no more than $100; or

Is greater than the amount required to be disclosed.
Variable Rate
Terms of One Year or Less
 If the annual percentage rate may increase after consummation in a transaction
secured by the consumer's principal dwelling with a term of one year or less,
provide the “non-ARM” required disclosures

Alternately, you may provide ARM disclosures for these type of loans.
Terms of Greater than One Year
If the annual percentage rate may increase after consummation in a transaction secured by
the consumer's principal dwelling with a term greater than one year, provide the following
disclosures:
 The fact that the transaction contains a variable-rate feature.

A statement that variable-rate disclosures have been provided earlier.
Contract Reference
At the creditor's option, the statement may also include a reference about the creditor's
policy regarding assumption of the obligation.
Assumption Policy
In a residential mortgage transaction, include a statement whether or not a subsequent
purchaser of the dwelling from the consumer may be permitted to assume the remaining
obligation on its original terms.
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Regulation Z - Mortgages
Repayment Disclosures
For a closed-end transaction secured by real property or a dwelling, the creditor shall
disclose the following information about the interest rate and payments in lieu of a
payment schedule.
Form of Disclosures
The repayment disclosures must:
 Be in the form of a table

Have no more than five columns

Have headings and format substantially similar to the model clauses in Appendix H

Contain only the required information

Be placed in a prominent location

Be in a minimum 10-point font

Contain interest rate and payment information

Contain “no guarantee to refinance” statement
Early Disclosures
Early good faith estimates of the Truth-in-Lending (TIL) disclosures are required in a
mortgage transaction subject to the Real Estate Settlement Procedures Act (RESPA) that is
secured by the consumer’s dwelling (except HELOCs).
Timing
The early TIL disclosures must be delivered or placed in the mail not later than the third
business day after the creditor receives the consumer’s written application.
Imposition of Fees

Neither a creditor nor any other person may impose a fee on the consumer in
connection with the consumer's application for a covered mortgage transaction
before the consumer has received the required disclosures.

If the disclosures are mailed to the consumer, the consumer is considered to have
received them three business days after they are mailed.
Exception
A creditor or other person may impose a fee for obtaining the consumer's credit history
before the consumer has received the early TIL disclosures, provided the fee is bona fide
and reasonable in amount.
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Regulation Z - Mortgages
Waiting Periods
General
Early TIL disclosures must be delivered or placed in the mail no later than seven business
days before consummation of the transaction.
Corrected Disclosures
 If the annual percentage rate becomes inaccurate, the creditor must provide
corrected disclosures with all changed terms.

The consumer must receive the corrected disclosures no later than three business
days before consummation.

If the corrected disclosures are mailed to the consumer or delivered to the
consumer by means other than delivery in person, the consumer is deemed to have
received the corrected disclosures three business days after they are mailed or
delivered. (known as the “3 + 3” rule)
Waiver

If the consumer determines that the extension of credit is needed to meet a bona
fide personal financial emergency, the consumer may modify or waive the sevenbusiness-day waiting period or the three-business-day waiting period after
receiving the required disclosures

To modify or waive a waiting period, the consumer must give the creditor a dated
written statement that:
o Describes the emergency,
o Specifically modifies or waives the waiting period
o Bears the signature of all the consumers who are primarily liable on the legal
obligation.

Printed waiver forms are prohibited.
Notice

Early TIL disclosures must contain the following statement: “You are not required to
complete this agreement merely because you have received these disclosures or
signed a loan application.”

This notice must be grouped together with the other early TIL disclosures.
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Regulation Z - Mortgages
Early Variable Rate Disclosures
Early Variable Rate Disclosures (Early ARM Disclosures) are required if the annual
percentage rate may increase after consummation in a transaction secured by the
consumer's principal dwelling with a term greater than one year.
Timing

Early ARM disclosures must be provided at the time an application form is provided
or before the consumer pays a non-refundable fee, whichever is earlier.

