NMLS SAFE Exam 2022/2023 QA

RESPA - ANSWER-Real Estate Settlement Procedures Act; Allows borrowers to receive pertinent and timely disclosure regarding the nature and costs of the real estate settlement (closing) process; Enacted in 1974, the law was originally proposed to add more transparency to costs associated with certain real estate transactions and to eliminate abusive practices, such as kickbacks, which artificially increase the cost of settlement services. When RESPA must be obeyed - ANSWER-When a loan is a federally related mortgage loan, secured by a one-to-four unit residential property; federally related loans have expanded to encompass most loans made by depository and non-depository lenders. What RESPA does not apply to - ANSWER-Loans secured by commercial properties, vacant land (unless a dwelling is intended to be constructed within two years), or properties containing 25 or more acres; RESPA doesn't apply when loan is for business purposes. Mortgage Broker - ANSWER-a person (other than an employee of a lender) that renders origination services and serves as an intermediary between a borrower and a lender, including a person that closes the loan in its own name in a table-funded transaction. Where are the rules for RESPA found? - ANSWER-Found in Regulation X; The rules are promulgated and enforced at a federal level by the Consumer Financial Protection Bureau (CFPB). Failure to comply with RESPA - ANSWER-Results in stiff financial and criminal penalties; State regulatory agencies may suspend or revoke a mortgage loan originator's license for RESPA violations. Kickbacks - ANSWER-Also known as unearned fees, they are defined as providing a thing of value to a third party in return for the referral of settlement service business and are prohibited by RESPA; "Thing of value" includes gift cards, sports tickets, advertising space, marketing materials bearing real estate agents information, and donations to a real estate agent's favorite charity, among other things. Penalties related to kickbacks - ANSWER-Violator may be fined up to $10,000 and/or imprisoned for up to one year for providing kickbacks; The provider and recipient may be liable. Allowed relations under RESPA - ANSWER-Allows for payment at fair market value for goods and services that were actually received/performed; originator may also pass out promotional material bearing their information in a real estate office; joint marketing efforts are also allowed, so long as both parties pay their fair share of the marketing space down to percentage of space. RESPA regulation of escrow accounts (Section 10) - ANSWER-Lender cannot require borrower to deposit into escrow account a sum in excess of the estimated payment of taxes, insurance premiums, or other charges with respect to the property; installment payments cannot exceed 1/12 total annual amount, plus such an amount as is necessary to maintain an additional cushion balance cannot exceed 1/6 (2 months) of the estimated totals. Maximum cushion on escrow accounts - ANSWER-Two months of taxes and insurance payments over the maximum amount needed to satisfy these charges when they become due. Lender requirements on escrow accounts - ANSWER-Lender is required to provide borrowers with a summary of the account at closing and once per year for as long as the escrow account is in force; shows payments into and disbursements from the account. Initial escrow statement - ANSWER-Original summary of escrow account provided at closing. Notice of escrow analysis - ANSWER-Annual disclosure/summary and statement of escrow account payments/disbursements. RESPA section 9 (Title insurance rules) - ANSWER-Under RESPA, it is illegal for a property seller to require the buyer to use a particular title insurance company, and violation of this provision can result in "treble damages"; treble damages are when violator is held liable for three times the cost of the title services that were improperly required, in addition to standard RESPA maximum penalties. Title Insurance - ANSWER-Type of insurance that protects against defects in title that were not listed in a title report; an owner's policy of title insurance does more than just report on the condition of title, it also protects the owner from claims against their ownership interest. Servicing - ANSWER-Encompasses all things necessary to collect and track a borrower's payments, send periodic loan statements as required, and respond to borrower inquiries on an ongoing loan. Servicing concerns - ANSWER-When borrower becomes delinquent, the servicer must handle loss mitigation and foreclosure proceedings in accordance with federal law; RESPA establishes guidelines for lenders to respond to borrower inquiries about their loans, as well as rules that balance the interests of borrowers and creditors in the foreclosure process. Qualified written request - ANSWER-Filed when borrowers have any questions about the servicing of their loan (escrow issue, misapplication of