MLO Exam Prep: Federal Mortgage-Related Laws PDF

MLO Exam Prep: Federal Mortgage-Related Laws STUDY SHEET Top Takeaways You can expect to see roughly 28 questions about federal mortgage-related laws on your licensing exam. Real Estate Settlement Procedures Act (RESPA), 12 Code of Federal Regulations (CFR) Part 1024 (Regulation X) RESPA origins a...

MLO Exam Prep: Federal Mortgage-Related Laws STUDY SHEET Top Takeaways You can expect to see roughly 28 questions about federal mortgage-related laws on your licensing exam. Real Estate Settlement Procedures Act (RESPA), 12 Code of Federal Regulations (CFR) Part 1024 (Regulation X) RESPA origins and purpose; definition of "mortgage broker" RESPA is a federal law that protects consumers from paying excessively high costs in mortgage transactions. The Consumer Financial Protection Bureau (CFPB) enforces the terms of RESPA, which requires that consumers receive disclosures at various times in the transaction and outlaws kickbacks that increase the cost of settlement services or limit consumer choice. Mortgage brokers include any "person (other than an employee of a lender) that renders origination services and serves as an intermediary between a borrower and a lender in a transaction involving a federally related mortgage loan…" Applicable loan types RESPA regulations apply to loans granted on one- to four-family residential properties, including loans for assumptions, refinances, home improvements, and home equity lines of credit (HELOCs). RESPA prohibitions, limitations, & exemptions RESPA prohibits any person from receiving a fee or kickback in return for referring consumers to a specific settlement service provider. Loans exempt from RESPA include: Commercial or business loans Vacant land Land tracts of 25 acres or larger, with a residence or without one Certain kinds of loan assumptions Construction-only loans Loans to the government Settlement Services RESPA prohibits anyone from accepting a fee, kickback, or any other item of value in exchange for referring consumers to a settlement service provider related to a mortgage loan transaction. Service providers can't make verbal or written agreements or understandings with real estate professionals, MLOs, or any other party in a loan transaction as a way to receive referrals for new business. A kickback is anything of value, regardless of amount, that an individual or company provides to a professional in exchange for referring business. Settlement services include any services provided in connection with a prospective or actual settlement. This can include loan origination, mortgage brokerage, title services, and many more. According to RESPA, a referral is given in any situation in which a person influences another person's decision about which settlement service provider to use for a transaction. This could be a verbal or written action directed at a consumer. Referrals also include situations in which a person who's paying for settlement service is required to use a specific settlement service provider in order to have access to a particular service or property. RESPA uses the term "required use" to describe this type of referral. Offering packages, rebates, or discounts in order to make a service provider more appealing to a consumer isn't considered required use so long as the discounts truly save the consumer money and aren't made up by higher costs somewhere else. Violators of RESPA are subject to criminal and civil penalties of as much as $10,000 in fines, as well as civil lawsuits that may hold the violator responsible for as much as three times the amount of the kickback and as long as one year in prison. Required borrower information on application (Regulation X) According to Regulation X, a loan application must contain specific pieces of information in order to be considered "complete" and subject to RESPA. This information includes: The borrower's name The borrower's monthly income The borrower's social security number (to obtain a credit report)  The property's address An estimate of the property's value The mortgage loan amount sought Any other information deemed necessary by the loan origination Foreclosure process Short sales are made when the market value of the property (and the eventual sales price) is less than the net proceeds the borrower will get when selling it. The only option for sellers who don't have enough money to make up the difference between what's owed and the sales price is to request permission from their lender (or lenders) to repay less than the total amount owed. Short sales generally happen when a homeowner is financially distressed and the loan is delinquent (i.e., the borrower is late making a loan payment) and eventually goes into default (i.e., the borrower failed to keep up with loan obligations over time). Borrowers who become delinquent on loan payments or start to have difficulty making payments can ask for assistance from the lender or mortgage services. This is referred to as a loss mitigation application (also called a loan workout), and involves communication between the