TILA presentation slides from the Mortgage Bankers Association

8/9/2019 TILA presentation slides from the Mortgage Bankers Association

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Truth In Lending

Old Dog, New Tricks


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Subtitle: Click View then Master then Slide Master to editTitle: Click View then Master then Slide Master to edit

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TILA Newcomer Workshop

Truth In Lending

Consumer Credit Protection Act (1968)

Truth In Lending Act (Title 1)

Regulation Z (1969)


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The Basics

Finance ChargeAPR

Tolerance for Accuracy Rescission

DisclosureAdvertising

HOEPA


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Finance Charge

Section 226.4

(a) Definition

(b) Examples of F/C

(c) Exclusions from F/C(c) (7) Real Estate Exclusions


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Subtitle: Click View then Master then Slide Master to edit

Title: Click View then Master then Slide Master to edit

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TILA Newcomer WorkshopDefinition

The FINANCE CHARGE is the cost of consumer credit expressed as a dollar amount. It includes

any charge payable directly or indirectly by theconsumer and imposed directly or indirectly by thecreditor as an incident to or a condition of theextension of credit. It does not include any chargeof a type payable in a comparable cashtransaction.


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Any Fee not specifically excluded from the Finance

Charge in 226.4(c)(7) is, in fact,a Finance Charge.


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Tolerance for Accuracy (Fin. Chg)

Lender open to civil liability if Finance Charge isunderstated by $100.00 or more.

Lender open to Rescission liability if FinanceCharge is understated by $35.00 or more.

No Liability if Finance Charge is Overstated onDisclosure.


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Tolerance for Accuracy (APR)

Accurate if within .00125 for Regular

Transaction.

Accurate if within .00250 for Irregular Transaction.


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Borrowers Right to Rescind

Borrower is given 3 Business Days after closing to reconsider the loan and cancel

the transaction.

Applies to Refinance & Subordinate Lien Loans Owner Occupied Primary Residence


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TILAs Disclosures

Truth In Lending Disclosure

Adjustable Rate Disclosure Right to Cancel Disclosure

HOEPA Disclosure

New Disclosures


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TILA Newcomer Workshop Advertising Guidelines

FTCs How to Advertise Consumer Credit &Lease Terms

http://www.ftc.gov/bcp/conline/pubs/buspubs/creditad.htm


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HOEPA

Section 32 of Reg Z added in 1994 to addressabusive lending practices.

Under HOEPA, a mortgage is considered to be a HighCost Loan if it includes terms that exceed certainthresholds established for the Points & Fees andAnnual Percentage Rate.


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Read the Regs

TILA (Reg Z) is best understood, ultimately, by

taking the time to read the regulation andcommentary.

http://www.fdic.gov/regulations/laws/rules/6500-1
http://www.fdic.gov/regulations/laws/rules/6500-1400.htmlhttp://www.fdic.gov/regulations/laws/rules/6500-1400.html


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TILA Newcomer Workshop Upcoming Regulatory Changes

TILA will be impacted by two significant regulatory changes in 2009.

- HERA - the Housing & Economic Recovery Act of 2008; and,

- New Update to HOEPA


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HERA The Housing & Economic

Recovery Act

Final Rule Still Pending, But Law is to be

effective before the end of July 2009.

Early Disclosure Requirements all mortgageloans subject to TILA.

New Pre Closing Requirements


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TILA Newcomer WorkshopEarly Disclosure Requirements

Before the Consumer can be required to pay any fee,they must receive a copy of the Preliminary Truth InLending Disclosure.

If the Disclosure is delivered by regular mail, it will be presumed to have been delivered to the consumer onthe third business day after mailing.

Cannot close loan until at least Seven (7) businessdays after early disclosures have been received.


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TILA Newcomer Workshop New Pre Closing Disclosures

If the APR has changed beyond TOLERANCE since the previousdisclosure, a New TILA Disclosure must be delivered to theapplicant at least three business days prior to closing.

APR Tolerance is affected regardless of whether the change is inthe form of an Increase or a Decrease.


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TILA Newcomer Workshop New Pre Closing Disclosures

The APR Tolerance is different that the test that would beapplied to the TILA Disclosure for purposes of accuracy.

Disclosure is considered accurate if Finance Charge iswithin tolerance.

Pre Closing redisclosure requirement is only based on APR accuracy, which has only secondary importance inconsideration of overall accuracy of the disclosure.


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New HOEPA Regulations

Most changes become effective on Oct 1, 2009

Amends Old Rules & Creates New Rules

Designed to Address Subprime Lending Concerns


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HPML Higher Priced Mortgage Loan

First there was just plain PRICING.

Then with HOEPA in 1994, we got HIGH COST PRICING.

Now, HOEPA 2009 brings us HIGHER COST PRICING.


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- Grammatically Incorrect.

- One might surmise that, as superlatives go,rates for HIGHER Priced loans would begreater than those for HIGH Priced Loans.

- One would be wrong.


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Old HOEPA

If APR for First Lien loan is greater than 8 points above applicable Treasury Index,then loan would be considered to be aHigh Cost Loan, and subject to HOEPArestrictions.


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Old HOEPA

Treasury Index = 4.50 % APR = 12.51%

Loan is a High Cost Loan per HOEPA because

the APR exceeds the Applicable Index by morethan 8 pts.


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New HOEPA If APR for First Lien Loan is greater than

1.50 % above the Prime Offer Rate, then it is a Higher Priced Mortgage Loan, and subject to all the restrictions implied.


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New HOEPA

Prime Offer Rate = 4.50% APR = 6.50%

Loan is a HPML because the APR exceedsthe Prime Offer Rate by more than 1.50%.


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HPML Restrictions

Ability to Repay

Prepayment Penalties

Escrow Accounts


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Ability to Repay

Applies to HPMLs only, but likely to wield abroader brush.

- Verify & Document Repayment Ability.- Use Highest Scheduled Payment for first seven

years of the loan.- Stated Income loans prohibited

- No Doc loans prohibited.


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HPML Higher Priced MortgageLoan

Prepayment Penalties

No Prepayment Penalties if monthly payment amount can change during the first 4 yrs of theloan.

No Prepayment Penalties when refinanced by same creditor.

Otherwise, 2 yr maximum Prepay period.


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TILA Newcomer Workshop Escrow Accounts (for HPMLs)

Escrow Accounts required for all new loansthat meet HPML threshold.

Cannot be waived by borrower.

Borrower can discontinue after one year.


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TILA Newcomer WorkshopTILA NEWCOMERS

In a way, were all newcomers to this revised TILA.The game has fundamentally changed, and the

old rules and requirements have been tweaked for a new paradigm, that may in fact already be Old.

Documents

TILA presentation slides from the Mortgage Bankers Association