Disclosures may be delivered or placed in the mail not later than three business
days following receipt of a consumer's application when the application reaches the
creditor by telephone, or through an intermediary agent or broker.
Electronic Disclosures
If an application that is accessed by the consumer in electronic form, provide the early ARM
disclosure in electronic form on or with the application.
Content of Disclosures
The following disclosures must be provided:
CHARM Booklet
Provide the booklet titled “Consumer Handbook on Adjustable Rate Mortgages” published
by the Federal Reserve Board and the Federal Home Loan Bank Board, or a suitable
substitute.
Loan Program Disclosure
Provide a loan program disclosure for each variable-rate program in which the consumer
expresses an interest that includes the following information:
 The fact that the interest rate, payment, or term of the loan can change.

The index or formula used in making adjustments, and a source of information about
the index or formula.

An explanation of how the interest rate and payment will be determined, including an
explanation of how the index is adjusted, such as by the addition of a margin.

A statement that the consumer should ask about the current margin value and current
interest rate.

The fact that the interest rate will be discounted, and a statement that the consumer
should ask about the amount of the interest rate discount.

The frequency of interest rate and payment changes.
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Regulation Z - Mortgages

Any rules relating to changes in the index, interest rate, payment amount, and
outstanding loan balance including, for example, an explanation of interest rate or
payment limitations, negative amortization, and interest rate carryover.

Either of the following:
o A historical example, based on a $10,000 loan amount, illustrating how
payments and the loan balance would have been affected by interest rate
changes implemented according to the terms of the loan program disclosure.

The example must reflect the most recent 15 years of index value.

The example must reflect all significant loan program terms, such as
negative amortization, interest rate carryover, interest rate discounts,
and interest rate and payment limitations, that would have been affected
by the index movement during the period.
o The maximum interest rate and payment for a $10,000 loan originated at the
initial interest rate (index value plus margin, adjusted by the amount of any
discount or premium) in effect as of an identified month and year for the loan
program disclosure assuming the maximum periodic increases in rates and
payments under the program; and the initial interest rate and payment for that
loan and a statement that the periodic payment may increase or decrease
substantially depending on changes in the rate.

An explanation of how the consumer may calculate the payments for the loan amount to
be borrowed based on either:
o The most recent payment shown in the historical example
o The initial interest rate used to calculate the maximum interest rate and
payment

The fact that the loan program contains a demand feature.

The type of information that will be provided in notices of adjustments and the timing
of such notices.

A statement that disclosure forms are available for the creditor's other variable-rate
loan programs.
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Regulation Z - Mortgages
Rescission
Applicable Transactions

The right of recession (ROR) is applicable to any closed end loan in which the credit
union will retain or acquire a security interest (usually in the form of a mortgage) in
a member’s principal dwelling.

A transaction in which a security interest in a principal dwelling is added to an
existing obligation, with no new money, is also subject to the right of rescission.
Exempt Transactions
The following types of transactions are exempt from the right of rescission rules:
 Residential mortgage transactions

A refinancing or consolidation by the same credit union of an extension of credit
already secured by a member’s principal dwelling.
o This exception does not excuse compliance with the right of rescission rules
if, and to the extent that, the new amount financed exceeds the unpaid
principal balance, any earned unpaid finance charges on the existing debt,
and any amounts attributed solely to the costs associated with the
transaction
o An advance other than the initial advance in a series of advances, if the notice
and disclosures were already provided.
o A renewal of optional insurance premiums that is not considered a
refinancing.
Dwelling

Regulation Z defines a dwelling as a residential structure containing one to four
units, even if the structure is not attached to real property.

The following may be considered “dwellings” under Reg Z if the person resides
there:
o Individual condominium units
o Mobile homes
o Trailers
o Boats
o RVs
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Regulation Z - Mortgages

The term “principal dwelling” excludes second homes, vacation homes, and other
dwellings at which the owner resides only on a temporary basis.
Procedure
The ROR encompasses three distinct steps:
(1) Give the member all of the required disclosures and a notice of the right to rescind.
(2) Delay performance (funding and deed recording) during the ROR period (three
business days).
(3) After the rescission period expires, give the member the loan funds.
Notice

Each person who is entitled to rescind a transaction must receive notice of that
right.

The person who is entitled to rescind is the member whose principal residence is or
will be subject to the security interest.

Where a property is owned by more than one person, each owner must receive the
notice.

