Truth In Lending

1. Truth In Lending Revisiting the Basics

2. TILA Refresher Workshop Truth In Lending Consumer Credit Protection Act (1968) Truth In Lending Act (Title 1) Regulation Z (1969)

3. TILA Refresher Workshop The Purpose of TILA To Promote the Informed Use of Consumer Credit by Requiring Disclosures about its Terms & Costs. Purpose does not include governing charges for Consumer Credit.

4. TILA Refresher Workshop Revisiting The Basics OPEN END v. CLOSED END REGULAR v. IRREGULAR TRANSACTION FIXED v. VARIABLE INTEREST RATES FINANCE CHARGE ANNUAL PERCENTAGE RATE (APR) ACCURACY TOLERANCE RIGHT OF RESCISSION THE DISCLOSURES ADVERTISING GUIDELINES HOEPA & HERA

5. TILA Refresher Workshop Open End Credit Plans - The Creditor Anticipates Repeat Transactions - Finance Charge Assessed on Outstanding Balance - Renewable Credit Limits Imposed Among Mortgages, a Home Equity Line of Credit (HELOC) is an Open End Loan type.

6. TILA Refresher Workshop Closed End Credit Plans Closed End means the loan program will have a definite End Date. Any Plan that is not an Open End Plan is by definition a Closed End Plan.

7. TILA Refresher Workshop Regular v. Irregular Transactions An Irregular Transaction is one that includes one or more of the following features: multiple advances, irregular payment periods, or irregular payment amounts (other than an irregular first period or an irregular first or final payment). A Regular Transaction will have a single advance, and regular payment periods and amounts.

8. TILA Refresher Workshop Fixed v. Variable Rates Fixed provides one rate of interest for the life of the loan. Variable means the Interest Rate can change over the life of the loan. Reg Z provides very specific rules for explaining Variable Rate loans in an effort to keep the consumer informed.

9. TILA Refresher Workshop Variable Rate Loans Terms & Things to Know What is the Index Rate? What is the Margin? What is the Fully Indexed Rate? What are Periodic Caps? How does a Variable Rate Payment Schedule work?

10. TILA Refresher Workshop The TILA Disclosure A terrific summary for the consumer, showing the long term impact of a mortgage loan. Finance Charge Annual Percentage Rate (APR) Total of Payments Payment Schedule Various Important Factors

11. TILA Refresher Workshop Finance Charge Section 226.4 (a) Definition (b) Examples of F/C (c) Exclusions from F/C (c) (7) Real Estate Exclusions

12. TILA Refresher Workshop Definition The FINANCE CHARGE is the cost of consumer credit expressed as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction.

13. TILA Refresher Workshop Any Fee not specifically excluded from the Finance Charge in 226.4(c)(7) is, in fact, a Finance Charge.

14. TILA Refresher Workshop Prepaid Finance Charges Refers to Finance Charges that are paid by the consumer AT or PRIOR TO the closing of the loan. Finance Charges assessed on the HUD Settlement Statement are Prepaid Finance Charges.

15. TILA Refresher Workshop Annual Percentage Rate (APR) The cost of Consumer Credit expressed as a percentage. Modifies the rate of interest applicable to a loan, considering the effect of non-interest Finance Charges paid by the consumer. TILA requires the disclosure of an APR whenever an Interest Rate is referenced, either orally or in writing.

16. TILA Refresher Workshop Tolerance for Accuracy (Fin. Chg) Lender open to civil liability if Finance Charge is understated by $100.00 or more. Lender open to Rescission liability if Finance Charge is understated by $35.00 or more. No Liability if Finance Charge is Overstated on Disclosure.

17. TILA Refresher Workshop Tolerance for Accuracy (APR) Accurate if within .00125 for Regular Transaction. Accurate if within .00250 for Irregular Transaction.

18. TILA Refresher Workshop Borrower�s 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

19. TILA Refresher Workshop Rescission Period Three Day Clock Begins Ticking when all of the following have occurred. The Note & Mortgage (DOT) have been executed; The Consumer has received their Final TILA Disclosure; and, The Consumer has received the Notice of Right to Cancel

20. TILA Refresher Workshop Rescission If a consumer rescinds on the transaction, they are entitled to a refund of any fees paid during the transaction.

21. TILA Refresher Workshop TILA�s Disclosures Truth In Lending Disclosure Preliminary and Final Adjustable Rate Disclosure Right to Cancel Disclosure HOEPA Disclosure New Disclosures

22. TILA Refresher Workshop 2009 - Watershed Year for TILA HERA / MDIA Changes (effective July 30, 2009) HOEPA Changes (effective October 1, 2009) Proposed Future Changes

23. TILA Refresher Workshop HERA � The Housing & Economic Recovery Act Effective for all new Applications received on or after July 30, 2009 Early Disclosure Requirements on all mortgage loans subject to TILA. Restrictions on Fee Receipt and Closing Practices Pre Closing Disclosure Requirements

24. TILA Refresher Workshop Early Disclosure Requirements Up til now, a Preliminary Truth in Lending Disclosure was required only on Purchase transactions; not Refinances. HERA / MDIA Amendments to TILA now require that Preliminary or EARLY TILA Disclosures be given in all circumstances.

