Source: http://www.jdsupra.com/legalnews/quarterly-report-mid-south-regulatory-c-73531/
Timestamp: 2015-03-02 19:46:18
Document Index: 513205423

Matched Legal Cases: ['§89', '§ 75', '§ 75', '§89', '§15', '§81', '§81']

Quarterly Report: Mid-South Regulatory Compliance Group - August 2012, Vol. 9, No. 3 | Butler Snow LLP - JDSupra
Quarterly Report: Mid-South Regulatory Compliance Group - August 2012, Vol. 9, No. 3
In This Issue: - CFPB Proposes New Mortgage Disclosures Forms 1
- Making Sense Out of HOEPA 3
- Six (6) Additional CFBP Rulemakings Pending 6
- Lessons To Be Learned from Capitol One 7
- NFIP Extension Makes Big Changes 8
- Mississippi Mortgage Servicing Requirements 10
- Mississippi Law Update 13
- MSRCG Quarterly Meeting to be Held on August 28, 2012 14
- MSRCG Compliance Calendar 15
- Examples of Proposed Forms 16
Excerpt from Six (6) Additional CFBP Rulemakings Pending: Bankers are often hard-pressed to come up with much sympathy for their regulators, and that seems particularly true in the case of the CFPB, a relatively new regulator and one with which we have not had much experience. But when it comes to the current task at hand, reforming the business and process of originating residential mortgage loans, we all need to hope that they do their job well and wisely. The task will be difficult.
In a related article (see page 1), we discuss a recent proposed rule issued by the CFPB in response to a mandate in the Dodd-Frank Act ("DF Act"). That proposed rule seeks to simplify and consolidate disclosures to be given to mortgage loan applicants shortly after they submit an application for a mortgage loan, and then later provide disclosures related to the costs associated with the approved mortgage loan shortly before closing.
Download PDF F R DM B IL' I LER. S VV , CD 'NARA, S I EV E. r-4 s Sc C FA NJ A. , P L L C: REPORT MID-SOUTH REGULATORY COMPLIANCE GROUP August 2012 Vol. 9 No. 3 CFPB PROPOSES NEW MORTGAGE DISCLOSURE FORMS On July 9, 2012, the CFPB issued its proposed rule creating new mortgage loan disclosure forms. These forms, when finalized, will replace the current disclosure forms given to borrowers under the Truth in Lending Act ("TILA") and the Real Estate Settlement Procedures Act ("RESPA"). The first of these forms, given shortly after a borrower submits an application, is called the "Loan Estimate." And the second disclosure form, given prior to the actual closing of a loan, is called the "Closing Disclosure." (Examples of these proposed forms appear at the end of this newsletter.) Background For more than 30 years, lenders have been required to provide two different disclosure forms to borrowers when they apply for a mortgage loan. In the same fashion, lenders have also been required to provide two different forms at or shortly before the closing of a residential mortgage loan. These forms were developed by two different agencies under two different federal statutes: the Truth in Lending Act and the Real Estate Settlement Procedures Act. The content of these forms has always overlapped and the language has been inconsistent. It is not surprising, therefore, that mortgage loan applicants have been confused and that lenders have found it both burdensome and confusing to try to explain the different forms. The Dodd-Frank Wall Street Reform and Consumer Protection Act ("D-F Act") directed the CFPB to combine and streamline these forms. The CFPB has conducted an extensive study of the mortgage lending process and is now proposing a new rule to combine these forms. The first new form (the Loan Estimate) is designed to provide disclosures that will help consumers understand certain key features, costs, and risks associated with the mortgage for which they are applying. This form must be provided to applicants within three business days after they submit a loan application. The second form (the Closing Disclosure) is designed to provide disclosures that will help borrowers understand the costs of the mortgage transaction. This second form must be provided to borrowers three days before they close on their mortgage loan. The proposed forms have generally received favorable reviews for the clear language and design that they feature. The proposed forms reconcile the differences between the existing forms and combine several other disclosures mandated by the D-F Act. The goal of the CFPB is to provide more information to help consumers decide whether they can afford a particular loan and to compare the cost of different loan offers. CFPB Proposes New Mortgage Disclosures Forms 1 Making Sense Out of HOEPA 3 Six (6) Additional CFBP Rulemakings Pending 6 Lessons To Be Learned from Capitol One 7 NFIP Extension Makes Big Changes 8 Mississippi Mortgage Servicing Requirements 1 0 Mississippi Law Update 13 MSRCG Quarterly Meeting to be Held on August 28, 2012 14 MSRCG Compliance Calendar 1 5 Examples of Proposed Forms 16 BUTLER, SNOW -MEMPHIS • WWW.BUTLERSNOW.COM FROM BUTLER, SNOW, O'MARA, STEVENS & CANNADA, PLLC Summary of the Proposed Rule The proposed rule applies to most consumer mortgages. It does not apply to home-equity lines of credit, reverse mortgages, or mortgages secured by a mobile home or a dwelling that is not attached to land. The Loan Estimate. The Loan Estimate form replaces two current federal forms. It takes the place of the Good Faith Estimate under RESPA and the "early" Truth in Lending disclosure under TILA. The proposed rule contains detailed instructions for each line of the Loan Estimate form, and there are sample forms for use with different types of loan products. Certain new disclosures contained in the Loan Estimate form incorporate changes required by the D-F Act. The Loan Estimate form must be given to a borrower within three business days after receiving an application for a mortgage loan. The proposed rule clarifies what constitutes an "application" for these purposes. With the exception of a fee to obtain a consumer's credit report, lenders generally cannot charge any fees until the consumers have been given the Loan Estimate form and the consumers have communicated their intent to proceed with the transaction. The Closing Disclosure. The Closing Disclosure form will take the place of the current HUD-1 required under RESPA, and it will also replace the final Truth in Lending disclosure required under TILA. As is the case with the Loan Estimate, the proposed rule contains detailed instructions on how each line on the Closing Disclosure form should be completed. The Closing Disclosure also contains new disclosures required by the D-F Act and a detailed accounting of the settlement transaction. Consumers must receive the Closing Disclosure form at least three business days before the loan closes. Generally, if changes occur between the time the Closing Disclosure form is given and the time the loan actually closes, the consumer must be provided a new form. When that happens, the consumer must be given three additional business days to review the modified form before closing. However, the proposed rule provides an exception for some of the more common changes. These include changes resulting from negotiations between the buyer and the seller after a final walk-through. There is also an exception for minor changes that result in less than a $100 increase in costs. The CFPB is proposing two alternatives for providing consumers with the new Closing Disclosure form. Under the first option, the lender would be responsible for delivering the Closing Disclosure, and under the second option, the lender could rely on a settlement agent to provide the form. However, under the second option, the lender would still be responsible for the accuracy of the form. The CFPB is seeking comment as to which of these alternatives is preferable. Limits on Closing Cost Increases. Similar to existing law, the proposed rule would restrict those situations where consumers could be required to pay more for settlement services than the amount stated on their Loan Estimate form. Unless an exception applies, charges for the following services could not increase: (1) the lender's charges for its own services; (2) charges for services provided by an affiliate; (3) charges for services for which the lender does not permit the consumer to shop. Also unless an exception applies, charges for other services generally could not increase by more than 10%. The rule proposes the following exceptions: (1) when the consumer asks for a change; (2) when the consumer chooses a service provider that was not selected by the lender; (3) when information provided in an application was inaccurate or becomes inaccurate; or (4) when the Loan Estimate expires. When an exception applies, the lender generally must provide an updated Loan Estimate form within three business days. APR Changes. The proposed rule redefines the way the Annual Percentage Rate ("APR") is calculated. Under the rule, the APR will encompass almost all of the up-front costs of a MSRCG QUARTERLY REPORT Page 2 FROM BUTLER, SNOW, O'MARA, STEVENS & CANNADA, PLLC mortgage loan. In the mind of the CFPB this new approach to APR calculation will make it easier for consumers to compare loan offers and make it easier for lenders to calculate the APR. While this sounds like a simple change, the consequent effect on the calculation of "Finance Charge" and "APR" will have a wide-reaching impact on a number of other consumer protection regulatory features. Recordkeeping. The proposed rule requires lenders to keep records of the Loan Estimate and the Closing Disclosure forms that they provide consumers in a standard electronic format which will facilitate compliance monitoring by the lender's regulators. The proposed rule holds out the possibility that "smaller" lenders might be exempt from this requirement, but gives no guidance as to what will constitute a "smaller" lender. Effective Date. The CFPB is seeking comment on when the proposed rule should become final. Because of the importance of these new disclosures to consumers, the CFPB wants to make the rule effective as soon as possible. However the CFPB understands that the changes proposed will cause extensive revisions to a lender's software and significant training issues for a lender's staff. The rule itself will need to be finalized by January 21, 2013, with a possible implementation deadline of some time in the not very distant future. At our upcoming Quarterly Meeting, we have plans to conduct a panel discussion that will include a review of the attached