Orange County California Plant Nurseries 2016 Alphabetical List
Reviews for variety, cost and advice
Where can I find this plant?
Aki
This nursery located in Irvine is a bit hard to find. They carry a outdoor plants, pots and fountains. If you Google search of Mapquest the location it maps it incorrectly. The nursery is located on Alton south of Sand Canyon right under the large power lines. Palms, succulents, not big variety, but they have expanded on the gravel driveway shade areas to grow an sell more drought tolerant plants in large containers. Prices for succulents are high. This site is close to the Irvine Spectrum. With all the development in the area, expect for them to move to cheaper land
6900 Alton Parkway, Irvine California 92618
Telephone number: (949) 727‑4395 /Monday through Saturday 8 – 5
Paid Delivery
~~~
Anaheim Wholesale Nursery and Landscape Supply
This is a very large nursery. Wear your rubber soled shoes or gardening clogs. Staff is friendly and knoweldgable. The nursery grows their own plants and carries a selection of perennials, trees and shrubs. There is limited “color” annuals and flowers. They carry a few seasonal standards. Because they grow their own you will have less problems with plants committing harikari in your garden. Often nurseries buy from growers who truck in plants that are forced in lightweight medium, have mold that causes damp off as soon as you get them home.
1550 N Glassell St., Orange, CA 92867
Telephone number: 714−282−8501 Monday — Saturday 7 am – 4 pm, Closed Sun
Paid Delivery
~~~
Batavia Gardens
Not to be confused with apartment complex... Family owned not a chain. They care about customers.
This lovley nursery has been open since 1972. They offer a wide range of bedding and landscaping plants and shade plant selections. They also have topiaries, bonzai, pots, vegetables, fruit trees and supplies. Landscape designer, Parry Hamada is on staff.
1730 N Batavia St., Orange California 92865
Telephone number: 714−637−2360 Mon — Sat 8:30 am – 5 pm, Sun 9 am — 4 pm, Closed Tues
Paid Delivery
Founded in the 1950s by the Nakamura family and is still under their ownership. Family owned pride is noticeable when you enter. In addition to annuals and perennials, they carry fruit trees, Japanese maples, camellias, roses and pond plants. There is a gift shop on site.
16440 E Whittier Blvd.,Whittier, CA 90603
Telephone number: 562−947−2013 Open Daily 8:30 am –5 pm
Paid Delivery
~~~
Brita’s Old Town Gardens
The gentleman at the counter who is a retired teacher is willing to share all his gardening secrets if you ask... This is a well stocked and tidy nursery. Prices are low! They specialize in drought tolerant plants and they carry rain collection barrels, pots, soil, fertilizer, gifts and garden supplies. Like most nurseries they have a friendly cat who works with the employees (Cats not an indicator of a master gardener but of one who knows how to control mice)
255 Main Street, Seal Beach, California 90740
Telephone number: (562) 430‑5019 /Mon — Sat 9am — 5pm Sunday 10am — 5 pm
Paid Delivery
~~~
Dana Point Nursery
Otsubo family nursery since 1947. Pricing is high. This is somewhere to buy a gift or plants as flower arrangement. The presentation of succulents in pots and wreaths, bonsais and bedding and landscaping plants is outstanding. Great seasonal gifts in colors- reds for December and February and muted Fall oranges and burgundy. Someone here is an artist at buying and arranging the raised stands. Plenty of bedding flowers, gift items dog leashes and bowls. Dana Point is looking good. The design for Pacific Coast Highway is the stupidest mess of a modern planning department but the nursery seems to survive. (PCH once was one way south and separated by an island north bound - now it so confusing and hard to turn into businesses)
34100 Pacific Coast Highway, Dana Point, California 92629
Telephone number: 949−496−5137 Monday — Saturday 8 am –5 pm, Sunday 9 am — 4 pm
Paid Delivery
~~~
D and M Color
Wholesale only
This little cottage house is a combination gift shop, nursery and garden shop. Succulent arrangements and wreaths, statuary and a small but unusual selection of plants are featured. Not a place to buy many plants to re-do for the season. High prices. Great for gifts, flower arrangement gifts rather than buying from Trader Joe's these items are special.
260 N Glassell St., Orange CA 92866
Telephone number: 714−289−4689 Monday— Friday 10 am –5 pm, Saturday 9 am — 5 pm, Sunday 11 am — 3 pm
no delivery but you can call Eclipse Messenger and they will deliver
This nursery/floral shop (orchids) has been owned by the Chou family since 1986. They specialize in tropical fruit trees – they carry or can find exotic trees. They have some unusual small to medium containers.
400 W Lincoln Ave., Orange, California 92865
Telephone:number 714−637−2060 Daily not Tuesday 8:30 am –5 pm. Closed Tues
Large nursery with good selection of annuals, perennials, shrubs, water plants, patio furniture, unbrellas, flags, garden supplies, irrigation supplies, They have a green house with ferns, a few orchids and African violets. Pond plants in galvanized containers.
23782 Bridger, Lake Forest, California
Telephone number: 949−837−3040 Open 7 days
Paid Delivery
This not the Huntington Library but is a wonderful nursery with lots of variety in a small space. . They have beautiful hanging baskets great for gifts. The owner, Vincent Hakes is very helpful and kind.
19121 Brookhurst St., Huntington Beach, California 92643
Telephone number: 714−963−6522 Monday — Saturday 8 am – 6 pm, Sunday 9 am — 5 pm. Shorter winter hours.
Paid Delivery, Free Delivery with $200.00 purchase.
~~~
Ito Nursery
Gone - family is still watering trees on the lot and will do some landscape work. Lawsuit with the city and Zoomar's petting zoo was the beginning of the end. The City of San Juan Capistrano failed the community and listened to the loud voices of a few special interest persons.
This five acre nursery is fenced vacant located in historic downtown San Juan Capistrano (the oldest road in the state of California runs along their property). The nursery has been owned and operated by Sheree and Doug Ito for 40 years, they are selling trees to local gardeners. Very sad
31825 Los Rios St., San Juan Capistrano, California 92675
Telephone: 949−661−7291
~~~
Laguna Nursery
Gone- this location is/was large street front on Pacific Coast Highway
Takashi "Pete" Kawaratani opened Laguna Nursery in 1948 and owned it for 51 years
Rogers Gardens operated the nursery for a time under the name Haster Grove, Rubin Flores opened in 2007 near the height of the recession. He and partner tried to include: nature walks, history hikes, musical events and wealth of landscape information but the space is so large and rents so high you would need to be selling gold bullion at a discount. The store became more of an antique shop to boost profits.
California environmental protection rules are crazy to small businesses. Nursery owners must now add infrastructure to capture water runoff before it enters storm drains- this would be impossible in this older building.
1370 S. Coast Highway, Laguna Beach,
~~~
Laguna Gardens Nursery
Gone gone gone - oh my heavens so many closed and gone...
Jocelyne and Kevin Naughton owned 30 years lived in rear of property
This charming nursery in Laguna Canyon was family owned since 1986, organic gardeners before it was popular.
~~~
Laguna Hills Nursery
829 N. Tustin Avenue
Santa Ana, California 92705
(714) 542-5600 http://www.lagunahillsnursery.com/
Gary and Nancy Matsuoka's small retail store and farmer's markets keeps them working
~~~
Lakewood Nursery
Three acres plus of a huge variety of plants, fertilizers and equipment you need. Reasonable prices
Large nursery with a big selection of Asian and South Pacific fruit trees, roses, palms and rare bamboos.
2700 W Crescent Ave., Anaheim, CA, 92801
Telephone number: 714−828−0780 Daily 8 am – 5 pm
Paid Delivery
~~~
M and M Nursery
Everything for your tiny cute fairy garden. Those little wheelbarrows do all the work. They carry plenty of supplies, plants and arrangements. Great for miniature enthusiasts and railroaders, They have lots of tiny plants. Children love this place. Take your little ones and hold their hand. They also carry great statues and fountains. Seasonal plants as well
380 N Tustin, Orange, California 92867
Telephone number: 714−538−8042 /9 am – 4:30 pm 7 days a week
Paid Delivery
~~~
Pacific Paradise
This 6 acre nursery is all business. For help, ask for Maria in the retail section. The office is in the middle of the long narrow lot. They have a lot of everything – you might want to call first.
1621 Euclid Ave., Anaheim, CA
Telephone: 714−999−1190 /Mon — Sat 7:30 am – 3:30 pm, Closed Sun
Plant Depot
https://www.plantdepot.com/
Large staff can order plants takes a week or three. I've ordered from Rick and he forgets.
A large nursery that has been owned and operated by the same family for 20 years. They carry perennials, shrubs, trees, water plants, a few California natives, accessories and fountains. There is a huge gift shop that carries seasonal items, cute signs, gifts for gardeners, birdhouses, windchimes and fun things. Annuals shipped in from a variety of local and southern California fields. I bought mature trees and they installed for me. I shop here once a month or more.
33413 San Juan Creek, San Juan Capistrano, California 92675
Telephone number : 949−240−2107 Monday — Saturday 8 am – 5 pm, Sunday 9 am — 5 pm
Interior and house plants with a focus on tropicals. Varieties of bromeliads, orchids from greenhouse and lower water palms, cactus, and succulents. Nice selection of pots. High prices
2972-A Century Place, Costa Mesa, California
Telephone: (800) 698‑1077 Monday-Friday 8am-6pm, Saturday 9am-6pm, Sunday 10am-6pm
Volunteers at Fullerton Arboretum operate a commercial growing nursery on the grounds of the Arboretum. open weekends and special sales- check website GREAT prices
These are not cruddy plants grown in a puppy mill in light nothing soil, they will live!
Telephone: 657−278−3407 Saturday — Sunday 10 am – 4 pm. Closed August
Luxury and full service for the gardener who doesn't get dirt under their finger nails.
Great classes check the website or call always changing
Think florist that arranges huge pots with a special variety of lovely plants.
They deliver potted plants or fountains redesigned to your yard. Landscape for the season such as Fall color or Christmas extravaganza
This is a shopping destination. Spend a couple hours looking and plan your gifts!
2301 San Joaquin Hills Rd., Corona del Mar, California 92625
Telephone: 800−647−2356 9 am – 5 pm, Daily
paid delivery
~~~
This huge seven acre property sells retail as well as grows nursery plants. They specialize in ground cover flats and bedding plants, but they also have an expansive inventory, including sod and planting soil by the yard.
