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Truth in Lending: 9.3.2.3 What Is a Mortgage Broker?

Mortgage brokers are defined separately from loan originators. The CFPB accepted, without alteration, the FRB’s definition of mortgage brokers. This definition has important implications for other areas of TILA, including whether or not a loan has HOEPA coverage.60

Truth in Lending: 9.3.2.7.1 Problems with dual compensation

As extensively documented by the Department of Housing and Urban Development, dual compensation, when the broker receives payments both from the homeowner and from a third party, leads to increased costs for the homeowner across the board and decreased transparency in pricing.101 The FRB originally proposed to regulate dual compensation through disclosure, but found that it could not eliminate the harms of dual compensation through disclosure alone.102

Truth in Lending: 9.3.2.8.1 Regulation Z steering prohibitions

Regulation Z prohibits loan originators from steering consumers to a loan based on the fact that the loan originator will receive greater compensation for that transaction from the creditor, unless the consummated transaction is in the consumer’s interest.113 This rule was adopted by the FRB in 2010, before its rulemaking authority was transferred to the Consumer Financial Protection Bureau.114

Truth in Lending: 9.3.2.9 Qualification, Registration, and Licensing of Loan Originators

Mortgage originators are now subject to a “duty of care” requirement, which mandates qualification and registration and licensing.124 Any unique identifier of a mortgage originator provided by the national registry must be provided on all loan documents.125 Practitioners may wish to request production of documents based on the unique identifier to minimize confusion between originators and to increase the provision of relevant documents.

Truth in Lending: 9.6.4.1 General

Lender attempts to avoid HOEPA coverage by undercounting the settlement charges relevant to the points and fees trigger is one of the most widespread abuses in the high-rate home equity market. For this reason, it is critical that practitioners carefully sift through the points and fees charged by the creditor to determine which can be counted toward this trigger.

Truth in Lending: 9.6.5 Prepayment Penalty Trigger

The third HOEPA trigger, added by the Dodd-Frank Act effective for applications received on or after January 10, 2014, is based on a loan’s prepayment penalty provisions.720 A loan is covered by HOEPA where it is a consumer credit transaction secured by the consumer’s principal dwelling, other than a reverse mortgage, and the terms permit the creditor to charge or collect prepayment fees or penalties more than thirty-six months after the transaction closing, or such fees or penalties exceed, in the aggregate, more than 2% of the amount bein

Truth in Lending: 9.6.6.1 Required Disclosures

The disclosure requirements applicable to covered loans are found in 15 U.S.C. § 1639.723 These disclosures do not replace the existing disclosure requirements under “regular” TILA rules found in 15 U.S.C.

Truth in Lending: 9.6.6.6 Tolerances

The APR disclosed in the HOEPA notice must be accurate to within the usual tolerance of 1/8 of 1% for regular transactions and 1/4 of 1% for irregular transactions and the finance charge cannot be understated by more than $100.756 An overdisclosure is not actionable if the overdisclosure is based upon a misallocation of the finance charge. The tolerance rules applicable to rescissions do not affect the APR disclosure on the HOEPA notice, however.

Truth in Lending: 9.6.6.7 Additional Inconsistent Information

Some lenders may add information to the HOEPA notice or may include a separate notice or letter when the HOEPA notice is provided. While a lender can provide more information than required by law, the additional verbiage, if inconsistent with the required language, may violate the clear and conspicuous requirement in 15 U.S.C.

Truth in Lending: 9.6.6.8 Timing of Disclosures

The disclosures required for covered loans must be given not less than three business days prior to consummation of the transaction.763 A “business” day is defined as including all calendar days except Sundays and certain listed holidays.764

Truth in Lending: 9.6.6.9 Delivery of Notice; Presumption of Delivery

Although the timing requirements appear straightforward, it is a common practice for predatory lenders to rush the consumer to complete a loan quickly, before the consumer understands the nature of the scam or can obtain advice from a lawyer, friend, or relative. Lenders may be tempted to fudge the date on the notice because complying with this requirement gums up their bureaucratic operation.

Truth in Lending: 9.6.7 Modification or Waiver of the HOEPA Notice

Regulation Z authorizes a modification or waiver of rights when necessary to permit homeowners to meet “bona fide personal financial emergencies.”773 This means the three-day advance look at the prescribed disclosures can be waived in genuine, immediate financial emergencies.

Truth in Lending: 9.6.8 Electronic Disclosures

Regulation Z allows electronic provision of the disclosures that are required for HOEPA loans, but only if the creditor complies with the Electronic Signatures in Global and National Commerce Act (E-Sign).779 Electronic disclosures are addressed in the TILA context at § 4.3, supra, and analyzed more generally in another treatise in this series.

Truth in Lending: 9.6.10.2.1 Introduction

Below we discuss the rules that apply to high-cost mortgages as of January 10, 2014. In the archived version of Chapter 9 available online as companion material to this treatise there are discussions of the prepayment penalty rules that apply to loans made before October 1, 2009 and those that apply as of October 1, 2009 and before January 10, 2014.