payment or late fee, etc.), under Section 6 of RESPA; Should be done in writing and sent to address that servicer maintains for that purpose; servicer must confirm receipt of the QWR letter within 5 business days of receipt and respond with an answer within 30 days. RESPA disclosure requirements - ANSWER-Certain cases require lender to provide several documents to the borrowers within three business days of receiving or preparing a loan application, unless application is denied during that time period; under RESPA, those documents are Good Faith Estimate (GFE) used only for reverse mortgages, Mortgage Loan Servicing Disclosure, and the CFPB's Home Loan Toolkit, which is required on purchase transactions only. "Business day" for RESPA disclosures - ANSWER-Any date on which the creditor is open to the public for carrying on substantially all of the creditor's business functions. When does the RESPA and TILA 3 day clock for providing disclosure documents begin? - ANSWER-Clock starts when you have an application including six pieces of information: borrower's name, borrower's social security number, address of the subject property, borrower's monthly income, borrower's estimate of value of the property (not an appraisal), and the loan amount; ANVILS (Address, Name, Value, Income, Loan Amount, SSN). Good Faith Estimate - ANSWER-Required disclosure of the known or anticipated fees, charges, or settlement costs that the mortgage applicant is likely to incur at the settlement (closing) of the loan; each estimate must be made in good faith and bear a reasonable relationship to the charge a borrower is likely to pay at closing; must be delivered within 3 business days of receiving or preparing an application. Uniform Settlement Statement - ANSWER-Also known as HUD-1 settlement statement, it sets forth a complete list of actual settlement costs that will be charged at closing, and must be made available for review, if requested by borrowers, at least one business day prior to settlement. Loan Estimate and Closing Disclosure - ANSWER-October 3, 2015, as part of TILA-RESPA Integrated Disclosure Rule (TRID), GFE and HUD-1 were replaced by these two forms; GFE and HUD-1 still used on reverse mortgages. Mortgage Loan Servicing Disclosure - ANSWER-Notice on what lender intends to do with the servicing of the loan after it is closed, whether lender will service the loan itself or transfer servicing to another entity; must provide borrower within three business days of the loan application; not the same as the Servicing Transfer Statement, which informs the borrower that their loan has been transferred to another servicer and is provided after closing. Affiliated Business Arrangement Disclosure - ANSWER-Informs mortgage applicants of any service providers that may be used in the loan transaction that are affiliated with the lender; must be provided to borrower no later than time the referral to the affiliated business is made; anytime lender requires use of particular affiliated business, such as tax service companies and/or flood certification providers, disclosure must be made at the time of the application. Affiliated business arrangement - ANSWER-Referring party has a greater than 1% ownership interest in the business receiving referral. Servicing Transfer Statement - ANSWER-Required to be provided to borrower by the servicer not later than 15 days before servicing rights are transferred to a new institution; gives the borrower details on the servicing transfer, including the new address(es) for payments or inquiries on the loan; referred to as a "goodbye letter" in the industry; new servicer required to send "welcome letter" to borrower no later than 15 days after transfer of servicing takes place; both letters can be combined, so long as 15 days prior to servicing rights are transferred; 60 day grace period where payment sent to old servicer is transferred to new servicer, as long as old servicer receives payment in a timely manner (no late fees can be assessed by new servicer). Can an MLO also act as a real estate broker/agent? - ANSWER-Yes, though not considered ethical by many real estate trade associations; dual relationship must be disclosed to the borrowers before signing any application documents, and they must consent to the arrangement; this practice is strictly prohibited on all FHA financing transactions. ECOA - ANSWER-Equal Credit Opportunity Act, Regulation B; prohibits discrimination in the granting of all types of credit on the basis of: race, color, religion, national origin, sex, marital status, age, receipt of income from public assistance benefits, and the fact that the applicant has exercised any right, in good faith, under the Consumer Credit Protection Act. Regulation B - ANSWER-Federal regulation that implements ECOA; rulemaking and enforcement of ECOA belongs to Consumer Financial Protection Bureau (CFPB). Permissible under ECOA - ANSWER-Allowed to ask if there are any other sources of income the