This is a walk back in time. Seaside Growers is hidden away on 2 and 1⁄2 acres, near the 405 freeway in San Juan Capistrano. Drive past one of the few last standing Adobe's in Southern California and there is no plaque or tourists. Owned by the Cassady family since 1995, it is reached via a driveway off Camino Capistrano, which skirts a mobile home park and crosses a rail road track. The grounds feel like Maui. The owner will answer a thousand questions. They moved inventory to more low water but still carry gorgeous palms and tropicals. They also carry succulents, bamboo, wide varieties of shade plants, bananas, citrus trees and more. Worth the find! LOW prices
33773 Camino Capistrano, San Juan Capistrano, California 92624
Telephone: 949−493−7854 Monday — Friday 8 am – 4:30 pm, Saturday 9 am — 4 pm, Closed Sun
Downtown San Clemente not my favorite. It’s been owned by the Carrick family since 1952.
201 S Ola Vista, San Clemente, California 92672
Telephone: 949−942−3526 Monday — Saturday 8 am – 5 pm, Sunday 9 am — 4 pm
Free Local Delivery (with $70 purchase), Paid Delivery
~~~
Stevens Garden
Pots and fountains was the first to carry blue Vietnamese pots when I bought some a century ago and they still look great. If you are buying a large pot - you MUST go here. They have everything tucked in on the hill. Also many fountains and pots that can become dribble fountains. Dream and they will deliver it.
Close to the 5 Freeway
27401 Ortega Highway, San Juan Capistrano, California 92675
Telephone: 949−481−2632 /8 am – 5 pm 7 days a week
Must be my favorite. Take a stroll back 200 years and visit the retail shop in a darling Spanish cottage. They grow California natives on the huge lot. Check out the Saturday Classes. After you go to Stevens keep going on the Ortega just before Casper's Park left hand side.
33201 Ortega Highway, San Juan Capistrano, California 92693
Telephone: 949−728−0685 Monday — Saturday 9 am – 4 pm. Closed Saturday during the summer as is hot and dusty. Call before going on Sat.
Cards Accepted: Mastercard, Visa, American Express
Paid Delivery
~~~
Your child is
going to college this fall with no Financial Aid?
My sister teaches first grade
and her ex-husband is an executive. In their divorce decree (topic I can write
novels about) their attorneys failed to encourage an agreement about college.
This weekend her ex-husband who makes $200000.00 a year and owns four
properties in California informed her he plans to pay zero for his son’s
education. His argument is that son should go to Saddleback; the local
community college, and transfer to U C system.
Here is my analysis of this
choice.
My sister
faces a mountain. Her son is accepted to University of California system <hereafter called UC>. Cost
to live on campus is about $31,000 a year.
Here are my
suggestions:
Son saved
$2100.00 working at Ralphs Grocery store. He can sell his car. He is not
allowed to have a vehicle on campus Freshman year for $1200.
Facts about
Saddleback Community College
Tuition $762
+ $35 registration + books $1630= $2427 year cost X 3 years it takes on average
to finish AA with trade degree not UC classes there due to crowding equals
$7281.
Statistics
show that students who transfer from Saddleback to UC campus’s take three years
to finish the four year college. Then 50% of 3 years at UC system $106000
divided by 50%= $53000
The half
cost her ex owes with his plan is $60,281 total and $15,070.25 a year towards
U C system school.
Although U C
costs $31000 a year or $124000 total, son’s chances of finishing or percentages
of graduating are much higher.
Of students
at community college Saddleback which is highly rated, only thirty five percent
of students get an AA degree. The statistics to the finish line from the
community college pathway are far worse. This is not due to cost. The culture
of community college doesn’t drive students in the same direction as UC system.
16% transfer
to a 4 year university
8% transfer
to UC system
UC system
transfers take 3 years to graduate UC and 50% drop out of the 8%
So 4% of
those Saddleback students graduate from a UC school; not a glowing pathway to
save less than three thousand dollars.
Next piece
of the puzzle is how to pay for the costs. UC takes monthly payments. This breaks
up the burden of a large check in the start of the quarter. There are federal
student loans which offer low interest rates BUT this monkey will heavy on son’s back for about ten years following
graduation, unless he hits a high paying job. Son is planning to study
engineering.
My suggestion
is: look into private money student loans. Why you ask? Because the federal
ones NEVER go away. If for some reason son fails or doesn’t finish there is no
way to release or forgive Federal student loans. When they go into repayment
default the low interest rates jump up to the 19% -20% APR range. I’m not saying
it is a plan to file bankruptcy, but if he becomes seriously ill or disaster
strikes that is a backup plan, assuming she doesn’t cosign.
Discover and
Wells Fargo offer some of the better non-federal student loans with APR rates
in the 11.5% range (choose a fixed rate ). Meanwhile tighten the belt, work
more and sell something. But most of all tell your son you love him, believe in
him and this is fixable.
What grants have you secured?
What fixes do you have to financing college education?
·StudentAid.govis a source to find and apply for
federal grants.
·Fastweb.comsends you personalized options for
grants and scholarships This service
will send emails to parent and student. Remember that when student becomes 18
years old your ability to access college information and scholarships becomes
limited as the child is a legal adult
·StudentScholarshipSearch.comis a free database containing hundreds
of scholarships This website is s time eater. Do NOT pay for any applications.
Write the essays make the deadlines every hundred dollar award is one step
closer to the finish line.
·Scholarships.comlets you customize your search results
based on your profile – also has awards by you heritage or essay or talent. Don’t
you have an uncle who worked for J P Morgan, maybe you qualify for Chase’s $100 grant?
Creditors have the
incentive to originate and fund prime loans and other lower-priced loans that
are qualified mortgages because, in doing so, creditors are conclusively
presumed to have met legal requirements for determining a borrower’s ability to
repay a mortgage (12 C.F.R. §1026.43(e)(1)). In order to secure the
protection from liability that these safe harbor qualified mortgages
offer, many creditors began 2014 with lending programs that focused on the
origination of these loans. Even though the Qualified Mortgage Rule also
offers a rebuttable presumption of compliance to creditors that make
higher-priced qualified mortgages, many chose to reduce lending risks by
limiting their originations to those for safe harbor qualified mortgages.
In January 2014, when new lending regulations became
effective, transactions for conventional mortgages were separated into two
types: those for qualified mortgages and those for non-qualified
mortgages. The underwriting requirements for qualified mortgages are found in
the Qualified Mortgage Rule (QM Rule), and those for non-qualified mortgages
are found in the Ability to Repay Rule (ATR Rule). The ultimate purpose
of both Rules is to ensure that creditors base their lending decisions on “a reasonable
and good faith determination based on verified and documented information that,
at the time the loan is consummated, the consumer has a reasonable ability to
repay the loan, according to its terms” (15 U.S.C. §1639c(a)).
The Consumer Financial Protection Bureau (CFPB) wrote the Qualified
Mortgage and Ability to Repay Rules, and is responsible for implementation and
enforcement of both.
Depository lenders
have additional incentives to limit their originations to those for qualified
mortgages because liability limitations for these loans and the reduced
likelihood of default on qualified mortgages enables them to reduce the amount
of cash reserves that they must maintain to cover future and unanticipated
liability and losses. Module 1 is built around a fictitious lending transaction
that illustrates the steps that loan originators must take to comply with
regulations for the origination of qualified mortgages, and that shows how the
origination of a qualified mortgage can benefit both creditors and consumers.
The downside of
limiting originations to those for qualified mortgages was that many
creditworthy consumers fell just short of meeting the underwriting requirements
for these loans, and creditors were turning away their business.
Furthermore, by restricting lending programs to those for safe harbor
qualified mortgages, creditors were even turning away consumers who were
eligible for qualified mortgages but who had credit blemishes that limited
their loan options to higher-priced mortgages. By the fall of 2014, some
creditors began to expand their lending programs to include the origination of
higher-priced qualified mortgages and non-qualified mortgages.
·First- and subordinate-lien loans
·Loans secured by non-owner-occupied residences (i.e. second
homes and investment properties), as well as loans secured by a borrower’s
principal residence
·Refinances
·Closed-end home equity loans
The only
transactions that are not subject to these requirements are open-end home
equity plans, reverse mortgages, bridge loans with terms of 12 months or less,
construction loans, and loans made by a housing finance agency (12 C.F.R.
§1026.43(a)).
Requirements for a
20% down payment for home purchase transactions have typified lending programs
since the 2007 crash. With the exception of a new product for first-time
homebuyers that is discussed in Module 2, Fannie Mae and Freddie Mac will not
purchase a loan unless the borrower:
·Has made a down payment in an amount that represents 20% of the
purchase price, or
·Has made a smaller down payment and purchased private mortgage
insurance
A maximum debt-to-income ratio of 43%,
calculated in accordance with the guidelines found in Appendix Q
Verification of Sam and Anna’s income and
assets
Calculation of regular and substantially equal
periodic payments using:
The maximum interest rate that may apply
during the loan’s first five years (measured from the date that the first
periodic payment is due), and
Periodic payments that will repay either (1)
the outstanding principal balance over the remaining term of the loan
after the interest rate adjusts to the maximum rate applicable during the
loan’s first five years, or (2) the loan amount over the loan term
(12 C.F.R.
§1026.43(e)(2))
Rule categorically
excludes from the definition of a qualified mortgage include:
·Payment-option loans, or any other type of negative
amortization loan with a payment program that allows borrowers to pay less
interest than the amount that is due with each periodic payment
·Interest-only loans that allow borrowers to defer
payments on the principal loan balance
·Balloon payment mortgages, unless the loan
is made by a small creditor serving a rural or undeserved area (assume that XYZ
Bank does not meet these criteria)
(12 C.F.R.
§1026.43(e)(2)(i))
qualified mortgage
may include a balloon payment if it is made by a small creditor in a rural or
underserved area and the creditor holds the loan in its portfolio for at least
three years after consummation or sells it to another small creditor. These
qualified mortgages must have:
·Substantially equal regular payments that do not result in
negative amortization
·A loan term that does not exceed 30 years
·Points and fees that do not exceed 3% of the loan amount, or
other applicable caps
The underwriting
for balloon payment qualified mortgages must include:
·Analysis of the consumer’s debt-to-income ratio or residual
income
·Analysis of the consumer’s ability to make monthly mortgage
payments (except for the balloon payment) and mortgage-related obligations
based on:
oSubstantially equal
amortizing payments
oA fixed rate of
interest, and
oA loan term of five
years or longer
(12 C.F.R.
§1026.43(f)(1)(iv))
The debt-to-income
ratio used to determine eligibility for a balloon payment qualified mortgage is
not as strict as the analysis used to determine eligibility for a qualified
mortgage without a balloon payment. There is no maximum debt-to-income
ratio for balloon payment qualified mortgages and no residual income threshold
that loan applicants must satisfy. The regulations expressly state that the
debt-to-income ratio for balloon payment qualified mortgages should be
completed without regard to the standards in Appendix Q (12 C.F.R.
