Lender Financial Responsibility to Borrowers

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Questions and Answers

What is a lender required to do before charging a borrower?

  • Require the borrower to accept the loan terms immediately
  • Make disclosures of their fees and any third-party fees (correct)
  • Disclose only the total loan amount
  • Provide the borrower with a loan offer without any conditions

Which of the following is true regarding lender fees?

  • They may vary according to the borrower’s credit score
  • Lender fees are fixed and non-negotiable
  • Certain programs may impose limitations on fees (correct)
  • They cannot be negotiated under any circumstances

What is the only charge a lender may collect in advance?

  • Application fee
  • Credit report fee (correct)
  • Underwriting fee
  • Prepayment penalty

Which of the following fees may be adjusted due to a change in circumstances?

<p>Lender service fees (C)</p> Signup and view all the answers

What must lenders disclose regarding compensation paid to mortgage brokers?

<p>It must be disclosed and agreed upon in advance (C)</p> Signup and view all the answers

Which statement about required fees for services is accurate?

<p>Only fees for services not allowed to shop can be increased (A)</p> Signup and view all the answers

In what situation can fees charged by lenders change?

<p>Only if the change is justified by unforeseen circumstances (C)</p> Signup and view all the answers

Which fee is rarely affected by changes in circumstances?

<p>Transfer taxes (D)</p> Signup and view all the answers

What happens when costs increase more than the allowed limits without a valid change in circumstances?

<p>The borrower is entitled to a 'tolerance cure' refund. (C)</p> Signup and view all the answers

What is the time frame in which required tolerance cure refunds discovered after closing must be paid to the borrower?

<p>60 days. (B)</p> Signup and view all the answers

Under RESPA section 8, what is true about referral fees?

<p>Referral fees are generally prohibited. (D)</p> Signup and view all the answers

What is a requirement for funds held in escrow?

<p>They must be returned promptly if a transaction does not close. (A)</p> Signup and view all the answers

Which of the following practices is prohibited under RESPA in regard to splitting fees?

<p>Offering fee splits for referrals without performance. (A)</p> Signup and view all the answers

What occurs when a revised Loan Estimate is issued due to a change in circumstances?

<p>It resets the baseline for fees. (C)</p> Signup and view all the answers

What must lenders do if they hold advance payments for appraisals?

<p>Return excess funds promptly if the transaction does not close. (B)</p> Signup and view all the answers

Which statement regarding escrow funds is correct?

<p>They must remain untouched until settlement is complete. (A)</p> Signup and view all the answers

What constitutes a violation related to referral fees?

<p>Paying for referrals that involve no actual service. (C)</p> Signup and view all the answers

What is the primary purpose of a 'tolerance cure' refund?

<p>To compensate borrowers for excessive fee increases beyond limits. (B)</p> Signup and view all the answers

Flashcards

Negotiable Lender Fees

Lender fees are usually open to negotiation with the borrower, but some programs may impose restrictions, such as the VA loan program limiting the origination fee to 1%.

ATR/QM Fee Limits

The ATR/QM (Ability-to-Repay/Qualified Mortgage) rule sets limits on the total fees that can be charged for a loan to be considered a Qualified Mortgage. This helps to prevent predatory lending practices.

Credit Report Fee Advance Collection

The only fee a lender can collect upfront is for the credit report. All other charges, such as appraisal fees, can only be collected once the borrower expresses interest in proceeding with the loan.

Disclosing Broker Compensation

Compensation paid to a mortgage broker must be disclosed to the borrower. This transparency helps borrowers understand the financial incentives involved in the mortgage process.

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Fixed Compensation for Originators

The compensation paid to a mortgage originator or broker cannot vary based on the type of loan program or lender profitability. This helps to ensure that borrowers are not disadvantaged by the choice of loan program.

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Change in Circumstances for Fee Adjustments

Fees that are directly influenced by a change in circumstances, such as a change in interest rates or appraisal value, can be adjusted and redisclosed to the borrower. However, a 'change in circumstances' cannot be used as an excuse to increase fees that are not affected by the change.

