20 hour SAFE Loan Originator Pre-Licensing 2016-2017 slides

20 Hour SAFE Comprehensive
Pre-Licensing and Exam Prep
C-1167
WA State Pre-Licensing
C-3430
Jillayne Schlicke

Jillayne Schlicke
National Association of Mortgage Fiduciaries
Section 1 Introduction
 Introduction of trainer
 Introduction of students
 Who are you
 Where do you work
 What do you do?
 Exam anxieties
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Jillayne Schlicke
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Section 1 Module 1.1
UST Uniform State Test $110
3 hrs, 10 min
115 questions plus 10 sample questions
75% to pass
If you pass you will know your score.
If you fail, they will give you a printout showing your
strong and weak areas.
Prometric.com

Jillayne Schlicke
4
Exam Components
23% Federal Law
23% General Mortgage Knowledge
programs, products, terms
25% Loan Origination
application, qualifying, title, escrow, math
16% Ethics
consumer protection, fraud, fair housing
13% Uniform State Content
licensing law, prohibited practices

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5
Exam prep basics: If you understand the purpose of each
law, you are on your way to selecting the best answer
on a multiple choice exam.
There will be two obvious wrong answers. If you know
the purpose of the law, you will be able to spot these.
Of the two that remain, one will be a little bit better
than the other.
Exam writers do not write trick questions. The language
of the test questions look tricky because you are
being tested on law and most lay people are not use
to reading law on a daily basis. This is the only fair
way to deliver a 50-state exam.

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

Jillayne Schlicke
Depository Bank
Checking,
savings
CAN fund its
own loans
LOs are
“registered”
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Mortgage Broker
No ck/svgs
Does NOT fund its
own loans
Pure middleman
For a fee, finds the
mortgage money
LOs are licensed.
In some states,
these LOs owe
fiduciary duties
to clients
Non-Depository
Lender
Non-Bank Lender
No ck/svgs
CAN fund its own
loans via lines
of credit with
banks
LOs are licensed

Jillayne Schlicke
The Mortgage Machine
A mortgage is like a machine with many moving parts.
Shout out all the different entities/different jobs that
are involved with creating a mortgage loan….
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Jillayne Schlicke
The Mortgage Machine
 Realtors
 Customers/Clients/Consumers
 credit
 Loan originators
 Processing, underwriting
 Escrow closers, title insurance
 Funder….quality control….auditor
 Investors…..secondary market
 Appraisers
 Regulators….government
 Insurance….fire/hazard…mortgage insurance…flood
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Jillayne Schlicke
There are many
moving parts in
the Mortgage
Machine. The
function of loan
origination is just
one piece.
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Title Insurance, Escrow
Secondary market
Underwriting
Appraiser
Home inspector
Loan originator
LO Assistants
Loan processors
Realtors/ Real estate
brokers
Mortgage insurance
Hazard insurance
Flood insurance
State/Fed regulators

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

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

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Last two most recent paystubs
Last two years W-2s
Last three months bank statements
Most recent statement on 401Ks or IRAs
Documentation of ownership of stocks, bonds
Last two months statements from any investment account
Information on current mortgage or landlord contact info
Soc number or green card for all borrowers or co-signers
Letter of explanation for any known credit problems
Documentation supporting any other income
For self employed, borrowers paid on commission or in the field
of sales, and borrowers who own other real property:
Two years signed personal tax returns including all schedules
IRS Form 4506-T
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FIRST RATIO
PITI
Principal, Interest, Taxes, Insurance
plus home owner’s assoc dues, if applicable
Divided by
Total gross monthly income
= %
SECOND RATIO
PITI plus all other monthly revolving debt
Divided by
Total gross monthly income
= %