§1026.43(f)(1)(i)). Therefore, these loans give mortgage lenders
some additional flexibility when determining a consumer’s eligibility for a
home loan.
Balloon payment
mortgages offer borrowers the opportunity to work with a lender that is not
trying to originate loans that meet the requirements set by an investor that
will purchase the mortgages. For example, a small creditor that holds
loans in its portfolio can set its own requirements for down payments and
private mortgage insurance since it is not selling the loan to an investor such
as Fannie Mae or Freddie Mac. The small creditor has the freedom to
decide how much or how little risk it is willing to assume with a particular
consumer
A small creditor is
defined as one that:
·Made more than 50% of its first-lien closed-end mortgages in
rural or underserved areas during any of the three preceding calendar years
·Originated no more than 500 first-lien mortgages during the
preceding calendar year (including originations by affiliates), and
·Had total assets of less than $2 billion at the end of the
preceding calendar year
(12 C.F.R.
§1026.43(f)(1)(vi))
The CFPB publishes
and annually updates a list of rural and underserved counties. The list is
available on the CFPB website.
A balloon payment
qualified mortgage will lose its qualified mortgage status if the small
creditor sells or transfers the loan within three years of consummation to an
entity other than another small creditor. The loan may retain its qualified
mortgage status if the sale of the mortgage is made pursuant to a capital
restoration plan or pursuant to a merger or acquisition.
The Qualified
Mortgage Rule applies to conventional mortgages; however, when Congress adopted
the Dodd-Frank Act and included a directive for the creation of the Qualified
Mortgage Rule, it did not fail to address non-conventional mortgages. The
law includes provisions directing the Department of Housing and Urban Development
(HUD) and the Department of Veterans Affairs (VA) to “prescribe
rules defining the types of loans they insure, guarantee, or administer…that
are qualified mortgages” (15 U.S.C. §1639c(b)(3)(B)(ii)). In
December 2013, HUD published its final rule for Federal Housing Administration
(FHA) qualified mortgages, and in April 2014, the VA issued its rule for
qualified mortgages.
HUD’s rule for
qualified mortgages became effective on January 10, 2014. This was the same day
that creditors were required to begin originating loans in compliance with the
CFPB’s Qualified Mortgage Rule. There are two important points to understand
about HUD’s Qualified Mortgage Rule:
·Single-family FHA loans are qualified mortgages, and
·There is no firm debt-to-income ratio for FHA qualified
mortgages
Mortgages for
single-family homes that are insured under Title II of the National Housing Act
must meet the points and fees limitations established under the CFPB’s
Qualified Mortgage Rule. Therefore, the 3% cap on points and fees that
applies in most transactions is also applicable to FHA mortgages. HUD has put
significant pressure on FHA lenders to meet the points and fees cap for
qualified mortgages by refusing to insure mortgages that exceed these points
and fees limitations.
HUD’s rule for
qualified mortgages does not include a firm limitation for loan applicants’
debt-to-income ratios. In its proposed rule for FHA qualified mortgages,
HUD explained that it was not planning to adopt the CFPB’s 43% debt-to-income
ratio because doing so would result in “a lower share of safe harbor qualified mortgages
for FHA and would negatively affect borrowers with greater than 43 percent
total monthly debt-to-income ratios” (78 FR 59898). HUD found
support for this position from those who commented on the proposed rule, and
its final rule gives creditors flexibility that is not available under the
Qualified Mortgage Rule for conventional mortgages.
HUD Qualified
Mortgage Rule states that a Title II single-family mortgage is a safe harbor
qualified mortgage if it has an APR that does not exceed the
average prime offer rate for a comparable mortgage, as of the date the interest
rate is set, by more than the combined annual mortgage insurance premium and
1.15 percentage points for a first-lien mortgage (24 C.F.R. §203.19(b)(3)(ii)).
Rule extends a rebuttable
presumption of compliance to FHA single-family mortgages that have an APR
that exceeds the average prime offer rate by more than the sum of the annual
mortgage insurance premium and 1.15 percentage points (24 C.F.R.
§203.19(b)(2)(i)). In order to rebut a presumption of compliance with ability
to repay requirements, the regulations require proof that:
·The points and fees for the loan exceed those allowed for a
qualified mortgage, or
·Even though the mortgage has been endorsed for insurance under
the National Housing Act, the lender failed to make a reasonable and good faith
determination of the borrower’s repayment ability by failing to consider
his/her income, assets, and creditworthiness, as required by HUD regulations
(24 C.F.R.
§203.19(b)(2)(ii))
In addition to
offering more flexible guidelines for debt-to-income ratios, FHA loans are
available to consumers with lower credit scores and less cash for down
payments. With insurance in place to cover losses that may result from a
default, FHA lenders are willing to consider applications from consumers with
lower credit scores, and FHA loans are available to borrowers who can make a
down payment of as little as 3.5% of the purchase price. FHA loans are,
therefore, a good alternative product for creditworthy consumers who cannot
meet the 43% debt-to-income ratio for conventional qualified mortgages or the
higher down payment requirements that conventional lenders expect borrowers to
meet. In other respects, the underwriting for conventional loans and FHA
loans is similar, with requirements in place for verification of income and
assets and for a thorough assessment of repayment ability.
To qualify for a
VA-guaranteed loan, a veteran must meet:
·A debt-to-income ratio of 41%, and
·A residual income analysis
·residual income analysis allows a lender to determine “whether
the veteran’s monthly residual income will be adequate to meet living expenses
after estimated monthly shelter expenses have been paid and other monthly
obligations have been met” (38 C.F.R. §36.4340(e)). VA lenders have some
flexibility in applying these standards as long as they can justify their
decisions. For example, if a veteran’s debt-to-income ratio does not exceed 41%
but the veteran does not satisfy the residual income analysis, a lender may
approve the loan “with justification.”
·On the basis of the similarities between underwriting
requirements for VA-guaranteed loans and qualified mortgages under the
Qualified Mortgage Rule, and due to the fact that differences between the two
lending programs represent the VA’s mission to serve veterans, the VA has
determined that VA- guaranteed loans that are made in compliance with the VA
lending standards are safe harbor qualified mortgages (38 C.F.R.
§36.4300(b)(2)). Direct loans to Native American veterans are also safe harbor
qualified mortgages.
·Appendix Q to Regulation Z provides
additional guidance regarding the verification of employment and income.
The guidelines in Appendix Q are very helpful when a loan applicant like
Sam has an employment record showing that he has not been in his current
position for two years. According to Appendix Q, Lori was required to “verify the
consumer’s employment for the most recent past two full years” (Appendix
Q §I.A.2.a.).
employment
verification may be oral, verification of the amount of income must be written,
and records used for this purpose may include:
·A tax return transcript issued by the IRS
·An IRS W-2 form
·Payroll statements
·Financial institution records
·Employer records
·Records from a federal, state, or local governmental entity
stating the consumer’s income from benefits or entitlements
·Receipts from a check cashing service
·Receipts from a funds transfer service
(12 C.F.R.
§1026.43(c)(4))
employment
verification may be oral, verification of the amount of income must be written,
and records used for this purpose may include:
·A tax return transcript issued by the IRS
·An IRS W-2 form
·Payroll statements
·Financial institution records
·Employer records
·Records from a federal, state, or local governmental entity
stating the consumer’s income from benefits or entitlements
·Receipts from a check cashing service
·Receipts from a funds transfer service
(12 C.F.R.
§1026.43(c)(4))
·The five-year limitation for
determining the impact of rate changes for qualified mortgages and the
unlimited time period for determining the impact of rate changes for
non-qualified mortgages, and
·The ability to take periodic rate
caps into consideration for transactions involving qualified mortgages and the
inability to do so when the transaction is one for a non-qualified mortgage
In the Preamble to the Qualified Mortgage Rule, the CFPB
uses the following example to illustrate the impact of an underwriting analysis
that is limited to the first five years of a loan term:
“The qualified mortgage underwriting rules ignore any
adjustment in interest rate that may occur after the first five years; thus,
for example, for an ARM with an initial adjustment period of seven years, the
interest rate used for the qualified mortgage calculation will be the initial
interest rate.”
(78 FR 6479)
the interest rate
for a 5/1 ARM does not change until 61 months after the first regular periodic
payment is due, a creditor may limit its payment calculations to those based on
the initial interest rate. However, if the rate increases during the
initial 60-month period, the creditor must base payment calculations on that
amount. For example, in the scenario, if the interest rate does not
change until 61 months after the first loan payment is due, XYZ Bank has no
legal obligation to determine whether these borrowers would have the ability to
make payments that are calculated at a higher interest rate at the beginning of
year six of the loan.
must be determined
using:
·Standards established in Appendix Q, and
·The consumer’s monthly payments on:
oThe mortgage that
is the subject of the transaction (the “covered transaction”)
oMortgage-related
obligations, including property taxes, homeowners’ insurance, homeowners’
association fees, mortgage insurance, and
oAny simultaneous
loans that the creditor knows or has reason to know will be made
(12 C.F.R.
§1026.43(e)(2)(vi))
A simultaneous
loan is another covered transaction that is secured by the same dwelling
and made to the same consumer (12 C.F.R. §1026.43(b)(12)).
·Monthly housing expenses: This term is not
defined, but since the Appendix addresses mortgage-related obligations
separately, monthly housing expenses presumably include costs such as those for
principal and interest, property taxes, homeowners’ insurance, mortgage
insurance, and condo association fees.
·Recurring charges lasting 10 months or more: These charges may
include payments on installment contracts, child support, and alimony.
·Debts lasting less than 10 months: These debts must
be included if they affect the consumer’s ability to pay the mortgage during
the months immediately after closing, especially if the consumer will have
limited or no cash assets after closing.
·Revolving charge accounts: Monthly payments
on revolving charge accounts and other open-ended accounts must be included in
the debt-to-income computation, even if they are likely to be paid off within
10 months or less. Note, however, that if a consumer has an outstanding balance
on a revolving account, but no specific minimum monthly payment, the payment
must be calculated as the greater of 5% of the balance or $10.
·Projected obligations due within 12 months of closing: These may include
student loans or balloon payment debts, and they must be included by the
creditor as anticipated monthly obligations during the underwriting analysis.
However, if a consumer can produce written evidence that the debt will be
deferred to a period outside the 12-month timeframe, the creditor does not have
to include the debt in the debt-to-income analysis.
