Mortgage Banking Test

In the ongoing dog and pony show here's a review for your NMLS test
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After determining a consumer’s eligibility for a loan and securing an appraisal of the property to secure it, a creditor/loan originator should be prepared to provide a Closing Disclosure reflecting the actual terms of the transaction (12 C.F.R. §1026.19(f)(1)(i)).  This disclosure is required for all closed-end lending transactions that are secured by real property, except for reverse mortgage transactions.
When providing the Closing Disclosure, creditors have a legal obligation to ensure that the consumer receives the disclosure no less than three business days prior to consummation (12 C.F.R. §1026.19(f)(1)(ii)(A)).  A consumer’s receipt of a Closing Disclosure three business days before consummation is intended to give him/her time to review the actual loan costs before entering a binding contract to accept and repay mortgage credit according to the terms of the lending agreement.  If a creditor mails the disclosure, the consumer is considered to have received it three business days after its placement in the mail (12 C.F.R. §1026.19(f)(1)(iii)). Direct delivery of a Closing Disclosure by courier or its transmission via email allows creditors to begin counting the three-business-day waiting period when the delivery is complete or when a consumer transmits an email acknowledging receipt of an electronically transmitted disclosure (Official Interpretations, 1026.19(f)(1)(iii)(2.)).
A new three-business-day waiting period between receipt of the Closing Disclosure and consummation is required in the following circumstances:
·         The APR becomes inaccurate
·         There is a change in the loan product, or
·         The creditor adds a prepayment penalty to the lending agreement
(12 C.F.R. §1026.19(f)(2)(ii))
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Changes that do not trigger a new waiting period are those that are related to non-numeric clerical errors (12 C.F.R. §1026.19(f)(2)(iv)). However, the official commentary suggests that a broader range of errors may trigger a new waiting period since triggering mistakes may include an error that affects other TRID Rule requirements. For example, the CFPB describes an incorrect address on a disclosure as an error that would trigger an additional waiting period since the wrong address could affect proper delivery of the disclosure (Official Interpretations, 1026.19(f)(2)(iv)).
When errors are clerical and corrections to the Closing Disclosure do not trigger a new waiting period, the creditor must allow the consumer to inspect the corrected disclosure during the business day immediately preceding consummation and give a corrected disclosure to the consumer at or before consummation (12 C.F.R. §1026.19(f)(2)(i)).
The TRID Rule allows consumers to waive the three-business-day waiting period between receipt of a Closing Disclosure and consummation when facing a bona fide personal financial emergency (12 C.F.R. §1026.19(f)(1)(iv)).  The requirements for waiving the waiting period are the same as those for waiving the four-business-day waiting period between receipt of a Loan Estimate and consummation.  The request for a waiver must be a written request that describes the financial emergency and that expressly waives the waiting period.  Signatures of all individuals who are primarily liable for the debt are required, and the use of printed forms for waiver requests is prohibited.
The Closing Disclosure is longer than the Loan Estimate, totaling five pages instead of three.  Since it shows the actual costs of a transaction, the Closing Disclosure includes details not found on the Loan Estimate, and instead of summarizing costs and limiting information to entries that will fit onto the model form, creditors may use additional pages if extra space is needed to provide more details. The purpose of a Closing Disclosure is to offer a consumer a statement of the actual costs associated with a residential mortgage.  When regulators examine a creditor’s loan files for TRID Rule compliance, they will compare the actual costs of a transaction with the estimated costs to determine whether variances in estimated and actual costs are within the prescribed tolerances.  If tolerances are exceeded and are not remedied by a refund to the consumer, a violation of the requirement to provide a good faith estimate of closing costs has occurred. There are general rules for preparation of the Closing Disclosure, and they include the following requirements:
·         Use of the model form: creditors must complete a Closing Disclosure using the form found in Appendix H-25 of Regulation Z.
·         Rounding of particular amounts: although the Closing Disclosure lists exact fees for most of the amounts disclosed, rounding to the nearest whole dollar is required when disclosing future payments that may be impacted by events such as interest rate changes, negative amortization, or the prepayment of a loan.
·         Disclosure of percentages: when disclosing the interest rate, points, and the percentage of payments that a borrower will make towards interest over the loan term, creditors must disclose the percentages using up to three decimal places.
·         Disclosure of loan amount: the loan amount is disclosed as an unrounded number, but if the loan amount is a whole number, it must be truncated at the decimal point. For example, if a creditor is lending a consumer $154,000.00, the amount is shown on the Closing Disclosure as $154,000.
(12 C.F.R. §1026.38(t)(3), (4))
Although use of the model Closing Disclosure form is required, limited alterations to the model form are allowed:
·         The model form includes a reference to lender credits on the “Costs at Closing” table on page 1, but removal of the reference is permitted when a transaction does not include lender credits
·         If there are not enough lines on page 2 of the disclosure to show “Loan Costs” and “Other Costs,” more lines may be added. If one page is not sufficient to show all of these costs, additional pages are permitted as long as “Loan Costs” and “Other Costs” are shown on separate pages.
(12 C.F.R. §1026.38(t)(5))
In preparing the Closing Disclosure, creditors must ensure that they:
A.    Cross out all non-applicable information
B.    Use the model form found in Regulation Z
C.    Use only black ink
D.    Round all amounts to the nearest whole dollar
Page one of the Closing Disclosure closely resembles the first page of the Loan Estimate.  The primary difference between the two disclosures is that the Loan Estimate rounds the amounts shown as the “Estimated Total Monthly Payment” and “Costs at Closing,” and the Closing Disclosure discloses these amounts in dollars and cents.
The general information provided on the Closing Disclosure includes some of the same information found on the Loan Estimate, such as the identity of the loan applicant, the address for the property that he/she is purchasing, and the loan type. In addition to this information, the Closing Disclosure includes the date that loan funds will be disbursed, the name and address of the seller, and identification of the attorney or title company that is serving as the settlement agent for the transaction. Note that even though the general information includes the lender’s name, it does not include the lender’s address.
The Closing Disclosure also provides a mortgage insurance case number, shown on the form as MIC#, which is used to identify the policy for mortgage insurance.
In a transaction in which the interest rate is locked and there is no change in the loan amount, the loan terms shown on the Loan Estimate and the Closing Disclosure should be the same.
On both the Loan Estimate and the Closing Disclosure, projected principal and interest payments are shown in dollars and cents.  The Loan Estimate uses rounded numbers to estimate the cost of PMI and escrow payments, but on the Closing Disclosure, the exact amounts for these costs are shown. “Costs at Closing” that are shown on the Closing Disclosure are not rounded, but are shown in dollars and cents.
The Costs at Closing section on page 1 of the Closing Disclosure is comprised of which two subsections?
A.    Cash to Close and Loan Costs
B.    Closing Costs and Cash to Close 
C.    Closing Costs and Other Costs
D.    Loan Costs and Other Costs
Like page 2 of the Loan Estimate, the second page of the Closing Disclosure provides information on “Closing Cost Details,” which are itemized under subsections A-J and divided between separate tables for “Loan Costs” and “Other Costs.” Unlike the Loan Estimate, the Closing Disclosure provides these numbers in dollars and cents.
Other details that only the Closing Disclosure offers are:
·         An indication of whether a particular cost is paid by the borrower, paid by the seller, or paid by others, and
·         An indication of whether a cost is paid at or before closing
·         The format that the Closing Disclosure uses to display closing costs is very different from the format found on the Loan Estimate since it must accommodate this additional information. Unlike the rules for completing the Loan Estimate, those for completion of the Closing Disclosure permit creditors to add lines to the model form and to use extra pages if the model form is not long enough to accommodate a list of all of the costs related to a transaction.
·         Another detail that is found only on the Closing Disclosure is the identification of the settlement service providers that are ultimately receiving the payment for the services performed for a particular transaction (12 C.F.R. §1026.38(f)(2), (3)). Similarly, the table of “Other Costs” identifies the state or county that assesses and receives payments for transfer taxes and property taxes (12 C.F.R. §1026.38(g)(1)).
·         A Closing Disclosure reflects a consumer’s choice of settlement service providers. As a result of these choices, some services that were shown on the Loan Estimate as services for which the consumer may shop will appear on the Closing Disclosure as services for which the consumer did not shop.
·         Most consumers are involved in very few residential mortgage transactions over the course of their lives, and because they do not regularly conduct business with providers of settlement services, they are likely to rely on the recommendations that mortgage lenders offer on SSP lists. Use of a provider recommended by a creditor determines whether the settlement service is shown on the Closing Disclosure under “Services Borrower Did Not Shop For” or under “Services Borrower Did Shop For.”
·         The TRID Rule states that if a consumer is allowed to shop for a settlement service and selects a provider included on the creditor’s SSP list, the Closing Disclosure must list the service as one for which the consumer did not shop (12 C.F.R. §1026.38(f)(2)). Conversely, if a consumer does not choose a service provider included on an SSP list but chooses his/her own, then the consumer-selected provider must be included on the Closing Disclosure as a provider of services for which the consumer shopped (12 C.F.R. §1026.38(f)(3)).