If the borrower is not the owner of the residence, and a non-borrower pledges his or
her principal residence as collateral security for the line of credit, then notice must
be given to the non-borrower

Each person entitled to rescind must get two copies of the notice.

Model notices are available.
Rescission Time Period

A member’s right to rescind begins on the day of the occurrence that gave rise to the
right (for example, when a credit plan is opened), and it expires at midnight on the
third business day after the later of:
o The occurrence
o Delivery of the notice(s) of right of rescission
o Delivery of all material disclosures

For this purpose, the term “business day” means any day other than Sunday and
federal legal holidays (for example, New Year’s Day, Martin Luther King Day,
Presidents’ Day, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veterans’ Day, Thanksgiving Day, and Christmas Day).
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Regulation Z - Mortgages
Three-year Rescission Period
If your credit union fails to supply the member with the right of rescission notice or the
material disclosures, the right of rescission does not expire until:
 Three years after the occurrence that gave rise to the right to rescind, OR

When the member sells or transfers the property, if that event occurs before the
three-year period has expired.
Member’s Procedure for Rescission

A member exercises his or her right of rescission by notifying the credit union of this
decision in writing.

Notification is deemed given when mailed or filed for telegraphic transmission.

If another means for delivery is used, the notice is deemed given when delivered to
the credit union’s designated place of business.
Credit Union’s Procedure for Rescission

When a member exercises his or her right within the three-business-day period, the
credit union’s security interest in the property automatically becomes void, and the
member is not liable to the credit union for any amount, including any finance
charge.

The credit union must take back any money it has provided to anyone and take any
steps necessary to reflect termination of the security interest.
Waiver of the Right of Rescission

Members are permitted to waive the right of rescission when there is a bona fide
personal emergency.

The member must provide a dated written statement, signed by everyone who has
the right to rescind, describing the emergency and specifically waiving the right to
rescind.

This statement cannot be provided on a preprinted form.
Tolerances for Accuracy

For purposes of the right of rescission, disclosures are considered accurate if the
disclosed finance charge and other disclosures affected by the finance charge (for
example, the amount financed and the annual percentage rate) are:
o Overstated, or
o The disclosed finance charge is understated by no more than 1/2 of 1% of
the face amount of the note, or by $100, whichever is greater.
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Regulation Z - Mortgages

In the case of a refinancing of a residential mortgage transaction by a new creditor,
the tolerance for accuracy is greater.
o If there is no new advance of funds and no consolidation of existing loans, the
tolerance for understating the finance charge and any other disclosures
affected by the finance charge increases to 1% of the face amount of the note
or by $100, whichever is greater.
o There is no liability where the finance charge is overstated.
Foreclosures
Special right of rescission rules apply in any case where a credit union has initiated
foreclosure proceedings and failed to comply with certain of the regulation’s disclosure
requirements. The borrower is permitted to rescind the transaction if:
 A mortgage broker fee that should have been included in the finance charge was not
included in the disclosure given to the member.

The right of rescission notice given to the member was not the proper form.

The right of rescission notice form was improperly completed.

The finance charge in the disclosures was understated by more than $35.
Variable-Rate Adjustments
An interest-rate adjustment to an existing variable-rate loan triggers certain disclosures.
Timing

If the adjustment does not result in a payment schedule change, mail or deliver the
notice at any time during the calendar year the adjustment occurs.

If the adjustment does result in a payment schedule change (either higher or lower),
provide the disclosure at least 25 days, but not more than 120 days, before the
effective date of the change.
Content
The disclosure must list:
 Current interest rate.

Prior interest rate.

Index values on which the prior and current interest rates are based.

Extent to which your credit union has foregone any increase in the interest rate.
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Regulation Z - Mortgages

Contractual effects of the interest-rate change, including the payment due after your
credit union makes the interest-rate adjustment (if there is any change).

Statement of the loan balance.

Amount of the payment that would be required to fully amortize the loan at the new
interest rate over the remainder of the term of the loan. (This requirement applies
only if the amortizing payment amount is different from the payment amount that
the member must pay after the adjustment, as already described above.)
**NEW STUFF**

Effective January 10, 2014

Eliminates annual disclosure

Provide an initial interest rate adjustment notice between 210 days and 240 days
before the first payment at the new rate is due.