Interestingly,
the 43% debt-to-income ratio for conventional mortgages was adapted from FHA
guidelines. However, when HUD wrote its rule for qualified mortgages, it
decided to use the 43% ratio as a guideline, and not as a rule. HUD
decided against adopting the CFPB’s debt-to-income ratio requirement so as to “remain
consistent with HUD’s mission with respect to underserved borrowers.”[1]
As a result of this decision, FHA loans are a sound product choice for a
creditworthy consumer whose debt-to-income ratio is greater than 43%. FHA
loans also meet lending guidelines for creditors who restrict their
originations to those for qualified mortgages, because rulemaking by HUD has
established that FHA loans are qualified mortgages.
points
and fees for any FHA qualified mortgage cannot exceed 3% of the total loan
amount
following amounts
are the base figures included in the Qualified Mortgage Rule:
·For a loan amount greater than or equal to $100,000: 3% of the
total loan amount
·For a loan amount greater than or equal to $60,000 but less than
$100,000: $3,000
·For a loan amount greater than or equal to $20,000 but less than
$60,000: 5% of the total loan amount
·For a loan amount greater than or equal to $12,500 but less than
$20,000: $1,000
·For a loan amount less than $12,500: 8% of the total loan amount
(12 C.F.R.
§1026.43(e)(3))
This tiered
approach seems confusing because the caps in some tiers are expressed as a
percentage and the caps in others are expressed as a dollar amount. In the
Preamble to the Rule, the CFPB explains that the use of percentage and flat
dollar limits was adopted to avoid “anomalous results at tier margins” (78 FR
6531).
With “points and
fees” defined to include all compensation paid directly or indirectly to these
entities and individuals, the term appears to have very broad coverage.
However, the regulations create exceptions, which include:
·Compensation that a consumer pays to a mortgage broker,
which is already included in the finance charge: The regulations
exclude any compensation that a consumer pays to a mortgage broker because the
law already requires the inclusion of this amount in the finance charge (12
C.F.R. §1026.32(b)(1)(ii)(A)).
·Compensation paid by mortgage brokers to their loan
originators: If compensation is paid by a mortgage broker to a loan
originator that is an employee of the mortgage broker, this compensation is not
added to the points and fees (12 C.F.R. §1026.32(b)(1)(ii)(B)).
·Compensation paid by creditors to their loan officers: Due to the complex
arrangements for loan officer compensation and the difficulties involved in
tracking this compensation to a particular transaction, the CFPB decided to
exclude from points and fees the compensation paid by creditors to their loan
officer employees. Therefore, a bank such as the fictitious XYZ Bank does not
have to identify the exact amount that it pays a loan officer for a particular
transaction (12 C.F.R. §1026.32(b)(1)(ii)(C)).
·Compensation paid by a retailer of manufactured homes to
its employees: If a retail seller of manufactured homes qualifies as a loan
originator, the compensation that a consumer pays to the retailer for loan
origination activities is included in the points and fees calculation. However,
compensation that a retailer pays to its employees is not included (12 C.F.R.
§1026.32(b)(1)(ii)(D)).
Compensation that a
creditor pays to a mortgage broker is the form of loan originator
compensation that is added to the points and fees calculation. By requiring the
addition of mortgage broker compensation that is paid by a creditor to the
points and fees calculation, the Qualified Mortgage Rule discourages mortgage
brokers from accepting additional compensation from a consumer. If compensation
from two sources (dual compensation) is added to the points and fees
calculation, the loan is far more likely to trigger the 3% points and fees
limitation, and the transaction will not result in the origination of a
qualified mortgage.
Although the
scenario’s $1,440 origination fee did not make its way into the points and fees
calculation as compensation paid to a loan originator, it was included in the
finance charge, which is added to the points and fees calculation as discussed
next.
Points and fees
include items that are included in the finance charge, and a look at the
definition of “finance charge” is necessary to identify these items. The term “finance
charge” is defined as the cost of consumer credit as a dollar amount (12
C.F.R. §1026.4(a)). Therefore, many charges associated with a mortgage make
their way into the points and fees calculation as a finance charge.
Finance charges for
a mortgage loan that are included in the points and fees calculation include:
Charges by
creditors: Points and fees include charges that consumers directly or
indirectly pay and that creditors directly or indirectly impose as an incident
to, or a condition of, the extension of credit (12 C.F.R. §1026.4(a)(1)). For
example, XYZ Bank’s $1,440 origination fee is imposed as a condition that Sam
and Anna must meet in order to secure a mortgage.
Charges by third
parties: Charges by any party other than the creditor are included in
the finance charge, which is included in the calculation of points and fees if the
creditor:
·Requires the use of a particular third-party settlement service
provider, or
·Retains a portion of the third-party charge, or the fee is paid
to an affiliate of the creditor
(12 C.F.R.
§1026.4(a)(1))
Most third-party
charges include real estate-related fees such as fees for appraisals,
investigations, credit report fees, and flood hazard determination.
prepayment
penalties are prohibited unless:
·The qualified mortgage has a fixed interest rate
·The qualified mortgage is not a higher-priced mortgage loan, and
·The creditor offers the consumer a comparable alternate loan
without a prepayment penalty
(12 C.F.R.
§1026.43(g))
When prepayment
penalties are allowed, they must not exceed the following percentages of the
outstanding loan balance that the consumer prepays:
·2% for prepayments made during the first two years following
consummation
·1% for prepayments made during the third year following
consummation
·0% for prepayments made three years after consummation
(12 C.F.R.
§1026.43(g)(2))
alternate mortgage
without a prepayment penalty must have:
·The same “type of interest rate” as the mortgage that includes a
prepayment penalty provision
·The same loan term as the term for the mortgage that includes a
prepayment penalty provision
·A payment schedule that does not result in negative amortization
or include a balloon payment
·Points and fees that do not exceed the caps for a qualified
mortgage
The creditor must
also offer the alternate mortgage on the basis of a good faith belief that the
consumer likely qualifies, based on the information known to the creditor at
the time the transaction is offered (12 C.F.R. §1026.43(g)(3)(v)).
Premiums for
optional insurance products such as credit life and credit disability insurance
are excluded from the calculation of points and fees if each of the following
requirements is met:
·The creditor discloses in writing that it does not require the
insurance coverage
·The premium for the initial insurance term is disclosed in
writing
·If the insurance term is shorter than the loan term, this fact
is disclosed in writing
·The consumer signs or initials an affirmative written request
for the insurance after receiving the disclosures
(12 C.F.R.
§1026.4(d)(1))
Borrowers may
achieve price adjustments for their mortgages with the use of discount points.
Borrowers may use discount points to buy down the interest rate that a lender
charges them for a mortgage, and the price for one point is typically 1% of the
total loan amount. For example, if a borrower’s loan amount is $100,000, the
purchase of a discount point would cost $1,000.
Discount points
benefit borrowers by enabling them to lower the interest rate for the full term
of the loan. For this reason, the purchase of discount points is sometimes
referred to as a “permanent buydown.” Another benefit of discount points is
that they are tax deductible. Discount points benefit lenders by enabling them
to earn upfront cash on a mortgage transaction. The definition of points and
fees excludes up to two bona fide discount points paid by the consumer in
connection with a transaction (12 C.F.R. §1026.32(b)(1)(i)(E)).
The rule that
creates an exclusion for third-party charges conflicts with the rule that
requires creditors to include real estate-related fees in the points and fees
calculation. How can one section of the regulations (12 C.F.R.
§1026.32(b)(1)(iii)) include these charges in the calculation of points and
fees while another excludes them? The Official Interpretations address the
confusion, stating, “If a charge is required to be included in points
and fees under §1026.32(b)(1)(iii), it may not be excluded under
§1026.32(b)(1)(i)(D), even if the criteria for exclusion in
§1026.32(b)(1)(i)(D) are satisfied” (Official Interpretations,
§32(b)(1)(i)(D)-3). The Official Interpretations are essentially stating that
the rule for including real estate-related fees in the points and fees
calculation trumps the rule that excludes bona fide third-party charges from
the calculation.
Qualified Mortgage
Rule, the loan is not precluded from being a qualified mortgage if the
following conditions are met:
·The loan meets the underwriting requirements and product feature
prerequisites for a qualified mortgage
·The creditor or the assignee pays the consumer the sum of:
oThe amount by which
the transaction’s total points and fees exceeds the applicable limit, and
oInterest on the
dollar amount paid to the consumer – the interest must be calculated using the
contract interest rate applicable during the period from consummation until the
payment is made to the consumer
·Payment to the consumer is made within 210 days after
consummation of the loan, and before any of the following events occur:
oThe consumer files
an action related to the mortgage
oThe consumer sends
written notice to the creditor, assignee, or servicer stating that the points
and fees exceed the applicable caps
oThe consumer
becomes 60 days past due on his/her mortgage payments
·The creditor or assignee maintains and follows policies and
procedures for post-consummation review of points and fess, and has a policy of
making the required payments to consumers when inadvertent points and fees
overages are discovered
(12 C.F.R.
§1026.43(e)(3)(iii))
cure provisions
are only available for transactions consummated on or after November 3, 2014,
which was the effective date of the provisions. The provisions for curing
inadvertent overages of points and fees are not permanent. The
regulations include a January 10, 2021 sunset provision
temporary
definition of a “qualified mortgage” are covered transactions with all of the
following characteristics:
·The mortgage has all of the product features of a qualified
mortgage
·The mortgage has a loan term of no more than 30 years
·The points and fees for the mortgage do not exceed the 3% cap
for mortgages of $100,000 or more, or the caps established for smaller loans
Qualified mortgage
products do not include:
·Payment-option loans
·Interest-only loans
·Balloon payment mortgages, except for those made by small
creditors in rural areas
Balloon payment
qualified mortgages must:
·Be held in the small creditor’s portfolio for three years
·Meet the points and fees limitations for qualified mortgages
·Not exceed a 30-year loan term, and
·Not include a negative amortization feature
Small creditors
must consider the consumer’s debt-to-income ratio, but loans are not subject to
the maximum debt-to-income ratio of 43%.