·         As discussed in Module 1 of this course, a consumer’s choice of service providers also impacts the tolerance levels for variances between estimated and actual charges. Based on the reasoning that creditors should know the amounts charged by their affiliates and by service providers that they recommend, the tolerances are lower for affiliated and creditor-recommended providers. Creditors must reevaluate the variances and the permitted tolerances after consumers select their service providers.
As a reminder, these tolerances are:
·         0%: if a consumer chooses a provider that was on the SSP list and that is also an affiliate of the creditor, the tolerance limit is zero.
·         10%: if the service provider chosen by the consumer was on the creditor’s SSP list but is not an affiliate, the tolerance for variances between estimated and actual costs is 10%.
·         Unlimited tolerance: if the provider chosen by the consumer was not on the SSP list, there are no limitations on variances between estimated and actual costs. Even if a consumer uses the services of an affiliate, there are no tolerance limits if the service performed is one that is not required by the lender. For example, if a consumer decides to get an additional appraisal from an appraisal company that is affiliated with the creditor and the extra appraisal is not required by the creditor, variances between estimated and actual costs are not subject to limitations.
(12 C.F.R. §1026.19(e)(3))
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Subsection D in the “Loan Costs” table only includes the origination fees and the settlement services that are designated as “Borrower-Paid” (12 C.F.R. §1026.38(f)(5)). Costs that are seller-paid or paid by others are not reflected in the subtotal. For example, the $1,000 fee for Allen’s closing attorney is not reflected in subsection D because LL Mortgage Company is paying it.
It is also worth noting that the credit report fee is not disclosed in the “Loan Costs” table as a negative number, even though this cost is typically paid prior to closing. Credit for this fee is given on page 3 of the Closing Disclosure as an amount that was “Paid Already by or on Behalf of Borrower at Closing.”
The “Other Costs” found in the “Closing Cost Details” are included in subsections corresponding to those found on the Loan Estimate. These provisions limit the cushion for escrow accounts to 1/6 of the annual property taxes and homeowner’s insurance.  She makes these calculations in compliance with the provisions in RESPA and Regulation X that apply to escrow accounts (12 C.F.R. §1024.17).
“Other” costs listed in subsection H are fees that are not charged by the creditor and not disclosed in any other section of the Closing Disclosure.  Examples that the CFPB cites in its official commentary include all real estate brokerage fees, homeowner’s or condominium association charges paid at consummation, home warranties, inspection fees, and other fees that the creditor does not impose (Official Interpretations, 1026.38(g)(4)(1.)). As discussed in the review of the Loan Estimate, the cost of a consumer’s title insurance policy is listed in Subsection H. Creditors do not require borrowers to purchase an owner’s policy for title insurance, and a parenthetical reference to owner’s title insurance as “optional” is required. The calculations for determining the price of an owner’s title insurance policy are the same calculations that are used to disclose this amount on the Loan Estimate. The calculation is made by adding the full cost of an owner’s policy to the discounted price of simultaneous lender’s coverage and then deducting the full price of the lender’s policy:
$1,000 (owner’s full premium) + $250 (discounted cost for simultaneous lender policy) = $1,250 $1,250 - $500 (full cost for lender policy) = $750
 H and I of “Other Costs” by adding new information on the cost of a home warranty policy that the seller has agreed to purchase  commission/ title owners optional
calculate and disclose the “Total Closing Costs” shown in subsection J by adding the “Total Loan Costs” to the “Total Other Costs” and subtracting lender credits.  The rules that determine which credits are shown as lender credits can be challenging to understand, but in order to calculate the total closing costs correctly, it is necessary to understand these rules. he TRID Rule includes extensive commentary on the disclosure of lender credits.  When lender credits are intended to apply to specific charges, they are disclosed in the “Closing Cost Details” as a fee that is “Paid by Others” and are listed on the same line as the charge that the lender credit is intended to pay (Official Interpretations, 1026.38(f)(1.)). Use of the notation “(L)” next to the amount disclosed indicates that the charge is one that the lender is paying.  For example, subsection B of Allen’s disclosure indicates that the fee for a closing attorney is “(L) $1,000.00.”
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When lender credits are a non-specific or generalized credit, such as a credit to help a consumer with closing costs, they are disclosed in subsection J of the “Closing Cost Details” as a lender credit (Official Interpretations, 1026.38(h)(3)(1.)).
It is easy to be confused about the correct way to disclose lender credits, and a factor that contributes to the confusion is the use of different rules for disclosing lender credits on the Loan Estimate and on the Closing Disclosure. On the Loan Estimate, both specific and non-specific credits are added together and the total amount is disclosed as a “Lender Credit” in subsection J of the “Closing Cost Details” (Official Interpretations, 1026.19(e)(3)(i)(5.)). On the Closing Disclosure, a distinction is made between specific lender credits, which are disclosed as a cost that is “Paid by Others,” and general credits, which are listed in subsection J under “Lender Credits.”
Creditors may use lender credits to refund consumers for charges that exceed the variances permitted for differences between estimated and actual costs. When using this method to address excess charges, the lender credit must include a statement indicating that an increase in closing costs exceeds legal limits by the dollar amount of the excess (Official Interpretations, 1026.38(i)(1)(iii)(A)(3.)). Disclosing and providing a refund for amounts that exceed the established tolerances allows creditors to avoid liability for failing to provide a good faith estimate of closing costs.
For example, assume that the SSP list that a creditor gives to a loan applicant includes the name of an affiliated company for title services. These services include a title search at an estimated cost of $900 and a lender’s title insurance policy at an estimated cost of $500. The actual cost for the title search is $1,200, and the lender’s policy costs $650. Because the consumer chose an affiliated provider from the creditor’s SSP list, the tolerance for variances between estimated and actual costs is zero, and in order to comply with the TRID Rule, the creditor must offer the consumer a refund of $450. The creditor would disclose this amount in subsection J of the “Closing Cost Details,” with the amount and purpose of the credit stated, as follows:
Lender Credits (includes $450 credit for increase in closing costs above legal limit)
Page 3 of the Closing Disclosure shows consumers how creditors calculate the amount of cash needed at closing.  This page also provides an overview of the transaction between a consumer who is financing the purchase of a home and the seller, with space allocated for separate disclosures of the borrower’s transaction and the seller’s transaction. The third page of the disclosure includes a “Calculating Cash to Close” table that provides side-by-side comparisons of estimated and actual closing costs. These costs are divided into one column showing the “Loan Estimate” closing costs and a second column showing the “Final” closing costs. The table’s third column provides a space for a “Yes” or “No” statement that indicates whether the estimated costs changed. These statements must be “more prominent” than the other disclosures that are included on the table. The use of upper case letters and bold font is required to ensure the prominence of this information (Official Interpretations, 1026.38(i)(1.)).
The TRID Rule and its official commentary include guidance and instructions for completing each entry on the table. The particular items included on the table are outlined next.
The first amount disclosed on the “Calculating Cash to Close” table is “Total Closing Costs.” This amount is the sum of the “Total Loan Costs” and “Total Other Costs,” which is shown in subsection J on page 2 of the Closing Disclosure. If an affirmative response indicates that the estimated “Total Closing Costs” changed, the table must include a statement that directs the consumer to the portion(s) of the Closing Disclosure where they can find an itemization of actual fees.
The CFPB provides the example of an increase in an appraisal fee that causes the total closing costs to increase. Since the appraisal fee is found in the subtotal for “Loan Costs,” a statement in the closing cost table must direct the consumer to “See Total Loan Costs (D).” However, if the change in total closing costs is attributed to increased charges for property taxes, transfer taxes, or other items that are disclosed as “Other Costs,” a statement should advise the consumer to “See Total Other Costs (I).” If an increase in total closing costs is attributed to changes in both loan costs and other costs, the narrative text should instruct consumers to “See Total Loan Costs (D) and Total Other Costs (I)” (Official Interpretations, 1026.38(e)(2)(iii)(A)(1.)).
Often, the only closing cost that is paid prior to closing is the fee for a credit report.  While this fee is disclosed as a negative number in the column for “Final” costs, it is always shown in the “Loan Estimate” column of the table as $0 because an estimate of such amount is not disclosed on the Loan Estimate (Official Interpretations, 1026.38(e)(3)(iii)(B)). In transactions in which a consumer is financing a portion of the closing costs, a disclosure of the amount financed is included in the table. In a purchase transaction, the down payment is the difference between a home’s purchase price and the loan amount.
Amounts disclosed as “Funds from Borrower” are not relevant in home purchase transactions. This disclosure applies to transactions in which proceeds from a home loan are used to pay off debt. The amount disclosed as “Funds from Borrower” is calculated by subtracting the principal amount of the credit extended from the total amount of all existing debt being satisfied in the real estate closing. Any amount disbursed to a consumer from the proceeds of a home loan is disclosed in the table as “Funds for Borrower” (12 C.F.R. §1026.38(i)(6)(iii)(C)). The TRID Rule requires disclosure of the deposit or earnest money that a consumer pays in transactions to purchase a home.  If the homebuyer is not paying a deposit, the columns next to this item must show an entry of $0.  Showing $0 in the columns is also required in all transactions other than purchase transactions (12 C.F.R. §1026.38(i)(5)). For example, if a transaction involves a refinance, the amounts shown in the “Loan Estimate” and “Final” columns in the “Calculating Cash to Close” table will be $0. The seller credits that are disclosed on the Closing Disclosure’s “Calculating Cash to Close” table are funds given by the seller to the consumer for closing costs.  These amounts are distinguished from itemized amounts for specific charges that are shown as “Seller-Paid” on page 2 of the Closing Disclosure (12 C.F.R. § 1026.38(j)(2)(v)). The official commentary is very helpful in determining the amounts that are shown as “Adjustments and Other Credits” on the Closing Disclosure. The examples that it provides include:
·         Prorated taxes or homeowner’s association fees
·         Utilities that the seller used but did not pay for
·         Rent that the seller collected for a period that extends beyond the date of closing or consummation
·         Interest on loan assumptions
Amounts included in the table also include generalized credits towards closing costs given by parties other than the seller (Official Interpretations, 1026.38(i)(8)). This may include gifts from others, such as the gift money that Allen received from his mother. Specific credits from parties other than the seller or creditor are shown as “Paid by Others” on page 2 of the Closing Disclosure.
The final items in the “Calculating Cash to Close” table are totals for the cash to close that were shown on the Loan Estimate and the actual or “Final” total that includes seller credits and other adjustments. The remainder of page 3 of the Closing Disclosure provides information on the real estate transaction between a homebuyer and a home seller.  There are numerous rules related to the disclosures found in this section, and there is more than one way to achieve regulatory compliance. The “Summaries of Transactions” shows two tables: one for the borrower’s transaction, and one for the seller’s. The presentation of this information raises a number of obvious questions:
·         In transactions involving a seller, does the TRID Rule require the offer of a Closing Disclosure to the seller, and if so, when is it due?
·         What entity or individual is responsible for providing a Closing Disclosure to the seller?
·         Is the seller permitted to see all of the borrower’s information on the Closing Disclosure?
·         Must the seller receive the same version of the Closing Disclosure that is provided to a consumer?
·         If a separate disclosure for sellers is permitted, may the creditor or the consumer receive a copy of it?
The TRID Rule answers these questions, stating that in a transaction that involves a seller, the settlement agent must provide the seller with disclosures found in the Closing Disclosure that relate to the seller’s transaction (12 C.F.R. § 1026.19(f)(4)(i)). The deadline for providing a Closing Disclosure to a seller is no later than the day of consummation (12 C.F.R. §1026.19(f)(4)(ii)).
The Closing Disclosure that a seller receives does not include information on the borrower’s transaction for a loan. Therefore, many sections of the disclosure that is offered to a seller are left blank.
The omitted information includes:
·         Information related to the creditor’s identity and its contact information
·         Descriptions of the loan product and loan term
·         The loan terms, projected payments, and costs at closing
·         The amount of cash to close
·         Loan calculations, including the total payments, finance charge, amount financed, APR, and total interest percentage
(12 C.F.R. §1026.38(t)(5)(v))
With so much information omitted from the Closing Disclosure that is given to the seller, the CFPB created a modified form that is more practical. This modified Closing Disclosure is located in Appendix H-25(I) of Regulation Z. The two-page modified disclosure summarizes the seller’s transaction, provides contact information for the real estate broker involved in the transaction, and lists any “Loan Costs” or “Seller Costs” that are seller-paid.
Despite the separation of seller and consumer information, disclosures related to seller credits and to seller-paid “Loan Costs” and “Other Costs” must remain on the Closing Disclosure that is provided to a consumer.
The settlement agent must provide disclosures that relate to the seller's transaction to the seller no later than:
A.    Seven days prior to consummation
B.    Five days following consummation
C.    Three business days prior to consummation
D.    The day of consummation
Like the Loan Estimate, the Closing Disclosure provides additional disclosures that were formerly offered as separate disclosures.  These include “Loan Disclosures” on page 4, which address particular loan features, and “Other Disclosures” on page 5, that offer more general information. The “Loan Disclosures” on page 4 allow loan originators to check boxes that indicate whether a loan has any of the following provisions and features. The “Loan Disclosures” on page 4 allow loan originators to check boxes that indicate whether a loan has any of the following provisions and features. Negative Amortization (Increase in Loan Amount):negative amortization loans and payment-option loans allow borrowers to pay less than the full amount of interest due and permit creditors to add unpaid interest to a loan’s principal balance.
This type of repayment program was used during the early 2000s as a means of making loan payments affordable during the early years of a loan’s term. These products were available prior to 2007 when rapidly-rising home prices and easy access to mortgage credit lured underqualified consumers into the housing market. The willingness of creditors to make these loans was based on the premise that home equity would rapidly grow as home prices rose, giving borrowers the opportunity to refinance these risky loan products with more traditional mortgages.
Today, negative amortization and payment-option loans are only available to exceptionally well-qualified borrowers. Regulation Z’s Ability to Repay Rule prohibits creditors from offering a consumer this type of loan unless the consumer can demonstrate the ability to make amortizing payments at the loan’s fully-indexed interest rate (12 C.F.R. §1026.43(c)(5)). With these restrictions in place, it is no longer possible to make loan payments more affordable with a negative amortization feature.
The Closing Disclosure must indicate whether a mortgage has a repayment program or payment option that can result in negative amortization. It includes three boxes, and the loan originator should check the appropriate one to indicate whether negative amortization will occur, may occur, or will not occur. The Ability to Repay Rule and the Qualified Mortgage Rule include numerous requirements for transactions involving negative amortization loans, and if a loan allows negative amortization to occur, the loan originator must take steps to ensure that all of these requirements are met. Partial Payments: different creditors have different policies regarding partial loan payments. When lenders or servicers allow partial payments, Regulation Z states that they may handle them in one of three ways: they may apply the partial payment to the loan balance, return the payment, or place the payment in an unapplied funds account where it will remain until the borrower makes additional payment(s) until the amount required for a regular periodic payment is accumulated (Official Interpretations, 1026.36(c)(1)(ii)).
The Closing Disclosure must include a statement indicating whether the lender will accept partial payments and how it will handle them (12 C.F.R. §1026.38(l)(5)). The language on the disclosure reflects the options for partial payments found in Section 1026.36 of Regulation Z, and gives the creditor the opportunity to check a box showing that partial payments are:
·         Applied to the loan balance
·         Held in a separate account until the remainder of the payment is made, or
·         Not accepted
The disclosure also warns that if the loan is sold, the new holder of the consumer’s mortgage debt may have a different policy regarding partial payments.
Security Interest: mortgages are secured debt, and a disclosure on page 4 helps consumers understand that their homes serve as security for their mortgage debt. The Closing Disclosure must state the address of the home that will secure a mortgage and include the following statement: “You may lose this property if you do not make your payments or satisfy other obligations for this loan.”
This statement gives originators an opportunity to explain how a consumer’s failure to meet “other obligations,” such as the payment of property taxes or insurance, may lead to the loss of a home. A quick review of this disclosure is an effective way to initiate a discussion about escrow accounts and to explain how they help to ensure that a borrower has funds set aside to meet the other financial obligations that come with having a mortgage.
The Closing Disclosure includes separate disclosures for consumers who will have an escrow account and for consumers who will not. The disclosures for borrowers who are required to have an escrow account include:
·         A statement that escrow accounts are also known as impound or trust accounts
·         A statement that the creditor may be subject to penalties if it fails to make required payments from the escrow account
·         A statement that, without an escrow account, the consumer would be required to make direct payments for property taxes and insurance
·         A table that shows:
o    The amounts that must be paid into the escrow account during the loan’s first year
o    The estimated amounts that will be due for non-escrowed items during the loan’s first year
o    The amount of the initial escrow payment due at closing, with a reference to the fact that this amount is used to establish a cushion for account shortages
(12 C.F.R. §1026.38(l)(7)(i)(A))
For consumers who will not have an escrow account, the disclosure includes the following information:
·         An explanation of the reason for not establishing an escrow account
·         A statement that the consumer must make direct payments for property taxes and insurance
·         A statement that the consumer may ask the creditor about establishing an escrow account
·         A table showing:
o    The estimated amount that the consumer will pay for property taxes during the first year of the loan term, with a warning that the consumer may be required to pay the taxes in one or two large payments
o    Any fee that the creditor may impose as an “Escrow Waiver Fee”
(12 C.F.R. §1026.38(l)(7)(i)(B))
Page 4 of the Closing Disclosure contains information for borrowers who are required to have an escrow account, including all of the following statements, except:
A.    The consumer must make direct payments for property taxes and insurance
B.    Escrow accounts are also known as impound or trust accounts
C.    Without an escrow account, the consumer would be required to make direct payments for property taxes and insurance
D.    The creditor may be subject to penalties if it fails to make required payments from the escrow account