borrower and the lender. If a borrower doesn't submit a loss mitigation application, the mortgage servicer must wait at least 120 days before filing for foreclosure. Once the borrower submits a loss mitigation application, the lender has five days to acknowledge that the application was received and request any additional necessary information. The lender must let the borrower know whether there's a way to save the home from foreclosure proceedings. This must be done within 30 days of receiving a completed loss mitigation application and also at least 37 days before a foreclosure sale. Borrowers who submit a loss mitigation application at least 90 days before a foreclosure sale may also request an appeal to the mortgage servicer's decision, if desired. Initial escrow statements RESPA sets limits on how much a lender may charge a borrower for maintaining an escrow account. For loans that have an escrow account, at most, lenders may only charge: Charges at settlement, upon creation of an escrow account, in an amount sufficient to pay charges related to the mortgaged property, plus an additional "cushion" of no more than 1/6 of the estimated total annual payments from the escrow account Charges during the life of the escrow account in a monthly charge equal to 1/12 of the total annual escrow payments that the lender anticipates paying from the account, plus an additional "cushion" of no more than 1/6 of the estimated total annual payments from the escrow account Initial escrow statements provide estimates of what taxes, insurance premiums, and other charges are expected to be paid from an escrow account within the first 12 months of the loan. The initial escrow statement is usually provided to the borrower at closing, but may legally be provided anytime within 45 days from settlement. Equal Credit Opportunity Act (ECOA), 12 CFR 1002 (Regulation B) ECOA applicants for credit may be judged only on their creditworthiness (income, net worth, job stability, credit rating, etc.). Factors that cannot be used to discriminate The ECOA ensures financial institutions and other lenders don't discriminate during the evaluation of an applicant's credit application. The ECOA requires lenders and other creditors to make credit equally available without discriminating on the basis of sex, race, color, religion, national origin, age, marital status, and/or receipt of public assistance. The ECOA also makes it unlawful to discriminate on the basis of an applicant having previously registered a complaint, filed a lawsuit, or taken another action of exercising rights related to equal treatment under the Consumer Credit Protection Act (CCPA). Circumstances where loan can be denied Although the ECOA prohibits lenders from discriminating against loan applicants based on certain characteristics, it is important for lenders to ask applicants questions to determine whether to provide the loan. Creditors may ask applicants how old they are because it's important for the creditor to know if applicants are too young to sign a contract (are minors and therefore lack the capacity to contract) or if an applicant's income is likely to shrink due to impending retirement. Similarly, it's acceptable for a lender to ask about an applicant's citizenship status in order to determine whether the applicant is a permanent U.S. resident. Regulation B The CFPB enforces the ECOA through Regulation B.  All individuals who participate in granting credit must follow the rules set forth in the act, including loan originators who arrange financing. Notifying borrower of action taken (timing) If an application is declined, the financial institution must notify the applicant within 30 days. The financial institution must deliver to the applicant a written statement specifying the reasons for denial. Required disclosures (when application denied) Among other things, the ECOA sets forth specific requirements for notifications regarding denial of credit and disclosures (such as the borrower's right to receive a copy of the appraisal), and requires that lenders provide borrowers a copy of all completed home appraisals, whether credit is granted or denied. Adverse actions: definition/examples/notifications/timing Once a creditor has obtained all necessary information for a credit application, the creditor has 30 days to inform the applicant of the decision. The creditor may also take adverse action on a credit application if it is incomplete (or for various other reasons). Adverse actions include refusing to grant credit, terminating an account or making an unfavorable change to an existing account, and refusing to increase available credit to an individual who has applied for an increase. Notice is also required: Within 30 days of taking adverse action on an incomplete application Within 30 days of taking adverse action on an existing account (in this case, the creditor must state what adverse action was taken, provide the creditor's contact information, and disclose the applicant's right to know why the adverse action was taken) Within 90 days of providing an applicant with a