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Ability to Repay and Qualified Mortgage

What is excluded from the QM points and fees calculation?

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Question: What is excluded from the QM points and fees calculation?
Answer: In general, the following items are excluded from the points and fees calculation for a QM loan: 
  • Interest fees or the time-price differential;
  • FHA Upfront Mortgages Insurance Premiums (UFMIP) and annual Mortgage Insurance Premiums (MIPs); 
  • USDA Guaranty fees;
  • VA Funding fees;
  • Monthly private mortgage insurance (PMI). The portion of upfront PMI that does not exceed the current FHA upfront MIP may also be excluded if the premium is refundable on a prorated basis and a refund is automatically issued upon loan satisfaction. 
  • Bona fide third-party fees only if they are not retained by the creditor, broker, an individual LO, or affiliate of either;
  • Real estate related fees if reasonable in amount and not paid directly or indirectly to a creditor or creditor’s affiliate;
  • Up to two bona-fide discount points (as defined under the ATR/QM Rule) may be excluded if the interest rate before the discount does not exceed the APOR for a comparable transaction by more than 1% point; and
  • Up to 1 bona fide discount point if the interest rate before the discount does not exceed the APOR for a comparable transaction by more than 2 points.

What is a Qualified Mortgage (QM)?

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Question: What is a Qualified Mortgage (QM)?
Answer: A qualified mortgage (QM) is a type of loan that has more stable features that help make it more likely for a borrower to pay their mortgage loan. If a lender provides a QM loan to a borrower, then it is assumed that the lender has met the ATR requirements. A QM usually include the following features:
  1. Prohibition on certain risky features such as interest-only loans, negative amortization, balloon payments, and loan terms longer than 30 years;
  2. Limitation on debt-to-income ratio; and
  3. Limitation on certain upfront “points and fees”.

Anti-Money Laundering Rule

Does the board have to appoint the AML officer?

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Question: Does the board have to appoint the AML officer?
Answer: Yes, the board of directors or senior management must designate a person to oversee the AML program (e.g. BSA Officer or AML Officer). Federal and state examiners may ask for evidence that this has occurred such as a corporate resolution or meeting minutes approving the appointment.

Appraiser Independence

Can an loan originator or sales staff select or hire the appraiser?

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Question: Can an loan originator or sales staff select or hire the appraiser?
Answer: Under AIR, a lender or any third party authorized by the Lender (including, but not limited to, appraisal companies, appraisal management companies, and Correspondent lenders) shall be responsible for selecting, retaining, and providing for payment of all compensation to the appraiser. The lender cannot accept any appraisal report completed by an appraiser that is selected, retained, or compensated in any manner by any other third party, including Mortgage Brokers and real estate agents.

Demographic Information on the Loan Application

When an applicant or co-applicant does not wish to provide the demographic information, is a broker still required to complete the information?

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Question: When an applicant or co-applicant does not wish to provide the demographic information, is a broker still required to complete the information?
Answer: If an applicant chooses not to provide the demographic information and the application was made in person, federal regulations require the broker to note the applicant’s ethnicity, race, and sex on the basis of visual observation or surname. If the application was not taken in person (for example, it was taken by phone or online), then the broker should not mark the demographic information if it wasn’t provided by the applicant.

E-Sign Act

What are the requirements for obtaining consent to provide documents to consumers electronically?

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Question: What are the requirements for obtaining consent to provide documents to consumers electronically?
Answer: In general, the E-Sign Act requires that prior to obtaining consent a consumer must be provided with:
  • Any right or option to have the information provided in paper and the right to withdraw consent and any conditions to do so;
  • Whether the consent applies to only the particular transaction or to certain categories of records that may be provided during the loan process;
  • Description of procedures to withdraw consent and update contact information to received electronic documents;
  • Description of how the consumer may still request a paper copy and whether a fee will be charged; and
  • A statement of the hardware and software requirements for access to and retention of the electronic documents. 
In addition, if the consumer consents electronically, it must be in a manner that can demonstrate the consumer can access the information in the electronic format. The regulation also requires notification to consumers if there is a change in hardware or software requirements to access the consumer’s electronic records.