Under the heading “In the future,” the Closing Disclosure warns consumers that changes in property taxes may lead to a change in the amount of the escrow payments that are due. This disclosure also advises consumers that:
·         Future cancellation of an escrow account is possible, but will mean that the consumer must make direct payments for property taxes and insurance
·         Failure to pay property taxes and insurance has consequences that include legal actions by state and/or federal government, imposition of a requirement to establish a new escrow account, and force-placed insurance
(12 C.F.R. §1026.38(l)(7)(ii)
Page 5 provides a breakdown of total loan costs, additional disclosures, and information that the consumer may use to contact other participants in a transaction, including the lender and settlement agent.  For transactions that involve the sale of a home, contact information for the real estate broker is also included.  “Loan Calculations” table on page 5 shows cumulative loan costs over a loan’s term. The “Total of Payments” and the “Total Interest Percentage” are calculated using the same methods used to compute these amounts for the “Comparisons” table on the Loan Estimate. However, the “Total of Payments” shown on the Closing Disclosure is calculated over the full term of the loan and is not limited to payments made over five years (Official Interpretations, 1026.38(o)(1)).
Calculation of the “Finance Charge” is completed following the requirements of Section 1026.4 of Regulation Z and is disclosed as a total amount.
For guidance in determining the “Amount Financed,” the TRID Rule directs creditors to Section 1026.18 of Regulation Z (Official Interpretations, 1026.38(o)(3)). These regulations define the amount financed as the net amount of credit extended (Official Interpretations, 1026.18(b)). Three numbers are used to calculate the amount financed:
·         The principal loan amount
·         Other amounts that are financed but not included in the finance charge, such as settlement fees paid to a provider that is not affiliated with the creditor or fees for optional credit life or credit disability insurance
·         Any prepaid finance charges that are paid by cash or with a check
Using these three numbers, the amount financed is calculated as follows:
(Principal Loan Amount) + (Financed Items) – (Prepaid Finance Charges) = (Amount Financed)
Page 5 of the Closing Disclosure provides general disclosures Appraisal: the Closing Disclosure reminds consumers that a creditor must provide them with a copy of the appraisal of the property used to secure a loan and that the appraisal copy, which is due at least three business days prior to closing, is provided at no additional cost. This disclosure, like the appraisal-related disclosure in the Loan Estimate, satisfies notice requirements that ECOA and Regulation B create for first-lien transactions and that Regulation Z creates for higher-priced mortgage loans.
Contract Details: this disclosure instructs consumers to refer to their lending agreements to understand the nature and consequences of default, the circumstances in which a creditor may demand early repayment of a loan’s balance, and situations in which a creditor may impose prepayment penalties.
Liability after Foreclosure: millions of homes were lost to foreclosure in the years following the economic crisis that began in 2007. These foreclosures resulted from the purchase of homes at inflated prices during the early 2000s when home values were skyrocketing. Others resulted from home equity loans that were extended on the basis of inflated property appraisals. When the housing market crashed and was flooded with a massive inventory of overvalued properties, both borrowers and lenders sustained huge financial losses. Lenders tried to recover unpaid loan balances by filing actions in court for deficiency judgments. Some states tried to protect consumers with the adoption of anti-deficiency laws. These laws prohibit first-lien creditors from seeking to recover the difference between an outstanding loan balance and the amount secured from a foreclosure sale. Usually, the protection of anti-deficiency laws is limited to consumers who have lost their primary residence in a foreclosure action.
The fifth page of the Closing Disclosure includes a statement about potential liability for an unpaid loan balance in the event that a foreclosure occurs. Loan originators will need to know whether the applicable state law permits or prohibits deficiency judgments so that they can check the correct statement regarding liability after foreclosure.
Refinance: like the Loan Estimate, the Closing Disclosure includes a statement advising consumers that the future refinancing of a mortgage is not guaranteed and will depend on factors that include a borrower’s eligibility for a new loan, valuation of the property securing the loan, and market conditions.
Tax Deductions: the Internal Revenue Service has numerous rules on the deduction of interest paid on a mortgage loan. A disclosure on page 5 warns consumers that they cannot deduct interest payments if a loan’s balance is greater than the value of the home securing the loan. This disclosure also advises consumers to consult with a tax advisor The Closing Disclosure must provide a street address, email address, and phone number for each of the participants in a lending transaction, including the lender, mortgage broker, real estate broker, and settlement agent.  Generally, the TRID Rule does not permit modifications of the model form, and if participants listed on the form are not involved in a particular transaction, the spaces next to these providers should be left blank. Use of the phrase “not applicable” or the designation “N/A” is not permitted.
Despite the general rule against alterations of the disclosure form, the CFPB’s official commentary states that creditors and originators can make minor changes to the table containing contact information.  When space is needed to list additional participants, they can omit unused columns to create space for listing relevant participants.  For example, if a transaction involves two real estate brokers, but no mortgage broker, the mortgage broker column may be eliminated in order to accommodate information for both real estate brokers.  The use of a separate page to add additional contact information that will not fit on the model form is also permitted when the space provided on the Closing Disclosure is insufficient (Official Interpretations, 1026.38(r)(1.)).
When completing the table of contact information, legal names of participants are required. However, abbreviations are allowed when they are sufficient to allow a consumer to identify the entity named. For example, in the fictitious lending transaction, the loan originator may identify LL Mortgage Company as LL Mortgage Co., but use of an abbreviation such as LLMC would probably not be permitted (Official Interpretations, 1026.38(r)(2.)).
The “Contact” listed on the form must be the individual who interacts most frequently with the consumer and who has an NMLS unique identifier (Official Interpretations, 1026.38(r)(6.)). The address for natural persons such as loan originators must be the address of the location where they are employed rather than a general corporate headquarters address (Official Interpretations, 1026.38(r)(3.)).
The listing of NMLS numbers is required for all participants in a transaction. If the entity or individual does not have an NMLS number, the license ID number provided by the state regulatory or licensing authority must be provided.
A separate block of information instructs consumers to use the listed contacts to obtain additional information about the loan or to contact the CFPB with questions or complaints.  This block of information is designated with a “prominent question mark” that must be “substantially similar” in size and location to the question mark shown on the model disclosure. Creditors are not required to confirm a loan applicant’s receipt of a Closing Disclosure with a signature, but if they request one, they must include the following statement above the signature line: “By signing, you are only confirming that you have received this form. You do not have to accept this loan because you have signed or received this form” (12 C.F.R. §1026.38(s)(1)).  If no signature is required, the Closing Disclosure must include an additional entry under “Other Disclosures” which states that receiving a disclosure and signing a loan application do not constitute an obligation to accept the loan that the creditor offers. Most loan originators are painfully familiar with the problems that delay closings, even after closing dates are set and Closing Disclosures are delivered. Common obstacles include:
·         Discovering that a title is not clear
·         Findings during a home inspection or a final walk-through that signal problems in the transaction between the homebuyer and the seller
·         Errors in closing documents, ranging from misspelled names of the parties to inaccurately disclosed loan costs
·         Unexpected problems with the valuation of the real estate that will secure the mortgage
·         Last-minute requests by loan applicants or sellers
Any of these problems is likely to cause delays in bringing a loan applicant and a lender to the closing table. When a rate-lock period is winding down, delays become matters of increasing concern. If a Closing Disclosure becomes inaccurate due to factors such as an expired rate-lock, the need for revised disclosures arises once again.