25. TILA Refresher Workshop Early Disclosure & Receipt of Fees Before the Consumer can be required to pay any fee, they must receive a copy of the Preliminary Truth In Lending Disclosure. If the Disclosure is delivered by regular mail, it will be presumed to have been received by the consumer on the third business day after mailing. Cannot close loan until at least Seven (7) business days after early disclosures have been mailed.

26. TILA Refresher Workshop New Pre Closing Disclosures If the APR has changed beyond TOLERANCE since the Preliminary or the most recent disclosure, a New TILA Disclosure must be delivered to the applicant at least three business days prior to closing. APR Tolerance is affected regardless of whether the change is in the form of an Increase or a Decrease.

27. TILA Refresher Workshop New Pre Closing Disclosures In reality, nothing has changed in regard to the accuracy of the APR or Finance Charge, except the timing of its measurement. TILA recognizes that the APR is correct, if it is within the 1/8 Tolerance variance (1/4 for Irregular Transactions.) TILA also recognizes that the APR is correct if it is a function of the Finance Charge, and the Finance Charge is within tolerance.

28. TILA Refresher Workshop What�s Different ? The difference is in the timing. Instead of being accurate only AT CLOSING, we must now provide a new accurate disclosure in advance of closing when loan terms have changed.

29. TILA Refresher Workshop HOEPA Section 32 of Reg Z � added in 1994 to address abusive lending practices. Under HOEPA, a mortgage is considered to be a High Cost Loan if it includes terms that exceed certain thresholds established for the Points & Fees and Annual Percentage Rate.

30. TILA Refresher Workshop New HOEPA Regulations Most changes become effective on Oct 1, 2009 Amends Old Rules & Creates New Rules Designed to Address Subprime Lending Concerns

31. TILA Refresher Workshop 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.

32. TILA Refresher Workshop HPML � Higher Priced Mortgage Loan Old HOEPA � If APR for First Lien loan is greater than 8 points above applicable Treasury Index, then loan would be considered to be a High Cost Loan, and subject to HOEPA restrictions.

33. TILA Refresher Workshop HPML � Higher Priced Mortgage Loan 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 more than 8 pts.

34. TILA Refresher Workshop HPML � Higher Priced Mortgage Loan New HOEPA If APR for First Lien Loan is greater than 1.50 % above the Average Prime Offer Rate, then it is a Higher Priced Mortgage Loan, and subject to all the restrictions implied.

35. TILA Refresher Workshop HPML � Higher Priced Mortgage Loan New HOEPA � Avg. Prime Offer Rate = 4.50% APR = 6.50% Loan is a HPML because the APR exceeds the Average Prime Offer Rate by more than 1.50%.

36. TILA Refresher Workshop The Average Prime Offer Rate Published weekly and is effective from Monday thru Sunday. Table found at: http://www.ffiec.gov/ratespread/newcalc.aspx

37. TILA Refresher Workshop HPML � Higher Priced Mortgage Loan HPML Restrictions Ability to Repay Prepayment Penalties Escrow Accounts

38. TILA Refresher Workshop Ability to Repay Applies to HPMLs only, but likely to wield a broader brush. Verify & Document Repayment Ability. Use Highest Scheduled Payment for first seven years of the loan. Stated Income loans prohibited No Doc loans prohibited.

39. TILA Refresher Workshop HPML � Higher Priced Mortgage Loan Prepayment Penalties No Prepayment Penalties if monthly payment amount can change during the first 4 yrs of the loan. No Prepayment Penalties when refinanced by same creditor. Otherwise, 2 yr maximum Prepay period.

40. TILA Refresher Workshop Escrow Accounts (for HPMLs) Not Effective Until 2010 Escrow Accounts required for all new loans that meet HPML threshold. Cannot be waived by borrower. Borrower can discontinue after one year.

41. TILA Refresher Workshop Advertising Guidelines FTC�s �How to Advertise Consumer Credit & Lease Terms� Expanded Advertising Directives in October 2009 Amendments. http://www.ftc.gov/bcp/conline/pubs/buspubs/creditad.htm

42. TILA Refresher Workshop Read the Regs TILA (Reg Z) is best understood, ultimately, by taking the time to read the regulation and commentary. http://www.fdic.gov/regulations/laws/rules/6500-1400.html