Charges excluded from the finance charge.
Application fees. However, if so, it must be charged to all applicants, not just to applicants who are approved or who actually receive credit.
2. Late payment charges.
3. Other excluded charges. Charges for "delinquency, default, or a similar occurrence" include, for example, charges for reinstatement of credit privileges or for submitting as payment a check that is later returned unpaid.
4. Seller's points.A commitment fee paid by a noncreditor seller (such as a real estate developer) to the creditor should be treated as seller's points. Buyer's points (that is, points charged to the buyer by the creditor), however, are finance charges.
5. Other seller-paid amounts. - should treat as seller's points
6. Real estate or residential mortgage transaction charges. For example, credit-report fees cover not only the cost of the report but also the cost of verifying information in the report.
2. Lump-sum charges. - for example, reviewing or completing documents
According to Regulation Z, the following are excluded from the finance charges:
1. seller's points
2. Interest forfeited as a result of an interest reduction required by law on a time deposit used as security for an extension of credit
3. Fees in a transaction secured by real property or in a residential mortgage transaction, if bona fide and reasonable amount, including:
- Fees for title examination, abstract of title, title insurance, property survey, and similar purposes
-Fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents
-notary or credit report fees
-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.
-amounts required to be paid into escrow or trustee accounts if the amounts would not otherwise be included in the finance charge
Exempt Transactions from Regulation Z: • Credit extended primarily for a business, commercial, or agricultural purpose; CFPB Laws and Regulations TILA CFPB April 2015 TILA 7 • Credit extended to other than a natural person (including credit to government agencies or instrumentalities); • Credit in excess of an annually adjusted threshold not secured by real property or by personal property used or expected to be used as the principal dwelling of the consumer;4 • Public utility credit; • Credit extended by a broker-dealer registered with the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC), involving securities or commodities accounts; • Home fuel budget plans not subject to a finance charge; and • Certain student loan programs. However, when a credit card is involved, generally exempt credit (e.g., business purpose credit) is subject to the requirements that govern the issuance of credit cards and liability for their unauthorized use. Credit cards must not be issued on an unsolicited basis and, if a credit card is lost or stolen, the cardholder must not be held liable for more than $50 for the unauthorized use of the card. (Comment 3-1) When determining whether credit is for consumer purposes, the creditor must evaluate all of the following: • Any statement obtained from the consumer describing the purpose of the proceeds. o For example, a statement that the proceeds will be used for a vacation trip would indicate a consumer purpose. o If the loan has a mixed-purpose (e.g., proceeds will be used to buy a car that will be used for personal and business purposes), the lender must look to the primary purpose of the loan to decide whether disclosures are necessary. A statement of purpose from the consumer will help the lender make that decision. o A checked box indicating that the loan is for a business purpose, absent any documentation showing the intended use of the proceeds could be insufficient evidence that the loan did not have a consumer purpose. • The consumer's primary occupation and how it relates to the use of the proceeds. The higher the correlation between the consumer's occupation and the property purchased from the loan proceeds, the greater the likelihood that the loan has a business purpose. For example, proceeds used to purchase dental supplies for a dentist would indicate a business purpose. A creditor may not pay a loan originator 1 percent of the amount of credit extended for amounts greater than $300,000, and 2 percent of the amount of credit extended for amounts that fall between $200,000 and $300,000. However, a creditor could choose to pay a loan originator 1 percent of the amount of credit extended for each loan, but no less than $1,000 and no more than $5,000. In this case, the originator is guaranteed payment of a minimum amount for each loan, regardless of the amount of credit extended to the consumer. Using this example, the creditor would pay a loan originator $3,000 on a $300,000 loan (i.e., 1 percent of the amount of credit extended), $1,000 on a $50,000 loan, and $5,000 on a $900,000 loan. A safe harbor to facilitate ANTI-STERRING compliance . The safe harbor is met if the consumer is presented with loan offers for each type of transaction in which the consumer expresses an interest (that is, a fixed rate loan, adjustable rate loan, or a reverse mortgage); and the loan options presented to the consumer include:
(A) the loan with the lowest interest rate for which the consumer qualifies;
(B) the loan with the lowest total dollar amount for origination points or fees, and discount points, and
(C) the loan with the lowest rate for which the consumer qualifies for a loan without negative amortization, a prepayment penalty, interest-only payments, a balloon payment in the first 7 years of the life of the loan, a demand feature, shared equity, or shared appreciation; or, in the case of a reverse mortgage, a loan without a prepayment penalty, or shared equity or shared appreciation.
The loan originator can present fewer than three loans and satisfy the safe harbor, if the loan(s) presented to the consumer otherwise meet the criteria in the rule.
The key compensation and steering restrictions under the Rule include three basic prohibited practices:
Compensation based on loan terms other than the loan amount.