The TRID Rule requires corrections to Closing Disclosures after the consummation of a loan. The corrections are required for:
·         Inaccuracies related to post-consummation events
·         Clerical errors
·         Payment of refunds
The regulatory requirements for making these post-consummation corrections to closing disclosures are discussed in the following paragraphs.
The requirement to correct inaccuracies related to a post-consummation event only applies when the event:
·         Occurs within 30 days after consummation
·         Creates an inaccuracy in the Closing Disclosure, and
·         Causes a change in the amount “actually paid” by the borrower or paid by the seller
When each of these three requirements for delivering a post-consummation Closing Disclosure is met, a corrected disclosure is due no later than 30 days after obtaining information that establishes the inaccuracy (12 C.F.R. §1026.19(f)(2)(iii)).
A review of the preamble to the TRID Rule and the CFPB’s official commentary shows that the “events” that trigger post-consummation disclosures involve the discovery of information which reveals an inaccuracy on the final disclosures. For example, during the rulemaking proceedings, participants from both the primary and secondary mortgage markets reported that many recorder’s offices have a backlog of work that delays the recording of deeds and mortgages for several months (78 Fed. Reg. 79880). In these circumstances, learning that the exact amount of a recording fee does not match the amount that a consumer “actually paid” is an “event” that will necessitate a revised Closing Disclosure.
Despite evidence that the exact amount of some fees, such as recording fees, may not be known with certainty until more than 30 days after consummation, the CFPB did not extend the period of time for providing corrected post-consummation disclosures beyond 30 days.  However, as discussed in a subsequent section, if the discovery of an inaccurate cost disclosure necessitates a refund to the borrower, a revised Closing Disclosure is also required.
However, as discussed in a subsequent section, if the discovery of an inaccurate cost disclosure necessitates a refund to the borrower, a revised Closing Disclosure is also required.
When a transaction involves a seller, and information identified after consummation shows that the amount actually paid by the seller was not the amount shown on the Closing Disclosure, the settlement agent (not the creditor) must send the seller a corrected disclosure within 30 days of discovering the error (12 C.F.R. §1026.19(f)(4)(ii)).   The CFPB cites the example of a transaction in which the seller agrees to pay a nuisance abatement assessment that was not included on the Closing Disclosure.  The settlement agent must revise the Closing Disclosure and deliver or mail the corrected disclosure no later than 30 days after discovering the inaccuracy.
Creditors have 60 days to correct non-numeric clerical errors on Closing Disclosures.  When non-numeric clerical errors are corrected within 60 days of consummation, there is no violation of the requirement to provide a Closing Disclosure that shows the actual terms of a transaction (12 C.F.R. §1026.19(f)(2)(iv)). If a consumer pays more for closing costs than the amount stated in the Loan Estimate, and if this amount exceeds permitted tolerances, the creditor is not in violation of the requirements to provide a Loan Estimate with a good faith estimate of costs and to provide a Closing Disclosure with a statement of actual costs if it:
·         Refunds the excess amounts paid no later than 60 days after consummation, and
·         Delivers or mails a corrected Closing Disclosure no later than 60 days after consummation (this corrected disclosure will disclose the refund amount as a “Lender Credit,” followed by a statement that the amount is a credit for an increase in closing costs above the legal limit)
(12 C.F.R. §1026.19(f)(2)(v))
The need to provide a refund is most likely to occur when the inaccurate fee is for an amount that is subject to a zero tolerance for variances between estimated and actual costs. For example, no variance is allowed for differences between estimated and actual costs for transfer taxes. The ability to correct an inaccurate disclosure of estimated costs with refunds and the ability to correct an inaccurate disclosure of actual costs with a corrected Closing Disclosure is a good reason for creditors to conduct post-closing reviews of loan files. With 60 days to provide refunds and send corrected disclosures, creditors have a reasonable opportunity to identify mistakes and correct 
In order to avoid liability if a consumer pays closing costs in excess of the permitted tolerances, a creditor must refund the excess amount and deliver a corrected Closing Disclosure within:
A.    45 days of realizing excess costs were paid
B.    30 days of consummation
C.    60 days of consummation 
D.    10 days of realizing excess costs were paid
The first page of Allen’s Closing Disclosure contains an entry next to MIC#, which is the:
A.    Mortgage insurance case number
B.    Mortgage interest closing number
C.    Monthly increased costs number
D.    Monthly initial charge number
Which of the following is included in the Loan Terms section of Allen’s Closing Disclosure?
A.    Loan product
B.    Loan purpose
C.    Loan type
D.    Loan amount 
Why was the pest inspection fee on Allen’s Closing Disclosure not subject to any tolerance limits?
A.    LL Mortgage Company chose the provider
B.    Allen chose the provider
C.    Pest inspection fees are not subject to tolerance limits
D.    The provider was not affiliated with LL Mortgag

