20 hrsafe prelicensing2013slidesstudentversion

20 Hour SAFE Comprehensive
Pre-Licensing and Exam Prep
Jillayne Schlicke

National Association of Mortgage Fiduciaries

Jillayne Schlicke

Section 1 Introduction
 Introduction of trainer
 Introduction of students
 Review the course syllabus

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Jillayne Schlicke

Intros
 Name, where you work
 Do you work in lending? How long?
 Exam Anxieties

3


Jillayne Schlicke

Section 1 Module 1.1
UST Uniform State Test $110
3 hrs, 10 min
115 questions plus 10 sample questions
75% to pass
If you pass you will know your score.
If you fail, they will give you a printout showing your
strong and weak areas.
Prometric.com

4


Jillayne Schlicke

Exam Components
25% Federal Law
RESPA, TILA, ECOA, FCRA, SAFE
20% General Mortgage Knowledge
programs, products, terms
20% Loan Origination
application, qualifying, title, escrow, math
15% Ethics
consumer protection, fraud, fair housing
20% Uniform State Content
licensing law, prohibited practices
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Jillayne Schlicke

Exam prep basics: If you understand the purpose of each
law, you are on your way to selecting the best answer
on a multiple choice exam.
There will be two obvious wrong answers. If you know
the purpose of the law, you will be able to spot these.
Of the two that remain, one will be a little bit better
than the other.
Exam writers do not write trick questions. The language
of the test questions look tricky because you are
being tested on law and most lay people are not use
to reading law on a daily basis. This is the only fair
way to deliver a 50-state exam.
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Jillayne Schlicke

There are many different learning styles. I will try to
touch all of these throughout the next two days.
Auditory-learns by listening
Visual-learns by processing images
Tactile-learns best when writing
Whole Body-learns best when entire body is engaged
Emotional-learns best when complex info can be tied to
an emotion
Learning disabilitiesYou may be eligible for extra accommodations if you
have a diagnosed learning disability. Contact the
NMLS after reading the exam candidate handbook.
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Jillayne Schlicke

Depository Bank
Checking,
savings
CAN fund its
own loans
LOs are
“registered”

Mortgage Broker
No ck/svgs
Does NOT fund its
own loans
Pure middleman
For a fee, finds the
mortgage money
LOs are licensed.
In some states,
these LOs owe
fiduciary duties
to clients

Non-Depository
Lender
Non-Bank Lender
No ck/svgs
CAN fund its own
loans via lines
of credit with
banks
LOs are licensed

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There are many
moving parts in
the Mortgage
Machine. The
function of loan
origination is just
one piece.

Jillayne Schlicke

Title Insurance, Escrow
Secondary market
Underwriting
Appraiser
Home inspector
Loan originator
LO Assistants
Loan processors
Realtors/ Real estate
brokers
Mortgage insurance
Hazard insurance
Flood insurance
State/Fed regulators

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Jillayne Schlicke

Residential Loan Application
Assignment:
Break into small groups and talk about
sections of the loan app:
 What sections might the customers ask you
about?
 What sections might the customer consider

lying?

 What sections might the customer refuse

to provide information?

10


Jillayne Schlicke

Large group discussion:
Occupancy
Assets
HMDA
Education
DOB
Former employer
Ways of holding title
Acknowledgement, signature

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Jillayne Schlicke

Last two most recent paystubs
Last two years W-2s
Last three months bank statements
Most recent statement on 401Ks or IRAs
Documentation of ownership of stocks, bonds
Last two months statements from any investment account
Information on current mortgage or landlord contact info
Soc number or green card for all borrowers or co-signers
Letter of explanation for any known credit problems
Documentation supporting any other income
For self employed, borrowers paid on commission or in the field
of sales, and borrowers who own other real property:
Two years signed personal tax returns
IRS FORM 4506-T
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Jillayne Schlicke

FIRST RATIO
PITI
Principal, Interest, Taxes, Insurance
Divided by
Total gross monthly income
=%
SECOND RATIO
PITI plus all other monthly revolving debt
Divided by
Total gross monthly income
=%
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Jillayne Schlicke

 Loan Processing
 As documents are received, processors compare the

information verified to the original loan application
and consult the credit underwriting guidelines.
 A processor is a liaison between the originator, the

borrower, the Realtor, underwriting and
management.

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Jillayne Schlicke

 Underwriting
 Sufficient and stable monthly income
 Prior credit history
 Assess collateral
 Sufficient down payment

Other factors: Payment shock, debt-to-income ratios,
cash on hand after closing, other compensating
factors

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Jillayne Schlicke

 Case Study: David and Ryan
 Read the case study. Break into small groups and

discuss: Is this an approvable loan?
 Large group recam

16


Jillayne Schlicke

 Ability to Repay Rule under Dodd Frank Act
1.
2.
3.
4.
5.
6.
7.
8.