Jillayne Schlicke
 Loan Processing
 As documents are received, processors compare the
information verified to the original loan application
and consult the credit underwriting guidelines.
 A processor is a liaison between the originator, the
borrower, the Realtor, underwriting and
management.
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Jillayne Schlicke
 Underwriting
 Sufficient and stable monthly income
 Prior credit history
 Assess collateral
 Sufficient down payment
Other factors: Payment shock, debt-to-income ratios,
cash on hand after closing, other compensating
factors
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Jillayne Schlicke
 Case Study: David and Ryan
 Read the case study. Break into small groups and
discuss: Is this an approvable loan?
 Large group recap
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Jillayne Schlicke
 Ability to Repay Rule under Dodd Frank Act
Eight factors:
1. Current income and assets
2. Current employment
3. Monthly mortgage payment
4. Monthly payment on simultaneous loans
5. Property taxes, fire/flood insurance, HOA dues
6. Debts including alimony or child support
7. Monthly total DTI ratio
8. Credit history
Underwriters CAN consider other factors
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Jillayne Schlicke
Qualified Mortgages and The Dodd Frank Act
•Regular periodic payments that are substantially
equal
•Loan term does not exceed 30 years
•Total points and fees do not exceed 3% for loans
over $100,000
•Total monthly debt to income does not exceed 43%
(Back-End)
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Jillayne Schlicke
Section 3 Credit Module 3.1
Assignment: Break into small groups.
Read the credit report.
Question: Does this person posses decent and
reasonable credit history?
If yes, why?
If no, why not?
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Jillayne Schlicke
What’s in a FICO Score?
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Section 4 Title Insurance Module 4.1
What does it mean when we say we hold title
to something?
Is there a document called “title” that we
get when we buy a home?
Can we do anything we want with and to our
home and land?
How deep into the ground and how high up
do our property rights extend?

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

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

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

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

Jillayne Schlicke
Sample APOR test question
 What are the trigger thresholds under the Dodd
Frank Act for conforming loans?
 The Act was superseded by the new subprime loans
are ridiculous act
 1.5 percentage points above the average prime
offering rate (APOR)
 2.5 percentage points above the average prime
offering rate (APOR)
 There are no triggers
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Legal rights and responsibilities of a title
company.

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What is escrow?

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Section 5 Escrow
Module 5.1
Module 5.2
Module 5.3
Module 5.4
Module 5.5
Module 5.6

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Section 6 Appraisals
Module 6.1
Module 6.2
Module 6.3
Module 6.4
Module 6.5

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

Jillayne Schlicke
Number 3
Loan Amount
104,500 divided by .95 = 110,000
Seller contribution is 3 percent.
110 x 3 = 3,300
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Jillayne Schlicke
Number 5
On a 5/1 ARM loan, the payment is FIXED for the first
five years and thereafter adjusts every YEAR.
The rate the borrower will pay adjusts based on
fluctuating INDEX plus the MARGIN
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Jillayne Schlicke
Number 8
97,000 x 2.25% = $2182.50
UP FRONT MIP
97,000 x .85% = $824.50
ANNUAL MIP
Divide that^ by 12 for the monthly MIP
824.50 divided by 12 = $68.71
Number 9 is a.
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Jillayne Schlicke
Number 10
1241.73 X 360 = 447,022.80
447,022.80 – 189,000 = 258,022.80
Number 11
.375
.125
.75
.625
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Jillayne Schlicke
Number 12
90%
Number 13
$51,560
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Jillayne Schlicke
Number 14
Monthly taxes:
2250 div by 12 = 187.50
355 div 12 = 29.58
Number 15
99,500 x .40 = $398.00
99,500 x .30 = 298.50
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Jillayne Schlicke
Number 16
Substantially Equal
30 years
3%
5 years
Number 17
C
F
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Number 18
a. $6500
b. $2925
c. $3575
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Number 19
$300,000 value of home + land
$60,000 is the 20% down payment
$9,000 + 60,000 = $69,000 cash to close
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Jillayne Schlicke
Section 8
 Mortgage Loan Programs:
 Conforming Conventional Loans
 Fannie Mae, Freddie Mac
 Government Loans
 FHA, VA, USDA
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Jillayne Schlicke
Section 8
 Module 8.1
 Conventional, Conforming Loans
 Conforming to guidelines established by Fannie Mae
and Freddie Mac. This means loans can be packaged
and sold to Fannie or Freddie on the secondary
market.
 Handout: Fannie Mae Eligibility Matrix
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Jillayne Schlicke
Section 8 Module 8.2 FHA
FHA = Federal Housing Administration
FHA provides mortgage insurance on low down
payment loans made by FHA-approved lenders
U.S. Department of Housing and Urban Development
was created through the US Housing Act of 1937. HUD
does lots of things:
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Jillayne Schlicke
Section 8 Module 8.2 FHA
What does HUD do?
Provides opportunities for homeownership
Provides housing assistance for low income
persons
Helps to rehabilitate and maintain affordable
housing
Enforces Fair Housing laws
Helps the homeless
Spurs economic growth in distressed
neighborhoods