borrower would like to disclose, though cannot ask specifics (i.e. if the source is alimony, child support, spousal maintenance, etc.); not considered discriminatory to ask the borrower if they have been mandated by a court to pay alimony, child support, or other maintenance, as those are treated as liabilities and must be disclosed on the loan application; permissible to ask marital status, as it may impact documents the lender will require to be executed at closing Three choices of marital status under ECOA - ANSWER-married, unmarried, separated Additional prohibited questions under ECOA - ANSWER-Should ask how many dependents borrower has, not how many children they have; creditor cannot require a co-borrower on an application, though they can suggest that adding one may improve chances of receiving the credit (have to be non-specific, such as "Is there anyone willing to serve as a co-borrower", not "Is your spouse willing to serve as a co-borrower") ECOA procedures for applicant notification - ANSWER-Lender must notify applicant of action taken on their loans within 30 days after receiving a completed loan application (completed application includes any required documentation and is not same as six pieces of information outlined in RESPA and TILA); if application is denied or lender issues a counteroffer on different terms, they must notify the applicant in written form with an adverse action notice; if applicant credit plays part in adverse action, lender must provide applicant with name, address, and toll-free phone number of credit reporting agency that provided credit report Notice of Incompleteness under ECOA - ANSWER-If applicant doesn't submit all required information for a complete application within a 30 day period, creditors may send a "notice of incompleteness", advising the applicant of the missing information and providing them a deadline, or else the application can be withdrawn or denied. CFPB identifying discrimination - ANSWER-Three legal theories: overt discrimination, disparate treatment, disparate impact Overt discrimination - ANSWER-discrimination that is explicit/obvious; advertisement indicating that protected class members are not welcome at the institution or widespread understanding that members of a community will not be considered by an institution. Disparate treatment - ANSWER-differences in the way that protected class members are served by institution; shaking hands of members of one race/gender, though not following same procedure with members of another race/gender, or protected class members are charged higher rates and/or fees than similarly situated members of a non-protected class. Disparate impact - ANSWER-method of identifying discrimination through statistical analysis; occurs when practice or policy that appears to be non-discriminatory on its face has a disproportionately negative effect on members of a particular race, gender, or other protected class; often illegal, even if discrimination is unintentional; i.e. creditor minimum credit score policies leading to disproportionate number of minority applicants receiving FHA loans instead of less expensive conventional loans. TILA - ANSWER-Truth in Lending Act, Regulation Z; promote the informed use of consumer credit by requiring disclosure of its terms and cost; important so that consumer can compare costs when shopping for a mortgage loan, as comparison is considered the best form of shopping in order to avoid abusive lending practices. Regulation Z - ANSWER-Federal regulation that implements TILA; Rulemaking and enforcement power under TILA is handled by Consumer Financial Protection Bureau (CFPB). ARMs - ANSWER-Adjustable rate mortgages; mortgage loan with an interest rate that can change at any point during the life of the loan; required disclosures under TILA, requiring that an additional written disclosure, called an ARM Disclosure, is provided, giving historical information about ARM loans similar to the one that the borrower has applied for. CHARM - ANSWER-Consumer Handbook on Adjustable Rate Mortgages; provides general information on, and covers risks associated with, the ARM product; disclosures about ARMs must be made within the same three business day period as the Loan Estimate. Trigger terms - ANSWER-Certain loan terms that are set forth in an advertisement, which require a number of other terms to be disclosed, as well; trigger terms are as follows: amount or percentage of a down payment, number of payments or period of repayment, amount of any payment, and amount of any finance charge; when trigger terms are used, the following terms must also be stated: amount or percentage of the down payment, terms of repayment, and annual percentage rate (APR); TILA solidifies that when advertising an interest rate on a loan, creditors must also must advertise the APR. Transfer of ownership disclosure - ANSWER-TILA requires entities that purchase or acquire mortgage loans to notify the borrower(s) and provide the