new disclosure forms, as well as a discussion of certain key regulatory changes that will have an impact on your bank's loan products and offerings that go well beyond simply providing new mortgage loan disclosure forms. (Please see related articles that address certain of these changes.) (Ed Wilmesherr) MAKING SENSE OUT OF HOEPA Compliance has never been more complex or confusing. "Higher-Cost Loans" versus "Higher-Priced Loans;" "Finance Charge" versus "APR;" "APR" versus "TCR;" "Qualified Mortgage" versus "Qualified Residential Mortgage;" what is a Compliance Officer to do? Unfortunately, the only choice is to buckle down and find a way to make sense out of the changes, while staying ahead of the latest regulatory developments. Elsewhere in this edition of the Quarterly Report, we have discussed the CFPB's proposed revision and consolidation of the early disclosure and loan closing disclosure forms required by RESPA and TILA. We have also outlined six other rulemaking efforts that will be released over the next six months which will impact a bank's residential mortgage lending products and procedures. The challenge will be to approach all of this regulatory change in a holistic way that allows us to gain a complete, and hopefully clear, picture of the new regulatory landscape. At this point, there does not appear to be one single place to start. Each of the proposed rules discussed elsewhere is connected to all of the others. Some are fairly simple, and some are complex. Together, they have huge implications for a bank's operations and profits. It is hard to determine exactly where to begin. So, for lack of a clear starting point, we suggest looking at the recently proposed High-Cost Mortgage Amendments to the Truth In Lending Act (TILA). But first, some brief history. The Home Ownership Equity Protection Act was enacted in 1994 and the so-called HOEPA regulations under TILA were adopted in 1995. The HOEPA regulations required lenders to provide special pre-closing disclosures, restricted prepayment penalties and certain other loan terms, and prohibited certain other lender practices like originating a loan without determining a borrower's ability to pay. MSRCG QUARTERLY REPORT Page 3 FROM BUTLER, SNOW, O'MARA, STEVENS & CANNADA, PLLC In 2001, the Federal Reserve Board issued further regulations that lowered the APR "trigger" rate for first-lien mortgage loans, expanded the definition of "points and fees" to include the cost of optional credit life insurance and debt cancellation premiums, and enhanced restrictions on HOEPA loans. In 2008, the Board introduced the concept of "Higher-Priced Mortgage Loans." With APRs that are lower than those prescribed for HOEPA loans, but that nevertheless exceed the "Average Prime Offer Rate" (APOR) by prescribed amounts. In 2009, the Board issued its Mortgage Proposal related to closed-end credit transactions and for the first time introduced the concept of the "Transaction Coverage Rate" (TCR) as a new measurement for determining HOEPA coverage. Also in 2009, the Board proposed further amendments to TILA that related to disclosures, terms and conditions for open-end HELOCs. In 2010, the Board proposed further amendments to Regulation Z regarding rescission rights, disclosure requirements for mortgage loan modifications, and escrow requirements for higher-priced mortgage loans. This 2010 Mortgage Proposal also floated the concept of a "simpler," more inclusive definition of the term "finance charge." It was in connection with this expanded definition of finance charge that the Board introduced the concept of TCR, which the Board proposed to calculate based on the existing method for calculating APR, but excluding prepaid finance charge not paid to the lender. In 2011, the Board issued its Escrow Proposal which set forth escrow-related disclosure requirements for higher-priced mortgage loans using the previously announced TCR method for determining whether a loan was a higher-priced mortgage loan. The Board also proposed to use the "Average Prime Offer Rate" as the benchmark rate for higher-priced mortgage loan coverage. A few months later, the Board issued its 2011 ATR Proposal which included its initial attempt to address the Dodd-Frank Act's "Ability to Pay Rule" and the concept of the "Qualified Mortgage." Congress passed the Dodd-Frank Act in 2010 and in doing so significantly amended HOEPA to expand the types of loans potentially subject to HOEPA coverage, to revise the trigger for HOEPA coverage, and to strengthen and expand still further the restrictions that HOEPA imposes on mortgage loans. Among the changes made was an expansion of HOEPA to include purchase money loans and home equity lines of credit, a significant increase in scope. Not long thereafter, the Board's authority to write regulations under TILA was transferred to the CFPB, and that Bureau has now proposed rules for comment that will finalize all of this activity. To that end, the CFPB has announced that its HOEPA proposed regulations will draw upon the Board's 2009 Closed-End Proposal, 2009 Open-End Proposal, 2010 Mortgage Proposal, 2011 Escrow Proposal, and 2011 ATR Proposal. (Is all that clear? Hang in there!) Scope of HOEPA. The Dodd-Frank Act expanded the coverage of HOEPA to include residential mortgage transactions, including purchase money loans and open-end lines of credit secured by a consumer's principle dwelling. (HELOC's). Threshold Triggers. HOEPA has always featured trigger rates that determine whether a loan is a HOEPA loan. The Dodd-Frank Act adjusted the two existing triggers and added a third trigger based on the inclusion of prepayment penalties. Now, a loan with be a high-cost (HOEPA) mortgage loan if: • The APR exceeds the Average Prime Offer Rate (APOR) by (1) more than 6.5% on first mortgage loans secured by the consumer's principle dwelling or 8.5% if the dwelling is personal property and the loan is less than $50,000; or (2) 8.5% for subordinate lien loans; MSRCG QUARTERLY REPORT Page 4 FROM BUTLER, SNOW, O'MARA, STEVENS & CANNADA, PLLC • The total points and fees (other than bona fide third-party charges not retained by the lender) exceed (1) for loans of $20,000 or more, 5% of the total transaction amount; or (2) for loans under $20,000, the lesser of 8% of the total transaction amount or $1,000; or • The loan has a prepayment penalty that (1) may be imposed more that 36 months after consummation or account opening; The APR, APOR, TCR (for determining HOEPA coverage). We have already mentioned that the Dodd-Frank Act lowered the percentage point trigger and changed the APR benchmark. The question becomes one of implementation. The CFPB has proposed two alternatives. The first alternative would simply compare the APR to the APOR to determine HOEPA coverage for closedend mortgage loans. The second alternative is substantially identical, except that it substitutes what the CFPB has termed the "Transaction Coverage Rate" (TCR) in place of the APR. The TCR would then be compared to the APOR to determine coverage for closed-end mortgage loans. Alternative two is being proposed because the CFPB is also proposing to simplify and broaden the definition of "finance charge" under Regulation Z. Expanding the Definition of Finance Charge. Alternative two discussed above would account for changes in the calculation of "finance charge." The CFPB is proposing a simpler, more inclusive definition. This simpler calculation would include most third-party charges for closed-end mortgage loans. Taken alone that would widen significantly the disparity between the APR and the APOR, causing many more loans to be HOEPA loans since the APOR generally only includes the contract interest rate and points, but not other origination fees. The Transaction Coverage Rate. The second alternative for compensating due to the broader definition of finance charge would be to replace the APR as a benchmark for closed-end loans with the "Transaction Coverage Rate." (TCR). The TCR would be determined in the same manner as the APR for closed-end loans, except that prepaid finance charges used for calculation purposes would only include those charges retained by the lender. For example, third-party charges for title insurance would not be included. The CFPB expects that the margin of difference between the TCR and the current APR would be much smaller than the margin between the current APR and the APR calculated using the expanded definition of finance charge. Open-End Transactions. The proposal to have a more inclusive definition of finance charge only applies to closed-end loans. Therefore, the CFPB proposes to use the TCR for closed-end loans only. Open-end loans calculate APR using interest only and do not include other fees or charges. Therefore, the annual percentage rate would be used for open-end transactions. The foregoing regulatory changes are still in the proposal stage; however, the CFPB goes to great length in its proposed rule to say that they have done a thorough job of research and have anticipated many possible comments from advocates on both sides. Given the importance of this regulatory effort and the short timeframe for finalization, it seems likely that the proposed rule will be adopted with few changes. We plan to have a panel discussion at the August Quarterly Meeting devoted to the issues surrounding implementation of these changes. (Ed Wilmesherr) MSRCG QUARTERLY REPORT Page 5 FROM BUTLER, SNOW, O'MARA, STEVENS & CANNADA, PLLC SIX (6) ADDITIONAL RULEMAKINGS PENDING Bankers are often hard-pressed to come up with much sympathy for their regulators, and that seems particularly true in the case of the CFPB, a relatively new regulator and one with which we have not had much experience. But when it comes to the current task at hand, reforming the business and process of originating residential mortgage loans, we all need to hope that they do their job well and wisely. The task will be difficult. In a related article (see page 1), we discuss a recent proposed rule issued by the CFPB in response to a mandate in the Dodd-Frank Act ("DF Act"). That proposed rule seeks to simplify and consolidate disclosures to be given to mortgage loan applicants shortly after they submit an application for a mortgage loan, and then later provide disclosures related to the costs associated with the approved mortgage loan shortly before closing. On their face these new disclosure forms seem straight up and simple, but fallout from these changes will be anything