Because Allen was allowed to shop for a home inspector and chose an unaffiliated provider that was named on the SSP list, the home inspection fees were subject to a:
A.    Zero tolerance
B.    5% tolerance
C.    25% tolerance
D.    10% tolerance 

Information excluded from the seller’s version of the Closing Disclosure includes:
A.    The name of the borrower
B.    A description of the loan product 
C.    The name of the real estate broker
D.    The total due to the seller at closing

A Closing Disclosure is required for all closed-end lending transactions that are secured by real property, except for:
A.    Reverse mortgages
B.    Refinances
C.    Purchases
D.    Adjustable-rate mortgages

A creditor must ensure a consumer receives the Closing Disclosure no less than ______ business days prior to consummation.
A.    Three
B.    Seven
C.    Four
D.    Ten
Total Closing Costs shown in subsection J of page 2 of the Closing Disclosure are calculated by adding the Total Loan Costs to the Total Other Costs and subtracting:
A.    Costs paid outside closing
B.    Lender credits 
C.    Insurance charges
D.    Origination charges

Before the CFPB created single integrated disclosures for estimated and final closing costs, the rules for disclosing loan costs were divided between Regulations X and Z. When the CFPB rewrote these rules, it consolidated RESPA and TILA disclosure requirements in the TRID Rule, which is located in Regulation Z.
Although the disclosure rules found in Regulation X no longer apply to closed-end loans, they are still relevant to transactions for reverse mortgages.
In reverse mortgage transactions, loan originators must continue to disclose settlement cost estimates on a Good Faith Estimate (GFE) and actual costs on a HUD-1 Settlement Statement. A review of RESPA’s disclosure requirements is beyond the scope of this course, but one topic that is addressed is the ability of loan originators to issue a revised GFE.
There are similarities between RESPA’s rules for revising GFEs and TRID’s rules for revising Loan Estimates. For both, there are permitted tolerances for differences between actual and estimated costs and limited circumstances in which changes to estimated costs are permitted. Following is a review of RESPA’s tolerances and rules for revising GFEs.
Changes between estimated and actual charges are prohibited for:
·         Origination charges
·         Charges for locking an interest rate, and
·         Transfer taxes
There is a 10% tolerance for differences between the total amount of actual and estimated charges permitted for:
·         Lender-required settlement services performed by a provider chosen by the lender
·         Lender-required services and title and insurance services if the loan applicant uses a provider recommended by the lender, and
·         Recording fees
Estimates for other settlement services are not subject to a tolerance limit and may change (12 C.F.R. §1024.7(e)).
Revised GFEs are permitted in the following circumstances:
·         Changed circumstances affecting settlement charges:if changed circumstances cause the amounts stated on the GFE to exceed permitted tolerances, the creditor may issue a revised GFE. Changed circumstances include:
o    Acts of God, war, and other emergencies
o    Changes to or inaccuracies in information the lender relied on when preparing the GFE
o    New information about the borrower or the transaction
·         Changed circumstances affecting the loan: changed circumstances affecting eligibility may include events that impact a consumer’s eligibility for a mortgage, such as loss of employment
·         Borrower-requested changes: revisions to the GFE are permitted when borrower-requested changes actually result in an increase in estimated costs
·         Expiration of the GFE: like Loan Estimates, GFEs have a 10-day expiration period, unless the parties to a transaction agree to a longer period for the loan applicant to indicate an intent to proceed
·         Interest rate-dependent changes: if a loan applicant has not locked the interest rate or if a locked rate expires, a revised GFE showing loan terms related to the interest rate is permitted
(12 C.F.R. §1024.7(f))
When providing a revised GFE, there is a 10% tolerance for differences between the total amount of actual and estimated charges permitted for:
A.    Recording fees 
B.    Charges for locking an interest rate
C.    Origination charges
D.    Transfer taxes

The _________ is a measure of the cost of credit, expressed as a yearly rate.
A.    Annual percentage rate
B.    Loan amount
C.    Simple rate of interest
D.    Finance charge

The _________ is the cost of credit as a dollar amount.
A.    Finance charge 
B.    Simple rate of interest
C.    Annual percentage rate
D.    Loan amount

Which of the following fees would be included in the finance charge?
A.    Appraisal fee
B.    Credit report fee
C.    Loan origination fee 
D.    Title insurance fee
Advertising a minimum periodic payment triggers the requirement to include a statement, if applicable, that which of the following may result?
A.    A balloon payment
B.    Default
C.    A prepayment penalty
D.    Negative amortization 

It is permissible for a lender to include which of the following in an advertisement?
A.    A reference that the lender may serve as the borrower’s counselor
B.    A claim that a particular loan product will result in total debt elimination
C.    Information about a loan product that is available to reasonably qualified applicants 
D.    Language that the lender is endorsed by the government when it is not

The Gramm-Leach-Bliley Act (GLB Act) is a federal law that recognizes that each financial institution has “an affirmative and continuing obligation to respect the privacy of its customers and to protect the security and confidentiality of those customers’ nonpublic personal information” (15 U.S.C. §6801(a)).  Regulation P, which implements the GLB Act, defines nonpublic personal information as personally identifiable financial information that is not publicly available (12 C.F.R. §1016.3(p)).
The GLB Act applies to a broad range of financial institutions that provide financial products and services, but this course will review provisions strictly within the context of mortgage lending transactions.
The GLB Act protects the privacy of nonpublic personal information that is provided by individual “consumers” and “customers,” and extends the highest level of protection to customers. In home loan transactions, a consumer becomes the customer of a mortgage lender or broker when he/she enters into an agreement in which the lender or broker agrees to arrange or broker a mortgage loan for the borrower (12 C.F.R. §1016.3(j)(2)(i)(F)).
When a customer relationship is established with a loan applicant, the first requirement under the GLB Act is to provide the applicant with a “clear and conspicuous notice” that describes the lender’s or broker’s privacy policies and practices. This initial privacy notice is due at the time that a customer relationship is established. Generally, a consumer who is shopping for a mortgage establishes a customer relationship with a lender or broker when submitting a loan application.

