JOE WALLACE ASSOCIATE FINANCIAL EXAMINER STATE OF CONNECTICUT Josephwallacectgov Phone 860 2408181 State of Connecticut Department of Banking MY BACKGROUND Started with the Department in 2007 ID: 619853
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CHANGES IN TRUTH IN LENDING
JOE WALLACEASSOCIATE FINANCIAL EXAMINERSTATE OF CONNECTICUTJoseph.wallace@ct.govPhone 860 240-8181
State of Connecticut, Department of BankingSlide2
MY BACKGROUND
Started with the Department in 2007Licensing of mortgage loan originators, brokers, and lendersPerformed a variety of investigations and examinations
State of Connecticut, Department of BankingSlide3
SAFE ACT
Regulation G, section 1007.101(b) - Purpose. This part implements the S.A.F.E. Act's Federal registration requirement for mortgage loan originators. The S.A.F.E. Act provides that the objectives of this registration include aggregating and improving the flow of information to and between regulators; providing increased accountability and tracking of mortgage loan originators; enhancing consumer protections; supporting anti-fraud measures; and providing consumers with easily accessible information at no charge regarding the
employment
history of, and publicly adjudicated disciplinary and enforcement actions against, mortgage loan originators.
State of Connecticut, Department of BankingSlide4
SAFE ACT
Keep NMLSR registration information up-to-dateRenew registrations annuallyDisclose individual actions as required on NMLSRUse of unique identifierPolicies and procedures
State of Connecticut, Department of BankingSlide5
ABILITY TO REPAY & QUALIFIED MORTGAGES
In 2008, higher-priced mortgages became subject to “ability to repay” standardsIn 2010, Dodd-Frank (Wall Street Reform and Consumer Protection Act) adopted the standard for most closed-end residential mortgagesIn 2013, CFPB adopted the ruleRule became effective on 1/10/14
State of Connecticut, Department of BankingSlide6
ABILITY TO REPAY & QUALIFIED MORTGAGES
Applications taken on or after 1/10/14Excludes open-end mortgages, timeshares, reverse mortgages, construction loans for less than 12 months, and certain mortgages related to community wellness Most 1-4 family residential mortgages including co-ops, condos and secondary mortgages
State of Connecticut, Department of BankingSlide7
ABILITY TO REPAY
Must consider and verify 8 underwriting factors:Borrower’s income and assetsCurrent employment
Monthly payment for subject loan
Monthly payment on other loans related to subject property
Taxes and Insurance on subject property
Other debts
Debt to Income (on gross monthly income)
Credit History
State of Connecticut, Department of BankingSlide8
ABILITY TO REPAY
Must maintain documentation to demonstrate consideration and verification of the 8 itemsRecords must be maintained for a minimum of 3 yearsNo specific numeric threshold given for DTI (must be considered though)Special mention of monthly payment review for Negative-Amortization, Interest-Only, and Balloon Payment
State of Connecticut, Department of BankingSlide9
ABILITY TO REPAY
3 year liability and exposureConsumer finance charges, consumer fees paid, consumer legal fees paidAfter 3 years, may be disputed in foreclosure proceedings
State of Connecticut, Department of BankingSlide10
QUALIFED MORTGAGES
A way of demonstrating Ability To Repay requirements have been metBetter liability protection in the form of Safe Harbor PresumptionHigher-Priced qualified mortgages have a Rebuttable Presumption with respect to liability protection4 types of qualified mortgages
State of Connecticut, Department of BankingSlide11
QUALIFED MORTGAGES
Safe Harbor – consumer would have to demonstrate that creditor made an error in Safe Harbor designation; otherwise conclusively presumed that ATR standard was metRebuttable Presumption – presumed to have met ATR standards, but it does allow the consumer to demonstrate why he/she could not have paid the loan back
State of Connecticut, Department of BankingSlide12
QUALIFED MORTGAGES
Points and Fees can’t exceed 3% of loan amountNo interest-only or negative amortization featureLoan term can’t exceed 30 years
State of Connecticut, Department of BankingSlide13
4 TYPES OF QM’S
General QMAgency/GSE QMSmall Creditor QMSmall Creditor Balloon Payment QM
State of Connecticut, Department of BankingSlide14
GENERAL QM
Debt to income of 43% or lessConsider consumer’s debt and income obligationsUnderwriting to a fully amortized payment schedule with the maximum interest rate of the first 5 years of the loan
State of Connecticut, Department of BankingSlide15
AGENCY QM
Eligible for purchase by GSE, or insured or guaranteed by a federal agency30 year or less term, 3% max in points and fees, no Neg-Am/Int-Only features
No 43% DTI threshold
Valid recommendation from agency automated UW system
Expires on 1/10/21
State of Connecticut, Department of BankingSlide16
SMALL CREDITOR QM
Less than $2 billion in assets as of the end of the last calendar year (to be adjusted)Entity (and affiliates) originated no more than 500 loans subject to ATR regs in the preceding calendar yearSame standard requirement (term, risky features, points and fees)
No 43% DTI threshold
State of Connecticut, Department of BankingSlide17
SMALL CREDITOR QM continued
Underwrite to fully amortized payment schedule with max rate in first 5 yearsCannot have a forward commitment with a non-qualifying small creditorLose small creditor QM status if sold within 3 years of consummation to a non-qualifying small creditor (keeps status if it’s the result of a merger or acquisition)
State of Connecticut, Department of BankingSlide18
BALLOON PAYMENT QM
Open to all “small creditors” up to 1/10/16After that, only small creditors operating in rural or underserved countiesSame standard requirements (term, risky features, points and fees)Fixed rate5 year term or longer