counter-offer (i.e., an offer to grant credit of a different amount or on different terms than those applied for) if the applicant doesn't expressly accept or use the credit offered Lenders aren't required to hold a counter-offer open to for 90 days (or any specific length of time). When a credit application is denied, the lender must provide written notice of adverse action to the applicant with specific reasons why the application was denied, and must also let applicants know their rights under the ECOA. Information required on application; definition of "elderly" The ECOA applies to any situation in which a loan application is taken, evaluated, approved, or denied. Under the terms of Regulation B, lenders may require applicants to provide any information in connection with a credit transaction except for information regarding race, color, religion, national origin, or sex. Under Regulation B, anyone over 62 years of age is considered elderly. MLO actions when borrower refuses to provide race/gender information Borrowers aren't required to provide Home Mortgage Disclosure Act (HMDA) information. If a borrower chooses not to provide this information, the financial institution is required under federal regulations to enter the applicant's ethnicity, race, and sex based on visual observation or assumptions made via the applicant's surname. Co-signer requirements Lenders cannot require a loan applicant to have a co-signer, though the applicant may choose to have one. If there is a co-signer on a loan application, the lender may inquire about any valid information for both applicants that may apply to the loan transaction. Acceptable income for loan review It's important to know how reliable and consistent an applicant's income is, but lenders can't dismiss certain kinds of income as less valuable than other sources of income in a way that is discriminatory. Lenders may inquire about an applicant's source of income, but may not dismiss or refuse to consider income gained through public assistance, part-time employment, pensions, retirement benefits programs, alimony, or child support. Lenders must consider these income sources to be as valid as any other income sources. Lenders may also ask about an applicant's spouse if the applicant is relying on the spouse's income for repayment of the loan. Creditworthiness factors Loan applicants' credit history, income, expenses, and other debts are commonly used to evaluate their creditworthiness. These elements help lenders determine if applicants are a good credit risk and will repay the money loaned to them, or not. Truth in Lending Act (TILA), 12 CFR Part 1026 (Regulation Z) Purpose of TILA  The Truth in Lending Act, or TILA, is implemented by Regulation Z and provides lenders and loan originators with standard definitions for common industry terms to avoid these issues. TILA was enacted as part of the Consumer Protection Act in 1968 to better educate the public about the costs of credit and financing through improved disclosures that are required of lenders and credit providers. TILA disclosures, especially those made in loan advertisements, allow consumers to compare the costs of making a purchase using credit from different lenders, and to compare the cost of using credit with the cost of using cash. Loans covered under TILA TILA applies to lenders who provide closed-end credit (including car loan and home mortgages) and open-end credit (including credit cards and HELOCs) if the following four conditions are met: 1. Credit is being offered to a consumer. 2. The offer for credit is done regularly. 3. The loan is subject to finance charges or payable in four or more installments. 4. The credit is primarily for personal, family, or household purposes. Specifically, TILA applies to home mortgages, reverse mortgages, some types of student loans, credit card loans, HELOCs, and installment loans. Commercial, business, and agricultural loans or credits are exempt from Regulation Z. Rental properties not occupied by the owner are also exempt from TILA. Definitions, including APR, finance charge, dwelling, residential mortgage loan The annual percentage rate (APR) is derived according to a government formula. It's intended to reflect the true cost of financing and includes financing fees, so it will always be higher than the actual interest rate on a loan. Finance charges are any fees that are charged for the use of credit or taking out a loan, including the costs of taking out the loan, transaction fees, late fees, and other fees charged by a lender. TILA considers as a "dwelling" any residential structure containing at least one and no more than four units, regardless of whether the structure is attached to real property. That means TILA considers condos, cooperatives, mobile homes, manufactured homes, and trailers to all be dwellings if they're used as residences and attached to real property. Residential mortgage transactions, according to TILA, are defined as "a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained in the consumer's principal dwelling to finance the acquisition