but simple. Fortunately, the CFPB seems to understand, and in their proposed rule they explain how (6) other rulemakings that are due out between now and year end will impact and interact with the initial proposal to consolidate and simplify mortgage loan disclosures. It is this interaction and connected relationship that you will need to understand in order to have a comprehensive and coordinated compliance program for residential mortgage lending. Consider the following: HOEPA. The CFPB has already announced a proposed rule to address changes made to the Truth In Lending Act by the D-F Act. (see related article.) These changes expand the universe of loans covered by HOEPA, make changes to the fees and charges that would trigger HOEPA coverage, and impose certain restrictions on loan terms. In addition, home-ownership counseling provisions of the D-F Act are included in this proposed rule. Servicing. At the May Quarterly Meeting we went into significant detail regarding the CFPB proposed guidance for the servicing of mortgage loans. This guidance goes into detail regarding the forms for new mortgage loan periodic statements and adjustable rate mortgage reset disclosures as well as new D-F Act mandated requirements regarding force-placed insurance, error resolution, and crediting of payments. Additionally, the CFPB is considering whether to adopt rules that would require lenders to develop reasonable information management policies and procedures to aid consumers in getting answers to questions, resolving disputes, etc. Additional rules may address requirements to contact and work with consumers that have difficulty repaying their loans as agreed. Loan Originator Compensation. Other provisions of the D-F Act require the CFPB to finalize a rule that will prohibit steering customers to loans with higher costs or less favorable terms, while presenting to the customer/applicant loan options for which he or she can qualify that feature the lowest interest rate, the best terms, etc. This rulemaking will also clarify limits on compensation that "mortgage loan originators" can be paid. Appraisals. An additional new rule is being developed that will address appraisals for higherrisk mortgage loans, the use of appraisal management companies, and automated valuation models. Other changes to the Equal Credit Opportunity Act and Regulation B, brought about by the D-F Act, will impact existing requirements to give mortgage loan applicants a free copy of any written appraisals or valuations developed in connection with their mortgage loan application. Ability to Pay. Perhaps one of the most important of all the pending rulemakings will be the finalization of the so-called "Ability to Pay" rule which requires creditors to determine that a consumer can repay the mortgage loan he or she applies for. It will also establish standards for complying with the Ability to Pay Rule which will have a direct effect on the underwriting of MSRCG QUARTERLY REPORT I Page 6 FROM BUTLER, SNOW, O'MARA, STEVENS & CANNADA, PLLC mortgage loans, as well as the terms and conditions of those mortgage loans. Escrows. And last but not least, there will be a proposed rule to implement D-F Act provisions that require certain escrow account disclosures and perhaps call for exemptions from the higherpriced mortgage loan escrow requirements for certain "small lenders" (as yet, undefined.) Again, the regulatory changes generally carry with them a January 21, 2013 effective date, but certain exceptions may delay the mandatory compliance date to allow for software and systems changes and training for affected employees. In a panel discussion format at the August Quarterly Meeting, we will attempt to correlate all of these changes to the new disclosure form requirements and the proposed redefinition of "Finance Charge" under the Truth Lending Act. We are truly on the threshold of an unprecedented change in the way banks offer residential mortgage loans. A lot of work lies ahead of us. (Ed Wilmesherr) LESSONS TO BE LEARNED FROM CAPITAL ONE One year ago, in the August 2011 Quarterly Report, we addressed the potential expansion and increased emphasis on regulation of unfair, deceptive and abusive acts and practices ("UDAAP") by the CFPB. Well, the Bureau has lived up to its promises, and in its first enforcement action, has made an example out of Capital One. According to the CFPB, Capital One employees misled consumers about the benefits, nature, eligibility, and costs of certain credit card add-on products and also enrolled some consumers without express consent. Examples of these addon products include payment protection plans and monitoring services. The payment protection plan potentially allows eligible consumers to cancel up to twelve payments in certain situations such as disability or unemployment. The monitoring services include identity theft protection services and other daily monitoring and account notifications. Capital One's total penalty is approximately $210 million dollars which includes a $25 million payment to the CFPB, a $35 million payment to the OCC, and refunds to approximately two million customers. Specifically, the CFPB alleged, in part, that Capital One representatives engaged in the following improper sales tactics: • indicating that the add-ons may help to increase a consumer's credit score; • implying that the products were free features of a Capital One credit card as long as the customer maintained good payment practices; • misstating the costs of the services; • refusing to provide additional information about the services to consumers who were not yet enrolled in the add-on features; • misstating relevant statistics; • failing to inform consumers that the services were optional; • failing to cancel the service when requested by the consumer to do so; and • failing to verify the consumer's eligibility prior to enrollment. The CFPB set forth explicit instructions for Capital One to end deceptive marketing of the add-on products until an approved compliance plan is in place, provide refunds to approximately two million customers, pay all claims that were denied to consumers who were ineligible, and engage in an independent audit of compliance with the terms of the consent order. Additionally, the CFPB issued a bulletin providing detailed instructions and expectations for the marketing of credit card add-on products. The bulletin provides that all institutions must comply with various laws and regulations such as the Dodd-Frank Act by prohibiting unfair and deceptive practices, the Truth-in-Lending Act/Regulation Z's requirements when applying MSRCG QUARTERLY REPORT I Page 7 FROM BUTLER, SNOW, O'MARA, STEVENS & CANNADA, PLLC fees for debt cancellation plans, and the Equal Credit Opportunity Act/Regulation B's fair lending requirements by not requiring applicants to enroll in the credit card add-on products based on a prohibited basis. In addition to compliance with the above listed regulations, the CFPB set forth its own, detailed expectations for the marketing of credit card add-on products and services. These expectations include ensuring that all marketing materials provide only the actual terms and conditions of a product. Further, any incentive or compensation plan tied to the add-on products or services must not create an incentive for employees to misrepresent product information. Finally, all scripts should be reviewed to ensure that all terms and conditions of the add-on credit products are accurately stated and that affirmative consent is obtained, and provide guidance for rebuttals and proper handling of cancellation requests. The CFPB's bulletin also requires that banks offering credit card add-on products should have written policies and procedures in place, conduct periodic reviews and independent audits, oversee the actions of any third-parties, adequately train employees, and properly and effectively respond to complaints. There are several lessons to be learned from this enforcement action. First, the significant amount of the penalty alone makes it clear that the CFPB is very serious about UDAAP enforcement. The CFPB's goal in increasing penalty amounts is to prohibit banks from continuing to profit from unfair, deceptive and abusive practices. Lesser penalty amounts may often be perceived simply as a cost of doing business. Second, the Stipulation and Consent Order was very detailed and clearly explained the facts of what happened at Capital One, why the CFPB found Capital One's behavior to be reprehensible, and how other banks may comply in the future. The detailed nature of the order is uncommon and may have both positive and negative effects. On one hand, plaintiff's attorneys now know exactly what to look for and how to draft similar complaints. On the other hand, financial institutions now know exactly what not to do, in no uncertain terms, and can better monitor and tailor their marketing practices accordingly. Finally, whether or not this enforcement action will impact the ability to offer add-on credit card products, or just the way they are marketed has yet to be determined. It is likely that the marketing practices of other credit card companies will be under some scrutiny, but it has yet to be determined by the CFPB whether the products themselves will come under attack, or just the way they are promoted to consumers. (Memrie Fortenberry) NFIP EXTENSION MAKES BIG CHANGES On July 6, 2012, President Obama signed into law the Biggert-Waters Flood Insurance Reform and Modernization Act of 2012 (Biggert-Waters Reform Act) extending the National Flood Insurance Program (NFIP) until September 30, 2017. The Act, however, does more than just extend the NFIP. Part of a larger piece of legislation, the Act makes other changes to the National Flood Insurance Act that include new flood compliance requirements and increased penalties for violations. Some of the new requirements are effective on enactment and some will require the banking agencies to issue new or revised regulations. It does not appear that banks need to take immediate action, but it is important to have an understanding of the new requirements and how they will ultimately affect your bank's flood compliance procedures. The Biggert-Waters Reform Act is contained in Division F of the larger "Moving Ahead for Progress in the 21st Century Act" or "MAP 21" that also included changes to federal transportation and student loan laws. It appears that some provisions of Division F became effective on the