name, address, and phone number of the new owner of the mortgage, as well as the location where the transfer of ownership in the mortgage loan is recorded, all within 30 days after acquisition; only required for loans secured by borrower's primary residence. TILA right of rescission - ANSWER-Under Regulation Z, borrowers have the right to cancel certain credit transactions for a period after closing/settlement, called a right of rescission; only applies to refinance transactions on a principal residence; extends three business days from the later of: closing on the transaction (signing loan documents) or delivery of all material disclosures or delivery of two copies of a "notice of right to cancel" to everyone with the right to rescind (typically all listed occur on the same day). "Business day" in right of rescission - ANSWER-Any day except Sundays and federal holidays; day of signing is not included in the three day calculation. Stipulations of right of rescission - ANSWER-Anyone appearing on the title, not just the borrowers, can rescind the transaction, and no agreeance is needed between the parties before rescission; creditor must refund the borrower all monies collected within 20 calendar days of rescission occurring, regardless of whether the funds have been spent (i.e. appraisal fee if the appraisal has already occurred and been paid for). HOEPA - ANSWER-Home Ownership and Equity Protection Act, Section 32; as a result of TILA and HOEPA, additional disclosures and limitations on loan terms apply to certain loans with high interest rates and/or high loan fees. HOEPA loan restrictions - ANSWER-Loan cannot feature a balloon payment within the first five years of the loan, negative amortization, a prepayment penalty, or be refinanced by the original creditor within one year unless doing so would create a clear and tangible benefit for the consumer. High-cost mortgage loans - ANSWER-Also referred to as Section 32 loans, they are loans that regard to HOEPA restrictions; determined by comparing loan APR to the Average Prime Offer Rate (APOR) as published weekly on the CFPB website; high-cost mortgage loans are when APR exceeds APOR by more than 6.5% for a first lien or 8.5% for a subordinate lien, or when the total points and fees payable in conjunction with the loan exceed 5% of the loan amounts (points and fee threshold is lesser than 8% of the loan amount or $1,099 for loans of $21,980 or less).; HOEPA does not apply to reverse mortgages, true construction loans, and loans originated by a Housing Finance Agency (HFA). Higher-priced mortgage loans - ANSWER-HPML, Section 35; TILA/HOEPA was amended in 2009 to create a new category of loans, known as higher-priced mortgage loans; loan is considered a HPML if its APR exceeds the APOR published weekly by CFPB by 1.5% for first-lien loans, 2.5% for jumbo first-lien loans, and 3.5% for subordinate loans. Requirements of HPMLs - ANSWER-Borrower must escrow property tax and insurance payments (on first lien only) for a minimum of five years, and the lender is prohibited from charging a prepayment penalty if the loan's interest rate can adjust in the first four year of the loan term. Additionally, lenders must verify the borrower's ability to repay all higher-priced mortgage loans by looking at the borrower's income, assets, credit, and debt by calculating debt-to-income ratio. Loan originator compensation - ANSWER-In 2011, the Federal Reserve Board ruled on prohibiting dual compensation for originators, which is when an originator is paid from the borrower and the lender on a given transaction; rule also eliminated the form of compensation known as "yield-spread premium, when mortgage brokers and originators were able to increase their compensation by providing the borrower an interest rate higher than that for which they qualified; since this rule went into effect, originators have been prohibited from being compensated based on the terms or conditions of a mortgage loan (other than percentage of the loan amount). Lender-paid compensation - ANSWER-LPC; replaced yield-spread premium (YSP) for mortgage brokers, which is essentially a fixed percentage of the loan amount that does not vary based on loan characteristics (other than the loan amount). 