or initial construction of that dwelling." "Notice of right to rescind," refinance rescind scenarios, and defining seller contributions The right of rescission means that borrowers have three business days from the day the loan in consummated, the day that the notice of right to rescind is delivered, or the day the disclosure statement is delivered (whichever is later) to rescind. Loans that are being used to purchase a primary residence are exempt from the right of rescission. In other words, the right of rescission only applies to the refinancing of a mortgage, HELOCs, and home equity loans, but not for purchases of new homes. If the lender doesn't provide notice of right to rescind, the consumer will have an extended right of rescission-as long as three years. The extended right of rescission also applies when the lender doesn't provide the consumer with required material disclosures (i.e., the APR for the loan, payment schedule, finance charges, etc.). Home Ownership and Equity Protection Act (HOEPA), high-cost mortgages (12 CFR 1026.32) According to the Federal Trade Commission (FTC), HOEPA focuses on predatory practices relating to home equity lending, and includes requirements for certain loans with high interest rates or excessive fees. HOEPA loans also are referred to as Section 32 mortgages after the section of the law that addresses them. HOEPA not only defines what a high-cost mortgage is, but also requires specific disclosures and housing counseling when needed. Today, many states actually use HOEPA to define predatory lending in their own statutes. Loans subject to HOEPA coverage include: Purchase-money mortgages Refinances Closed-end home equity loans Open-end credit plans (e.g., HELOCs) High Cost and Higher-priced mortgage loans (12 CFR 1026.32 & 35) Higher-priced mortgage loans are loans secured by the borrower's principal residence with an APR that exceeds the APOR depending on the lien type: 1.5 or more percentage points higher than APOR for first-lien mortgages 2.5 or more percentage points higher than APOR for jumbo loan mortgages 3.5 or more percentage points higher than APOR for subordinate-lien mortgages High-cost mortgage are those that have an APR that exceed the average prime offer rate (APOR) by: 6.5 percentage points for a first-lien transaction 8.5 percentage points for a first lien for less than $50,000 that's secured by personal property (i.e., houseboat, RV)  8.5 percentage points for junior-lien transactions High-rate, high-fee HOEPA loans cannot include certain features, including balloon payments for loan with less than five- year terms, negative amortization, default interest rates that are higher than pre-fault rates, rebate of interest upon default that are calculated by any method less favorable than the actuarial method, and a repayment schedule that consolidates more than two regularly scheduled payments that are to be paid in advance from the proceeds of the loan. HOEPA violators may face legal action. The FTC dictates that borrowers who suspect that their lender violated HOEPA requirements may sue. Borrowers who win may be able to recover statutory and actual damages, court costs, and attorney's fees. In addition, they may be able to cancel the loan for up to three years after they closed on it. MLO compensation (12 CFR 1026.36(d)) Regulation Z dictates rules about how MLOs may be compensated for originating mortgage loans. If an MLO receives any compensation directly from the borrower, then the MLO may not receive compensation from any other party to the transaction. No one who knows that the MLO was compensated by the borrower may pay the MLO any additional compensation. TILA rules on MLO compensation are primarily designed to reduce incentives for MLOs to steer consumers into loans with specific terms. Lenders are also prohibited from compensating MLOs based upon certain loan terms, such as the loan's interest rate or loan conditions (e.g., type of loan program, loan provisions, etc.). TILA-RESPA Integrated Disclosure Rule (TRID) or "Know Before You Owe" Purpose of TRID TRID was created in 2015 with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (aka the Dodd-Frank Act). TRID was specifically designed to make disclosures uniform and easy to understand. TRID is also referred to as the "Know Before You Owe" mortgage disclosure rule. Prior to October 2015, TILA and RESPA disclosures were provided to the borrower on separate forms, specifically the Good Faith Estimate, HUD-1 Settlement Statement, Initial Truth in Lending Disclosure, and the Final Truth in Lending Disclosure forms. Today, all of that information has now been combined and simplified into a more streamlined set of forms, called the Loan Estimate (LE) and the Closing Disclosure (CD). Loans covered under TRID TRID doesn't apply to all loan transactions. While most closed-end loans secured by real property (traditional mortgages, refinancing, etc.) are subject to TRID rules, some loans are exempt: Reverse mortgages Home Equity Lines of Credit (HELOCs) Loans secured by a mobile home or dwelling that is NOT