Provide ongoing interest rate adjustment notices between 60 and 120 days before
the first payment at the new rate is due each time
Section 32 Mortgages/High Cost Mortgage Loans
Special rules apply for certain mortgages with high interest rate and/or fees.
Coverage
A “Section 32” mortgage is a consumer credit transaction that is secured by the consumer's
principal dwelling, and in which either:
 The annual percentage rate at consummation will exceed by more than 8 percentage
points for first-lien loans, or by more than 10 percentage points for subordinate-lien
loans, the yield on Treasury securities having comparable periods of maturity to the
loan maturity as of the fifteenth day of the month immediately preceding the month
in which the application for the extension of credit is received by the creditor; or

The total points and fees payable by the consumer at or before loan closing will
exceed the greater of 8 percent of the total loan amount, or $592 (the $592 figure is
adjusted annually on January 1 by the annual percentage change in the Consumer
Price Index that was reported on the preceding June 1.)
Exceptions
This rule does not apply to the following:
 A residential mortgage transaction

A reverse mortgage transaction
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Regulation Z - Mortgages

An open-end credit plan
Points and Fees
Points and fees means:
 All finance charges, except interest or the time-price differential

All compensation paid to mortgage brokers

Other loan fees paid by the borrower, unless:
o The charge is reasonable
o The creditor receives no direct or indirect compensation in connection with
the charge
o The charge is not paid to an affiliate of the creditor
Disclosure
General
The required disclosures must be given to each consumer who has the right to rescind the
transaction.
Timing
The disclosure must be provided to the consumer at least three business days prior to
consummation of the transaction.
Change in Terms
After providing the initial disclosure and prior to consummation, if the creditor changes
any term that makes the disclosures inaccurate, new disclosures must be provided to the
consumer.
Waiver
 The consumer may, after receiving the required disclosures, modify or waive the
three-day waiting if the consumer determines that the extension of credit is needed
to meet a bona fide personal financial emergency.

To modify or waive the right, the consumer must give the creditor a dated written
statement that:
o Describes the emergency
o Specifically modifies or waives the waiting period
o Bears the signature of all the consumers entitled to the waiting period.
o Printed forms for this purpose are prohibited
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Regulation Z - Mortgages
Content
The disclosure must contain the following information:
 The following statement: “You are not required to complete this agreement merely
because you have received these disclosures or have signed a loan application. If
you obtain this loan, the lender will have a mortgage on your home. You could lose
your home, and any money you have put into it, if you do not meet your obligations
under the loan.”

The Annual percentage rate.

The amount of the regular monthly (or other periodic) payment and the amount of
any balloon payment.

For variable-rate transactions, a statement that the interest rate and monthly
payment may increase, and the amount of the single maximum monthly payment,
based on the maximum interest rate.

Amount borrowed.
Limitations
Section 32 loans are prohibited from having the following features:
 Balloon payments (for loans with terms less than five years, except for a “bridge”
loan connected with the acquisition or construction of a dwelling intended to
become the consumer's principal dwelling.)

Negative Amortization.

An interest rate that increases after default.

Prepayment penalties (some exceptions apply)

Due-on-demand clause (some exceptions apply)
Prohibited Acts or Practices
A creditor extending a Section 32 mortgage credit cannot do the following
 Pay a contractor under a home improvement contract from the proceeds of a the
loan except under specific circumstances.

Sell or otherwise assign the loan without furnishing the following statement to the
purchaser or assignee: “Notice: This is a mortgage subject to special rules under the
federal Truth in Lending Act. Purchasers or assignees of this mortgage could be
liable for all claims and defenses with respect to the mortgage that the borrower
could assert against the creditor.”
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Regulation Z - Mortgages

Refinance the loan with the same borrower into another Section 32 loan unless the
refinancing is in the borrower's interest.

Extend credit subject to Sec. 226.32 to a consumer based on the value of the
consumer's collateral without regard to the consumer's repayment ability as of
consummation, including the consumer's current and reasonably expected income,
employment, assets other than the collateral, current obligations, and mortgagerelated obligations.