date of enactment, July 6, 2102, while others have a later effective date. In some instances, the effective date may depend on MSRCG QUARTERLY REPORT Page 8 FROM BUTLER, SNOW, O'MARA, STEVENS & CANNADA, PLLC regulations to be written, but that is not always clear from the language of the Act. The following sections appear to be effective immediately: • Section 100203 which re-authorizes the NFIP for five years; • Section 100208 which increases civil money penalties from $350 to $2000 per violation and eliminates the $100,000 cap on penalties; and • Section 100210 which establishes minimum deductibles for claims under the NFIP. The following sections contain a delayed effective date: • Section 100205 which phases out flood insurance premium subsidies for residential properties other than an individual's primary residence and for business properties and increases the cap on annual premium increases from 10 to 20%. This section is effective 90 days after enactment, or October 6, 2012. • Section 100209 which imposes an escrow requirement for flood insurance which becomes effective two years after enactment, or July 6, 2014. The increase in CMPs and the new escrow requirement are, obviously, big changes. It is not clear whether increased CMPs might be applied to violations which occurred before the effective date of the change. The escrow requirement will apply to all existing mortgages outstanding on the July 6, 2014, effective date, not just new mortgages originated afterwards. The Act authorizes the federal banking agencies to write implementing regulations which include an exemption for banks with less than $1 billion in assets if the bank is not otherwise required by state or federal law to escrow for taxes or insurance, and the bank did not have a policy of requiring escrows for taxes or insurance. The following sections are silent as to a specific effective date, but since they appear to require regulations to be written, it does not appear that they will become effective right away: • Section 100222 which amends RESPA to add a new disclosure explaining flood insurance and the availability of flood insurance under the NFIP or from a private insurance company, whether or not the real estate is located in a special flood hazard area. • Section 100244 which amends requirements for force-placement of flood insurance. • Section 100239 clarifying when a lender can accept private flood insurance to satisfy the mandatory purchase requirement. Section 100222 will require amendment of RESPA disclosures by the CFPB and that may be something the CFPB will incorporate in the final TILA-RESPA disclosures now under consideration. Section 100244 on forced placement does not specifically require implementing regulations to be written. However, the banking agencies have that authority and some of the requirements appear to conflict with the proposed new interagency Flood Q&A. The banking agencies will need to make the following changes to the rules on force placement: • Clarify that while a lender cannot force place until 45 days after notification of a lapse, the borrower may be charged for the premiums and fees incurred for coverage dating back to the flood insurance lapse date; • Require cancellation of force-placed coverage within 30 days of receipt of proof of flood insurance; • Direct that a lender or servicer must accept an insurance policy declarations page that includes the existing flood insurance policy number and the identity of, and contact information for, the insurance company or agent as sufficient proof of insurance; and • Require a lender or servicer to refund all force-placement premiums or fees paid by the borrower during any period of overlapping coverage between the force-placed coverage and the borrower's policy. MSRCG QUARTERLY REPORT Page 9 FROM BUTLER, SNOW, O'MARA, STEVENS & CANNADA, PLLC Section 100239 requires lenders and Fannie Mae and Freddie Mac to accept a private flood policy if the private policy meets certain requirements, which are yet to be defined, as satisfaction of the mandatory purchase requirement. Violations may result in the issuance of a CMP. It also requires lenders to provide a notice to a borrower about private insurance that explains that flood insurance providing the same level of coverage as a NFIP policy may be available from a private company and that encourages the borrower to compare the coverage, deductibles, exclusions, conditions, and premiums of a NFIP policy with a private insurance policy. While not entirely clear, it appears that the requirement to accept a private policy and to give the new notice may not be effective until regulations are written. However, the language of the Act complicates things. It authorizes Fannie Mae and Freddie Mac to establish requirements relating to the financial solvency, strength, or claims paying ability of the private insurance companies whose policies those entities will accept. In another subsection, the Act appears to also authorize the federal banking agencies and the Federal Housing Finance Agency to set these requirements. Hopefully, the agencies will give banks further guidance and work together on a joint rule to establish these standards. (Virginia Wilson) MISSISSIPPI MORTGAGE SERVICING REQUIREMENTS In the May newsletter, we discussed the CFPB's proposed regulations on mortgage loan servicing. If adopted as proposed, those regulations would require monthly billing statements, additional notice requirements for rate and payment changes on ARM loans, notices for forced placed insurance, prompt crediting of payments and responses to payoff requests, and procedures for investigation and resolution of errors among other things. Final regulations are likely before the end of this year. In the meantime, Mississippi mortgage lenders and servicers will need to consider recent amendments to the Mississippi S.A.F.E. Mortgage Act which include a number of consumer protections concerning mortgage loan servicing. Senate Bill 2897, approved this past session, reenacted the Mississippi S.A.F.E Mortgage Act and extended the repealer date to July 1, 2016. The bill made several changes to current law clarifying who must be licensed as a mortgage loan originator under state law by further defining what constitutes the offering or negotiating of mortgage loans or the taking of an application. The legislation also exempted certain bona fide non-profit organizations and their employees from state licensing requirements. These changes have no effect on insured depository institutions or their subsidiaries. Those institutions must continue to follow the federal regulations for registration of their mortgage loan originator employees. However, the bill also contained a new section applicable to all mortgage lenders and mortgage servicers in the state whether or not those lenders or servicers have to be licensed under state law. These new provisions became effective July 1, 2012, and apply to any mortgage lender in the state (the term 'mortgage lender' includes any servicer) and to any loan for personal, family or household purposes secured by a dwelling or secured by residential real estate on which a dwelling exists or is intended to be constructed. The law makes illegal certain listed mortgage servicing practices which are discussed below. The statute makes it unlawful under state law for any mortgage lender (which includes any servicer) to fail to comply with Section 6 or Section 10 of the Real Estate Settlement Procedures Act. Section 6 of RESPA includes the requirements for notice of servicing transfers, prompt disbursements from escrow accounts for payments of taxes and insurance, and prompt responses to qualified written requests from consumers. Section 10 of RESPA deals generally with the administration of escrow accounts, including escrow deposits, account reconciliations and statements, and handling of shortages and MSRCG QUARTERLY REPORT Page 10 FROM BUTLER, SNOW, O'MARA, STEVENS & CANNADA, PLLC deficiencies. In this instance, the new state law does not impose any new or different requirements; it just makes a violation of Section 6 or Section 10 of RESPA a violation of state law also. The statute prohibits certain activities concerning force-placed insurance. It is unlawful for a mortgage lender to: (i) fail to give written notice to a borrower upon taking action to force place hazard, homeowners or flood insurance; (ii) force place insurance when the lender has reason to know that the borrower has insurance in effect; or (iii) force place insurance for an amount in excess of either the value of the insurable improvements or the last known coverage amount of insurance. The lender is required to refund unearned premiums to the borrower once the borrower obtains insurance. If , within 12 months after the lender force places insurance, the borrower provides proof that no lapse in coverage actually occurred, the lender is required to refund the entire premium. It is illegal under the act for a mortgage lender to refuse to reinstate a delinquent mortgage loan once the borrower tenders payment of all outstanding past due amounts and charges based on the last written statement received by the borrower. Once that payment is made, the lender is required to restore the loan to a non-delinquent status. This reinstatement right is only available to the borrower two times in any 24-month period. Mississippi lenders should keep in mind, though, that another statute, Miss. Code §89-1-59, gives borrowers the right to reinstate any real estate secured loan that is payable in installments at any time prior to completion of a foreclosure sale by paying all past due amounts, and there is no limit on the number of times a borrower can exercise that right. The new law makes it illegal for a mortgage lender to initiate any foreclosure action without giving written notice to the borrower at least 45 days in advance. That notice must include an itemization of all past due amounts and any charges that have to be paid in order to bring the loan current, a statement that the borrower may have options available other than foreclosure and that the borrower may discuss those options with the mortgage lender or a HUD-approved counselor, the contact information for a representative of the mortgage lender who is authorized to work with the borrower to avoid foreclosure, the contact information for one or more HUD-approved counseling agencies in Mississippi who may be able to assist the borrower and avoid foreclosure, and