attached to real property Loans made by an individual or entity that funds five or fewer mortgages in a year and isn't a creditor Loan estimates: facts, required information, charges/fees When borrowers apply for a mortgage loan, their mortgage brokers and/or lenders must give them the LE form, which contains: The loan amount The locked interest rate Projected payment amounts (principal plus interest) The charges the buyer is likely to pay at settlement (estimates) Mortgage loan specifics, such as key features, costs, and risks (e.g., whether the loan has prepayment penalties or balloon payments) Total interest percentage (TIP) (i.e., the total amount of interest that the borrower will have paid over the term of the loan as a percentage of the loan amount) Estimated closing costs on the CD were not generally made in good faith if the total charges to the borrower end up being more than what was originally estimated in the LE. However, some fees can increase, some can only increase by 10% or less, and others may not increase at all. Fees that may NOT increase from the LE include: fees paid to the creditor, the mortgage broker, or an affiliate of the creditor or mortgage broker, as well as transfer taxes and fees paid to a third party if the creditor didn't allow the borrower to shop for a provider. Fees that may increase by no more than 10% include recording fees, title insurance, settlement agent fees, and other services that the borrower selects from a lender's list of available service providers. Definition of "loan consummation," special information booklet, and disclosures TRID defines loan consummation as when a consumer becomes contractually obligated to the lender for the loan term.  Additional disclosures under TRID must be provided in the same time frame as the LE (i.e., within three business days of a loan application being submitted), including the Special Information Booklet, which is a document published by the CFPB to help consumers who apply for mortgage loans understand real estate transactions The Closing Disclosure (CD) provides disclosures about the actual (not estimated) costs of the transaction, and includes columns for borrower-paid and seller-paid closing costs. Buyers must be given the Loan Estimate (LE) upon submitting a loan application or within three business days after submitting a loan application. Lenders must provide the CD to borrowers a minimum of three business days before loan consummation, which may or may not be the same as the closing date. MLO actions if TRID disclosure is incomplete When a mortgage broker or lender makes initial disclosures to a loan applicant, the term "N/A" may never be used. Some spaces may be left blank in certain situations (e.g., if a mortgage broker doesn't know the name of a wholesale lender). Incomplete TRID disclosures are one of the most common TRID violations, so MLOs should be extremely vigilant when completing and reviewing LEs and CDs to ensure that all fields are completely filled in. One way to do this is to create a compliance risk management program that includes training, communication with third parties, formal procedures, and a thorough review process. "Change of circumstances" A revised estimate of a charge can be created when there is a valid changed circumstance, such as: An extraordinary or unexpected event occurred, information provided for the LE was inaccurate, or new information arises that pertains the transaction. The consumer became ineligible for an estimated charge because something changed the consumer's creditworthiness. The consumer requested revisions to the credit terms or settlement that increase an estimated charge. Interest rates increased prior to being locked in. Once an interest rate is locked in, the creditor has three business days to provide a revised disclosure to the consumer. The consumer decided to proceed with the transaction after the disclosure has expired. A new construction transaction was delayed. Information that must be provided to consumer upon request In addition to the Loan Estimate and the Closing Disclosure, other disclosures lenders must give to consumers after consummation of the loan include: The escrow closing notice The mortgage servicing transfer statement The partial payment notice Borrower's right to rescission For borrowers who are either refinancing or obtaining a new loan on their current residence, lenders' disclosure statements must include the right to end the transaction up until midnight of the third business day after closing on the loan with no questions asked. Under Regulation Z, business days include Saturdays but not Sundays or federal holidays. Annual escrow statement Annual escrow statements must be provided to borrowers on an annual basis. They must summarize all account payments and deposits during the year, as well as any deficits or surpluses in the escrow account. Other Federal Laws and Guidelines HMDA, 12 CFR Part 1003 (Regulation C) HMDA was enacted in 1975, and provides the public with detailed loan-level information about mortgages in order to ensure that financial