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

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

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

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

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

Jillayne Schlicke
Single Family
Owner occupied
1 to 4 units
PUDs (Planned Unit Developments)
Manufactured Homes

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

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

Jillayne Schlicke
U.S. Citizenship Not Required
FHA will insure mortgages made to lawful
permanent and non-permanent resident aliens
Permanent resident alien:
Must have evidence of permanent resident status
Have a valid social security number
Non-permanent resident alien
Property must be their principal residence
Must be eligible to work in the U.S.
Have a valid social security number
Have likelihood of continued lawful status

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

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

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

Jillayne Schlicke
The Four Cs of Underwriting:
Character
Credit
Capacity
Income
Collateral
Value
Capital
Liquid assets
• Does the
borrower have
the ability and
willingness to
repay the
loan?

Jillayne Schlicke
VA = Veteran’s Administration
See course book
USDA = U.S. Department of Agriculture. Rural Loans
See course book
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Jillayne Schlicke
Section 9 Assignment
Review the CSBS/AAMR Guidance on Non-Traditional
Lending
CSBS = Conference of State Bank Supervisors
AAMR = American Association of Mortgage Regulators
Oct 2006 banking regulators published guidelines on
non-trad lending. Examples:
Interest only loans
Pay option ARMs
Reduced/no documentation
Simultaneous second lien
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Jillayne Schlicke
Section 9 CSBS/AAMR Guidance
 Ability to repay
 Watch for payment shock
 Assure borrower understands the loan terms
 Avoid misleading claims…payment, rates, refi-out
 Risk management strategies
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Section 9 Non-Traditional Lending
Module 9.1
Module 9.2 Non Conforming Jumbo
Module 9.3 Alt A
Module 9.4 Hard Money and Private Money
Module 9.5 ARMs
Module 9.6 ARM features
Module 9.7 ARM Caps
Module 9.8 Hybrid ARMs
Module 9.9 Option ARMs
Module 9.10 HECM Reverse Mortgage Loans
Module 9.11 Suitability

Jillayne Schlicke
DAY 2

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Section 10
SAFE Mortgage Licensing Act
The SAFE Act of 2008
SAFE = Secure and Fair Enforcement Act
 Passed in order to increase uniformity, reduce
regulatory burden, enhance consumer protection, and
reduce fraud. Establishes the Nationwide Mortgage
Licensing System and Registry.
Title V SAFE Mortgage Licensing Act of 2008
http://mortgage.nationwidelicensingsystem.org/SAFE/NMLS
%20Document%20Library/SAFE-Act.pdf

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Section 10 SAFE Act
“Registered Loan Originator”
An employee of:
a depository institution;
a subsidiary that is:
owned and controlled by a depository
institution AND
regulated by a federal banking agency OR
An institution regulated by the Farm Credit Admin

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Section 10 SAFE Act
State or Federally Chartered Depository
Banks:
LOs are exempt from testing and education.
NOT exempt from “registration.”
Register with the Nationwide Mortgage Licensing
System (NMLS) and will be given a unique identifier.
“Registered” LOs

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Section 10 SAFE Act
Issuance of a License:
Never revoked
No felony last 7 years
No felony at any time re fraud, dishonesty, breach of
trust, money laundering
Financial responsibility
Pre-licensing education
Written test
Net worth and surety bond

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Section 10 SAFE Act
LO exam:
75% to pass
Can retake 3 X at 30 day intervals
If fail 3 X, must wait 6 months
5 year lapse in license: must retake the test

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Section 10 SAFE Act
Continuing Ed
3 hours Federal Law
2 hours Ethics, Consumer Protection, Fraud, Fair
Housing
2 hours Non Traditional Lending
1 hour Undefined
No carry-overs
Can’t take the same class each year.