the contact information for the Consumer Complaint Section of the Mississippi Department of Banking and Consumer Finance. The new law also makes it unlawful for a mortgage servicer to fail to make all disbursements for insurance, taxes and other charges from any escrow account on a timely basis and in a manner to avoid any late charges or penalties unless there are insufficient funds in the escrow account and the mortgage lender has a reasonable basis to believe that an advance of those funds would not be recoverable. This is another instance where the new state law parallels RESPA and does not appear to impose any new or different requirements. The new law imposes error resolution procedures on Mississippi mortgage lenders. A lender must make reasonable attempts to comply with any borrower's request for information about the home loan and to respond to any dispute initiated by the borrower with respect to the loan account. The lender is required to maintain records of each written request for information by the borrower regarding any dispute or error involving the mortgage loan account. Those records must be maintained for the life of the loan until the loan is paid in full or otherwise satisfied or sold. If the borrower asserts in writing that the loan account is or may be in error, the lender must respond within 10 business days and provide a written statement informing the borrower of whether or not the account is current or, if delinquent, an explanation of the default and the date the account went into default, the current balance due including principal, any funds held in suspense, any escrow balance, whether there are any escrow deficiencies or shortages, the name and address of MSRCG QUARTERLY REPORT Page 11 FROM BUTLER, SNOW, O'MARA, STEVENS & CANNADA, PLLC the current owner of the loan, and the contact information for a representative of the lender who has access to information and the authority to answer questions and resolve disputes with the borrower. The borrower is entitled to one such statement free of charge in any 6 month period. The lender may charge no more than $25 for each additional statement. In addition, a lender must provide within 25 business days after written request from the borrower a copy of the original note, or if the original is not available, an affidavit of lost note and a statement that provides a complete and full history of the mortgage loan account including all payments, credits, debits, deposits to and disbursements from escrow, and any other account activity. The account history must cover a period of at least 24 months (or the life of the loan if less). The borrower is entitled to one such statement for free in any six-month period, and the lender may charge for additional statements provided the charge is no more than $50. In addition, mortgage lenders are required to promptly correct errors with respect to allocation of payments, the balance of the account or the payoff amount identified by the borrower or discovered by the lender. The statute makes it unlawful for the lender to require the borrower to pay any fee or charge incurred by the lender, whether or not the loan is in default, unless it is assessed to the borrower within 45 days after it is actually incurred by the lender. This could include attorneys' fees and other fees and charges incurred in connection with collection actions, foreclosure, bankruptcy or other legal proceedings. Any such fee would also have to be explained clearly and conspicuously in a statement mailed to the borrower within 30 days after the fee is assessed to the loan account. There are exceptions for fees for a service the borrower affirmatively requests, fees paid by the borrower at the time the service is provided, and fees not actually charged to the borrower's loan account. Notice is also dispensed with if it would violate the bankruptcy automatic stay. All payments on a mortgage loan must be credited, or treated as credited, within one business day after the date the payment is received; provided, the borrower makes a full payment and the payment is delivered to the address the lender has specified for payments. If a payment is not properly credited as required, the lender is required to notify the borrower by mail within 10 business days of the disposition of the payment, the reason the payment was not credited and any action the borrower must take to make the loan current. The notice requirement is dispensed with where the borrower and the lender have altered the payment schedule by entering into a loss mitigation, loan modification or forbearance agreement, where the borrower is participating in an alternative payment plan like a biweekly mortgage payment plan, and where the borrower is making payments pursuant to a bankruptcy plan. The requirement for prompt crediting of payments should be pre-empted by Regulation Z which requires payments on any consumer dwelling secured loan to be credited as of the date of receipt if made to an address specified by the lender and within 5 days of receipt if made at some other location. However, the notice requirements under the state law for payments not so credited would likely not be pre-empted. The law generally prohibits any fee or charge by a mortgage lender that is not permitted both by applicable law and by the written contracts between the borrower and the lender. The law also prohibits a mortgage lender from charging a prepayment penalty on a residential mortgage loan except as authorized by Miss. Code § 75-17-31 and prohibits a mortgage lender from charging a late payment charge except as permitted by § 75-17-27. The law prohibits imposing any collection expenses or attorneys' fees in excess of 25% of the unpaid debt after default when the debt is referred to an attorney for collection. That could present a problem in a contested foreclosure or where the loan amount is small. Finally, the law prohibits any mortgage lender from charging premiums for credit life insurance on the life of the borrower or any other obligor in an amount that exceeds the total sum payable on MSRCG QUARTERLY REPORT Page 12 FROM BUTLER, SNOW, O'MARA, STEVENS & CANNADA, PLLC the loan, including all interest, fees, costs and charges. While the new law makes the practices described above unlawful, it is not at all clear what penalties will be attached to a violation. Presumably, the Dept. of Banking and Consumer Finance will enforce these prohibitions through the examination process. Also, once the CFPB adopts final regulations for mortgage servicers, the federal regulations should pre-empt any conflicting provisions of state law that do not provide consumers with greater protections. (Cliff Harrison) MISSISSIPPI LAW UPDATE In addition to the amendments to the Mississippi S.A.F.E. Mortgage Act discussed elsewhere in this newsletter, several other changes to Mississippi law have recently become effective. A brief summary follows: Formatting for recorded documents. Effective July 1, 2012, the formatting standards contained in Miss. Code §89-5-24 for documents to be recorded in the land records have been revised. The main changes are that the minimum font size is increased from 8 point to 10 point type, and the documents must include on the first page the name, physical mailing address and business or employment telephone number of the preparer and every other party to the instrument. In a deed of trust, that would include the grantors, trustee and beneficiary. Statute of limitations. Effective July 1, 2012, Miss. Code §15-1-81 sets the statute of limitations for enforcing a non-negotiable promissory note at 6 years from the due date. If the note is payable on demand, an action to enforce the note must be brought within 6 years after demand. If no demand is made, enforcement is barred if no payments of principal or interest are made for a period of 10 years. A non-negotiable note is defined as an unconditional written undertaking to pay absolutely and in any event a fixed amount of money and that is not a negotiable instrument governed by UCC Article 3. The term includes non-negotiable notes that bear interest at a variable rate or provide for interest by reference to information not contained in the note itself, or that bear interest after default. Essentially, this change makes the limitation period for enforcing nonnegotiable notes the same as for negotiable notes under the UCC. The change also means that the limitation period for enforcing a deed of trust securing a non-negotiable note is extended. Mississippi banks should, however, carefully consider the definition of non-negotiable note before relying on this change for accounts like HELOC accounts. Medicaid data match program. House Bill 1391, approved by the Governor and effective July 1, 2012, authorizes the Miss. Division of Medicaid to develop and operate a data match system with financial institutions to verify the assets of applicants for Medicaid assistance. Under the program, the Division can enter into agreements with banks and other depository institutions to perform a data match. The Division would, on at least a quarterly basis, provide through an automated process a list containing the name, taxpayer ID number and other identifying information for each applicant for Medicaid assistance and any other person whose assets are required to be disclosed in order to determine the applicant's eligibility, and the institution will report back to the Division the existence of any accounts held for those persons. If requested by the Division, the bank will also report back the account numbers, balances and all names, addresses and taxpayer ID numbers of all persons on those accounts. If necessary, the Division can then request additional information as needed to determine the applicant's eligibility. The law states that a participating institution is immune from any civil or criminal liability for providing the information requested and adds a new exception to Miss. Code §81-5-55, a state law which prohibits a bank from disclosing the name of any depositor or the amount of the deposit except when required in legal proceedings or in accordance with certain other listed exceptions. The new exception to §81-5-55 for the Medicaid MSRCG QUARTERLY REPORT Page 13 FROM BUTLER, SNOW, O'MARA, STEVENS & CANNADA, PLLC data match is contingent upon the Division of Medicaid certifying to the bank that the Division has on file an effective written authorization from the depositor authorizing the disclosure