Small creditors
must verify a consumer’s ability to make monthly mortgage payments (excluding
the balloon payment), and payments of mortgage-related obligations must be
based on:
·Substantially equal payments
·A fixed interest rate
·A loan term of five years or more
Only small
creditors may originate balloon payment qualified mortgages, and they must:
·Make more than 50% of their first-lien closed-end mortgages in
rural or underserved areas during any of the three preceding calendar years
·Originate (with their affiliates) no more than 500 first-lien
mortgages during the preceding calendar year
·Have total assets of less than $2 billion
Qualified Mortgage
Rule allows creditors to conduct higher-priced covered transactions, which it
defines as a closed-end transaction secured by a dwelling that has an annual
percentage rate (APR) that exceeds the average prime offer rate by:
·1.5 percentage points for transactions involving first-lien
loans
·3.5 percentage points for transactions involving
subordinate-lien loans[1]
Qualified mortgages
include transactions for higher-priced mortgage loans, which are closed-end
transactions secured by a dwelling and that have an APR exceeding the average
prime offer rate by:
·1.5 percentage points for transactions involving first-lien
loans
·3.5 percentage points for transactions involving
subordinate-lien loans
These transactions
offer creditors the protection of a rebuttable presumption of compliance with
ability to repay requirements.
In successful
actions for violations of the Ability to Repay Rule, consumers may recover:
·Actual damages
·Finance charges
·Statutory damages of $400 to $4,000
·Court costs and attorneys’ fees
The three-year
statute of limitations for filing an action is measured from the date the
violation occurred.
A consumer may
assert an ability to repay violation during a foreclosure action and no statute
of limitation applies.
Enforcement relief
may not be available when the loan sold to an investor shows that the
transaction involved:
·Misrepresentations, misstatements, and omissions
·Data inaccuracies related to underwriting and appraisals
·Unacceptable mortgage products, and
·The lender’s failure to comply with the law
No enforcement
relief is available for misrepresentations, misstatements, and omissions when
the misrepresentations involve:
·Three or more loans delivered to Fannie Mae or Freddie Mac by
the same lender
·A common pattern or activity
·A common party
·“Significant” misrepresentations, misstatements, or omissions
Transactions
involving fraud are always subject to repurchase.
No enforcement
relief is available for data inaccuracies that involve:
·Five or more loans
·Data that differs from information in the lender’s loan file
·“Significant” data inaccuracies
Misrepresentations
and data inaccuracies are “significant” if the loan would not be eligible for
sale to Fannie Mae or Freddie Mac without the misrepresentations or
inaccuracies, or would have been eligible for purchase under different terms.
No enforcement
relief is available for mortgage products that are ineligible for purchase by
Fannie Mae or Freddie Mac, and these include:
Interest-only loans
Graduated payment mortgages
Stated-income loans
No-doc loans
Mortgages with a negative amortization feature
Construction mortgages (except for
construction-to-permanent)
Daily simple interest mortgages
Mortgages with prepayment penalties
Reverse mortgages
Balloon payment mortgages
Subordinate-lien mortgages
No enforcement
relief is available for loans involving violations of the law that:
·Impair the ability of Fannie Mae, Freddie Mac, or a loan
servicer to enforce the note
·Result in assignee liability for Fannie Mae or Freddie Mac
·Involve violations of:
oRegulations of the
Treasury Department’s Office of Foreign Assets Control
oThe Fair Housing
Act
oThe Equal Credit
Opportunity Act’s prohibitions against discrimination
oFederal and state
laws against unfair, deceptive, or abusive acts or practices
oThe Securities and
Exchange Act
The GSEs will not
issue repurchase requests for violations of the Ability to Repay Rule unless a
court or a regulator has determined that the creditor failed to comply with the
Ability to Repay Rule when originating the loan.
Non-qualified
mortgages are those that do not meet the product feature prerequisites of a
qualified mortgage.
Regulations for the
origination of non-qualified mortgages are found in the Ability to Repay Rule,
and they require:
·Verification of income and assets with reasonably reliable third-party
records
·Employment verification
·Calculation of the monthly mortgage payment, including payment
on any simultaneous loan
·Calculating the consumer’s other debt obligations, alimony, and
child support
·Calculating the consumer’s debt-to-income ratio or residual
income
Payment
calculations for non-qualified mortgages are based on:
·The loan’s fully indexed rate using:
oThe index
established in the lending agreement
oThe margin set by
the creditor
·Fully amortizing payments that are substantially equal
The lender may not
consider the impact of periodic interest rate caps.
In November 2014,
Fannie Mae and Freddie Mac announced that they will purchase loans with a:
·97% LTV, and
·3% down payment
These loans for
home purchases are available to:
·First-time home buyers (consumers who have not had an ownership
interest in a home during the past three years)
·Consumers purchasing a primary residence
·Consumers who secure private mortgage insurance
·Consumers with a minimum credit score of 620
Requisite loan
terms include:
·Fixed interest rate
·Loan terms that do not exceed 30 years
Fannie Mae and
Freddie Mac will also purchase 97% cash-out refinances if the borrower’s
existing loan is owned by Fannie Mae or Freddie Mac.
Current insurance
requirements for FHA loans are:
1.75% of the loan amount for upfront mortgage
insurance premiums
.85% of the total loan amount for annual
mortgage insurance premiums
Two years after
enacting ECOA, Congress amended the law to expand its protected classes to
include minorities, the elderly, and consumers who receive public assistance
income. Today, ECOA and its implementing regulations prohibit creditors from
making a credit decision based on a loan applicant’s:
·Race
·Color
·Religion
·National origin
·Sex
·Marital status
·Age, as long as the loan applicant is old enough to enter a
contract
·Potential to have or raise children
·Receipt of income from a public assistance program
·Exercise of the loan applicant’s rights under the Consumer
Credit Protection Act
(12 C.F.R.
§§1002.2(z); 1002.4(a))
In addition to its
general prohibition against discrimination, ECOA prohibits inquiries about:
Race
Color
Religion
National origin
Sex
A spouse or a former spouse
Marital status
Birth control, plans for having children, or
ability to have children
Alimony or child support
HMDA inquiries: inquiries regarding race,
ethnicity, sex, age, and marital status are permitted for the purposes of
complying with the Home Mortgage Disclosure Act (HMDA), which
requires data collection in order to monitor and ensure compliance with
fair lending laws.
Inquiries for special credit: creditors may obtain
information about an applicant’s race, ethnicity, religion, sex, or other
protected characteristics in order to determine the applicant’s
eligibility for special-purpose credit, such as a credit assistance
program offered by a not-for-profit organization, or for a federal or
state program to assist the economically disadvantaged.
Request for
title designation: an application
may ask for designation of a title, such as Mr., Ms., Miss, or Mrs., as
long as there is a statement on the form indicating that designation of a
title is optional.
Inquiries about
a spouse:requests for information about a spouse are
permitted when:
The spouse is
allowed to access the credit
The spouse has
contractual obligations related to the extension of credit
The applicant
is relying on the income of the spouse as a basis for repayment
The applicant
lives in a community property state
The applicant
is relying on alimony or child support to secure the loan
Inquiries about marital status: when a credit application
is for secured credit, such as a mortgage, a creditor may inquire about
the applicant’s marital status, using only the terms married, separated,
or unmarried (which includes those who are single, divorced, or widowed).
Inquiries about dependents: though creditors are
prohibited from asking questions about birth control, childbearing, and
childrearing, they are permitted to ask a loan applicant about the number
of his or her dependents and their ages, and about financial obligations
for dependents.
Inquiries about immigration status: creditors are permitted to
ask a loan applicant for information on his or her permanent status or
immigration status.
(12 C.F.R. §1002.5)
·If a creditor takes adverse action on
a loan application due to information provided on a credit report from a
consumer reporting agency, the creditor must include a loan applicant’s credit
score and related information, such as a description of the factors that had an
adverse impact on the applicant’s credit score. This requirement is
imposed by the federal Fair Credit Reporting Act (FCRA),
but the regulations allow creditors to satisfy the requirements of ECOA and
FCRA in a single notice. Sample forms for meeting the adverse action
notice requirement are found in Appendix C of Regulation B.
Violations of ECOA
are also subject to civil actions by individuals and class action groups that
have allegedly been victims of discrimination during credit transactions,
including transactions for mortgage loans.
ECOA authorizes
actual and punitive damages. While actual damages are intended to compensate a
consumer for losses resulting from violations of the law, punitive damages are
intended to discourage creditors from committing future violations. Punitive
damages are limited to:
·$10,000 for individual actions
·The lesser of $500,000 or 1% of a creditor’s net worth in class
actions
(12 C.F.R.
§1002.16(b))
In
response to the civil unrest and racial tensions of the 1960s, President Lyndon
Johnson established the National Advisory Commission on Civil Disorders, also
known as the Kerner Commission. The Kerner Commission issued a report
stating that segregation and inequality were the causes of the nation’s civil
disorders, and that “…both open and covert racial discrimination
prevented black families from obtaining better housing and moving to integrated
communities.”[1] Discriminatory practices were carried out by
real estate professionals, who steered minorities towards segregated
neighborhoods, and by mortgage professionals and lenders, who used race instead
of creditworthiness as the determining factor when deciding whether to approve
or deny an application for a home loan.
[1] Texas
Department of Housing and Community Affairs v. Inclusive Communities Project,
Inc. Supreme Court of the United States No. 13-1371. June 25, 2015. Page 6.
·The statute of limitations for an
individual to file a claim for a violation of ECOA is five years
from the date on which the alleged violation occurred. ECOA claims filed
by the Attorney General and administrative actions initiated by governmental
agencies are also subject to a five-year statute of limitations. Often,
an individual may have no idea that he or she has experienced discrimination or
discouragement. The law gives these individuals another opportunity to
file a private action; this opportunity arises when a federal agency or the DOJ
brings an enforcement action. When individuals learn, as a result of
these actions, that they have a potential claim, they have one year
to file suit. This one-year period is measured from the date on which the
administrative agency or the Attorney General filed an enforcement action (15
U.S.C. §1691E(f)).
[1] For
transactions involving small creditor portfolio loans and balloon payment
qualified mortgages, the threshold is 3.5 percentage points above the average
prime offer rate.
in proving that a
creditor failed to make a reasonable and good faith effort to determine his/her
repayment ability, the creditor is liable for damages, payable to the borrower.
Furthermore, if the creditor sold the loan to Fannie Mae or Freddie Mac or to a
private investor, it may face additional legal challenges. It is a creditor’s
interest in avoiding this liability that makes the origination of safe harbor
qualified mortgages desirable, and that motivates creditors to establish more
cautious lending standards for rebuttable presumption qualified mortgages.
If a borrower
prevails in a civil claim filed against a creditor for violations of the
Ability to Repay Rule, the borrower may recover:
·Actual damages sustained by the consumer
·All finance charges and fees paid by the consumer
·Statutory damages, which are no less than $400 and no more than
$4,000 for individual actions
·Court costs and attorneys’ fees
(15 U.S.C.