Structure a home-secured loan as an open-end plan to evade the requirements of
Sec. 226.32.
**NEW STUFF

Effective January 10, 2014

Covers purchase transactions and HELOCs

Interest rate test compared to Average Prime Offer Rate (APOR) and has lower
thresholds (6.5 % for a first-lien transaction, 8.5 % for a first-lien transaction if the
dwelling is personal property and the loan amount is less than $50,000; or 8.5 % for
a subordinate-lien transaction)

Expanded points and fees test with lower thresholds (5%, generally)

New prohibitions and restrictions

Required homeownership counseling
Higher Priced Mortgage Loans
General
Certain acts and practices are prohibited in connection with “higher-priced mortgage
loans” (HPML).
Definition
An HMPL is 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:
 By 1.5 or more percentage points for loans secured by a first lien

By 2.5 or more percentage points for jumbo loans secured by a first lien

By 3.5 or more percentage points for loans secured by a subordinate lien
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Regulation Z - Mortgages
Find information on APORs on the FFIEC website at
http://www.ffiec.gov/ratespread/newcalc.aspx
Exceptions
HPMLs do not include the following extensions of credit:
 A transaction to finance the initial construction of a dwelling

A temporary or “bridge” loan with a term of twelve months or less, such as a loan to
purchase a new dwelling where the consumer plans to sell a current dwelling within
twelve months

A reverse-mortgage transaction

A home equity line of credit
Rules
Higher-priced mortgage loans are subject to the following restrictions:
Repayment Ability
A creditor shall not extend credit based on the value of the consumer's collateral without
regard to the consumer's repayment ability.
Prepayment Penalties
A loan may not include a prepayment penalty except under certain limited circumstances.
Escrow Account
 Escrow for taxes and insurance are required for HPMLs secured by a first lien.
(Exceptions for small creditors in rural and underserved areas)

Cancellation permitted if:
o LTV is less than 80%, AND
o Borrower requests cancellation at least five years after consummation
Evasion
A creditor cannot structure a home-secured loan as an open-end plan to evade the HPML
requirements.
**New Stuff**

Effective January 18, 2014

HPMLs that are not Qualified Mortgages require a formal appraisal by a certified
appraiser
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Regulation Z - Mortgages

Additional appraisals at no cost are required for certain “flipping” transactions
Prohibited Mortgage Acts and Practices
General

Certain acts and practices are prohibited in relation to consumer credit transactions
secured by a dwelling.

These prohibitions do not apply to home-equity lines of credit.
Loan Servicing
In connection with a consumer credit transaction secured by a consumer's principal
dwelling, no servicer shall:
 Fail to credit a payment to the consumer's loan account as of the date of receipt,
except when a delay in crediting does not result in:
o Any charge to the consumer
o The reporting of negative information to a consumer reporting agency

Impose on the consumer any late fee or delinquency charge in connection with a
payment, when the only delinquency is attributable to late fees or delinquency
charges assessed on an earlier payment (and the payment is otherwise a full
payment for the applicable period and is paid on its due date or within any
applicable grace period)

Fail to provide, within a reasonable time after receiving a request from the
consumer or any person acting on behalf of the consumer, an accurate statement of
the total outstanding balance that would be required to satisfy the consumer's
obligation in full as of a specified date.
Exception
If a servicer specifies in writing requirements for the consumer to follow in making
payments, but accepts a payment that does not conform to the requirements, the servicer
must credit the payment as of 5 days after receipt.
Loan Originator Compensation
General
In connection with a consumer credit transaction secured by a dwelling, no loan originator
shall receive and no person shall pay to a loan originator, directly or indirectly,
compensation in an amount that is based on any of the transaction’s terms or conditions.
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Regulation Z - Mortgages
Compensation Based on Loan Amount
Loan officer compensation may be based on the loan amount provided that the
compensation is based on a fixed percentage of the amount of credit extended. However,
such compensation may be subject to a minimum or maximum dollar amount.
Payments by Persons Other Than the Consumer
If any loan originator receives compensation directly from a consumer in a consumer credit
transaction secured by a dwelling:
 No loan originator shall receive compensation, directly or indirectly, from any
person other than the consumer in connection with the transaction