institutions are meeting the housing needs of the communities they serve and not engage in redlining. HMDA is codified in Regulation C, and is overseen by the CFPB. HMDA states that lenders must collect voluntary, self-reported demographic information from loan applicants, including an applicant's race, ethnicity, and sex. HMDA applies to all financial institution who accept applications and offer mortgage loans to any consumer. HMDA requires financial institutions to report the geographic location, race or national origin, sex, and income of each applicant. This information helps to identify unfair lending practices and helps the government identify private sector neighborhoods (as opposed to public housing) that are in need of assistance. All HMDA data is available to the public. Fair Credit Reporting Act (FCRA)/Fair and Accurate Credit Transactions Act (FACTA) 15 USC § 1681 et seq.  The Fair Credit Reporting Act (FCRA) was passed in 1970 as another federal law that protects consumers who apply for credit by regulating what information creditors can collect and use and how this credit report data must be protected. Both the FCRA and FACTA are regulated by the CFPB. Consumer reports (also called credit reports) contain information about an individual's credit and payment history. Based on FCRA requirements, credit applicants must be notified if and when their consumer reports are used as a basis of denial for credit, employment, or insurance. FACTA is an amendment to the FCRA that serves to protect consumers from identity theft by requiring all credit reporting agencies (CRAs) to provide consumers with credit reports for no cost and allowing consumers to place a fraud alert on their files when necessary. Consumers are entitled to one free copy of their credit reports (from each credit reporting company) every 12 months. These requests can be for one credit report at a time, or for all three reports simultaneously. Federal Trade Commission Red Flag rules, 16 CFR Part 681 The FTC is another government agency tasked with protecting consumers. The FTC defines identity theft as "when someone uses your personal or financial information without your permission." Identity theft involves someone stealing an individual's personal identifying information (PII) to use for fraudulent purposes. The FTC has worked hard to protect consumers by providing notice of "red flags" that could indicate potential scams. Current FTC rules apply to lenders and creditors who offer and maintain accounts for consumers. Financial institutions and creditors must implement a program to actively monitor accounts for FTC red flags, which may include alerts and warnings from consumer reporting agencies, suspicious documents or personal identifying information, unusual use of an account, and notice from customers or other persons regarding possible identity theft. All identity theft and fraud mitigation programs must be submitted to the financial institution's or creditor's board of directors or senior management. Staff must be trained on FTC red flags "as necessary." Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Money laundering, or making and moving money that was made via criminal activity, is a huge potential issue in the mortgage lending marketing. The BSA works in conjunction with the federal government's AML InfoBase to fight fraud. The BSA requires financial institutions to monitor transactions in order to spot and report suspicious activities. This helps the government detect and prevent potential money laundering, financial terrorism, and other money-related crimes. The BSA/AML states that financial institutions utilize several types of reporting, including the Suspicious Activity Report (SAR), which is submitted via the FinCEN E-filing system. Suspicious activity includes situations where there is money involved from criminal activity, as well transactions that are designed to evade BSA requirements, serve no business or legal purpose, or involve use of money services business to facilitate criminal activity. Gramm-Leach-Bliley Act (GLBA) - Privacy, Federal Trade Commission Safeguard Rules and Do Not Call In 1999, United States senators Phil Gramm, Jim Leach, and Thomas Bliley sponsored the Financial Services Modernization Act of 1999 (called the Gramm-Leach-Bliley Act or GLBA for short.) The GLBA protects consumers who participate in financial business transactions by limiting how customer information is used and shared, and protects consumer privacy by allowing borrowers to opt out of information sharing. The GLBA defines a customer as an individual who has a continuing relationship with a financial institution, and a consumer as an individual with whom the financial institution has a single interaction or transaction. According to the GLBA, three rules comprise the consumer financial privacy protections with which financial institutions must comply: The Safeguards Rule: requires financial institutions to implement information protection security programs. The Privacy Rule: requires financial institutions to disclose information use