Eight factors:
Current income and assets
Current employment
Monthly mortgage payment
Monthly payment on simultaneous loans
Property taxes, fire/flood insurance, HOA dues
Debts including alimony or child support
Monthly total DTI ratio
Credit history
Underwriters CAN consider other factors
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Jillayne Schlicke

Section 3 Credit Module 3.1
Assignment: Break into small groups.
Read the credit report.
Question: Does this person posses decent and
reasonable credit history?
If yes, why?
If no, why not?

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Jillayne Schlicke

What’s in a FICO Score?

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Jillayne Schlicke

Section 4 Title Insurance Module 4.1
What does it mean when we say we hold title
to something?
Is there a document called “title” that we
get when we buy a home?
Can we do anything we want with and to our
home and land?
How deep into the ground and how high up
do our property rights extend?
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Jillayne Schlicke

For a one time fee, a title insurance company
will check the public records system and
disclose all matters that affect the title of
real property.
They will insure against loss and defend you
should somebody lay claim to your title.
Pay once, it’s good for as long as you or your
heirs own the property.
Starts the day of closing and looks backward
in time.
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Jillayne Schlicke

How does a title company protect residential
homeowners and residential lenders?

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Jillayne Schlicke

Section 4 Module 4.4 Case Study
Small group assignment:
Read the case study “John and Sara”
Come up with 10 things a loan originator
must discuss/discover before moving
forward with this transaction.
10 documents
10 questions…

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Jillayne Schlicke

Legal rights and responsibilities of a title
company.

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Jillayne Schlicke

What is escrow?

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Jillayne Schlicke

Section 5 Escrow
Module
Module
Module
Module
Module
Module

5.1
5.2
5.3
5.4
5.5
5.6

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Jillayne Schlicke

Section 6 Appraisals
Module
Module
Module
Module
Module

6.1
6.2
6.3
6.4
6.5

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Jillayne Schlicke

Section 7 Mortgage Math
Module 7.0
Module 7.1
Module 7.2
Assignment: Complete the mortgage math
calculations together as a group.

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Jillayne Schlicke

Section 8
 Mortgage Loan Programs:
 Conforming Conventional Loans
 Fannie Mae, Freddie Mac
 Government Loans
 FHA, VA, USDA

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Jillayne Schlicke

Section 8
 Module 8.1
 Conventional, Conforming Loans
 Conforming to guidelines established by Fannie Mae

and Freddie Mac. This means loans can be packaged
and sold to Fannie or Freddie on the secondary
market.
 Handout: Fannie Mae Eligibility Matrix

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Jillayne Schlicke

Section 8 Module 8.2 FHA
FHA = Federal Housing Administration
FHA provides mortgage insurance on low down
payment loans made by FHA-approved lenders
U.S. Department of Housing and Urban Development
was created through the US Housing Act of 1937. HUD
does lots of things:

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Jillayne Schlicke

Section 8 Module 8.2 FHA
What does HUD do?
Provides opportunities for homeownership
Provides housing assistance for low income
persons
Helps to rehabilitate and maintain affordable
housing
Enforces Fair Housing laws
Helps the homeless
Spurs economic growth in distressed
neighborhoods


Jillayne Schlicke

Insuring and Endorsement
When an FHA loan closes, the lender collects
and remits an up front MIP directly to HUD via
wire transfer.
Then the lender sends the original loan file (aka
case binder) to the FHA HOC for review.
If the paperwork is in order, HUD transmits an
electronic MIC (mortgage insurance certificate.)


Jillayne Schlicke

GNMA = Government National Mortgage
Association
Ginnie Mae is not a lender nor does it buy or sell
mortgages. GNMA guarantees Residential
Mortgage Backed Securities that are backed by
pools of FHA loans
GNMAs are backed by the federal government


Jillayne Schlicke

Only an FHA-approved lender can originate FHA
loans
Property Types: 1 to 4 unit properties
Purchases up to 96.5% LTV
Borrower Contributions
3.5% cash investment
100% gift acceptable


Jillayne Schlicke

Reserves are not required on 1 & 2 unit properties
FHA loans are fully assumable
No income limitations
FHA Loans are only to owner occupied borrowers
Exceptions:
HUD owned property
Non-owner occupied purchase at 85% LTV


FHA Home Mortgage Insurance Programs:
203b Single Family
234c Condo
203h Disaster Victims
255 HECM
203k Rehab
EEM Energy Efficient Mortgage

Jillayne Schlicke


Jillayne Schlicke

Single Family
Owner occupied
1 to 4 units
PUDs (Planned Unit Developments)
Manufactured Homes
The FHA Mortgage Insurance Fund is running out of
money….
$3.5 billion left after transferring $9.8 billion to cover
possible losses on its loan portfolio.
This means higher mortgage insurance premiums


Jillayne Schlicke

Roles
Loan originator satisfies the processor
Processor satisfies the underwriter
Underwriter satisfies management
Management satisfies FHA
Role of the underwriter is to build a
defensible position
FHA satisfies minimum risk for FHA
Lenders set minimum risk for themselves
FHA might say yes but your lender might say no.