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Section 10 SAFE Act
Take the SAFE Act Quiz

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Section 11 Ethics
Module 11.1
Module 11.2
Module 11.3
Module 11.4
Module 11.5
Use the following:
course book
Section 11 Ethics handout
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Jillayne Schlicke
Section 11 Module 11.1 Ethics
Law
Minimum moral standard
“Have to”
Ethics
When there’s no clear statement in the law telling
us what to do.
“Ought, should.”
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Jillayne Schlicke
Different sources of moral authority
Religion
We can’t use religion to solve ethical dilemmas
when holding a professional role because there
are thousands of different religions in the
world. Which one would we use?
Intuition
Intuition can sometimes steer us in the wrong
direction
Emotion
“If I can’t sleep at night it’s not ethical.”
If the only reason we’re choosing to do/not do
something is out of fear, that’s a pretty low
standard of motivation 73

Jillayne Schlicke
Different sources of moral authority
Written codes of ethics
There is no source of moral authority over
LOs other than the law. What written codes
of ethics that do exist are voluntary and not
mandatory. The written codes of ethics that
exist are weak, vague, have no sanctions for
violations and in most cases, just simply re-
state federal law.
Philosophical ethics
Moral philosophical ethical theories can take
the place of a mandatory code of ethics
until one is written.
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Jillayne Schlicke
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Professional Status
Specialized knowledge
Formal, pre-licensing education
Mandatory continuing education
Test
Licensing
Fiduciary Duties
Code of ethics with sanctions for violations
Compare to non-professionals such as a retail salesperson.

Jillayne Schlicke
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Section 11 Module 11.3 and 11.5
Question: Are loan originators professional?
Specialized knowledge
Formal, pre-licensing education
Mandatory continuing education
Test
Licensing
Fiduciary Duties (this is emerging in some states)
Code of ethics with sanctions for violations
(this piece is not yet in place.)
LOs are classified as “an emerging profession.”

Jillayne Schlicke
What is ethics?
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Aristotle Kant J.S. Mill
Respect
honesty
(promotes
autonomy)
Loyalty
Responsibility
Integrity
Beneficence
Non-maleficence
Compassion
Justice
384 BC-322 BC
Duty-based
ethics
If we have a
duty to do
something,
we ought do
it.
What I want for
myself, I must
also want for
the other.
1724-1804
Utilitarianism
Maximize good
consequences for
the most number
of people and also
minimize bad
consequences
for the most
number of people
1806-1873

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

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Assignment: Large group recap after small
group discussion, while instructor slowly
completes the slide with the three
normative moral theories.
Lacking any mandatory, prescriptive and
descriptive ethical code, this is the best
way for LOs to learn ethics. The next slide
lays out the following:
--what kind of person do I want to become?
--what duties do I have?
--what are the possible consequences?

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Moral Development
The intrinsic worth, value and dignity
of all human persons.
Some laws might not be moral
Law , society’s rules
The good, norms, roles, shared values
Practical agreements
Morality comes from external sources
22+
16 to 22
12 to 16
6 to 12
3 to 5
0 to 2

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

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ManipulationCoercion
Completely
Controlled
Influences
Completely
Non-Controlled
Influences
Persuasion
Substantially
Not Controlling
Substantially
Controlling

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Duty of Loyalty
Duty of Care
What Fiduciary does will,
in good faith, advance the
interests of the client and
not the Fiduciary’s
personal interests
Act in good faith
Reasonable person test
Informed