There is an exception to the timing requirement for providing an initial privacy notice when:
·         Providing a privacy notice at the time that the customer relationship is established would “substantially delay” the transaction, and
·         The customer agrees to receive the notice at a later time
When a loan applicant agrees to avoid transaction delays by receiving an initial notice at a later time, the notice is due within a reasonable time. Note, however, that if a customer relationship is established face-to-face or online, loan originators must provide an initial notice immediately, since offering it in these circumstances would not delay the transaction (12 C.F.R. §1016.4).
Any mortgage lender or broker that intends to disclose nonpublic personal information to nonaffiliated third parties must offer an opt-out notice with the initial privacy notice.  The opt-out notice must include a description of the type of information that the financial institution may disclose and a “reasonable means” for opting out. Consumers may exercise their right to opt out by:
·         Calling a toll-free number or mailing an opt-out form within 30 days of the date that the opt-out notice was mailed, or
·         Opting out electronically within 30 days of receiving privacy notices online
(12 C.F.R. §1016.10(a)(3))
If a financial institution revises its privacy policy, it must issue a revised privacy notice that includes a new opt-out notice and a reasonable opportunity to opt out. For example, if a lender issued an initial privacy policy describing particular nonaffiliated parties with which it intends to share personal information and subsequently decides to share information with a third party that was not described in the original notice, it must issue a new notice to its customers before sharing the information (12 C.F.R. §1016.8).
Regulation P does not require mortgage lenders and brokers to provide opt-out notices when giving consumers’ personal information to third party settlement service providers which is used to provide services requested or authorized by the consumer (12 C.F.R. §1016.14(a)(1)). There are a number of times during a lending transaction when a loan originator will provide personal information to third parties. For example, a loan originator must give a customer’s Social Security number to a consumer reporting agency in order to obtain a credit score, and if a lender uses a third party for underwriting, it will pass on all of the information contained in a loan application.
Mortgage lenders and brokers must conduct due diligence to determine that the third party service providers on which they rely are using appropriate measures to protect the privacy and confidentiality of personal information. The failure to conduct due diligence can lead to liability if a third party provider releases a customer’s personal information.
Lenders are relieved of the obligation to provide privacy notices when:
·         Selling the servicing rights to a mortgage, and
·         Selling a loan in the secondary mortgage market
(12 C.F.R. §1016.14(a))
Regulation P includes a “special rule for loans” that states that the customer relationship transfers with the servicing rights when servicing rights are transferred to another lender or loan servicer (12 C.F.R. §1016.4(c)(2)).
There are five elements that a security program must include in order to comply with the Safeguards Rule. These include:
·         Designating an employee or employees to coordinate the security program
·         Identifying reasonably foreseeable internal and external risks to security
·         Designing, implementing, and testing security programs
·         Overseeing third party service providers by ensuring that they are able to safeguard the privacy and confidentiality of consumer information, and entering contractual agreements for them to maintain appropriate safeguards, and
·         Evaluating and adjusting security programs to address any changes that may have a material impact on the effectiveness of the programs
(16 C.F.R. §314.4)
In addition to integrating these five elements into a security program, financial institutions must implement specific safeguards that are appropriate to their size and complexity, the nature and scope of their activities, and the sensitivity of customer information they maintain (16 C.F.R. §314.3(a)).
n 2003, Congress readdressed the protection of personal information when it directed federal regulators to adopt rules for the safe disposal of personal information that is derived from consumer reports, such as credit reports (15 U.S.C. §1681w). Congress included this directive in the Fair and Accurate Credit Transactions Act (FACTA), and the FTC and other regulators responded with their promulgation of the FACTA Disposal Rule.
Activities that are subject to the Disposal Rule are not limited to the discarding of information. The Rule also applies to the sale or transfer of computer equipment, upon which consumer information is stored (16 C.F.R. 682.1(c)(2)).
 resources on, which is maintained by the FTC. Consumers have ethical and legal obligations to provide truthful and accurate information on identity theft reports, and may face criminal penalties for filing false information (15 U.S.C. §1681a(q)(4)(C)).
Congress enacted ECOA in October 1974, the law focused solely on gender-based discrimination. amending ECOA in 1976 to prohibit discrimination on the basis of race, color, religion, national origin, age, receipt of public assistance income, or the good-faith exercise of rights under the Consumer Credit Protection Act. In addition to extending the scope of ECOA, the 1976 amendments strengthened the law by adding a provision that authorized the Attorney General to bring an action to address a pattern or ongoing practice of discrimination. Home Mortgage Disclosure Act. The primary purpose of HMDA is to ensure that all creditworthy consumers have equal access to mortgage credit.
When enacted, HMDA responded to another need that became apparent during the Congressional hearings related to ECOA. Most of the testimony about creditors’ discrimination against women was anecdotal because creditors were not required to collect data on the personal characteristics of individuals whose loan applications were approved or denied. As discussed in a later section of this course, HMDA requires the collection of data so that federal regulators can make a fact-based determination of whether lenders are conducting business in compliance with ECOA and other fair lending laws.
 ECOA include those against:
·         Disparate treatment
·         Discouragement
·         Discriminatory effects
ECOA encourages creditors to self-test their lending programs to determine if any of their employees are using discriminatory lending practices. 
disparate treatment, using different standards for determining whether to offer a loan to a member of a protected class is the most obvious form of discrimination.  The official commentary to Regulation B offers several examples of disparate treatment.
Regulation B clarifies that prohibited practices under ECOA are not limited to blatant acts of discrimination.  Creditors are also prohibited from making “any oral or written statement, in advertising or otherwise, to applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application” (12 C.F.R. §1002.4(b)).  
 policy or practice has a discriminatory effect if it has a disproportionately negative impact on members of a protected class (Official Interpretations, 12 C.F.R. §1002.6(a)(2.)).  An example of a policy with a discriminatory effect is offering home loans only to consumers with credit scores of 740 and above.  Limiting mortgages to consumers with higher credit scores may have the effect of preventing members of a protected class from having access to mortgage credit. Regulation B implements ECOA’s general prohibitions by prohibiting certain inquiries during the loan application process and restricting the factors that lenders may consider when deciding whether to extend credit to a loan applicant. egulation B lists many factors that creditors are prohibited from considering when evaluating the creditworthiness of a loan applicant. These prohibited considerations include:
·         Age:despite the prohibition on inquiries about age, inquiries are permitted when a creditor needs to determine whether a loan applicant is old enough to enter a binding contract. Asking older loan applicants for their age is permitted when age is:
o    A variable that is used in a credit scoring system, such as the system developed by FICO, to evaluate creditworthiness
o    Used in a non-scoring system in which prior experience with applicants of a similar age is used to evaluate creditworthiness
o    A favorable consideration
·         Potential to have children: creditors are prohibited from making assumptions and from using aggregated statistics to determine the likelihood that a person will have children, or will receive less or “interrupted” income as a result of having or raising children.
·         Income sources: ECOA prohibits income discounting based on the sex of the loan applicant. It also prohibits income discounting because the income is from part-time employment, retirement benefits, an annuity, or pension. However, creditors may consider the “probable continuance” of income (as long as childbearing is not a consideration), and if an applicant is relying on alimony and/or child support to establish loan eligibility, creditors may consider the likelihood that these payments will be consistent.
·         Race, color, religion, national origin, and sex: creditors are absolutely prohibited from considering these personal characteristics as a basis for determining an applicant’s eligibility for a loan.
·         Marital status: marital status cannot be considered in determining the creditworthiness of an applicant.
(12 C.F.R. §1002.6)
Any mortgage lender or broker that collects and intends to disclose nonpublic personal information to nonaffiliated third parties must offer a(n) _______ notice with the initial privacy notice.
A.    Arbitration
B.    Opt-out 
C.    Exemption
D.    Release
Correct. Any mortgage lender or broker that collects and intends to disclose nonpublic personal information to nonaffiliated third parties must offer an opt-out notice with the initial privacy notice.
Creditors send _________ into lending institutions to apply for mortgage credit in order to determine whether similarly situated applicants are being treated fairly.
A.    Players
B.    Testers 
C.    Samplers
D.    Straw applicants
Correct. Creditors send testers into lending institutions to apply for mortgage credit in order to determine whether similarly situated applicants are being treated fairly.