Jillayne Schlicke

Social Security Number
Handbook 4155.1 paragraph 3-1C
HUD/FHA require all lenders to ensure that each
FHA borrower, co-borrower and co-signer has
their own valid Social Security Number as issued
by the Social Security Administration
Verification also through FHA Connection


Jillayne Schlicke

U.S. Citizenship Not Required
FHA will insure mortgages made to lawful
permanent and non-permanent resident aliens
Permanent resident alien:
Must have evidence of permanent resident status
Have a valid social security number

Non-permanent resident alien
Property must be their principal residence
Must be eligible to work in the U.S.
Have a valid social security number
Have likelihood of continued lawful status


Jillayne Schlicke

Documentation acceptable to verify social security
number includes:
Paystub
Valid tax return
Copy of SSN card
Driver’s license
Medical information
Service provider with access to SSA


Jillayne Schlicke

FHA Underwriting
TOTAL Scorecard Factors:
Credit FICO score
Monthly housing expense ratio
Number of monthly payments in
reserve
Loan to value ratio
Loan term
These are the five biggest risk factors and the only
things TOTAL looks at.
Accept or Refer


Jillayne Schlicke

FHA Underwriting:
What must an FHA borrower possess?
Decent and reasonable credit history
Perfect credit is not a requirement.
Stable, reliable, and sufficient income
Verified funds to close
Sufficient security for the loan


Jillayne Schlicke

The Four Cs of Underwriting:
Character
Credit
Capacity
Income
Collateral
Value
Capital
Liquid assets

• Does the
borrower have
the ability and
willingness to
repay the
loan?


Jillayne Schlicke

VA = Veteran’s Administration
See course book

USDA = U.S. Department of Agriculture. Rural Loans
See course book

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Jillayne Schlicke

Section 9 Assignment
Review the CSBS/AAMR Guidance on Non-Traditional
Lending
CSBS = Conference of State Bank Supervisors
AAMR = American Association of Mortgage Regulators
Oct 2006 banking regulators published guidelines on
non-trad lending. Examples:
Interest only loans
Pay option ARMs
Reduced/no documentation
Simultaneous second lien
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Jillayne Schlicke

Section 9 CSBS/AAMR Guidance
 Ability to repay
 Watch for payment shock
 Assure borrower understands the loan terms
 Avoid misleading claims…payment, rates, refi-out
 Risk management strategies

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Jillayne Schlicke

Section 9 Non-Traditional Lending
Module
Module
Module
Module
Module
Module
Module
Module
Module
Module
Module

9.1
9.2 Non Conforming Jumbo
9.3 Alt A
9.4 Hard Money and Private Money
9.5 ARMs
9.6 ARM features
9.7 ARM Caps
9.8 Hybrid ARMs
9.9 Option ARMs
9.10 HECM Reverse Mortgage Loans
9.11 Suitability
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Jillayne Schlicke

DAY 2


Jillayne Schlicke

Section 10 Ethics
Module
Module
Module
Module
Module

10.1
10.2
10.3
10.4
10.5

Use the following:
course book
Section 10 Ethics handout

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Jillayne Schlicke

Section 10 Module 10.1 Ethics
Law
Minimum moral standard
“Have to”
Ethics
When there’s no clear statement in the law telling
us what to do.
“Ought, should.”

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Jillayne Schlicke

Different sources of moral authority
Religion
We can’t use religion to solve ethical dilemmas
when holding a professional role because there
are thousands of different religions in the
world. Which one would we us?
Intuition
Intuition can sometimes steer us in the wrong
direction
Emotion
“If I can’t sleep at night it’s not ethical.”
If the only reason we’re choosing to do/not do
something is out of fear, that’s a pretty low
standard of motivation

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Jillayne Schlicke

Different sources of moral authority
Written codes of ethics
There is no source of moral authority over
LOs other than the law. What written codes
of ethics that do exist are voluntary and not
mandatory. The written codes of ethics that
exist are weak, vague, have no sanctions for
violations and in most cases, just simply restate federal law.
Philosophical ethics
Moral philosophical ethical theories can take
the place of a mandatory code of ethics
until one is written.
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Jillayne Schlicke

Professional Status
Specialized knowledge
Formal, pre-licensing education
Mandatory continuing education
Test
Licensing
Fiduciary Duties
Code of ethics with sanctions for violations

Compare to non-professionals such as a retail salesperson.
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Jillayne Schlicke

Section 10 Module 10.3 and 10.5
Question: Are loan originators professional?
Specialized knowledge
Formal, pre-licensing education
Mandatory continuing education
Test
Licensing
Fiduciary Duties (this is emerging in some states)
Code of ethics with sanctions for violations
(this piece is not yet in place.)
LOs are classified as “an emerging profession.”

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Aristotle
Respect
honesty
(promotes
autonomy)
Loyalty
Responsibility
Integrity
Beneficence
Non-maleficence
Compassion
Justice
384 BC-322 BC

Kant
Duty-based
ethics
If we have a
duty to do
something,
we ought do
it.
What I want for
myself, I must
also want for
the other.
1724-1804

Jillayne Schlicke

J.S. Mill
Utilitarianism
Maximize good
consequences for
the most number
of people and also
minimize bad
consequences
for the most
number of people

1806-1873
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Jillayne Schlicke

Assignment: Small group discussion:
What do you remember from past classes in
ethics?
What is ethics?
Think about a person you admire or look up
to as a mentor, living or dead. What do
admire about that person?
Think about an ethical dilemma you’ve faced
in your career. How did you solve your
dilemma?