2014 CFPB modified MLO compensation rule - ANSWER-compensation prohibited: YSP, sales of services from an affiliated business (i.e. title insurance), any term or condition of the loan, or proxy for a term or condition of the loan, and steering a consumer into a loan that results in higher compensation, unless clearly in best interest of the consumer; permissible compensation: salary, commission based on dollar volume of loans or numbers of loans closed, so long as that compensation does not vary based on the terms or conditions of a given loan or does not become a proxy for the terms or conditions, participation in tax advantaged/defined benefit retirement plan, and participation in an undefined, non-tax advantaged bonus plan, as long as the total bonus paid doesn't exceed 10% of MLO's total compensation for the year/reporting period. Base points compensation - ANSWER-MLO receives same percentage of the loan amount on every loan originated TILA-RESPA Integrated Disclosure Rule - ANSWER-TRID; Dodd-Frank Act called on CFPB to combine some disclosures required by RESPA and TILA in order to reduce confusion in lending process to consumer and make compliance easier for creditors, allowing them to focus more on other important matters; TRID created two newly integrated disclosure forms and instructions on how to use them, which are contained entirely within Regulation Z; applies to practically every closed-end credit transaction secured by real property; short-term construction loans and loans secured by vacant land or 25 or more acres now apply under TRID, formerly exempt under RESPA/Regulation X. TRID combined forms - ANSWER-Good Faith Estimate and initial Truth in Lending disclosure forms were combined into the Loan Estimate; HUD-1 Settlement Statement and final Truth in Lending disclosure were combined to create the Closing Disclosure form. Mortgage loans TRID does not apply to - ANSWER-Home-equity lines of credit (HELOCs), reverse mortgages, mortgages for mobile homes not secured by real estate, and loans from anyone who funds no more than five loans in a calendar year. Loan Estimate - ANSWER-Form that replaces Good Faith Estimate required by RESPA and the initial Truth in Lending disclosure form required by TILA; purpose is to help applicants obtain an early understanding of various features, costs, and risks that are associated with a potential mortgage loan; records of loan estimates must be kept by creditors for at least three years after the loan has been consummated. Intent to proceed - ANSWER-Once loan estimate is received, creditor must receive an intent to proceed with the transaction process before performing certain acts; borrower can indicate intent to proceed in any way they wish, unless the creditor requires a specific kind of communication; creditor cannot interpret a borrower's silence as an intent to proceed. Fees and loan estimate - ANSWER-Until borrower has received a loan estimate and indicated intent to proceed, no fees may be charged, other than a fee for obtaining the borrower's credit report; creditors prohibited from taking any credit card information or check before receiving borrower's intent to proceed, even if the card is not charged/check is not cashed. Delivery of loan estimate - ANSWER-Required to provide or place in mail no later than three business days after taking borrower's application; no form necessary if borrower withdraws application or creditor denies application during three day period; clock begins when creditor receives application; application needs to comply with TRID and creditor needs to obtain only six pieces of information from applicant: name, income, SSN, property address, estimated value of property, and loan amount (ANVILS) Loan estimates and business days - ANSWER-Any day the creditor is open to the public for the purpose of conducting its regular business activities; day that all six pieces of information are obtained by creditor is considered "day zero". Tolerances - ANSWER-Amount a particular charge can exceed the amount listed on the loan estimate; some charges and fees on the loan estimate have a zero tolerance; zero tolerance items include: origination fees and discount points paid to a creditor and fees paid to a mortgage broker, cost of third-party services that the borrower is not allowed to shop for (appraisal, credit report, tax service, flood certification, etc.), and transfer taxes; third-party services that borrower can shop for have a cumulative tolerance of 10%, along with recording fees paid to a unit of government for recording the mortgage in the public record; aggregate amount of charges cannot exceed the amount disclosed on the loan estimate by more than 10%. Exceeding tolerances - ANSWER-Can exceed tolerance if borrower chooses a service that is not listed on the recommended provider list, as this would be on their own accord; final charges and fees that are greater than those listed on the loan estimate and exceed their allowed tolerance must be refunded to the borrower within 60 days after consummation or a TILA violation has occurred. Changed cirumstance - ANSWER-When creditor encounters inaccurate information from borrower on initial application, or information becomes inaccurate during the processing of the loan, the creditor may issue a revised loan estimate for the purposes of resetting the tolerance calculations, know as changed circumstances. Categories of changed circumstances - ANSWER-extraordinary or unexpected event that could not have been reasonably foreseen by the creditor, change in the information that was reasonably relied on by the creditor when making the loan estimate, and new information that impacts the settlement costs or the borrower's