policies and practices to consumers and permit them to opt out. The Pretexting Rule: protects against impersonation attacks to gain consumer information. Financial institutions are required under the GLBA to provide all customers with written notice of their privacy policies and practices, regardless of whether the financial institution shares customer nonpublic personal information (NPI) with third parties. If the financial institution does share NPI with third parties, privacy notices must also be provided to consumers who are not customers. The FTC and other federal agencies oversee and enforce the GLBA. The federal Telephone Consumer Protection Act of 1991 (TCPA) and regulations promulgated by the Federal Communications Commission (FCC) govern telephone solicitations and regulate the use of automatic telephone dialing systems, pre-recorded or artificial voice messages, and telephone facsimile machines. Part of TCPA is the National Do Not Call Registry (DNC). Per federal regulations, it's illegal for a telephone solicitor to call phone numbers on the National Do Not Call Registry. The law specifically permits a business to call consumers with whom the business has an established business relationship, even if those consumers are on the registry. The current maximum federal fine for violating do-not-call rules is $46,517. Mortgage Acts and Practices - Advertising, 12 CFR Part 1014 (Regulation N)  Regulation N, also known as the Mortgage Acts and Practices - Advertising (MAP) Rule, was issued by the CFPB to explicitly state how mortgage loans may be advertised to the public. Regulation N's rules prohibit unfair or deceptive acts and practices related to mortgage loan advertising and guidance for those who create mortgage-related ads. The goal is to help protect consumers from deceptive mortgage loan advertising using deterrence and enforcement. In determining what's considered an unfair act or practice, the FTC considers three criteria: The act or practice must cause or be likely to cause substantial injury to consumers. Consumers must not be reasonably able to avoid the injury. The injury must not be outweighed by countervailing benefits to consumers or to competition Regulation N applies to anyone who advertises mortgage products and is under the FTC's enforcement authority, including mortgage lenders, mortgage brokers, mortgage servicers, ad agencies, and lead generators. The CFPB, the FTC, and individual states have the authority to enforce Regulation N. The FTC is authorized to investigate alleged violations of its rules and to seek civil penalties against violators. The CFPB and state authorities may also bring enforcement actions. Banks, federal credit unions, and federal savings and loan institutions aren't under the FTC's enforcement authority. Regulation N provides 19 examples of the most common misrepresentations that were the subject of enforcement actions before its adoption, which include misrepresentation regarding: Interest APR Costs or fees Additional product terms Taxes and insurance Pre-payment penalties Variability Rate or payment comparisons Mortgage product type Amount of obligation, cash, or credit Payments Default potential Debt resolution Product association Communication source Right to reside Ability to qualify Ability to refinance or modify Counseling services or expert advice Electronic Signatures in Global and National Commerce Act (E-Sign Act) The E-Sign Act is a federal law that enables mortgage lenders to obtain electronic signatures on contracts and disclosures so long as the consumer consents to receiving electronic documents. If the consumer doesn't consent or withdraws previously given consent, electronic records are off the table. Additionally, the act forbids any state or federal statute from requiring specific technology for electronic transactions, and stipulates additional requirements relating to retaining contracts and records. The E-Sign Act also specifies that before consent is given, the consumer must be provided with a statement of the hardware and software requirements for access to and for retaining the electronic records. The consumer's consent must be obtained or confirmed electronically (not just on paper). The E-Sign Act specifies that a consumer's consent must be reacquired if there is a change in the hardware or software requirements needed to access or to retain the electronic record and the change creates a material risk that the consumer will not be able to access or store records delivered electronically. USA PATRIOT Act The official name of the USA PATRIOT Act is the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, though it's commonly just called the PATRIOT Act. The PATRIOT Act requires MLOs to authenticate borrowers' identities and file reports of any suspicious activity during mortgage transactions. The PATRIOT Act affected the BSA in a big way by expanding new requirements and scope to it. The PATRIOT Act requires all financial institutions to create and implement anti-money laundering programs, which must include screening and monitoring of all financial