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Jillayne Schlicke

Assignment: Large group recap after small
group discussion, while instructor slowly
completes the slide with the three
normative moral theories.
Lacking any mandatory, prescriptive and
descriptive ethical code, this is the best
way for LOs to learn ethics. The next slide
lays out the following:
--what kind of person do I want to become?
--what duties do I have?
--what are the possible consequences?
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Aristotle
Respect
honesty
(promotes
autonomy)
Loyalty
Responsibility
Integrity
Beneficence
Non-maleficence
Compassion
Justice
384 BC-322 BC

Kant
Duty-based
ethics
If we have a
duty to do
something,
we ought do
it.
What I want for
myself, I must
also want for
the other.
1724-1804

Jillayne Schlicke

J.S. Mill
Utilitarianism
Maximize good
consequences for
the most number
of people and also
minimize bad
consequences
for the most
number of people

1806-1873
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Jillayne Schlicke

Moral Development
22+
16 to 22
12 to 16
6 to 12
3 to 5
0 to 2

The intrinsic worth, value and dignity
of all human persons.
Some laws might not be moral
Law , society’s rules
The good, norms, roles, shared values
Practical agreements
Morality comes from external sources

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Jillayne Schlicke

Fiduciary Duties Come from Agency Law
Agency:
Consent by one person (principal) that the other
(agent) act on his or her behalf.
Agency can be created by oral or written
agreement OR it may be implied through
conduct.
“I can get you the best loan”
“I can get you the best rate”

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Coercion

Jillayne Schlicke

Manipulation

Persuasion

Completely
Non-Controlled
Influences

Completely
Controlled
Influences

Substantially
Controlling

Substantially
Not Controlling

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Duty of Loyalty
Duty of Care

Jillayne Schlicke

What Fiduciary does will,
in good faith, advance the
interests of the client and
not the Fiduciary’s
personal interests

Act in good faith
Reasonable person test
Informed


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Jillayne Schlicke

Fiduciary Duties May Include…
1. Disclose all loan information to
the borrower
2. Act in good faith and deal fairly
3. Avoiding secret fees or
undisclosed fee splitting
4. No self dealing
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Jillayne Schlicke

Fiduciary Duties are Higher When…
Broker/LO has higher level of knowledge,
experience, skills
Client has limited knowledge
Client is relying exclusively on you
Greater the imbalance the higher the duty
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Jillayne Schlicke

Section 11 Fair Housing
Module
Module
Module
Module
Module
Module
Module

11.1
11.2
11.3
11.4
11.5
11.6
11.7

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Section 11
Module 11.1, 11.3
Realtors and lenders
have great power to
affect neighborhoods

Intent v. Effect

Jillayne Schlicke

1968 Civil Rights Act
1968 Fair Housing Act
~

Protected Classes:
Race
Color
Religion (Creed)
Sex
National Origin
Familial Status
Sexual orientation added
in 2012

Disability
Fair Housing/Fair Lending
http://www.hud.gov/offices/fheo/lending/index.cfm
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 Redlining

Denying or
increasing the
cost of
services to
residents of a
racially
specific
geographical
area

Jillayne Schlicke

 Blockbusting

 Steering

Guiding
prospective
homebuyers to
or away from a
specific
neighborhood
based on
his/her race

Fair Housing/Fair Lending
http://www.hud.gov/offices/fheo/lending/index.cfm

Encouraging
white property
owners to sell
their homes at a
loss by
fraudulently
implying that
racial or
religious
minorities were
moving into
their
neighborhood
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Jillayne Schlicke

In Mortgage Lending: No one may take any of the
following actions based on race, color, national
origin, religion, sex, familial status or handicap
(disability):
Refuse to make a mortgage loan
Refuse to provide information regarding loans
Impose different terms or conditions on a loan, such as
different interest rates, points, or fees
Discriminate in appraising property
Refuse to purchase a loan or
Set different terms or conditions for purchasing a loan.
Fair Housing/Fair Lending http://www.hud.gov/offices/fheo/lending/index.cfm
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Jillayne Schlicke

Fair Housing Thought Questions
Should sexual orientation be added as one of the
protected classes?
Should we make a woman on maternity leave return
to work before counting her income when qualifying
for a loan?
Should we make long term disabled applicants
provide additional documentation proving that they
will stay disabled?
Fair Housing/Fair Lending http://www.hud.gov/offices/fheo/lending/index.cfm
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Jillayne Schlicke

Section 12 Consumer Protection
Module 12.1
Module 12.2
Module 12.3

Case Study: Carnell v. KMC Funding
Read the case. In small groups discuss the questions.
As a large group, share your answers

72

National

FBI
US Department of Justice
Association of Mortgage the Public 2010-2011
Financial Crimes Report to Fiduciaries
Jillayne
http://www.fbi.gov/stats-services/publications/financial-crimes-report-2010-2011

Schlicke

Section 13 Mortgage Fraud
Module
Module
Module
Module
Module

13.1
13.2
13.3
13.4
13.5

FBI
Financial Crimes Report to the Public 2010-2011
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Jillayne Schlicke

Fraud for Housing, or fraud for property, is
perpetrated by borrowers and/or one or more
industry professionals when they misrepresent
information on the loan application. This type of
fraud does not usually result in significant losses to
a financial institution.
.