of that information. The legislation says that the Division will reimburse the financial institution for the reasonable cost of conducting the data match and for responding to requests for information, and the amount of the reimbursement will be determined in accordance with the cost reimbursement provisions under the Federal Right to Financial Privacy Act. Participation in the data match program is voluntary on the part of financial institutions. However, the law requires the Division of Medicaid to report to the legislature by December 13, 2013 on the level of participation by financial institutions in the state, the cost savings to the Division from the program and its expenses for the program including reimbursements to financial institutions. There is some concern that if the Division does not get a good number of banks to participate, the legislature may revise the law and make participation mandatory. The program will be implemented through a written agreement between each bank and the Division of Medicaid, and a bank may want to review that contract carefully and consult with its legal counsel before signing and committing to participate in the program. (Cliff Harrison) MSRCG MEETING TO BE HELD ON AUGUST 28, 2012 The MSRCG will hold its August Quarterly Meeting on August 28, 2012, at The Racquet Club of Memphis in the Large Ballroom located at 5111 Sanderlin Avenue, Memphis, Tennessee. Registration will begin at 9:00 a.m. with the Quarterly Meeting to begin at 9:30 a.m. During the August Meeting, we will conduct an extensive panel discussion devoted to the implementation of the proposed combined RESPA/TILA disclosures, the proposed HOEPA amendments and the other rules yet to be released related to the origination of loans secured by residential mortgages. There will also be discussion of recent flood insurance legislation, recent Fair Lending enforcement actions, the latest BSA developments and more. As always, the dress code for this occasion is casual, and lunch will be provided. We ask that you fax or e-mail your registration to Liz Crabtree no later than Wednesday, August 22, 2012 so that arrangements for lunch can be finalized. We look forward to seeing you there. (Ed Wilmesherr) MSRCG QUARTERLY REP•:IJRT Page 14 FROM BUTLER, SNOW, O'MARA, STEVENS & CANNADA, PLLC MSRCG COMPLIANCE CALENDAR 01/16/09 — RESPA Servicing Transfer Disclosure revised 07/01/10 — Reg. E changes for ATM and Debit Card Overdrafts 07/30/09 — Reg. Z early disclosures for dwelling secured loans effective 07/01/10 — FFIEC Accuracy and Integrity ____Guidelines effective 08/20/09 — Reg. Z changes on time to make payments on open-end accounts effective 08/22/10 — Reg. E rules on gift certificates and gift cards effective 08/20/09 — Reg. Z changes on notices of changes in terms on credit card accounts effective 10/01/10 — Escrow requirements effective for mobile homes 10/01/09 — Reg. Z higher priced mortgage loan regulations effective 10/01/10 S.A.F.E. Act regulations effective 10/01/09 — Reg. Z servicing practices regulations effective 01/01/11 — Risk-Based Pricing Rules Effective 10/01/09 — Reg. dwelling secured advertising disclosures changes effective 01/31/11 — S.A.F.E. Act Registration Begins 10/01/09 — HMDA changes for reporting rate spreads on higher priced mortgage loans effective 02/28/11 — Post revised notice to IOLTA customers 10/01/09 — Reg. Z HOEPA changes on verification of repayment ability effective 4/01/11 — Appraisal Independence Final Rule Effective 11/20/09 — Reg. Z disclosures on transfer of mortgage loans effective 07/21/11 — Anticipated Effective Date for changes to Risk-based pricing notices 01/01/10 — RESPA GFE and HUD-1 disclosure changes effective 07/29/11 — S.A.F.E. Act Registration Expires 01/01/10 — Reg. DD changes on disclosure of OD fees and providing balance information effective 08/28/12 — MSRCG August Quarterly Meeting 02/14/10 — Reg. Z disclosures on private education loans effective 09/25/12 — MSRCG Steering Committee Meeting 02/22/10 — Reg. Z implementing changes to openend credit and credit card accounts under Credit Card Act effective 11/13/12 — MSRCG Annual Meeting 02/27/10 — Reg. CC disclosure changes effective 1/21/2013 — Mortgage Loan Servicing Regulations take effect 04/01/10 — Escrow requirements effective for sitebuilt homes 1/21/2013 — Combined RESPA/TILA disclosure rule final 06/01/10 — Unlawful internet gambling enforcement regulation compliance date MSRCG QUARTERLY REPORT Page 15 4321 Random Boulevard • Somecity, ST 12340 Save this Loan Estimate to compare with your Closing Disclosure. 30 years Purchase 5 Year Interest Only, 5/3 Adjustable Rate O Conventional q FHA OVA q 123456789 q NO IN YES, until 3/22/2013 at 5:00 p.m. EST Before closing, your interest rate, points, and lender credits can change unless you lock the interest rate. All other estimated closing costs expire on 2/4/2013 at 5:00 p.m. EST Loan Estimate LOAN TERM PURPOSE DATE ISSUED 1/21/2013 PRODUCT APPLICANTS James White and Jane Johnson LOAN TYPE 123 Anywhere Street, Apt 678 LOAN ID # Anytown, ST 12345 RATE LOCK PROPERTY 456 Somewhere Avenue Anytown, ST 12345 SALE PRICE $240,000 oan erms Can this amount increase after closing? Loan Amount $211,000 NO Interest Rate 4.375% YES • Adjusts every three years starting in year 6 • Can go as high as 8% in year 9 • See AIR table on page 2 for details Monthly Principal & Interest See Projected Payments Below for Your Total Monthly Payment $769.27 YES • Adjusts every three years starting in year 6 • Can go as high as $1,622 in year 9 • Includes only interest and no principal until year 6 • See AP table on page 2 for details Prepayment Penalty Does the loan have these features? NO Balloon Payment NO Pro'ected Pa ments Payment Calculation Years 1-5 Years 6-8 Years 9-11 Years 12-30 Principal & Interest $769.27 only interest $1,233 min $1,542 max $1,233 min $1,622 max $1,233 min $1,622 max Mortgage Insurance + 107 + 107 + 107 + — Estimated Escrow + 533 + 533 + 533 + 533 Amount Can Increase Over Time Estimated Total Monthly Payment $ 1,409 $1,873 -$2,182 $1,873 -$2,262 $1,766 -$2,155 This estimate includes In escrow? El Property Taxes YES Estimated Taxes, Insurance & Assessments $533 El Homeowner's Insurance YES Amount Can Increase Over Time a month n Other: See Section G on page 2 for escrowed property costs. You must pay for other property costs separately. Cash to Close Estimated Cash to Close $31,587 Includes $8,587 in Closing Costs ( $4,527 in Loan Costs + $4,060 in Other Costs -$0 in Lender Credits). See details on page 2. Visit www.consumerfinance.gov/learnmore for general information and tools. LOAN ESTIMATE PAGE 1 OF 3 • LOAN ID # 123456789 Closing Cost Details Loan Costs Other Costs A. Origination Charges $2,850 E. Taxes and Other Government Fees $152 % of Loan Amount (Points) $O Recording Fees and Other Taxes $152 Application Fee $400 Transfer Taxes $0 Loan Origination Fee $2,450 F. Prepaids $1,205 Homeowner's Insurance Premium ( 12 months) $1,000 Mortgage Insurance Premium ( 0 months) $0 Prepaid Interest ($25.64 per day for 8 days @4.375%) $205 Property Taxes ( 0 months) $0 G. Initial Escrow Payment at Closing $1,067 Homeowner's Insurance $83.33 per month for 2 mo. $167 B. Services You Cannot Shop For $820 Mortgage Insurance $0 per month for 0 mo. Property Taxes $450.00 per month for 2 mo. $0 $900 Appraisal Fee $305 Credit Report Fee $30 Flood Determination Fee $35 Lender's Attorney $400 Tax Status Research Fee $50 H. Other $1,636 Title -Owner's Title Policy (optional) $1,636 I. TOTAL OTHER COSTS (E + F + G + H) $4,060 C. Services You Can Shop For $857 J. TOTAL CLOSING COSTS $8,587 Pest Inspection Fee $125 Survey Fee $150 D + I $8,587 Title -Lender's Title Policy $132 Lender Credits -$0 Title -Settlement Agent Fee $300 Title -Title Search $150 Total Closing Costs (J) $8,587 Closing Costs Financed (Included in Loan Amount) $0 Down Payment/Funds from Borrower $29,000 Deposit -$5,000 Funds for Borrower $O Seller Credits -$1,000 Adjustments and Other Credits $0 D. TOTAL LOAN COSTS (A + B + C) $4,527 Estimated Cash to Close $31,587 Adjustable Payment (AP) Table Adjustable Interest Rate (AIR) Table Interest Only Payments? YES for your first 60 payments Index + Margin LIBOR + 4% Optional Payments? NO Initial Interest Rate 4.375% Minimum/Maximum Interest Rate 5%/8% Step Payments? NO Change Frequency Seasonal Payments? NO First Change Beginning of 61st month Monthly Principal and Interest Payments Subsequent Changes Every 36th month after first change First Change/Amount $1,233 -$1,542 at 61st payment Limits on Interest Rate Changes Subsequent Changes Every three years First Change 3% Maximum Payment $1,622 starting at 108th payment Subsequent Changes 3% LOAN ESTIMATE PAGE 2 OF 3 • LOAN ID # 123456789 Additional Information About This Loan LENDER Ficus Bank MORTGAGE BROKER Pecan Mortgage Broker Inc. NMLS/LICENSE ID NMLS/LICENSE ID 222222 LOAN OFFICER Joe Smith LOAN OFFICER Jane Jones NMLS ID 12345 NMLS ID 67890 EMAIL jsmith@ficusbank.com EMAIL jjones@pecanmortgagebroker.com PHONE 111-222-3333 PHONE 333-444-5555 In 5 Years Use these measures to compare this loan with other loans. $57,324 Total you will have paid in principal, interest, mortgage insurance, and loan costs. $0 Principal you will have paid off. Comparisons Annual Percentage Rate (APR) 5.231% Your costs over the loan term expressed as a rate.This is not your interest rate. Total Interest Percentage (TIP) 99.104% The total amount of interest that you will pay over the loan term as a percentage of your loan amount. Other Considerations Appraisal Assumption E3 E3 We may order an appraisal to determine the property's value and charge you for this appraisal. We will promptly give you a copy of any appraisal, even if your loan does not close. You can pay for an additional appraisal for your own use at your own cost. If you sell or transfer this property to another person, we q will allow, under certain conditions, this person to assume this loan on the original terms. will not allow this person to assume this loan on the original terms. This loan requires homeowner's insurance on the property, which you may obtain from a company of your choice that we find acceptable. If your payment is more than 15 days late, we will charge a late fee of 5% of the monthly principal and interest payment. You do not have to accept this loan because you have received this form or signed a loan application. Refinancing this loan will depend on your future financial situation, the property