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CHANGES IN TRUTH IN LENDING JOE WALLACE ASSOCIATE FINANCIAL EXAMINER STATE OF CONNECTICUT Phone 860 240-8181 State of Connecticut,

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Presentation on theme: "CHANGES IN TRUTH IN LENDING JOE WALLACE ASSOCIATE FINANCIAL EXAMINER STATE OF CONNECTICUT Phone 860 240-8181 State of Connecticut,"— Presentation transcript:

1 CHANGES IN TRUTH IN LENDING JOE WALLACE ASSOCIATE FINANCIAL EXAMINER STATE OF CONNECTICUT Phone State of Connecticut, Department of Banking

2 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

3 SAFE ACT Regulation G, section (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

4 SAFE ACT Keep NMLSR registration information up-to- date Renew registrations annually Disclose individual actions as required on NMLSR Use of unique identifier Policies and procedures State of Connecticut, Department of Banking

5 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

6 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

7 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

8 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

9 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

10 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

11 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

12 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

13 4 TYPES OF QM’S General QM Agency/GSE QM Small Creditor QM Small Creditor Balloon Payment QM State of Connecticut, Department of Banking

14 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

15 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

16 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

17 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

18 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

19 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

20 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

21 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

22 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

23 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

24 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

25 DEFINITION OF APPLICATION Name Property Address Income Property Value Social Security Number Loan Amount State of Connecticut, Department of Banking

26 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

27 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

28 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

29 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

30 TOLERANCES No tolerance requirements – examples would be prepaid interest, amounts going into escrow, 3 rd parties selected by the consumer not on the creditor’s provider list 10% cumulative tolerance – 3 rd parties on the creditors provider list Zero Tolerance – fees to the broker, lender, 3 rd parties where consumer could not choose State of Connecticut, Department of Banking

31 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

32 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

33 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

34 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

35 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

36 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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