What is the E-Sign Act?

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Question: What is the E-Sign Act?
Answer: The Electronic Signatures in Global and National Commerce Act (E-Sign Act) allows electronic documents to be used, if the consumer affirmatively consents to receiving documents electronically and has not withdrawn such consent, when information is required by law must be provided in writing to a consumer. The E-Sign Act sets out various requirements that must be met prior to obtaining consent. If these requirements are not met or the consumer does not consent, the information cannot be provided electronically.

Equal Credit Opportunity Act

When must a notice of action taken be provided to a consumer under ECOA?

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Question: When must a notice of action taken be provided to a consumer under ECOA?
Answer: Under ECOA, the consumer shall be notified of action taken within the following timeframes:
  1. Within 30 days after receiving a completed application concerning the approval of, counteroffer to, or adverse action on the application;
  2. Within 30 days after taking adverse action on an incomplete application, unless a notice of incomplete application is provided in accordance with ECOA’s requirements;
  3. within 90 days after notifying the applicant of a counteroffer if the applicant does not expressly accept or use the credit offered.

What is the Equal Credit Opportunity Act (ECOA)?

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Question: What is the Equal Credit Opportunity Act (ECOA)?
Answer: The Equal Credit Opportunity Act (ECOA) is a federal law that is intended to protect consumers who are trying to obtain credit from being discriminated against, based on any of the reasons below.     
  • Race
  • Color
  • Religion
  • National origin (the birth country of the consumer or the consumer’s ancestors)
  • Sex (including gender)
  • Marital status
  • Age (the applicant must be old enough to enter into a contract)
  • Receiving money from any public assistance program, such as Social Security Disability Insurance or the Supplemental Nutrition Assistance Program
  • Exercising of the consumer’s rights under certain consumer protection laws
In addition, ECOA also requires a lender or broker provide notice to the consumer with specific time frames when action is taken on the consumer’s application.

TILA-RESPA Integrated Disclosures (TRID) Rule

When should the Your Home Loan Toolkit be provided to an applicant?

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Question: When should the Your Home Loan Toolkit be provided to an applicant?
Answer: Your Home Loan Toolkit must be provided by the broker or lender within 3 days of receiving an application (6 TRID Rule items) for a purchase transaction.

Can a credit report fee, appraisal fee, or other fee be collected prior to closing?

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Question: Can a credit report fee, appraisal fee, or other fee be collected prior to closing?
Answer: TILA-RESPA Integrated Disclosures (TRID) Rule prohibits collecting or imposing a fee, other than a credit report, from a consumer before the consumer has received the Loan Estimate and indicated an intent to proceed with the mortgage transaction. The TRID Rule considers a fee to be imposed upon the consumer if a consumer is required to provide a payment method, even if payment is actually made at a later time. In addition, certain States may require specific disclosures before collecting a fee from a consumer.

UDAAP

What is the definition of a deceptive act or practice under UDAAP?

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Question: What is the definition of a deceptive act or practice under UDAAP?
Answer: In general, an act or practice is deceptive when: 
  • the act or practice misleads or is likely to mislead the consumer; 
  • the consumer’s interpretation is reasonable under the circumstances; and 
  • the misleading act or practice is material.

What is UDAAP?

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Question: What is UDAAP?
Answer: UDAAP is an acronym that refers to unfair, deceptive, or abusive acts or practices in connection with consumer financial products and services. Each word in the UDAAP acronym has a specific definition and carries specific requirements. Examiners will review products, services, marketing materials, disclosures, etc. to identify any UDAAP risks of harm to consumers. Examiners will also review products that combine features and terms in a way that can increase the consumer to have difficulty understanding the overall costs or risks of the product and any associated potential harm to the consumer.