eligibility for the loan. APR - ANSWER-annual percentage rate; total cost of credit over the life of the loan, expressed as an effective annual interest rate; includes interest, discount points, origination fees, mortgage insurance premiums, and other costs of borrowing money. TIP - ANSWER-Total interest percentage; discloses to borrowers the total amount of interest that they will pay over the life of the loan, expressed as a percentage of the original loan; only accurate if the borrower makes the minimum required payments. Waiting periods for loan estimate - ANSWER-Transaction cannot be consummated until seven business days after the provision of the loan estimate (starts when creditor delivers or mails the form); for purpose of seven day waiting period, a business day is defined as any day except Sundays and federal holidays. Home Loan Toolkit - ANSWER-Required under TRID, is also required to be provided to residential mortgage loan applicants within three business days of application (same "business day" as used in providing loan estimate) on purchase transactions only; designed to be used in conjunction with loan estimate and closing disclosure to help borrowers understand the transaction; creditors are permitted to place their logo on the cover and translate into other languages, but may not change wording in booklet. Closing disclosure - ANSWER-Replaces the HUD-1 Settlement Statement and final Truth in Lending disclosure that was provided to borrowers at closing; new form is used to help consumers understand the final costs and terms of the transaction; must be provided with all transactions that require the issuance of a loan estimate and have reached their closing stage; copies of the closing disclosure must be kept by the creditor for at least five years; if loan is sold or transferred to new servicer, they must be provided with one and must keep a copy for at least five years. Delivery of closing disclosure - ANSWER-No later than three business days before consummation; a business day in this context is any day except Sundays and federal holidays, unlike loan estimate; when transaction is rescindable under Regulation Z, a copy of the closing disclosure must be provided to every consumer who has the right to rescind; for non-rescindable transactions, only needs to be provided to one consumer with primary obligation on the loan. Settlement agents - ANSWER-title companies, escrow companies, attorney offices, or real estate brokers who assist in the completion of certain tasks and monitor the status of a transaction for the creditor; creditor is responsible for the accuracy of the form and ensuring that it is delivered in a timely manner. Revised closing disclosures - ANSWER-If following changes occur after issuance of closing disclosure and before consummation, revise closing disclosure must be provided three days before the consummation (reset three day waiting period required): increase in APR by more than 0.125% (most loans) or 0.25% for irregular loans, a change in the loan product, or addition of prepayment penalty. HMDA - ANSWER-Home Mortgage Disclosure Act; adopted by Congress in 1975, the HMDA was written as a response to public concerns that lenders were redlining; redlining is the arbitrary denial of real estate loan applications in certain geographic areas without considering individual applicant qualification; doesn't expressly prohibit redlining, nor require certain number of loans to be made in certain neighborhoods, but requires compilation of data that must be logged on a Loan Application Register (LAR) to be provided to the federal government. Data collection required by HMDA - ANSWER-Application date, loan type, loan purpose, preapproval request, occupancy type and lien position, loan amount (loan-to-value and combined loan-to-value ratios), action taken on the loan application and date, property address and value, property location, borrower ethnicity, race, sex, and age, borrower gross income, credit score, and debt-to-income ratio, the rate spread (difference between the loan's APR and the APOR on the date the rate was locked), and the NMLS number of the MLO originating the loan. Dwelling under HMDA - ANSWER-Any residential structure, whether or not attached to real property (i.e. mobile home not on real estate), unlike RESPA or the TRID rule under TILA. Borrower refusal to provide information under HMDA - ANSWER-Not required to provide information pursuant to HMDA; borrower may elect to not provide race and sex information, requiring the MLO to record a guess (face-to-face only) based on visual observation or surname; now allowed for borrowers to provide disaggregated race and ethnicity (i.e. more detailed, such as Thai, instead of Asian), though when guessing, MLO must guess in aggregated fashion. Regulation C - ANSWER-Federal regulation that implements HMDA; Consumer Financial Protection Bureau has primary rulemaking and enforcement authority over this regulation. FCRA - ANSWER-Fai