FBI
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Jillayne Schlicke

Fraud for profit consists of systematic transactions by
industry professionals who are attempting to steal a
significant amount of the funds associated with one or
more mortgage transactions. This type of fraud usually
involves multiple parties in various disciplines within the
mortgage industry, such as mortgage originators,
appraisers, real estate brokers, escrow closers, builders
and title companies. Fraud for profit usually results in
significant—if not catastrophic—losses to financial entities
involved in mortgage loan transactions and it is of major
concern to the mortgage industry
FBI

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Jillayne Schlicke

Property Flipping
Silent Second
Straw Borrowers
Identity Theft
Appraisal Fraud
Foreclosure Rescue
Equity Skimming
Loan Mod Scams
Short Sale Fraud
FBI
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Jillayne Schlicke

Red Flags
When seeking employment as an LO
When working with real estate agents or Realtors
When working with consumers

FBI
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Jillayne Schlicke

Section 13 Modules 13.6-13.20
SARS
Suspicious Activity Reports
AML
Anti Money Laundering

Financial Crimes Enforcement Network
Anti-Money Laundering Program and Suspicious Activity Report Filing
Requirements for Residential Mortgage Lenders and Originators
AGENCY: Financial Crimes Enforcement Network (‘‘FinCEN’’), Treasury.
ACTION: Final rule.
Federal Register / Vol. 77, No. 30 / Tuesday, February 14, 2012 / Rules and
Regulations Page 8159
Subpart C—Reports Required To Be Made by Loan or Finance Companies
http://www.gpo.gov/fdsys/pkg/FR-2012-02-14/pdf/2012-3074.pdf

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Jillayne Schlicke

Section 14
Reflect on everything learned today.
…any final questions?
Preview of tomorrow.

79

Jillayne Schlicke

DAY 3


The Main Fed Law Acronyms

TILA
Truth in Lending Act
MDIA
Mortgage Disclosure Improvement Act
RESPA
Real Estate Settlement
And Procedures Act
ECOA
Equal Credit Opportunity Act
FCRA
Fair Credit Reporting Act
SAFE
Secure and Fair Enforcement Act

Jillayne Schlicke

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Jillayne Schlicke

CFPB =
Consumer Financial Protection Bureau
All federal laws governing mortgage lending
are now regulated by the CFPB with one
exception:
Fair Housing stays with HUD
Each state also regulates it’s own state laws
governing mortgage lending

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Jillayne Schlicke

Section 16 Truth in Lending Act
Modules 16.1-16.3
Purpose: To promote informed use of credit. (Instead,
creates mass confusion.) Gives consumers the right to
cancel some transactions (owner occupied refi),
regulates variable rate loans
TILA Disclosures: 3 days from date of application, final
disclosure at settlement
Disclosure content: variable rate features, payment
schedule, demand feature, prepayment penalty,
security interest in the property, insurance
cancellation, assumption policy, contract loan number
CHARM Booklet required on ARM loans
http://www.fdic.gov/regulations/laws/rules/6500-200.html

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Jillayne Schlicke

Modules 16.3
Four Government Boxes
This info must be presented in clear and conspicuous
place:
Annual Percentage Rate/APR

(the cost of the loan expressed in the form of a rate)

Finance Charge

Interest + closing costs

Amount Financed

Loan amount less closing costs

Total of Payment

All P&I if all payments made


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Jillayne Schlicke

Modules 16.4
Rescission: on an o.o. refinance, the
borrower has 3 days after signing the final
loan documents to cancel and receive a
full refund from the lender. LOs must
refund any money collected for third
party services, even if spent.
For TILA RESCISSION purposes, business
days include Saturday.
Can the 3 day right of rescission ever be
waived? Truth in Lending Act

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Jillayne Schlicke

Section 16 TILA Module 16.4
Case Study: What is the first business day on
which funds may be disbursed if:
Signing date: Thurs, May 2

1st bus. day: Fri, May 3
2nd bus. day: Sat, May 4
Sun, May 5
3rd bus. day: Mon, May 6
The loan can fund on Tuesday May 7th

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Jillayne Schlicke

Section 16 TILA Module 16.4
 How many copies of the rescission notice?
 3
 1---stays in the escrow closer’s file
 2 are mailed to the borrower
 If the borrower rescinds, one is signed and mailed to

escrow, and the other the borrower keeps

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Jillayne Schlicke

A closer look at APR (Annual Percentage Rate)
APR is a measure of the cost of credit,
expressed as a nominal yearly rate. It
relates the amount and timing of value
received by the consumer to the amount and
timing of payments made.
Disclosure of the APR is central to the
uniform credit cost disclosure envisioned by
the TILA.