value, and market conditions. You may not be able to refinance this loan. We intend q to service your loan. If so, you will make your payments to us. to transfer servicing of your loan. Homeowner's Insurance Late Payment Loan Acceptance Refinance Servicing LOAN ESTIMATE PAGE 3 OF 3 -LOAN ID 1t123456789 This form is a statement of final loan terms and closing costs. Compare this Closing Disclosure document with your Loan Estimate. Closing Information Date Issued Closing Date Disbursement Date Agent File # Property Appraised Prop. Value Transaction Information Loan Information Borrower Loan Term Purpose Product Lender Loan Type q Conventional q FHA OVA q Loan ID # MIC # oan erms Can this amount increase after closing? Loan Amount Interest Rate Monthly Principal & Interest See Projected Payments Below for Your Total Monthly Payment Prepayment Penalty Does the loan have these features? Balloon Payment Projected Payments Payment Calculation Principal & Interest Mortgage Insurance Estimated Escrow Amount Can Increase Over Time Estimated Total Monthly Payment Estimated Taxes, Insurance & Assessments Amount Can Increase Over Time See Details on Page 4 This estimate includes In escrow? n Property Taxes n Homeowner's Insurance n Other: Windstorm Insurance, HOA See page 4 for escrowed property costs. You must pay for other property costs separately. Cash to Close Cash to Close Includes in Closing Costs ( in Loan Costs + in Other Costs -in Lender Credits). See details on page 2.. CLOSING DISCLOSURE PAGE 1 OF 5 • LOAN ID # Closing Cost Details Borrower-Paid At Closing Before Closing Paid by Loan Costs Others A. Origination Charges 4,0 of Loan Amount (Points) B. Services Borrower Did Not Shop For C. Services Borrower Did Shop For D. TOTAL LOAN COSTS (Borrower-Paid) Loan Costs Subtotals (A + B + C) Other Costs E. Taxes and Other Government Fees Recording Fees Deed: Mortgage: F. Prepaids Homeowner's Insurance Premium ( mo.) , ' Mortgage Insurance Premium ( mo.) Prepaid Interest per day from to ' Property Taxes ( mo.) G. Initial Escrow Payment at Closing Homeowner's Insurance per month for t' Mortgage Insurance per month for ' Property Taxes per month for Aggregate Adjustment mo. mo. mo. H. Other I. TOTAL OTHER COSTS (Borrower-Paid) Other Costs Subtotals (E + F + G + H) J. TOTAL CLOSING COSTS (Borrower-Paid) Closing Costs Subtotals (D + I) Lender Credits CLOSING DISCLOSURE PAGE 2 OF 5 • LOAN ID 4 Calculating Cash to Close Use this table to see what has changed from your Loan Estimate. Total Closing Costs (.1) Closing Costs Paid Before Closing Closing Costs Financed (Included in Loan Amount) Down Payment/Funds from Borrower Funds for Borrower Estimate Final Did this change? Cash to Close Disbursements to Others TO Use this table to see a list of payments from your loan funds. AMOUNT Total Disbursement to Others CLOSING DISCLOSURE PAGE 3 OF 5 • LOAN ID If Additional Information About This Loan Loan Disclosures Assumption If you sell or transfer this property to another person, your lender q will allow, under certain conditions, this person to assume this loan on the original terms. q will not allow assumption of this loan. Demand Feature Your loan q has a demand feature, which permits your lender to require early repayment of the loan. You should review your note for details. q does not have a demand feature. Late Payment If your payment is more than 15 days late, your lender will charge a late fee of 5% of the monthly principal and interest payment. Negative Amortization (Increase in Loan Amount) Under your loan terms, you q are scheduled to make monthly payments that do not pay all of the interest due that month. As a result, your loan amount will increase (negatively amortize), and your loan amount will likely become larger than your original loan amount. Increases in your loan amount lower the equity you have in this property. q may have monthly payments that do not pay all of the interest due that month. If you do, your loan amount will increase (negatively amortize), and, as a result, your loan amount may become larger than your original loan amount. Increases in your loan amount lower the equity you have in this property. q do not have a negative amortization feature. Partial Payment Your lender will q accept payments that are less than the full amount due (partial payments). Partial payments will be applied: q not accept partial payments. If this loan is sold, your new lender may have a different policy. Security Interest You are granting a security interest in You may lose this property if you do not make your payments or satisfy other obligations for this loan. Escrow Account For now, your loan q will have an escrow account (also called an "impound" or"trust" account) to pay the property costs listed below. Without an escrow account, you would pay them directly, possibly in one or two large payments a year. Your lender may be liable for penalties and interest for failing to make a payment. Escrow Escrowed Property Costs over Year 1 Estimated total amount over year 1 for your escrowed property costs: Non-Escrowed Property Costs over Year 1 Estimated total amount over year 1 for your non-escrowed property costs: You may have other property costs. Initial Payment A cushion for the escrow account you pay at closing. See Section G on page 2. Monthly Payment The amount included in your total monthly payment. q will not have an escrow account because q you declined it q your lender does not require or offer one. You must directly pay your property costs, such as taxes and homeowner's insurance. Contact your lender to ask if your loan can have an escrow account. No Escrow Estimated Estimated total amount over year 1. You Property Costs must pay these costs directly, possibly over Year 1 in one or two large payments a year. Escrow Waiver Fee In the future, Your property costs may change and, as a result, your escrow payment may change. You may be able to cancel your escrow account, but if you do, you must pay your property costs directly. If you fail to pay your property taxes, your state or local government may (1) impose fines and penalties or (2) place a tax lien on this property. If you fail to pay any of your property costs, your lender may (1) add the amounts to your loan balance, (2) add an escrow account to your loan, or (3) require you to pay for property insurance that the lender buys on your behalf, which likely would cost more and provide fewer benefits than what you could buy on your own. CLOSING DISCLOSURE PAGE 4 OF 5 • LOAN ID # Additional Information About This Loan Loan Disclosures Assumption If you sell or transfer this property to another person, your lender q will allow, under certain conditions, this person to assume this loan on the original terms. q will not allow assumption of this loan. Demand Feature Your loan q has a demand feature, which permits your lender to require early repayment of the loan. You should review your note for details. q does not have a demand feature. Late Payment If your payment is more than 15 days late, your lender will charge a late fee of 5% of the monthly principal and interest payment. Negative Amortization (Increase in Loan Amount) Under your loan terms, you q are scheduled to make monthly payments that do not pay all of the interest due that month. As a result, your loan amount will increase (negatively amortize), and your loan amount will likely become larger than your original loan amount. Increases in your loan amount lower the equity you have in this property. q may have monthly payments that do not pay all of the interest due that month. If you do, your loan amount will increase (negatively amortize), and, as a result, your loan amount may become larger than your original loan amount. Increases in your loan amount lower the equity you have in this property. q do not have a negative amortization feature. Escrow Account For now, your loan q will have an escrow account (also called an "impound" or"trust" account) to pay the property costs listed below. Without an escrow account, you would pay them directly, possibly in one or two large payments a year. Your lender may be liable for penalties and interest for failing to make a payment. Escrow Escrowed Property Costs over Year 1 Estimated total amount over year 1 for your escrowed property costs: Non-Escrowed Property Costs over Year 1 Estimated total amount over year 1 for your non-escrowed property costs: You may have other property costs. Initial Payment A cushion for the escrow account you pay at closing. See Section G on page 2. Monthly Payment The amount included in your total monthly payment. q will not have an escrow account because q you declined it q your lender does not require or offer one. You must directly pay your property costs, such as taxes and homeowner's insurance. Contact your lender to ask if your loan can have an escrow account. Partial Payment Your lender will q accept payments that are less than the full amount due (partial payments). Partial payments will be applied: No Escrow Estimated Property Costs over Year 1 Estimated total amount over year 1. You must pay these costs directly, possibly in one or two large payments a year. Escrow Waiver Fee q not accept partial payments. If this loan is sold, your new lender may have a different policy. Security Interest You are granting a security interest in You may lose this property if you do not make your payments or satisfy other obligations for this loan. In the future, Your property costs may change and, as a result, your escrow payment may change. You may be able to cancel your escrow account, but if you do, you must pay your property costs directly. If you fail to pay your property taxes, your state or local government may (1) impose fines and penalties or (2) place a tax lien on this property. If you fail to pay any of your property costs, your lender may (1) add the amounts to your loan balance, (2) add an escrow account to your loan, or (3) require you to pay for property insurance that the lender buys on your behalf, which likely would cost more and provide fewer benefits than what you could buy on your own. Adjustable Payment (AP) Table Adjustable Interest Rate (AIR) Table Interest Only Payments? Optional Payments? Step Payments? Seasonal Payments? Monthly Principal and Interest Payments First Change/Amount Subsequent Changes Maximum Payment Index + Margin Initial Interest Rate Minimum/Maximum Interest Rate Change Frequency First Change Subsequent Changes Limits on Interest Rate Changes