No person who knows or has reason to know of the consumer-paid compensation to
the loan originator (other than the consumer) shall pay any compensation to a loan
originator, directly or indirectly, in connection with the transaction.
Prohibition on Steering
General
In connection with a consumer credit transaction secured by a dwelling, a loan originator
must not direct or ‘‘steer’’ a consumer to consummate a transaction based on the fact that
the originator will receive greater compensation from the creditor in that transaction than
in other transactions the originator offered or could have offered to the consumer, unless
the consummated transaction is in the consumer’s interest.
Safe Harbor
 A transaction will be deemed to be in compliance if the consumer is presented with
loan options for each type of transaction in which the consumer expressed an
interest that meet the certain conditions.

The loan originator must obtain loan options from a significant number of the
creditors with which the originator regularly does business and, for each type of
transaction in which the consumer expressed an interest, must present the
consumer with loan options that include:
o The loan with the lowest interest rate;
o The loan with the lowest interest rate without certain negative features,
including:

Negative amortization

A prepayment penalty

Interest-only payments

A balloon payment in the first 7 years of the life of the loan
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Regulation Z - Mortgages

A demand feature

Shared equity

Shared appreciation
o The loan with the lowest total dollar amount for origination points or fees
and discount points.

The loan originator must have a good faith belief that the options presented to the
consumer are loans for which the consumer likely qualifies.

For each type of transaction, if the originator presents to the consumer more than
three loans, the originator must highlight the loans that satisfy the criteria specified.
New Stuff

Effective January 10, 2014

Additional information on prompt crediting of payments, placing partial payments
in suspense accounts, prompt pay-off quotes

Expanded loan-originator compensation rules, but still prohibits compensation
based on the terms of a transaction. More direction on paying bonuses, retirement
accounts and profit sharing.
Mortgage Transfer Disclosures
General
 A credit union that becomes the owner of an existing mortgage loan by acquiring
legal title to the debt obligation must provide the homeowner with a disclosure
informing them of the transfer.

If an acquisition involves multiple covered entities who jointly acquire the loan, a
single disclosure must be provided on behalf of all owners.
Timing
The credit union must mail or deliver the required notice to the consumer on or before the
30th calendar day following the date of transfer.
Exceptions
A credit union is not subject to the disclosure if:
 The credit union sells, or otherwise transfers or assigns legal title to the mortgage
loan on or before the 30th calendar day following the acquisition date.
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Regulation Z - Mortgages

The mortgage loan is transferred to the credit union in connection with a
repurchase agreement that obligates the transferor to repurchase the loan.
Content of Required Disclosures
The disclosures required by this section must identify the loan that was sold, assigned or
otherwise transferred, and state the following:
 The name, address, and telephone number of the new owner

The date of transfer

The name, address and telephone number of an agent or party authorized to receive
notice of the right to rescind and resolve issues concerning the consumer’s
payments on the loan.

Where transfer of ownership of the debt to the covered person is or may be
recorded in public records, or, alternatively, that the transfer of ownership has not
been recorded in public records at the time the disclosure is provided.
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Regulation Z - Mortgages
Valuation Independence
General
This rule applies to:
 Any consumer credit transaction that is secured by the consumer’s principal
(including home equity lines of credit).
 All property valuations, in addition to formal appraisals.
 Anyone who performs valuation functions for the consumer’s primary home, not
just those who are licensed or certified appraisers.
Restrictions on Property Valuations