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Adjustable Fees for Non-Shoppable Services

Required fees for services provided by the lender, the mortgage broker, or their affiliates can be adjusted due to a change in circumstances. This applies to services that the borrower was not given the option to shop around for.

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Transfer Taxes and Change in Circumstances

Transfer taxes, typically calculated based on the property's sale price, are rarely affected by changes in circumstances. This is because they are largely determined by the sale price itself, not other factors.

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10% Aggregate Tolerance Limit

The maximum amount a lender can increase closing costs due to changes in circumstance.

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Tolerance Cure Refund

A refund given to the borrower when closing costs exceed the allowed tolerance limit due to reasons other than changes in circumstances.

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Escrow Funds

A lender or settlement agent holds funds on behalf of two parties involved in a transaction, such as buyer and seller, before the transaction is finalized.

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Referral Fee

A fee paid to a third party for referring a borrower to a lender or settlement service provider.

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Splitting Fees

Illegal under RESPA, this involves splitting a fee between two parties where only one party actually performed the service.

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Unearned Fee

When a lender or settlement agent charges a fee for a service that was not performed or for a service that was only minimally performed.

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Referral Fee (RESPA)

Any fee, kickback, or other thing of value given to a third party for referring a borrower for a federally related loan.

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Referral Fee (RESPA)

Any fee, kickback, or other thing of value given to a third party for referring a borrower for a federally related loan.

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Loan Estimate Baseline

The Loan Estimate sets a baseline for fees, and only changes in circumstances or 10% aggregate tolerance allow adjustments.

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Closing Disclosure Baseline

The Closing Disclosure resets the baseline for fees, incorporating any changes that occurred since the Loan Estimate.

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Study Notes

Lender Financial Responsibility to Borrowers

  • Lenders must disclose fees and third-party payments upfront (Loan Estimate).
  • Lenders must disclose affiliate relationships and allow borrowers to shop for services.
  • Quoted fees must be honored, except with justification for unforeseen changes in circumstances.

Permitted Lender Fees

  • Lender fees are generally negotiable but some programs/rules have limitations (e.g., VA maximum 1% origination fee).
  • ATR/QM rules limit fees for qualified mortgages.
  • Credit report fees are the only charges allowed in advance.
  • "Out-of-pocket" expenses (e.g., appraisal) can't be collected until after the borrower commits.
  • Mortgage broker compensation must be disclosed and cannot vary based on lender profitability.
  • Pre-agreed compensation limits apply.

Non-Adjustable Fees

  • Only fees directly affected by change in circumstances can be adjusted and redisclosed.
  • Changes in circumstances cannot justify adjusting unaffected fees.
  • Some fees (lender, broker, affiliate fees, non-shoppable services) can only be adjusted with a legitimate change in circumstances.
  • Transfer taxes are rarely affected by changes and are usually sale-price-dependent.

Loan Estimate (LE) and Fee Handling

  • Loan Estimates are the initial baseline for non-adjustable fees.
  • LE revisions due to unforeseen changes reset the baseline.
  • Closing Disclosures reset the fee tolerance baseline.
  • Subsequent LEs cannot be issued once a Closing Disclosure is given.
  • Revised CDs can reset the baseline.
  • Borrowers are entitled to "tolerance cure" refunds exceeding allowable limits if justified.
  • Funds to refund borrower overages are typically provided to borrower at settlement.
  • Refunds for tolerance cures discovered after closing need to occur within 60 days of settlement.

Escrow Funds & Settlement Scenarios

  • Lenders/settlement agents may hold funds in escrow for transactions.
  • Escrow funds cannot be commingled with other lender funds.
  • Most states mandate separate accounts for escrow funds.
  • Transactions requiring excess escrow fund holdings must be returned promptly
  • Misuse of escrow funds is illegal.

Referral Fees & Splitting Fees

  • Referral fees are generally prohibited in federally related loans.
  • A "referral fee" is any compensation connected to a referral for services.
  • Simple referrals of settlement services are not compensable.
  • Companies providing settlement services cannot pay for referrals
  • Fees cannot be split unless actual services are performed (i.e., real estate agent referral does not merit split).
  • Duplicative, unearned fees for no or nominal service are violations.
  • The source of payment does not determine compensability.

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