Same requirement for commitment/sale of loan
State of Connecticut, Department of BankingSlide19
OTHER TALKING POINTS ON QM’s
Point and Fee Cap for QM’s – Check regulation for loan amounts under $100,000; Mortgage insurance premiums and fees not retained by broker/creditor are not included; Maximum on any pre-payment penalty fee is includedPrepayment Penalty and QM’s – Only on non higher-priced QM’s with a fixed or step interest rate; 2% first 2 years and 1% for year 3; Must offer consumer a comparable product without the penalty
State of Connecticut, Department of BankingSlide20
NON-STANDARD TO STANDARD REFINANCE
Do not have to meet ATR criteriaOnly for those mortgages currently held or serviced by the entityCheck guidance on criteria
State of Connecticut, Department of BankingSlide21
POINT & FEE CURE FOR QM’S
Payment within 210 days of consummationConsumer not 60 days past due on the transactionCreditor, assignee or servicer have not been notified by the consumer about overagePay the overage and interest on the overage using the contract interest rate
State of Connecticut, Department of BankingSlide22
TILA-RESPA INTEGRATED DISCLOSURE
2 New FormsLoan Estimate Disclosure - combine the Initial TIL and GFEClosing Disclosure - combine final TIL and HUD settlement statement Applications taken on or after 8/1/15
State of Connecticut, Department of BankingSlide23
TILA-RESPA INTEGRATED DISCLOSURE
Includes most closed-end residential mortgagesDoes not include HELOCs, Reverse Mortgages, Mobile Homes, or lenders making 5 or fewer loans in a calendar year
State of Connecticut, Department of BankingSlide24
TILA-RESPA INTEGRATED DISCLOSURE
Closing Document required to be retained for 5 years by creditor and investors, if loan is soldLoan Estimate form, and other relevant documentation related to the Loan Estimate form, must be maintained for 3 years Form is not to be used prior to 8/1/15
State of Connecticut, Department of BankingSlide25
DEFINITION OF APPLICATION
NameProperty AddressIncomeProperty ValueSocial Security NumberLoan Amount
State of Connecticut, Department of BankingSlide26
LOAN ESTIMATE DISCLOSURE
Must be provided once broker or creditor has the 6 pieces of informationMust be provided within 3 business daysBusiness Day is any day in which the creditor is open for most of its business activitiesUse best information available
State of Connecticut, Department of BankingSlide27
LOAN ESTIMATE DISCLOSURE
Fees cannot be imposed until consumer has provided an intent to proceed (this excludes a bona fide credit report fee)Requesting documentation of the consumer to verify information cannot be done until the disclosure has been provided
State of Connecticut, Department of BankingSlide28
LOAN ESTIMATE DISCLOSURE
Must be provided 7 business days prior to consummationBorrower may waive this under certain circumstancesDoes not have to be provided if withdrawn or denied within 3 business days
State of Connecticut, Department of BankingSlide29
LOAN ESTIMATE DISCLOSURE
The disclosure may be revised only when changed circumstances have occurred resulting in an increase in chargesNot intended for miscalculation, technical errors, or underestimate of charges3 business days to revise when becoming aware of the change
State of Connecticut, Department of BankingSlide30
TOLERANCES
No tolerance requirements – examples would be prepaid interest, amounts going into escrow, 3rd parties selected by the consumer not on the creditor’s provider list10% cumulative tolerance – 3rd parties on the creditors provider list
Zero Tolerance – fees to the broker, lender, 3
rd
parties where consumer could not choose
State of Connecticut, Department of BankingSlide31
LOAN ESTIMATE REVISIONS
Changed Circumstances causing tolerance violationsChanged Circumstances affecting consumer’s eligibilityRevisions/changes requested by the consumer“Rate Locking” when it causes a change to points/creditsIntent to Proceed occurs after 10 business days from mailing out the disclosure
State of Connecticut, Department of BankingSlide32
CLOSING DISCLOSURE
Contain actual costs and terms of the transactionEstimate of good faith may be provided on certain chargesConsumer should receive the disclosure 3 business day before consummationA corrected disclosure may be provided at or before consummation
State of Connecticut, Department of BankingSlide33
CLOSING DISCLOSURE
Settlement Agent may provide the disclosure, but the creditor is responsibleBorrower may waive the 3 day waiting periodA Loan Estimate Disclosure cannot be provided after a Closing Disclosure has been providedAny changes at that point must be done through a revised Closing Disclosure
State of Connecticut, Department of BankingSlide34
CHANGES THAT REQUIRE 3 DAY WAIT PERIOD
Changes that result in an inaccurate APR, in accordance with TIL APR toleranceChange in loan productAddition of a pre-payment penalty3 day wait period required unless waived by the borrower(s) due to a financial emergency
State of Connecticut, Department of BankingSlide35
POST CONSUMMATION
Should the disclosure become inaccurate due to events occurring after settlement, a new disclosure may be requiredDepending upon the inaccurate information, it would be required to be provided to the consumer either within 30 days or 60 daysTolerance cures also require a new disclosure
State of Connecticut, Department of BankingSlide36
INFORMATION SOURCE
Disclaimer: the law itself should always be consultedCFPB – guidance material and sample forms, from the perspective of a non-CFPB examinerAnother CFPB source for Truth in Lending – consumerfinance.gov/eregulations
State of Connecticut, Department of Banking