Which federal law requires the collection of demographic data from consumers so that regulators can monitor lenders’ compliance with fair lending laws?
A.    Homeowners Protection Act
B.    Gramm-Leach-Bliley Act 
C.    Truth-in-Lending Act
D.    Home Mortgage Disclosure Act The Home Mortgage Disclosure Act requires the collection of demographic data from consumers so that regulators can monitor lenders’ compliance with fair lending laws.

Which of the following is not one of the five elements that a security program must include in order to comply with the Safeguards Rule?
A.    Designation of an employee to coordinate the program
B.    Completion of bi-annual training for all employees 
C.    Overseeing of third party service providers
D.    Identification of reasonably foreseeable risks to security
Correct. There are five elements that a security program must include in order to comply with the Safeguards Rule; the completion of bi-annual training for all employees is not required.

In order to prevent and mitigate identity theft, the Red Flags Rule requires mortgage professionals to establish a(n):
A.    Risk Recognition Program
B.    Identity Theft Prevention Program 
C.    Red Flags Detection Program
D.    Consumer Fraud Protection Program
Correct. In order to prevent and mitigate identity theft, the Red Flags Rule requires mortgage professionals to establish an Identity Theft Prevention Program
he specific requirements for meeting the ability-to-repay standards are outlined in the CFPB’s Ability to Repay Rule, which applies to all transactions for home loans except those for open-end home equity lines of credit and timeshare plans (12 C.F.R. §1026.43(a)). The ATR Rule requires creditors to base a determination of repayment ability on a consumer’s:
·         Current or reasonably expected income or assets
·         Employment, if the consumer is relying on income from employment to qualify for a loan
·         Monthly principal and interest payments
·         Payments on simultaneous loans
·         Monthly payments for mortgage-related obligations, such as taxes and insurance
·         Current financial obligations, including alimony and child support
·         Debt-to-income ratio
·         Credit history
What is the name of a simultaneous second mortgage that provides the borrower with funds to make a down payment?
A.    Binary loan
B.    Piggyback loan
C.    Extra loan
D.    Successive loan

he use of false information to enhance an application for a home purchase loan is known as fraud for housing.
When a consumer is financing the purchase of a home and provides false information about its intended use, he/she is committing occupancy fraud. Falsely representing that a house will serve as a primary residence is in violation of the Federal False Statements Act and other federal laws
occupancy fraud known as reverse occupancy fraud.  This type of fraud is used by borrowers who are not likely to secure approval for a home loan due to lower incomes and unestablished credit.  By falsely stating that they are purchasing a home as an investment property, these borrowers use the false promise of rental income as an asset that will help them qualify for a mortgage.  After securing a loan to finance the purchase of a dwelling, participants in schemes for reverse occupancy move into the home and never have tenants.
A gift letter should include a:
A.    Statement that the applicant may use the gift money for any purpose
B.    Description of the donor’s occupation and length of employment
C.    Description of the relationship between the applicant and donor
D.    Statement that the donor expects repayment of the gift money
Regulation C are extensive, and with the elimination of asset-size thresholds for nonbank lenders, the rules apply to many lenders that have not had to comply with HMDA in the past.
Section 8 of the URLA includes information about the loan originator, including the loan originator’s:
A.    Surety bond claim number
B.    Number of years with the company
C.    Residential address
D.    NMLS unique identifier
There are three basic steps in the money laundering process, and they are:
·         Placement deposit illegally-earned funds in a financial institution
·         Layering deposit illegally-earned funds in a financial institution
·         Integration converting illegal funds into seemingly legitimate business earnings. 
What is the term used in the BSA regulations to identify nonbank lenders and mortgage brokers?
A.    Non-depository mortgage companies
B.    Residential mortgage loan originators 
C.    Mortgage loan entities
D.    Regulated lenders and brokers

·         Mandatory reporting: the objective factor that necessitates the filing of a SAR is the occurrence of a transaction of at least $5,000in circumstances in which an RMLO knows, suspects, or has reason to suspect that the transaction:
o    Involves funds obtained through illegal activity
o    Is intended to hide or disguise money or assets derived from an illegal activity
o    Is designed, through structuring or other methods, to evade the reporting requirements of the BSA, or
o    Lacks a lawful purpose or is not the type of transaction in which the customer normally engages, and is one that has no reasonable explanation
The $5,000 trigger for filing a SAR may be based on a single $5,000 transaction or on an aggregated amount of $5,000 (31 C.F.R. §1029.320(a)(2)).
·         Voluntary reporting: BSA regulations state that RMLOs may also file reports of suspicious activities in the absence of the $5,000 trigger if they believe that suspicious transactions may be related to potential violations of the law (31 C.F.R. §1029.320(a)(1)).
The $5,000 trigger for filing SARs is almost identical to the requirement with which banks must comply. In fact, it is the requirement for banks to report suspicious transactions of $5,000 or more that led Buddy to make deposits of less than $5,000 in multiple banking institutions instead of making single deposits of $5,000 or more into one account.
SARs are due no later than 30 calendar days after a suspicious event is detected. If the financing of terrorist activities or ongoing money laundering schemes are suspected, immediate notification to an appropriate law enforcement authority is required and should be followed by the timely filing of a SAR RMLOs that fail to establish an AML program and to report suspicious activities may be held liable for willfully violating BSA requirements.  Willful violations of the law are subject to civil penalties, which are adjusted annually for inflation and typically range from $50,000 to $225,000 per violation (31 C.F.R. §1010.821(b)).  FinCEN has imposed penalties of several million dollars on banks that have failed to establish and follow effective AML programs or to file SARs. These amounts do not create a cap for the penalties, and ongoing violations can result in additional penalties for each day that a violation continues.
RMLOs may be held liable for willfully violating BSA requirements if they fail to:
A.    Establish an AML program or report suspicious activities 
B.    Correctly detect a money laundering scheme
C.    Register with the AML Detection Network
D.    Pay into the AML Recovery Fund
The ATR Rule defines _________ as the sum of periodic payments of principal and interest, any simultaneous loans, mortgage-related obligations, and current debt obligations, including alimony and child support.
A.    Back-end ratio
B.    Total monthly debt obligations 
C.    Aggregate debt
D.    Front-end ratio