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Jillayne Schlicke

Common consumer question:
What costs are included when calculating APR?

At a typical mortgage company, software systems
are already programmed to do this for LOs.
However, customers ask questions about the TILA
disclosure forms and regulators expect licensees to
know how to answer basic questions about the
information contained in the TILA disclosure form.

89


Included

Prepaid interest
Mortgage insurance
premiums
Wire transfer fees
Recording fees
Loan origination fee
Mortgage broker fee
Escrow (closing fee)
Discount points
Pest inspection (VA only when prop
is located in mod to high probability of
area of pest infestation and lender is
paying for it.

Flood Ins. premiums

Jillayne Schlicke

Excluded
Hazard Insurance
(IF obtained from a
neutral company)
Seller paid points
Document prep fee
Title insurance (lender
policy)
Notary fee
Appraisal
Credit report
Impounds for taxes & ins
Flood Hazard Check

90


Jillayne Schlicke

Tip: How to remember which costs are included/excluded
when calculating APR:
Costs included
These are costs
that benefit the
lender or costs
that the lender
requires in order
to obtain a loan.

Costs excluded
These are costs
that are paid to
and benefit third
parties other than
the lender.


91


Jillayne Schlicke

APR Tolerances…Can we make a mistake
and still be in compliance? Yes:
 Example:

|________|_______ APR 7.75_______|________|
.25
.125
.125
.25
ARM
FRM
FRM
ARM

ARM = Adjustable Rate Mortgage
FRM = Truth in Lending ActMortgage
Fixed Rate
92


Jillayne Schlicke

Section 16
a closer look at APR
 Prepaids
 Prepaid finance charges = CLOSING COSTS
 Impounds = a few months payments of real estate

taxes, hazard insurance

93


Jillayne Schlicke

Section 16
What items are included when
calculating APR?
Closing Costs (prepaid finance charges)
Loan term
Note rate
Loan Amount

94


Jillayne Schlicke

Section 16
What is the APR for the following loan?
Closing costs: $2,000
Loan term: 360 months
Note rate: 5.0%
Loan amount: $200,000
a) 5.0
b) 4.9
c) 5.08
d) 6.98
95


Jillayne Schlicke

HOEPA =
Home Ownership and Equity Protection Act
A loan is covered by HOEPA if it meets the following
tests:
*On a first mortgage, the APR exceeds by more than
eight points of Treasury maturity rates.
*For a second mortgage, the APR exceeds by more
than ten points the rates of on Treasury maturity
rates.
*Total fees and points payable by the consumer at or
before closing exceed the larger of $583 or eight
percent of the total loan amount.
96


Jillayne Schlicke

Section 16
Module 16.6
Truth In Lending Act Quiz

97


Jillayne Schlicke

Section 17
Mortgage Disclosure Improvement Act
MDIA
Module
Module
Module
Module
Module
Module

17.1
17.2
17.3
17.4
17.5
17.6 --take the TILA/MDIA Quiz

Truth in Lending Amendments
Regulation Z, Subpart C, Closed End Credit, Section 226.17,
General Disclosure Requirements Effective July 30, 2009

98


Jillayne Schlicke

Section 17 MDIA Module 17.3
We now have three categories of mortgage loans
HOEPA (Added in 1994 as Section 32 of TILA)
High cost/2nd mtg/HELOC
Higher Priced (Added in 2009 as part of MDIA)
1.5 or more points higher (APR) FRM
3.5 or more points higher for a subordinate lien
QRM Qualified Residential Mortgage
(Added as part of the Dodd Frank Act of 2010)
Truth in Lending Amendments
Regulation Z, Subpart C, Closed End Credit, Section 226.17,
General Disclosure Requirements Effective July 30, 2009

99


Jillayne Schlicke

Section 17 Module 17.6 MDIA Quiz

100


Jillayne Schlicke

Section 17 Module 17.6 Quiz Review
TILA Quiz Question 6

Mon
Tues
Wed
Thurs

July
July
July
July

9 Consumer must receive disclosures
10
11
12 Signing is scheduled

101

National

Federal Reserve
AssociationRegulation Z: Loan Originator Compensation and Steering 12 CFR 226
of Mortgage Fiduciaries
http://edocket.access.gpo.gov/2010/pdf/2010-22161.pdf

Jillayne Schlicke

Section 18
Federal Reserve Board (FRB) rule
on Loan Originator Compensation
Module 18.1
Background
FTC v. Golden Empire Mortgage

Federal Reserve
Regulation Z: Loan Originator Compensation and Steering 12 CFR 226
102


Jillayne Schlicke

Section 18
Federal Reserve Board Rule on
Loan Originator Compensation
Module 18.2 Three main prohibitions:
P1: Compensation based on a transaction’s term
or conditions.
P2: Compensation by someone other than the
consumer.
P3: Prohibitions against steering.
Federal Reserve