First Change Subsequent Changes CLOSING DISCLOSURE PAGE 4 OF 5 • LOAN ID # No Escrow Estimated Property Costs over Year 1 Estimated total amount over year 1. You must pay these costs directly, possibly in one or two large payments a year. Additional Information About This Loan Loan Disclosures Assumption If you sell or transfer this property to another person, your lender q will allow, under certain conditions, this person to assume this loan on the original terms. q will not allow assumption of this loan. Demand Feature Your loan q has a demand feature, which permits your lender to require early repayment of the loan. You should review your note for details. q does not have a demand feature. Late Payment If your payment is more than 15 days late, your lender will charge a late fee of 5% of the monthly principal and interest payment. Negative Amortization (Increase in Loan Amount) Under your loan terms, you q are scheduled to make monthly payments that do not pay all of the interest due that month. As a result, your loan amount will increase (negatively amortize), and your loan amount will likely become larger than your original loan amount. Increases in your loan amount lower the equity you have in this property. q may have monthly payments that do not pay all of the interest due that month. If you do, your loan amount will increase (negatively amortize), and, as a result, your loan amount may become larger than your original loan amount. Increases in your loan amount lower the equity you have in this property. q do not have a negative amortization feature. Partial Payment Your lender will q accept payments that are less than the full amount due (partial payments). Partial payments will be applied: q not accept partial payments. If this loan is sold, your new lender may have a different policy. Security Interest You are granting a security interest in You may lose this property if you do not make your payments or satisfy other obligations for this loan. Escrow Account For now, your loan q will have an escrow account (also called an "impound" or"trust" account) to pay the property costs listed below. Without an escrow account, you would pay them directly, possibly in one or two large payments a year. Your lender may be liable for penalties and interest for failing to make a payment. Escrow Escrowed Property Costs over Year 1 Estimated total amount over year 1 for your escrowed property costs: Non-Escrowed Property Costs over Year 1 Estimated total amount over year 1 for your non-escrowed property costs: You may have other property costs. Initial Payment A cushion for the escrow account you pay at closing. See Section G on page 2. Monthly Payment The amount included in your total monthly payment. q will not have an escrow account because q you declined it q your lender does not require or offer one. You must directly pay your property costs, such as taxes and homeowner's insurance. Contact your lender to ask if your loan can have an escrow account. Escrow Waiver Fee In the future, Your property costs may change and, as a result, your escrow payment may change. You may be able to cancel your escrow account, but if you do, you must pay your property costs directly. If you fail to pay your property taxes, your state or local government may (1) impose fines and penalties or (2) place a tax lien on this property. If you fail to pay any of your property costs, your lender may (1) add the amounts to your loan balance, (2) add an escrow account to your loan, or (3) require you to pay for property insurance that the lender buys on your behalf, which likely would cost more and provide fewer benefits than what you could buy on your own. Adjustable Payment (AP) Table Interest Only Payments? Optional Payments? Step Payments? Seasonal Payments? Monthly Principal and Interest Payments First Change/Amount Subsequent Changes Maximum Payment CLOSING DISCLOSURE PAGE4OF5•LOANIDfi Additional Information About This Loan Loan Disclosures Assumption If you sell or transfer this property to another person, your lender q will allow, under certain conditions, this person to assume this loan on the original terms. q will not allow assumption of this loan. Demand Feature Your loan q has a demand feature, which permits your lender to require early repayment of the loan. You should review your note for details. q does not have a demand feature. Late Payment If your payment is more than 15 days late, your lender will charge a late fee of 5% of the monthly principal and interest payment. Negative Amortization (Increase in Loan Amount) Under your loan terms, you q are scheduled to make monthly payments that do not pay all of the interest due that month. As a result, your loan amount will increase (negatively amortize), and your loan amount will likely become larger than your original loan amount. Increases in your loan amount lower the equity you have in this property. q may have monthly payments that do not pay all of the interest due that month. If you do, your loan amount will increase (negatively amortize), and, as a result, your loan amount may become larger than your original loan amount. Increases in your loan amount lower the equity you have in this property. q do not have a negative amortization feature. Escrow Account For now, your loan q will have an escrow account (also called an "impound" or"trust" account) to pay the property costs listed below. Without an escrow account, you would pay them directly, possibly in one or two large payments a year. Your lender may be liable for penalties and interest for failing to make a payment. Escrow Escrowed Property Costs over Year 1 Estimated total amount over year 1 for your escrowed property costs: Non-Escrowed Property Costs over Year 1 Estimated total amount over year 1 for your non-escrowed property costs: You may have other property costs. Initial Payment A cushion for the escrow account you pay at closing. See Section G on page 2. Monthly Payment The amount included in your total monthly payment. q will not have an escrow account because q you declined it q your lender does not require or offer one. You must directly pay your property costs, such as taxes and homeowner's insurance. Contact your lender to ask if your loan can have an escrow account . Partial Payment Your lender will q accept payments that are less than the full amount due (partial payments). Partial payments will be applied: No Escrow Estimated Property Costs over Year 1 Escrow Waiver Fee Estimated total amount over year 1. You must pay these costs directly, possibly in one or two large payments a year. q not accept partial payments. If this loan is sold, your new lender may have a different policy. Security Interest You are granting a security interest in You may lose this property if you do not make your payments or satisfy other obligations for this loan. In the future, Your property costs may change and, as a result, your escrow payment may change. You may be able to cancel your escrow account, but if you do, you must pay your property costs directly. If you fail to pay your property taxes, your state or local government may (1) impose fines and penalties or (2) place a tax lien on this property. If you fail to pay any of your property costs, your lender may (1) add the amounts to your loan balance, (2) add an escrow account to your loan, or (3) require you to pay for property insurance that the lender buys on your behalf, which likely would cost more and provide fewer benefits than what you could buy on your own. Adjustable Interest Rate (AIR) Table Index -1 Margin Initial Interest Rate Minimum/Maximum Interest Rate Change Frequency First Change Subsequent Changes Limits on Interest Rate Changes First Change Subsequent Changes CLOSING DISCLOSURE PAGE 4 OF 5 • LOAN ID # Settlement Agent NMLS/License ID Contact Contact NMLS/License ID Email Phone Mortgage Broker Contact Information Loan Calculations Total of Payments. Total you will have paid after you make all payments of principal, interest, mortgage insurance, and loan costs, as scheduled. Finance Charge. The dollar amount the loan will cost you. Amount Financed. The loan amount available after paying your upfront finance charge. Annual Percentage Rate (APR). Your costs over the loan term expressed as a rate. This is not your interest rate. Total Interest Percentage (TIP). The total amount of interest that you will pay over the loan term as a percentage of your loan amount. Approximate Cost of Funds (ACF). The approximate cost of the funds used to make this loan. This is not a direct cost to you. Questions? If you have questions about the loan terms and costs on this form, contact your lender. To get more information or make a complaint, contact the Consumer Financial Protection Bureau at www.consumerfinance.gov/learnmore. Other Disclosures Appraisal If the property was appraised for your loan, your lender is required to give you a copy at no additional cost at least 3 days before closing. If you have not yet received it, please contact your lender at the information listed below. Contract Details See your note and security instrument for information about • what happens if you fail to make your payments, • what is a default on the loan, • situations in which your lender can require early repayment of the loan, and • the rules for making payments before they are due. Liability after Foreclosure If your lender forecloses on this property and the foreclosure does not cover the amount of unpaid balance on this loan, q state law may protect you from liability for the unpaid balance. If you refinance or take on any additional debt on this property, you may lose this protection and be liable for debt remaining after the foreclosure. You may want to consult a lawyer for more information. q state law does not protect you from liability for the unpaid balance. Refinance Refinancing this loan will depend on your future financial situation, the property value, and market conditions. You may not be able to refinance this loan. Tax Deductions If you borrow more than this property is worth, the interest on the loan amount above this property's fair market value is not deductible from your federal income taxes. You should consult a tax advisor for more information. Confirm Receipt By signing, you are only confirming that you have received this form. You do not have to accept this loan because you have signed or received this form. Applicant Signature Date Co-Applicant Signature Date CLOSING DISCLOSURE PAGE 5 OF 5 • LOAN ID #