§1640(a))
statute of
limitations for filing an action for violations of the Ability to Repay Rule is
three
years. This three-year period is measured from the date
of the occurrence of the violation
no
statute of limitations
when a borrower challenges a creditor’s compliance with the Ability to Repay
Rule during a foreclosure proceeding. Therefore, at any time that a
borrower faces foreclosure, the lender’s violations of the Ability to Repay
Rule may be raised as a defense. However, this is an incomplete defense that is
unlikely to stop foreclosure proceedings because the law states that asserting
a violation of the Ability to Repay Rule is “…a defense by recoupment or set
off…” and limits the damages that a homeowner may recover (12
U.S.C. §1640(k)(1), (2)). Recoupment is defined as the defendant’s right to
have a deduction from the amount of the plaintiff’s damages, for the reason
that the plaintiff has not complied with the obligations arising under the same
contract. In other words, a homeowner may be legally entitled to a reduction in
the debt owed to a lender if the lender failed to uphold its obligations during
the transaction for a mortgage.
of the
Ability to Repay Rule are raised as a defense in a foreclosure action that is
brought more than three years after consummation, damages are limited to those
that the homeowner could have recovered by filing an action within the
three-year statute of limitations period. These damages may include
finance charges paid by the borrower, up to $4,000 in statutory damages, the
costs of bringing the action, and attorney’s fees (12 U.S.C. §1640(k)(2)(B)).
The CFPB has estimated how much a borrower could recoup from a lender by
defending a foreclosure action with claims that the lender did not properly
assess repayment ability. Once again, assuming that a borrower has an average
loan balance of $210,000, an interest rate of 7%, and fees of $3,150, he/she
could potentially recover $44,100 in interest, $4,000 in statutory damages, and
$3,150 in fees, for a total recovery of $51,250 (78 FR 6567). This sounds
like a significant reduction of mortgage debt, but unless a foreclosure action
occurs at a point during the life of a loan when the principal balance has been
reduced substantially, the law’s three-year cap on damages means that a
homeowner is not likely to secure a debt reduction that is substantial enough
to save his/her home. racial discrimination that was practiced prior to the
adoption of the Fair Housing Act was the practice of redlining. This
unethical practice involved the designation of neighborhoods whose residents
were regarded as “unsafe” credit risks on the basis of their race. Mortgage and
real estate professionals would refuse to work with individuals who lived in
these neighborhoods, thereby excluding countless creditworthy Americans from
the housing market. The goals that Congress hoped to achieve through its
adoption of the Fair Housing Act were to:
·Prohibit discriminatory mortgage lending practices, such as
redlining
·Prohibit discriminatory practices when selling or renting homes
·Promote fair housing throughout the United States
With regard to
transactions for mortgages, the Fair Housing Act generally prohibits mortgage
professionals from discriminating against loan applicants by basing loan
availability and loan terms on race, color, religion, sex, handicap, familial
status, or national origin (42 U.S.C. §3605(a)).
Fair Housing Act
protects individuals who fall within one of the protected classes established
under the law. Like ECOA, the Fair Housing Act has been amended since its
original enactment to add more protected classes. One of the first amendments
took place in 1974, adding sex as a protected class with the goal of ending
ongoing discrimination against women who were applying for mortgage credit.
Currently, the protected classes include:
·Race
·Color
·Religion
·Sex
·Familial status
·National origin
·Handicap (including handicap related to recovering substance
abusers and persons with HIV)
(42 U.S.C. §3604
and 24 C.F.R. §100.110)
When HUD receives a
complaint, it must notify the aggrieved person and the respondent of their
rights. HUD must serve a notice of the complaint on the respondent within ten
days of its receipt, and the respondent then has ten days to file an
answer (24 C.F.R. §§103.202; 103.203). HUD’s notice to an aggrieved person must
state that he or she has the right to pursue a civil action in a federal court
and that the statute of limitations for filing a lawsuit is two years.
This two-year period is measured from the date on which the discriminatory
practice occurred or, in the case of ongoing violations, ceases to occur (24
C.F.R. §103.100(a)).
The statute of
limitations for pursuing an administrative action is one year after the
alleged violation has occurred or ceased to occur. If an aggrieved person has
been subject to more than one discriminatory act or practice, he or she must
file a complaint “…within one year of the last act of discrimination”
(24 C.F.R. §103.35).
If an aggrieved
party decides to pursue an administrative action, HUD will initiate an
investigation. HUD must attempt to complete its investigation within 100 days
of the filing of a complaint of discrimination (24 C.F.R. §103.225). The
purposes of an investigation are to:
·Obtain information related to the complaint
·Document the respondent’s policies and practices, and
·Obtain enough factual data to determine if there is reasonable
cause to believe that a discriminatory housing practice has occurred
an aggrieved party
decides to pursue an administrative action, HUD will initiate an investigation.
HUD must attempt to complete its investigation within 100 days of the filing of
a complaint of discrimination (24 C.F.R. §103.225). The purposes of an
investigation are to:
·Obtain information related to the complaint
·Document the respondent’s policies and practices, and
·Obtain enough factual data to determine if there is reasonable
cause to believe that a discriminatory housing practice has occurred
Investigations
continue until HUD determines whether there is reasonable cause to believe that
discrimination has occurred, or until the parties enter a written conciliation
agreement. After a complaint is filed, HUD has a statutory obligation to pursue
conciliation “…to the extent feasible…” (42 U.S.C. §3610(b)(1)). The law
defines “conciliation” as “…the attempted resolution of issues raised by a
complaint…” (42 U.S.C. §3602(l)). The goals of a conciliation
agreement include:
·Securing relief for the aggrieved
persons, such as monetary and/or injunctive relief to eliminate discriminatory
practices
·Obtaining assurance that the
respondent will eliminate any discriminatory practices, and
·Vindicating the public interest
through provisions that require the respondent to participate in remedial
activities, reporting requirements, and monitoring requirements
(24
C.F.R. §§130.310; 103.315; 103.320)
Extensive
HUD regulations determine the procedures that parties will follow to resolve a
dispute through an administrative hearing, and these rules cover both the
pre-hearing and hearing processes. If a hearing is completed, HUD’s
administrative law judge must issue an initial decision within 60 days
of the end of the hearing. The decision will become final within 30 days
after it is issued.
If an
administrative law judge finds that a discriminatory housing practice has
occurred or is about to occur, he or she can order the respondent to pay
damages to the aggrieved person, issue other relief, such as injunctive relief,
and impose civil penalties. HUD regulations authorize civil penalties of up to:
·$16,000, if no prior administrative or civil
hearings resulted in a finding that the respondent(s) violated federal, state,
or local fair lending laws
·$42,500, if administrative or civil hearings
conducted within the preceding five years resulted in a finding that the respondent(s)
committed one other violation of federal, state, or local fair lending laws
·$70,000, if administrative or civil hearings
conducted within the preceding seven years resulted in a finding that the
respondent(s) committed two or more violations of federal, state, or local fair
lending laws
·The DOJ also has authority to initiate its own enforcement
action when the Attorney General finds “reasonable cause” to believe that an
individual or entity is engaging in a “pattern or practice”of
discrimination, or the denial of rights under the Fair Housing Act raises “an
issue of general public importance” (42 U.S.C. §3614(a)). On
its website, the DOJ explains that a pattern or practice of discrimination
exists when evidence shows that “…the discriminatory actions were the
defendant’s regular practice, rather than an isolated instance.” When an
issue is one of general public importance, the DOJ “…can bring suit even
when a discriminatory act has occurred only once…”[1]
Like
other parties bringing actions for violations of the Fair Housing Act, the DOJ
must file its claims within the applicable statute of limitations. The
law imposes an 18-month statute of limitations on actions brought by the
Attorney General and the DOJ (42 U.S.C. §3614(a)). The 18-month period begins
to run on the date that a discriminatory act or practice occurs or on the date
that an ongoing violation ceases to occur. In addition to the Fair
Housing Act’s express prohibitions against discriminatory housing practices, a
long line of cases holds that the law also prohibits practices that have an
unintended discriminatory effect. TDHCA v. ICP was one of several
recent cases that challenged this interpretation of the law, but it was the
only case that the United States Supreme Court heard and decided; other cases
entered settlement agreements before a trial could take place. The
Court’s June 2015 decision relied on previous lower court cases, consideration
of congressional intent, and an interpretation of statutory language to hold
that the law permits disparate impact claims – or, as HUD calls them,
discriminatory effects claims. In this case, a nonprofit organization
known as the Inclusive Communities Project sued the Texas Department of Housing
and Community Affairs, claiming that the TDHCA allocated too many low-income
housing tax credits to developments in minority neighborhoods and denied
credits to developments within Caucasian neighborhoods. ICP claimed that this resulted
in the concentration of low-income housing in minority neighborhoods, thereby
perpetuating poverty and segregation in clear violation of the Fair Housing
Act.[1]
Though
it was not directly challenged in the case, the Supreme Court’s ruling has implications
for HUD’s Discriminatory Effects Rule. HUD adopted this rule
in 2013, stating that “This regulation is needed to formalize HUD’s
long-held interpretation of the availability of ‘discriminatory effects’
liability under the Fair Housing Act…” (78 FR 11460). HUD
further explained that despite the 40 years of case law that upheld the
disparate impact theory, inconsistent applications in different jurisdictions
were creating uncertainty. In order to bring clarity to the theory’s
application, HUD used its rulemaking authority to articulate the correct
methodology for determining liability in discriminatory effects claims.Equal Credit
Opportunity Act (ECOA) was enacted in 1974 to ensure that women
would have equal access to credit. The Act was established to end
discriminatory practices of basing lending decisions on sex. The Act
applies to creditors, defined as individuals or entities that
regularly extend credit or arrange for the extension of credit. A
“creditor,” as defined by ECOA’s Regulation B, includes mortgage
professionals. The law has been amended several times since its
enactment, and now prohibits creditors from making decisions based on race,
color, religion, national origin, sex, marital status, age, childbearing
status, receipt of income from public assistance, or exercise of rights under the
Consumer Credit Protection Act. The Equal Credit Opportunity Act is enforced by
the CFPB. ECOA, as well as civil actions by individuals and
class action groups. Penalties for individual actions can result in fines
up to $10,000, and class actions can result in fines up to the
lesser of $500,000 or 1% of the creditor’s net worth.Fair Housing
Act was enacted in 1968 to address issues of racial
discrimination in housing. A major concern was the practice of redlining,
in which specific neighborhoods were considered to be unsafe credit risks on
the basis of the race of the residents. The Fair Housing Act prohibits
discriminating against loan applicants based on race, color, religion, sex,
handicap, familial status, or national origin. The Fair Housing Act is
enforced by HUD. It applies to residential real estate
transactions. Like ECOA, the Fair Housing Act encourages
covered entities to test for instances of
discriminatory practices. The CFPB uses a “risk-based prioritization process”
to determine how to allocate its resources for fair lending supervision and
enforcement in order to offer protection to consumers. In the April 2015 Fair
Lending Report, the CFPB states that its supervisory and enforcement efforts in
the mortgage lending industry include:
·ECOA enforcement
·HMDA data integrity
·Identification of unfair and illegal lending practices, such as
redlining and discriminatory underwriting and loan pricing
Even
before the Supreme Court ruled on the disparate impact theory and affirmed the
need to protect potential defendants against abusive claims of disparate
impact, members of Congress recognized that courts and regulators could be
inundated with these claims. On June 3, 2015, just three weeks before the
Supreme Court released its decision in TDHCA v. ICP, Congress passed an
amendment to an appropriations bill that set the annual budget for the DOJ.