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Jillayne Schlicke

Section 18
P1: Compensation based on a transaction’s term
or conditions:
> Payment based on transaction terms or conditions.
> Compensation cannot go up or down based on the
loan’s terms or conditions.
> Minimum or max dollar amount of compensation
may not vary with each loan.
Federal Reserve

104


Jillayne Schlicke

Section 18
P2: Compensation by someone other than the
consumer.
If an LO will be compensated by the
consumer, the LO may not also receive
compensation from the lender funding the
loan, or any other person connected with
that transaction.
Federal Reserve
105


Jillayne Schlicke

Section 18
P3: Prohibitions against steering.
LOs may not steer a consumer to a loan only
because the LO will be compensated at a
higher rate by selling that product, unless the
loan is in the best interest of the consumer.
Federal Reserve
106


Jillayne Schlicke

Section 18
Module 18.3
Review the Section 18 Handout:
RESPA Roundup

RESPA Roundup: Compliance Guide for REPA as it applies to the Federal
Reserve Board’s MLO Compensation Rules Published on Sept 24, 2010

107


Jillayne Schlicke

Section 19
Real Estate Settlement and Procedures Act
RESPA
Modules 19.1-19.2
Applies to all federally related loans; sale or
refi, primary market loans only.
Exemptions: 25 acres or more, temporary
financing, assumptions with lender
approval, conversions (contract to deed),
secondary market transactions, vacant
property.
Which entities must comply?
http://www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm
108


Jillayne Schlicke

Section 19 RESPA Modules 19.1-19.2
Which entities must comply?
Lenders (banks, brokers, etc.)
Real estate agents/Realtors
Title and XO
Appraisers
Home inspectors
Mortgage insurance companies
Credit reporting agencies
Flood hazard check companies
Attorneys
Hazard insurance companies
Home warranty companies
Builders Real Estate Settlement and Procedures Act
109


Jillayne Schlicke

Purpose
Timely disclosure of settlement costs
Limits on escrow reserve accounts
Prohibits seller-directed title insurance
Forbids kickbacks (Section 8. See next slide)
GFE and HUD 1
Disclosure of Affiliated Business Arrangements
Disclosure of potential loan servicing charges
“Settlement Cost Booklet”
Lender required use agreements
110


Jillayne Schlicke

Section 8 Referral Fees
Prohibits the giving or taking of a fee or other
thing of value for a referral involving a federally
related loan
Un-earned fee (also called a kickback)
A fee we receive but we have performed no
work in exchange for receiving the fee.
111


Jillayne Schlicke

Violations of Section 8's anti-kickback, referral fees
and unearned fees provisions of RESPA are subject to
criminal and civil penalties.
In a criminal case a person who violates Section 8 may
be fined up to $10,000 and imprisoned up to one year.
In a private law suit a person who violates Section 8
may be liable to the person charged for the
settlement service an amount equal to three times
the amount of the charge paid for the service.

112


Jillayne Schlicke


TILA/RESPA Definition of “an Application”
Financial Data
Borrower’s Name
Soc
Income
Estimated value
Loan Amount
…..
Prop address (will have this if refi, might not have
this right away if borrower is still house-shopping.)

…..
Any other info deemed necessary by the LO

113


Jillayne Schlicke

Section 19 RESPA Module 19.3
Take the RESPA Quiz
Learn how to complete a Good Faith Estimate
See instructions from HUD
Instructions for Completing Good Faith Estimate (GFE) Form
Code of Federal Regulations
Title 24, Volume 5

114


Jillayne Schlicke

Section 20
RESPA Amendments in 2009
Modules 20.1

Real Estate Settlement and Procedures Act (2009 Changes)
http://www.federalreserve.gov/boarddocs/supmanual/cch/respa.pdf

115


Jillayne Schlicke

Section 20
RESPA Amendments in 2009
Modules 20.1-20.7
GFE tolerances
Violations, penalties
Definition of “An Application”
GFE delivery, loan term availability
Changed circumstances
Seller paid fees
Required use
Average charge pricing, volume discounting
RESPA Amendments Quiz
Real Estate Settlement and Procedures Act (2009 Changes)
http://www.federalreserve.gov/boarddocs/supmanual/cch/respa.pdf

116


Jillayne Schlicke

Equal Credit Opportunity Act ECOA 1974
ECOA points us toward the evaluation based on
creditworthiness only.
Nine categories; the prohibited bases:
Race
Color
Religion
Sex
Marital Status
National Origin
Income from Public Assistance
(Age)
Whether an applicant has exercised his or her
rights under this act.