Compensation from the creditor or other parties if the loan originator is receiving compensation directly from the consumer.
Directing or "steering" a consumer to accept a mortgage loan that is not in the consumer's interest to increase the loan originator's compensation.
The Rule applies to any closed-end consumer loan secured by a dwelling that is subject to TILA, regardless of owner occupancy (e.g., first and second homes) or lien position, including closed-end reverse mortgages. The Rule does not apply to open-end credit (e.g., HELOCs), timeshares, loans secured by real property that do not include a dwelling (e.g., vacant land), and loans that are not otherwise covered by TILA (e.g., business purpose loans).
Importantly, the Dodd-Frank Act amended TILA to provide for expanded liability for violations of the compensation and anti-steering restrictions, including providing for individual liability for loan originators.
High-Cost Mortgages and HOEPA
1/-- the types of loans = closed-end refinances, home equity loans, home improvement loans,,, Purchase money transactions, and HELOCS are added under Dodd-Frank Act.... BUT reverse mortgages were still
2/-- Threshold #1 - The APR Test= when its APR exceeds APOR by more than:
*** 5 percentage points for first-lien transactions;
*** 5 percentage points for first-lien transactions if the dwelling is personal property and the loan amount is less than $50,000; or
*** 5 percentage points for subordinate or junior-lien transactions.
3/-- Threshold #2 - The Points/Fees Test=
when the amount of points and fees paid exceed (@2020) :
*** Five percent of the total loan amount for a transaction with a loan amount of $21,980 or more, or
*** The lesser of 8 percent of the total loan amount or $1,099 for a transaction with a loan amount of less than $21,980.
4/-- Threshold #3 - The Prepayment Penalties Test=
The HOEPA restricts prepayment penalties to the following:
*** You can charge a prepayment penalty more than 36 months after consummation or account opening, and
*** In an amount more than two percent of amount prepaid.
Compliance Requirements for High-Cost Mortgages
After completing the three-prong test, you realize your transaction is a high-cost mortgage. Certain requirements are in place that provide several consumer protections.
Specific Disclosure Requirements
Disclosures must be provided at least three business days prior to consummation or account opening, in writing, and in a form the consumer may keep.
Disclosures must inform the consumer that the loan will NOT be effective until consummation or account opening occurs.
Disclosures must explain the consequences of default.
Disclosures must detail loan terms such as APR, amount borrowed, and monthly payment.
For variable-rate loans, disclosures must explain the maximum monthly payment that may be required under the terms of loan or credit plan.
Restrictions on Loan Terms
Balloon payments: Be careful! Only allowed in these situations:They payment schedule is adjusted to accommodate the consumer's irregular income;The loan is bridge loan (12 months or less) to finance a new home purchase for a consumer selling an existing home;As a creditor, you meet criteria for a small creditor operating in a rural or underserved area, and the loan meets specific criteria with the ATR/QM rule.
Prepayment penalties: Already mentioned above in the third threshold test.
Due on demand features: This is only allowed for acceleration in high-cost mortgages in cases where the consumer commits fraud or makes a material misrepresentation connected to the loan, the consumer defaults on payment, or the consumer's action or inaction adversely affects the security interest for the loan.
Prohibited or Restricted Acts or Practices
Quite a few prohibitions and restrictions exist. It's a good idea to review Sections 1026.32 and 1026.34 of Regulation Z. Here are a few...
As a creditor or mortgage broker, you are prohibited from recommending default on an existing loan to be refinanced by a high-cost mortgage.
Creditors, servicers, and assignees cannot charge a fee to modify, defer, renew, extend, or amend a high-cost mortgage.
Late fees are restricted to four percent of the past due payment, and pyramiding of late fees is prohibited. There are rules for imposing late fees when a consumer resumes making payments after missing one or more payments.
Fees for generation of payoff statements are generally banned, with limited exceptions.
Points and fees cannot be financed (i.e., rolled into the loan amount). However, you can finance closing charges excluded from the definition of points and fees, such as bona fide third-party charges.
You cannot purposely structure a transaction to evade HOEPA coverage (for example, splitting a loan into two loans to divide the loan fees to avoid the points-and-fees threshold.
Negative amortization is prohibited in a high-cost mortgage.
As a requirement, before consummation or account opening, you need to determine the consumer's ability to repay a high-cost mortgage. Different rules exist for closed-end high-cost mortgages and HELOCs that are high-cost mortgages. Make sure to understand these differences that are detailed in Regulation Z, Sections 1026.34 and 1026.43.
Should you make a high-cost mortgage to a consumer, you must receive written certification that the consumer received homeownership counseling from a HUD-approved counselor or a state housing finance authority permitted by HUD.
Counseling topics must include: key terms usually set out in the Loan Estimate, consumer's budget, and the affordability of the mortgage for the consumer.