This amendment states, “None of the funds made available in this act may be
used by the Department of Justice to enforce the Fair Housing Act in a manner
that relies upon an allegation of liability under 24 C.F.R. 100.500
[HUD’s Discriminatory Effects Rule]” (H. Amdt. 768 to H.R. 4660). HUD
overstepped its boundaries when it wrote the Discriminatory Effects Rule,
because this rule is not based on express language found in the Fair Housing
Act. Similarly, ECOA lacks any provisions that expressly permit disparate
impact claims; however, Regulation B incorporates the disparate impact theory
with a simple statement that “…Congress intended an ‘effects test’ concept…”
(12 C.F.R. §1002.6(a)). RESPA includes two prohibitions that are intended
to discourage unnecessarily high settlement charges.
These are:
·The prohibition against payment for referrals: Section 8(a) of
RESPA (now incorporated into the U.S. Code in §2607(a)) prohibits settlement
service providers from paying or accepting fees for business referrals.
The
prohibition against fee splitting:
Section 8(b) of RESPA (now incorporated into the U.S. Code in §2607(b))
prohibits the charging and splitting of unearned fees between settlement
service providers for services not actually performed. this revision to the
law, Congress:
·Defined an affiliated business arrangement: Congress added a
provision to RESPA that defines an “affiliated business arrangement” as one in
which a settlement service provider has an affiliate relationship or an
ownership interest of more than 1% in another business that provides settlement
services (12 U.S.C. §2601(7)(A)).
·Permitted referrals between affiliates: Congress adopted
language allowing referrals between service providers when the individual or
entity that makes the referral provides a written disclosure of the affiliate
relationship that exists between the two parties. In order for the disclosure
to comply with the law, it must state that the consumer is not required to use
any particular provider of settlement services (12 U.S.C. §2607(c)(4)(B)). The
disclosure must also include an estimate of the amounts generally charged by the
settlement service provider to which the consumer is referred.
·Limited the financial benefits of making a referral: In its revisions
that permit referrals, Congress prohibited the payment and receipt of referral
fees, but allows the return of an ownership interest or franchise relationship.
The return of an ownership interest does not include payments that vary based
on the number of referrals made or on an ownership interest that is adjusted to
reflect the number of referrals made (12 C.F.R. §1024.15(b)(3)(ii)).
Appendix
D to Regulation X includes the following model form for making an affiliated
business arrangement disclosure: TILA is intended to ensure that borrowers
receive accurate and reliable disclosures of the cost of settlement services.
Formerly addressed in RESPA, recent changes to federal lending laws saw those
provisions removed, and updated requirements added as new provisions of TILA Loan
Estimate are considered to be made “in good faith” if:
·The actual cost does not exceed the amount originally disclosed
in the Loan Estimate, or
·The aggregate amount of closing costs and recording fees does
not exceed the amounts disclosed on the Loan Estimate by more than 10%, and:
oThe fees for
third-party services are not paid to the creditor or to an affiliate of the
creditor, and
oThe creditor
permits the consumer to shop for settlement services
a revised estimate
is allowed for any one of the following reasons:
Changed circumstances: if changed circumstances
cause the estimated charges to increase or cause the aggregate amount of
the estimated charges to increase by more than 10%, the creditor may issue
a revised estimate. The regulations describe a “changed circumstance” as
specific events or inaccuracies, such as:
Extraordinary or unexpected events that are
beyond the control of the parties to the transaction
Information relied on by the creditor that
was inaccurate or that changed after the information was provided to the
consumer
New information
Change in eligibility: a change in circumstances
impacts the loan applicant’s creditworthiness or the value of the property
securing the loan
Consumer-requested revisions: the consumer requests a
change that relates to the loan terms or to the settlement
Delays caused by consumers: a loan applicant waits more
than ten business days after the creditor has provided a Loan Estimate to
indicate his or her interest in proceeding with the transaction
Delays related to construction loans: in these types of
transactions, a revised disclosure is allowed if a creditor “reasonably
expects” more than 60 days to pass before settlement, and clearly and
conspicuously states in the Loan Estimate that it may issue a revised
disclosure
Creditors
have a 10% tolerance for discrepancies between estimated and
actual closing costs if consumers do not pay the creditor or one of its
affiliates for settlement services and if they are allowed to shop for
settlement services. TILA is a consumer protection law, legislators and
regulators regard any efforts to circumvent its goals as serious offenses. The
law makes willful and knowing violations of TILA a criminal act, subjecting
violators to penalties of up to $5,000 and/or one year of imprisonment. The
$5,000 penalty can add up to a large sum, since penalties accrue for multiple
violations. Criminal violations include willfully and knowingly:
·Failing to give required disclosures to consumers
·Consistently understating the APR
·Failing to comply with other TILA requirements
·Errors
in the origination of high-cost mortgages: if a creditor fails to meet HOEPA’s special requirements
for making a high-cost mortgage, no violation of the law occurs if the creditor
receives notification of the error or discovers it within 30 days
after consummation and responds by extending appropriate and reasonable restitution
to the borrower, making adjustments to the loan to comply with the law, or
changing the terms of the loan so that it is no longer a high-cost mortgage.
Relief is also available for an unintentional violation or a bona fide
error if the creditor responds by making restitution and adjusting the loan
within 60 days of discovering or receiving notification of the
error (12 C.F.R. §1026.31(h)(2)).Errors in the calculation of points and fees for
qualified mortgages: in most transactions for qualified mortgages,
points and fees cannot legally exceed 3% of the total loan amount. Until
January 10, 2021, a mortgage does not lose its status as a qualified mortgage
if the creditor discovers after consummation that the points and fees for the
transaction exceeded 3% and the creditor has policies and procedures in place
for the post-consummation review for points and fees Information on the
cost of credit and on the estimated and actual closing costs, as required by
TILA and Regulation Z
·Information on affiliated relationships between service
providers, as required by RESPA and Regulation X
·Warnings regarding the risks associated with particular lending
transactions, as required by HOEPA, TILA, and Regulation Z
·Notice of the legal prohibition against the use of discriminatory
lending practices, as required by ECOA and Regulation B
·Real
Estate Settlement Procedures Act (RESPA)
had initial primary objectives of preventing lenders and settlement service
providers from overcharging consumers. Its two major concerns involve unethical
referrals and fee splitting. RESPA
prohibits exchanging unearned fees, kickbacks, or things of
value for referrals of business. It also prohibits sham
affiliated business arrangements, which involve the use of
shell businesses created to allow unlawful collection of referral fees.
·An administrative law judge may impose separate penalties when a
hearing results in a finding that there is more than one “…separate and
distinct discriminatory housing practice…” (24 C.F.R. §180.671(e)).
·When a claim of discrimination under the Fair Housing Act is
resolved through an administrative hearing, HUD has the authority to subpoena
witnesses and documents. A person that willfully fails to respond to a subpoena
may be subject to a criminal penalty of up to $100,000, imprisonment for
up to one year, or both. These criminal penalties also apply if a person
willfully makes a false statement in any report or document that HUD subpoenas;
willfully fails to produce accurate reports, documents, or other records; or
willfully mutilates or alters documentary evidence (42 U.S.C. §3611(c)).
HUD’s
rule states that a practice has a discriminatory effect when it
“actually or predictably” impacts a group of people differently than another
group and “…perpetuates segregated housing patterns because of race, color,
religion, sex, handicap, familial status, or national origin” (24
C.F.R. §100.500(a)). The rule also states that Fair Housing Act violations may
occur even if a practice is not motivated by an intent to discriminate (24
C.F.R. §100.500). challenged act or practice caused, or predictably will cause,
a discriminatory effect (24 C.F.R. §100.500(c)(1)). In its preamble to
the rule, HUD explains that successful establishment of a claim requires a
showing that “…members of a protected class are disproportionately burdened by the
challenged actions, or that the practice has a segregative effect”
(78 FR 11468). Statistics are often relied on to show the causal link between
an act or practice and its discriminatory consequences. However, the
Supreme Court’s decision in TDHCA v. ICP held that statistics alone are not
enough. The Court stated that claimants must satisfy “a robust causality
requirement” to prevail in a claim based on discriminatory effects. Secure and
Fair Enforcement for Mortgage Licensing Act of 2008 (the S.A.F.E. Act) defines
a “nontraditional mortgage product” as “any mortgage
product other than a 30-year fixed rate mortgage” (12 U.S.C. §5102(7)).
With this language, the S.A.F.E. Act created a legal definition of the
difference between traditional and nontraditional mortgage lending. Of
course, this was not the first time that statutory or regulatory language has
separated lending transactions into different categories. Mortgage
lending is divided into the origination of conventional and non-conventional
mortgages, conforming and non-conforming loans, and fixed- and adjustable-rate
mortgages (ARMs). The most recent division of mortgage transactions into
categories occurred with the division between qualified and non-qualified
mortgages. Congress made this distinction in 2010 when it adopted the
Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act).
·the Ability to Repay Rule is found in
Regulation Z. The Ability to Repay Rule, which is found in 12 C.F.R.
§1026.43(c), establishes the underwriting standards for non-qualified
mortgages, and
·The Qualified Mortgage Rule, which is found in 12 C.F.R.
§1026.43(e), establishes the underwriting standards for qualified mortgages
Ability to Repay
Rule applies to most residential mortgage transactions, including those that
are secured by a subordinate lien and those that are secured by homes that are
not owner-occupied, such as vacation homes or rental properties. The only loans
that are excluded from coverage are those for:
·Open-end home equity loans, such as a home equity line of credit
(HELOC)
·Reverse mortgages
·Bridge loans with terms of 12 months or less
·A mortgage secured by a borrower’s interest in a timeshare plan
·Loans made by a Housing Finance Agency
(12 C.F.R.
