Truth in Lending: 9.4.2.6 Donated Appraisal Rule
In 2018, Congress passed the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (Public Law No.
In 2018, Congress passed the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (Public Law No.
Since October 1, 2009, when an FRB rule became effective, Regulation Z has addressed certain activities of mortgage servicers. The FRB’s rule1135 was issued under its authority to prohibit unfair and deceptive acts and practices in connection with mortgage loans.1136 It applies to loans secured by a principal dwelling and addresses three practices: crediting payments, providing payoff statements, and pyramiding of late fees.
The Dodd-Frank Act mandates that servicers credit periodic payments on consumer credit transactions secured by a consumer’s principal dwelling as of the date of receipt.1355 Like the FRB rule, there is an exception when a delay in crediting the payment does not result in any charge to the consumer or in the reporting of negative credit information to a consumer reporting agency.1356 Also like the FRB rule, electronic payments are considered received when the servicer receives the payment
The Truth in Lending Act includes a safe harbor for servicers that provide certain loss mitigation plans during a finite time period, shielding the servicers from liability to any particular investor by deeming such actions as meeting the “net present value” requirement in pooling and servicing agreements. Specifically, 15 U.S.C.
‘As with HOEPA loans, the creditor cannot structure a home-secured loan as an open-end plan to evade the higher-priced loan protections.499 This prohibition is discussed at § 9.6.11.6, infra.
Even if a loan meets the definition of a higher-priced mortgage loan (HPML), it may qualify for one of several exemptions to the escrow requirement: loans used to finance the initial construction of a home, temporary or bridge loans with a term of twelve months or less, cooperative shares, reverse mortgages, and all forms of open-end credit.507 Insurance premiums need not be included in the escrow amounts if the home is a condominium or the homeowner otherwise belongs to an association that maintains a master insurance policy on the premise
Under the Dodd-Frank Act, a creditor must establish an escrow account in a federally insured depository institution or credit union and administer it in compliance with the Real Estate Settlement Procedures Act and other laws.522 Any interest required under federal or state law must be paid on the escrow account.523 Required disclosures in connection with the escrow account include:
For higher-priced mortgage loans, the rule requires creditors to use a licensed or certified appraiser who prepares a written appraisal report based on a physical inspection of the interior of the property.561 The rule also requires creditors to disclose to applicants information about the purpose of the appraisal and to provide consumers with a free copy of any appraisal report.562
Significantly, a violation of the prepayment penalty provision (like its HOEPA counterpart) triggers rescission. The definition of “material” disclosure in Regulation Z specifically includes this provision for purposes of rescission.565
In 1994, Congress amended TILA with the passage of the Home Ownership and Equity Protection Act (HOEPA).569 HOEPA was designed to protect vulnerable consumers from some predatory lending practices by providing additional consumer protections for a class of closed-end, non-purchase-money, relatively expensive home mortgage loans.570 HOEPA’s additional protections include three-day advance Miranda-like disclosures; prohibitions on certain abusive loan terms and creditor practices; increased st
In 1993 and 1994, the House and the Senate each held a series of hearings on abusive home lending.590 The record in those hearings details the sordid side of home mortgage lending.591 Numerous witnesses catalogued the hardship, dislocation, and neighborhood destabilization caused by expensive mortgage lending.592 Homeowners from a number of communities traveled to the hearings by overnight bus and surprised legislators by singing spirituals a
Following HOEPA’s enactment and as a result of a Congressional directive,599 the Federal Reserve Board held hearings and obtained public comment on a variety of issues relevant to HOEPA in 1997.600 The next year, the FRB and HUD released a Joint Report to the Congress Concerning Reform to the Truth in Lending Act and the Real Estate Settlement Procedures Act.
Congress recognized that it was regulating high-cost loans only to a limited extent when it enacted HOEPA. State laws in existence before HOEPA and those passed after HOEPA are not preempted, except “to the extent that those [s]tate laws are inconsistent with any provisions of § 1639 . . .
The 1982 exclusion of “arrangers” from the definition of creditor642 created a loophole which enabled brokers in the business of writing high-cost mortgages to deprive borrowers of both Truth in Lending disclosures and rescission rights. This was done by arranging for loans from individuals or other entities who did not meet the numerical test to be a “creditor” for TILA purposes.643
Pleading requirements may be fairly minimal.647 Nonetheless, practitioners should not ignore the development of factual evidence, where it exists. Many high-cost transactions will appear to be made by a private individual and only careful investigation will reveal the involvement of a broker. Particularly in the foreclosure “rescue” context,648 the operators do not generally portray their transactions as loans or present themselves as lenders or brokers.
Section 1602(g) (formerly section 1602(f)) which contains HOEPA’s special definition of “creditor,” starts with a general definition of the term. To meet the general definition, a person must, among other things, regularly extend consumer credit which is payable by agreement in more than four installments or for which payment of a finance charge is or may be required.
For loan applications received prior to January 10, 2014, “residential mortgage transactions” are exempt from HOEPA.659 That term is generally defined by TILA to include purchase money security interests to finance the acquisition or initial construction of the consumer’s dwelling.660 Consequently, HOEPA applied to refinancing and other home equity loans that meet its cost triggers, but not to purchase and construction loans.661 This exemptio
One of the Dodd-Frank Act’s most dramatic changes to HOEPA is its deletion of this limitation.
When HOEPA was enacted, it contained explicit exemptions for reverse mortgages.
In addition, the CFPB has discretionary authority under the Act to exempt specific mortgages or categories of mortgages from some of the prohibitions under the Act, but not from the disclosures.682 This authority is significantly more limited than the general “adjustment” authority.683 In order to create an exemption, the Bureau must find that the exemption is in the interest of the borrowing public and is granted only to products that maintain and strengthen home ownership and equity protec