The counselor cannot be affiliated or employed by your organization.
FTC has issued the Mortgage Assistance Relief Services (MARS) Rule.
It's illegal to charge upfront fees. You can't collect money from a customer unless you deliver - and the customer agrees to - a written offer of mortgage relief from the customer's lender or servicer.
You must clearly and prominently disclose certain information before you sign people up for your services. You must tell them upfront key information about your services, including:the total cost,that they can stop using your services at any time,that you're not associated with the government or their lender, andthat their lender may not agree to change the terms of their mortgage.
If you advise someone not to pay his or her mortgage, you must clearly and prominently disclose the negative consequences that could result. You must warn customers that failure to pay could result in the loss of their home or damage to their credit rating.
Don't advise customers to stop communicating with their lender or servicer. Under the Rule, it's illegal to tell people they shouldn't communicate with their lender or servicer.
You must disclose key information to your customer if you forward an offer of mortgage relief from a lender or servicer. You must give your customer a written notice from the lender or servicer describing all material differences between the terms of the offer and the customer's current loan. You also have to tell your customer that if the lender or servicer's offer isn't acceptable to them, they don't have to pay your fee.
Don't misrepresent your services. Under the Rule, it's illegal to make claims that are false, misleading, or unsubstantiated.
The Rule defines "mortgage assistance relief service" as a service, plan, or program that is represented, expressly or by implication, to help homeowners prevent or postpone foreclosure or help them get other kinds of relief, like loan modifications, forbearance agreements, short sales, deeds-in-lieu of foreclosure, or extensions of time to cure defaults or reinstate loans. The Rule applies whether you work directly with consumers' lenders or servicers to get mortgage relief or you offer services to help consumers do it on their own (for example, by conducting a "forensic audit" or other review of consumers' loan documents). Disclosures you must make in communications with prospective customers
The Rule requires additional disclosures in any "consumer-specific commercial communication" - that is, a letter, phone call, email, text, or the like, directed at a specific person you're soliciting for your service. In every communication you have with prospective customers, the Rule requires that you clearly and prominently disclose three key facts, in these words:
"You may stop doing business with us at any time. You may accept or reject the offer of mortgage assistance we obtain from your lender [or servicer]. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us [insert amount or method for calculating the amount] for our services."
"[Name of your company] is not associated with the government, and our service is not approved by the government or your lender;" and
"Even if you accept this offer and use our service, your lender may not agree to change your loan."
The three disclosures must be presented together. The Rule has specific requirements for presenting these disclosures to prospective customers.
Disclosures you must make when you give customers an offer of mortgage relief from their lender or servicer
Under the Rule, when you give a customer an offer of mortgage relief from their lender or servicer, you have additional disclosure requirements:
You have to give your customer a separate written page that clearly and prominently says "This is an offer of mortgage assistance we obtained from your lender [or servicer]. You may accept or reject the offer. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us [same amount you disclosed upfront] for our services."
You have to give your customer a separate one-page written notice from the customer's lender or servicer that explains all material differences between the offer of mortgage relief you got from the lender or servicer and the customer's current loan. Some examples of differences in loan terms that would be material to customers - and would have to be disclosed - include:the principal balance;the interest rate on the loan, including the maximum rate and any adjustable rates;the number of payments on the loan;how much the customer must pay each month for principal, interest, taxes, and any mortgage insurance;any delinquent payments the customer owes;any fees or penalties; andthe duration of the loan.
If the offer of mortgage relief you get for a customer is a trial loan modification - that is, a loan modification that's temporary - the written notice you give your customer from his or her lender or servicer also must disclose the material terms, conditions, and limitations of this type of relief, including:That it's a trial loan modification and the duration of the trial period;That the customer may not qualify for a permanent mortgage loan modification; andIf the customer doesn't qualify, the likely amount in suspended payments, arrears, or fees the customer would owe once the trial loan modification period ends.
The Rule has specific requirements for presenting these disclosures to customers.
The Rule's Record-Keeping Or Monitoring Requirements
The Rule requires you to keep certain records for at least two years from the date the document is created, generated, or received:
Advertising and promotional materials. You must keep a copy of each substantially different advertisement, brochure, telemarketing script, website, training document, or other material related to the advertising or marketing of your service. You don't have to keep separate copies of documents that have minor, immaterial differences.
Sales records. You have to keep records showing the name, last known address, and telephone number of each of your customers; the services they bought from you; and how much they paid you. You need to maintain records relating only to customers who agree to use your services. You don't have to keep records relating to people who asked about your services, but didn't sign up.
Communications with customers. You must keep copies of all written communications between you and customers that occurred before they agreed to use your service.
Agreements with customers. You must keep copies of all contracts or other agreements between you and your customer.You also must take reasonable steps to ensure that your employees and independent contractors comply with the Rule.