§1026.43(a))
This type of loan requires calculation of payments based on the
higher of the introductory rate or the fully-indexed rate, with substantially
equal monthly payments that will pay off the loan by the end of its term when
recast.
Analysis of repayment ability for a non-qualified mortgage is
required to include:
A.Both
the consumer’s monthly debt-to-income ratio and the consumer’s residual income
B.Either the consumer’s monthly
debt-to-income ratio or the consumer’s residual income
C.The
consumer’s residual income
D.The
consumer’s monthly debt-to-income ratio
The Ability to Repay Rule defines “monthly residual income” as:
A.The remaining
income after subtracting the consumer’s total monthly income from the
consumer’s total annual income
B.The
remaining income after subtracting the consumer’s total monthly debt
obligations from the total monthly income
C.The
remaining obligations after subtracting the monthly mortgage payment from the
consumer’s total monthly debt obligations
D.The
remaining income after subtracting the monthly mortgage payment from the
consumer’s total monthly income
Underwriting requirements for non-qualified mortgages include:
A.Assessment of a
consumer’s ability to pay off the loan by the end of the loan term
B.A
minimum loan-to-value ratio
C.Minimum
credit scores
D.Assessment
of a consumer’s ability to make payments due before the loan is recast
Recordkeeping is also a separate legal requirement with
which creditors must comply. Regulation Z specifies
Which of the following correctly describes recordkeeping
requirements under the ATR Rule?
A.Records
showing compliance with the repayment ability provisions must be kept until the
loan is paid off
B.The
ATR Rule does not establish recordkeeping requirements
C.Records showing
compliance with repayment ability provisions must be kept for at least three
years after consummation
D.Records
showing compliance with repayment ability provisions must be kept for at least
five years after consummation
Which of the following statements most accurately describes the
types of home loans that are non-qualified mortgages?
A.Only
those loans where points and fees do not exceed 3% of the loan amount, the loan
term does not exceed 30 years, and the borrower’s debt-to-income ratio does not
exceed 43%
B.Any
loan that is missing all of the product feature prerequisites and has at least
one of the prohibited terms for qualified mortgages
C.Any loan that is missing one or more
of the product feature prerequisites or QM underwriting requirements, or that
includes a term that is prohibited for qualified mortgages
D.Any
mortgage loan other than a 30-year fixed-rate loan
The debt-to-income ratio for non-qualified mortgages is:
A.36%
B.43%
C.Not defined by rule, but subject to a creditor’s
discretion
D.Not
relevant in transactions for non-qualified mortgages
The underwriting standards for non-qualified mortgages are found
in:
A.The
Qualified Mortgage Rule
B.The
Ability to Repay Rule
C.The
Qualified Residential Mortgage Rule
D.The
Integrated Mortgage Disclosure Rule
When a borrower has an ARM, the “recast” of the loan occurs
when:
A.The rate resets and periodic
payments are no longer based on the introductory interest rate
B.The
borrower refinances the loan to secure a fixed interest rate
C.The
borrower refinances the loan with another ARM at a lower interest rate
D.The
borrower refinances a non-qualified ARM with a qualified ARM
Creditors must consider all but which of the following factors
when evaluating a consumer’s ability to repay a non-qualified mortgage?
A.The equity in the
dwelling that will secure the mortgage
B.Monthly
payments on the mortgage
C.Debt
obligations, including alimony and child support
D.Mortgage-related
obligations, such as taxes and insurance
The presumption of compliance that creditors gain when making a
qualified mortgage is a presumption that they have complied with the provisions
of:
A.The
Dodd-Frank Act and the QM Rule
B.Federal
fair lending laws
C.The ATR Rule
D.All
mortgage lending laws
When a creditor makes a mortgage that is a _________, and the
loan satisfies the requirements for a qualified mortgage, the creditor gains a
rebuttable presumption of compliance.
A.Reverse
mortgage
B.Open-end
home equity loan
C.Prime
loan
D.Higher-priced
mortgage
A major factor in avoiding liability with regard to the
origination of non-qualified mortgages is:
A.Extending
non-qualified mortgages only to borrowers who meet certain demographic criteria
B.Exclusively
originating non-qualified mortgages
C.Ensuring compliance
with the Ability to Repay Rule
D.Limiting
non-qualified mortgage availability to borrowers with a debt-to-income ratio
below 43% and loan terms that do not exceed 30 years
In October 2014, the Federal Housing Finance Agency sought to
encourage more lending activity by clarifying:
A.The
criteria that Fannie Mae and Freddie Mac will use for identifying the types of
mortgages that are not suitable for securitization
B.The circumstances
in which Fannie Mae or Freddie Mac will require creditors to repurchase
mortgages
C.The
underwriting requirements for subprime loans
D.The
underwriting requirements for qualified mortgages
When the prudential regulators issued the Interagency Statement
on Supervisory Approach for Qualified and Non-Qualified Mortgage Loans, they
stated that institutions should continue to comply with applicable laws and
regulations, and should apply appropriate portfolio and risk management
practices. They also stated that:
A.Creditors
should limit their lending to transactions for qualified mortgages
B.Mortgages will not
be subject to safety-and-soundness criticism based solely on their status as
qualified or non-qualified mortgages
C.Creditors
will be subject to greater scrutiny by examiners if they limit their
originations to those for qualified mortgages
D.Non-qualified
mortgages will be subject to greater safety-and-soundness criticism than
qualified mortgages
Some creditors have voiced concern that failure to originate
both qualified and non-qualified mortgages may cause them to face issues in
compliance with which federal fair lending law?
A.The
S.A.F.E. Act
B.The
Equal Credit Opportunity Act
C.The
Truth-in-Lending Act
D.The Community
Reinvestment Act
_______________ refers to lending policies that are neutral on
their face but that unintentionally violate the fair lending rights of
protected classes.
A.Non-qualified
lending
B.Redlining
C.Disparate impact
D.Reverse
redlining
VA loans made in compliance with VA lending standards are:
A.Safe harbor
qualified mortgages
B.Non-qualified
mortgages
C.Only
qualified mortgages if they are Direct Loans
D.Not
qualified mortgages
E.For a loan amount
greater than or equal to $100,000: 3% of the total loan amount
F.For a loan amount
greater than or equal to $60,000 but less than $100,000: $3,000
G.For a loan amount
greater than or equal to $20,000 but less than $60,000: 5% of the total
loan amount
H.For a loan amount
greater than or equal to $12,500 but less than $20,000: $1,000
I.For a loan amount less than $12,500: 8% of the total loan
amount
mortgage is a safe harbor qualified mortgage if it has an
annual percentage rate that “does not exceed the average prime offer rate for a
comparable mortgage, as of the date the interest rate is set, by more than the
combined annual mortgage insurance premium and 1.15 percentage points for a
first-lien mortgage” (24 C.F.R. §203.19(b)(3)(ii)).
A mortgage that is FHA-insured and has an APR that exceeds the
average prime offer rate by 1.15 percentage points has:
A.Violated
the ATR Rule
B.A rebuttable presumption
of compliance
C.A
conclusive presumption of compliance
D.No
presumption of compliance
The CFPB has stated that _______________ should not be taken
into account when determining the fully-indexed rate for a non-qualified
mortgage.
A.The
margin
B.Repayment
ability
C.The
index
D.Periodic rate caps
Making safe harbor qualified mortgages offers a
____________________________ with the ATR Rule, which can protect the creditor
if a consumer attempts to use “failure to consider repayment ability” as a
defense against ______________ .
A.Rebuttable
presumption of compliance; fair lending violations
B.Conclusive
presumption of compliance; foreclosure
C.Conclusive
presumption of compliance; fair lending violations
D.Rebuttable
presumption of compliance; foreclosure
If a non-qualified mortgage loan includes negative amortization,
the creditor is required to give the borrower a statement disclosing all of the
following, except:
A.An
explanation that negative amortization will cause the loan balance to increase
B.A listing of the
benefits of accepting a negative amortization loan
C.A
description of negative amortization
D.Confirmation
that the loan has terms that will or may allow negative amortization
The VA has stated that Direct Loans are ____________________ and
are protected by a __________________.
A.Safe
harbor qualified mortgages; conclusive presumption of compliance
B.Non-qualified
mortgages; rebuttable presumption of compliance
C.Safe
harbor qualified mortgages; rebuttable presumption of compliance
D.Non-qualified
mortgages; conclusive presumption of compliance
The Interagency Statement released to coincide with the
implementation of the Ability to Repay Rule and the Qualified Mortgage Rule
states that origination of qualified and non-qualified mortgages should include
consideration of all of the following, except:
A.The
loan-to-value ratios involved in the transaction
B.The
terms of the loan
C.The age, sex, and
race of the borrower
D.Risk
management practices and Guidances issued by federal regulators
The __________________ of any state has the authority to bring
an action for enforcement of Ability to Repay Rule requirements.
A.Attorney General
B.Consumer
Financial Protection Bureau
C.NMLS
D.Secretary
of State
Lending practices that exclude origination of
____________________ may result in increased cases of ________________.
A.Non-qualified
mortgages; foreclosure
B.Qualified
mortgages; disparate impact
C.Non-qualified
mortgages; disparate impact
D.Qualified
mortgages; foreclosure
A non-qualified mortgage that is a _______________________ will
require additional disclosures under the Home Ownership and Equity Protection
Act.
A.Reverse
mortgage
B.HELOC
C.High-cost mortgage
D.Fixed-rate
loan
The Federal Housing Finance Agency has worked to revise its
Representation and Warranty Framework in order to meet which of the following
goals?
A.Encouraging
borrowers to seek mortgage loan products other than 30-year fixed-rate loans
B.Encouraging
creditor participation in the non-qualified mortgage market and expanding
consumer access to mortgage credit
C.Making
qualified mortgages available to more borrowers
D.Ensuring
that creditors offer both qualified and non-qualified mortgages and that only
the most qualified borrowers have access to mortgage credit
HUD has stated that the FHA will no longer insure single-family
loans that exceed the _________ limitation established under the Qualified
Mortgage Rule.
A.Loan
term
B.Debt-to-income
ratio
C.Loan-to-value
ratio
D.Points and fees
Which of the following types of loans meets the S.A.F.E.
Mortgage Licensing Act’s definition of a traditional mortgage product?
A.A
qualified ARM
B.A
non-qualified fixed-rate mortgage with a 30-year loan term
C.A
non-qualified fully-amortizing ARM
D.A
qualified fixed-rate mortgage with a 15-year loan term
A ________ is defined under the Finance Lenders Law as any
person that is engaged in the business of making consumer loans or commercial
loans.