Credit unions are prohibited from engaging in coercion, bribery, collusion,
inducement, intimidation, and other similar actions designed to cause anyone who
prepares a property valuation to base the value on factors other than the person’s
independent judgment.
An appraiser is prohibited from materially misrepresenting the value of the
consumer’s home.
Others may not materially alter the valuation, other than the appraiser.
No one may induce another person to violate any of these prohibitions.
Credit unions are prohibited from extending credit based on a valuation if the credit
union knows at or before loan consummation that:
o Coercion or similar misconduct has occurred.
o The person who prepares or performs a property valuation function has a
prohibited interest in the property or transaction, unless the creditor uses
reasonable diligence to determine that the valuation does not materially
misstate the property value.
Allowable Actions
Credit Unions may:
 Obtain multiple valuations of a single property in order to select the most reliable
valuation.
 Request the appraiser to consider additional, appropriate property information.
 Provide incentives to the appraiser, as long as this does not affect his or her
independent judgment.
 Request the appraiser to correct bona fide errors.
Prohibition on Conflicts of Interest
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
A person who provides a property valuation service is prohibited from having any
interest, financial or otherwise, in the property or transaction.
Having an employment relationship, such as with the creditor, or other affiliation
does not, by itself, violate this prohibition.
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Regulation Z - Mortgages
Safe Harbors for Creditors with Assets Greater than $250 Million
Here are the conditions for the safe harbor for those creditors with more than $250 million
in assets:
 The compensation of the person performing the valuation function is not based on
the value arrived at in any valuation, although this does not prohibit the basing of
compensation on whether the loan closes.
 The person performing the valuation function reports to a person who is not part of
the creditor’s loan production function and whose compensation is not based on
whether the loan closes.
 No employee, officer, or director in the creditor’s loan production function is
involved in any way in selecting, retaining, recommending, or influencing the
selection of the one performing the valuation service, which includes deciding who
should or should not be on a list of those approved to perform this function.
Safe Harbors for Creditors with Assets less than $250 million
 The compensation of the person performing the valuation function is not based on
the value arrived at in any valuation, although this does not prohibit the basing of
compensation on whether the loan closes.
 The creditor requires any employee, officer, or director of the creditor who orders,
performs, or reviews a valuation to abstain from participating in any decision to
approve, deny, or set the terms of the transaction.
Prohibited Extensions of Credit
If a creditor knows at or before loan consummation of a violation of this rule, then it must
not extend credit based on the property valuation, unless the creditor documents that it
has acted with reasonable diligence to determine that the valuation does not materially
misstate or misrepresent the value of the home.
Customary and Reasonable Compensation
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Creditors are required to pay a fee appraiser a rate that is reasonable and customary
in the geographic market where the property is located.
This provision only covers state-licensed or certified appraisers and does not
include employees of the creditor or of appraisal management companies.
A creditor is allowed to:
o Negotiate a rate in good faith.
o Communicate to an appraiser the rates that have been submitted by other
appraisers solicited for an assignment.
o Negotiate volume-based discounts for multiple assignments to one appraiser.
Mandatory Reporting Requirements
A creditor that has a reasonable basis to believe that an appraiser has not complied with
ethical, professional, or other requirements for appraisers under applicable federal or state
law or regulation, or the Uniform Standards of Professional Appraisal Practice, must report
this to the appropriate state licensing agency.
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Regulation Z - Mortgages
More New Stuff
Effective January 10, 2014
Periodic Statements

Applies to a closed-end consumer credit transaction secured by a dwelling

Required content

Not required for:
o Home-Equity Lines of Credit
o Reverse mortgages
o Timeshare loans
o Fixed-rate loans with coupon books
o Loans serviced by small servicers (servicing 5000 or fewer covered loans)
Ability to Repay
The Ability to Repay (ATR)/ Qualified Mortgage (QM) rule requires that you make a
reasonable, good-faith determination before or when you consummate a mortgage loan
that the consumer has a reasonable ability to repay the loan, considering such factors as the
consumer’s income or assets and employment status (if relied on) against:
 The mortgage loan payment

Ongoing expenses related to the mortgage loan or the property that secures it, such
as property taxes and insurance you require the consumer to buy

Payments on simultaneous loans that are secured by the same property

Other debt obligations, alimony, and child-support payments
The rule also requires you to consider and verify the consumer’s credit history.
The rule provides a presumption that you have complied with the ATR rule if you originate
QMs. QMs generally cannot contain certain risky features (such as allowing interest-only
payments or negative amortization). In addition, points and fees on QMs are limited. For a
loan to be a QM, it also must meet certain underwriting criteria.
In exchange for meeting these requirements, QMs receive either a conclusive or a
rebuttable presumption that you, the creditor, complied with the ATR requirements. The
type of presumption depends on the pricing of the loan - whether the loan is not higherpriced or is higher-priced.
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