117


Jillayne Schlicke

Section 21 ECOA Module.21.2
It is a violation to discourage an applicant
from making an application for credit on a
prohibited basis.
Cannot ask an applicant if he or she receives
alimony, child support. The applicant may
volunteer such information.
You must ask if he or she PAYS alimony or
child support.
Unmarried…
ECOA requires the lender to provide a copy
of the appraisal report.
Application need not be in writing for this act
to apply.
Can we ask questions NOT related to
creditworthiness?
Adverse Action Form

118


Jillayne Schlicke

Section21
Module 21.2
Equal Credit Opportunity Act ECOA
Marital Status
1. Unmarried =
Single
Divorced
Widowed
2. Married
3. Separated

119


ECOA

comparison to

Race
Color
Religion
Sex
National Origin
Marital Status
Income from Public
Assistance
Age
Whether an applicant
has exercised his or
Her rights under this
Act.

Jillayne Schlicke

Fair Housing
Race
Color
Religion (Creed)
Sex
National Origin
Familial Status
Sexual orientation
added in 2012 as a
protected class in all
50 states to Fair
Lending rules

Disability
120


Jillayne Schlicke

Section 21
Module 21.3
Equal Credit Opportunity Act ECOA
Quiz

121


Jillayne Schlicke

Fair Credit Reporting Act FCRA

Fair Credit Reporting Act

Passed to ensure consumers have access to
credit information used by lenders and
others so that remedial steps could be taken
when incorrect or outdated information
remained in their file.
Purpose of a credit report:
Insurance, licensing, instruction from
consumer, extension of credit, employment,
response to a court order, potential investor
risk, other legitimate business needs.
Credit reports are deemed privileged info.
A CRA has 30 days to respond to a disputed item
Adverse Action: Name, address and phone
number of the CRA, reason, and info on how
to obtain a free copy of their report.

122


Jillayne Schlicke

Section 22
Fair Credit Reporting Act FCRA
Module 22.3 Quiz

123


Jillayne Schlicke

Section 23 Modules 23.1-23.10
Other Federal Laws Governing Mortgage Lending
HMDA Home Mortgage Disclosure Act
CRA Community Reinvestment Act
GLB Gramm Leach Bliley Act AKA Privacy Act
GLB FTC Safeguard Rules
MARS Rules
Bank Secrecy Act
U.S. Patriot Act
PMI Act
FACTA Fair and Accurate Credit Transactions Act
Do Not Call
Additional Federal Laws Quiz
124


Jillayne Schlicke

Section 24
SAFE Mortgage Licensing Act
Module 24.1
The SAFE Act of 2008
SAFE = Secure and Fair Enforcement Act
 Passed in order to increase uniformity, reduce

regulatory burden, enhance consumer protection, and
reduce fraud. Establishes the Nationwide Mortgage
Licensing System and Registry.
Title V SAFE Mortgage Licensing Act of 2008
http://mortgage.nationwidelicensingsystem.org/SAFE/NMLS
%20Document%20Library/SAFE-Act.pdf
125


Jillayne Schlicke

Section 24 SAFE Act Module 24.2
“Registered Loan Originator”
An employee of:
a depository institution;
a subsidiary that is:
owned and controlled by a depository
institution AND
regulated by a federal banking agency OR
An institution regulated by the Farm Credit Admin
126


Jillayne Schlicke

State or Federally Chartered Depository
Banks:
LOs are exempt from testing and education.
NOT exempt from “registration.”
Register with the Nationwide Mortgage Licensing
System (NMLS) and will be given a unique identifier.
“Registered” LOs
127


Jillayne Schlicke

Issuance of a License:
Never revoked
No felony last 7 years
No felony at any time re fraud, dishonesty, breach of
trust, money laundering
Financial responsibility
Pre-licensing education
Written test
Net worth and surety bond
128


Jillayne Schlicke

LO exam:
75% to pass
Can retake 3 X at 30 day intervals
If fail 3 X, must wait 6 months
5 year lapse in license: must retake the test

129


Jillayne Schlicke

Continuing Ed
3 hours Federal Law
2 hours Ethics, Consumer Protection, Fraud, Fair
Housing
2 hours Non Traditional Lending
1 hour Undefined
No carry-overs
Can’t take the same class each year.
130


Jillayne Schlicke

Take the SAFE Act Quiz

131


Jillayne Schlicke

Section 25 Dodd Frank Act Changes
Module 25.1 Escrow Requirements
APOR =
Average Prime Rate Offering

Module 25.2
Loan Originator Compensation Requirements
Additional LO Qualifications under Dodd Frank

132


Jillayne Schlicke

Section 25 Dodd Frank Act Changes
Module
Module
Module
Module
Module
Module

25.3
25.4
25.5
25.6
25.7
25.8

Ability to Repay
Qualified Mortgage
Balloon Payment, QMs
High Cost Mortgages
Mortgage Servicing
Appraisal Disclosure and Delivery

Module 25.9 Test your knowledge!
Take the Dodd Frank Act Changes Quiz

133


Jillayne Schlicke

Section 26 Final Exam, Recap and Close
Review all remaining unanswered questions.
FINAL EXAM
Students complete end-of-course evaluation form.
Instructor provides end-of-course completion
certificates.

134


Jillayne Schlicke

Jillayne Schlicke
CE Forward, Inc.
National Assoc of Mortgage Fiduciaries
206-931-2241
jillayne@ceforward.com
mortgagefiduciaries.com

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