transactions. Under the USA PATRIOT Act, all lenders and banks are now required to create customer identification programs (CIPs) to verify customers' identities. As a result, all customers who take out loans or open a credit account must provide their: Names Dates of birth Residential and/or work addresses A tax ID number (for permanent residents) or government-issued certificate of existence or good standing (for non- U.S. legal entities) Financial institutions are required to implement the Customer Due Diligence (CDD) Rule, which involves maintaining records to facilitate ongoing identification and checking customer information against lists of known/suspected terrorists. Homeowners' Protection Act (Private Mortgage Insurance Cancellation Act) The Homeowners Protection Act (HPA), also called the PMI Cancellation Act impacts borrowers who may be required to pay for private mortgage insurance (PMI). PMI is generally required when a borrower can't pay at least 20% of the loan amount up front. In these cases, the lender will want additional protection in case the borrower defaults. The HPA allows borrowers with loans created after 1998 to have their PMI cancelled when their equity reaches 22% of the original value of the property. According to the HPA, lenders are required to automatically terminate PMI when the principal balance is scheduled to reach 78% of the original property value, or at the midpoint of the loan's amortization schedule (even if it hasn't reached the magical 78%). The lender must return all unearned PMI premiums that might have been paid back to the borrower within 45 days of PMI termination or cancellation. Dodd-Frank Act The Dodd-Frank Act was created in response to the financial crash of 2008. The act was established in part to provide stricter regulation and oversight of the financial services industry. It led to many improvements to consumer protections in the lending industry, including the creation of the CFPB and improved closing disclosures via TRID. When the Dodd-Frank Act was first passed, it placed a lot of restrictions on smaller institutions, including community banks. The Qualified Mortgage Rule (also called the QM Rule) limited small banks in their ability to take risks on customers who didn't meet debt-to-income ratio requirements. Regulatory Authority CFPB The CFPB's mission is to promote fairness and transparency for consumers seeking mortgages, credit cards, and other consumer financial products and services. The CFPB is the agency charged with overseeing all financial products and services offered to consumers, including mortgage lending. The CFPB also maintains a database of consumer complaints, responds to consumer complaints, interprets federal regulations, and enforces penalties for law violations. U.S. Department of Housing and Urban Development (HUD) HUD was officially created as a Cabinet-level agency in 1965 by President Lyndon Johnson in order to develop and execute policies related to the nation's housing. HUD's stated mission targets the need for ensuring a stock of affordable homes and creating inclusive communities. HUD enforces fair housing laws, offers grants and programs to promote fair housing, and provides mortgage insurance through the Federal Housing Administration (FHA). HUD programs include: Government National Mortgage Association (Ginnie Mae) - created to expand affordable housing in America by linking global capital markets to the nation's housing markets. A Ginnie Mae guarantee makes it easier for mortgage lenders to obtain a better price for their mortgage loans in the secondary mortgage market. Community Development Block Grant (CDBG) - gives local communities the right to decide how best to meet their own community development needs. Office of Fair Housing and Equal Opportunity (FHEO) - aims to eliminate housing discrimination, promote economic opportunity, and achieve diverse, inclusive communities through enforcement, administration, public education, and development of federal fair housing policies and laws. Housing Choice Voucher Program - helps very low-income families, the elderly, and disabled individuals afford decent, safe, and sanitary housing in the private market. Office of Native American Programs (ONAP) - administers housing and community development programs that benefit Native American and Alaska Native tribal governments, tribal members, the Department of Hawaiian Home Lands, Native Hawaiians, and other organizations with the goal of increasing the availability of safe and affordable housing to Native American families. HUD also requires that all home loan lenders provide a homeownership counseling notification to potential borrowers. HUD maintains a website that lists all homeownership counseling organizations in the country. Lenders lists of homeownership counseling organizations must have at least ten HUD-approved housing counseling agencies in order to comply with Regulation X. Reverse mortgage transactions and timeshare plans are exempt from this requirement and only five of the ten counseling organizations need to be local.