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

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

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Remember:
Regulators do not regulate ethics, they regulate law.
It is the job of an industry to self-regulate the
ethical conduct of its members.
Our regulators see “ethics” through a legal lens:
consumer protection, fraud, fair housing
What is in the best interest of the client?
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Jillayne Schlicke
Sample Ethics Question
 Q: An appraiser approaches you with a deal to give
you the values you need in exchange for referrals of
your next 10 appraisals.
a. This is unethical
b. This is allowed under certain circumstances
c. This is only allowed with a special agreement fee
worksheet approved by DFI
d. This conduct could be allowed but only if the
appraisal company was owned by the mortgage
company
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Jillayne Schlicke
Sample Ethics Question
 A LO discovers that his/her co-worker is signing
client documents for the client. The LO asks
his/her co-worker about this practice, and the co-
worker answers, “my customer gave me permission
to sign her name on her behalf.”
a. This is unethical
b. It’s possible that this could be allowed
c. Federal law “signatures are cool” allows this
d. This practice is normal
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Jillayne Schlicke
Section 12
Consumer Protection Case Study
 Carnell v. KMC Funding
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Module 13.1
Module 13.2
Module 13.3
Module 13.4
Module 13.5
Module 13.6
Module 13.7
Module 13.8
Section 13 Fair Housing

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1968 Civil Rights Act
1968 Fair Housing Act
~
Protected Classes:
Race
Color
Religion (Creed)
Sex
National Origin
Familial Status
Sexual orientation added
in 2012 (lending only)
Disability
Section 13
Module 13.1, 13.3
Intent v. Effect
Realtors and lenders
have great power to
affect neighborhoods
Fair Housing/Fair Lending
http://www.hud.gov/offices/fheo/lending/index.cfm

Jillayne Schlicke
WA
 GLBTQ
 Honorably discharged military veteran
 Use of a service animal
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Jillayne Schlicke
 Redlining
Denying or
increasing the
cost of
services to
residents of a
racially
specific
geographical
area
 Steering
Guiding
prospective
homebuyers to
or away from a
specific
neighborhood
based on
his/her race
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 Blockbusting
Encouraging
white property
owners to sell
their homes at a
loss by
fraudulently
implying that
racial or
religious
minorities were
moving into
their
neighborhood
Fair Housing/Fair Lending
http://www.hud.gov/offices/fheo/lending/index.cfm

Jillayne Schlicke
In Mortgage Lending: No one may take any of the
following actions based on race, color, national
origin, religion, sex, familial status or handicap
(disability):
Refuse to make a mortgage loan
Refuse to provide information regarding loans
Impose different terms or conditions on a loan, such as
different interest rates, points, or fees
Discriminate in appraising property
Refuse to purchase a loan or
Set different terms or conditions for purchasing a loan.
Fair Housing/Fair Lending http://www.hud.gov/offices/fheo/lending/index.cfm
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Fair Housing Thought Questions
Should we make a woman on maternity leave return
to work before counting her income when qualifying
for a loan?
Should we make long term disabled applicants
provide additional documentation proving that they
will stay disabled?
96
Fair Housing/Fair Lending http://www.hud.gov/offices/fheo/lending/index.cfm

Jillayne Schlicke
Section 13 Mortgage Fraud
Module 14.1 through 14.11
97
FBI
US Department of Justice
Financial Crimes Report to the Public 2010-2011
http://www.fbi.gov/stats-services/publications/financial-crimes-report-2010-2011

Jillayne Schlicke
Fraud for Housing, or fraud for property, is
perpetrated by borrowers and/or one or more
industry professionals when they misrepresent
information on the loan application. This type of
fraud does not usually result in significant losses to
a financial institution.
98
FBI

Jillayne Schlicke
Fraud for profit consists of systematic transactions by
industry professionals who are attempting to steal a
significant amount of the funds associated with one or
more mortgage transactions. This type of fraud usually
involves multiple parties in various disciplines within the
mortgage industry, such as mortgage originators,
appraisers, real estate brokers, escrow closers, builders
and title companies. Fraud for profit usually results in
significant—if not catastrophic—losses to financial entities
involved in mortgage loan transactions and it is of major
concern to the mortgage industry
99
FBI

Jillayne Schlicke
Property Flipping
Silent Second
Straw Borrowers
Identity Theft
Appraisal Fraud
Foreclosure Rescue
Equity Skimming
Loan Mod Scams
Short Sale Fraud
100
FBI

Jillayne Schlicke
Section 14 Modules 14.6-14.11
SARS
Suspicious Activity Reports
AML
Anti Money Laundering
101
Financial Crimes Enforcement Network
Anti-Money Laundering Program and Suspicious Activity Report Filing
Requirements for Residential Mortgage Lenders and Originators
AGENCY: Financial Crimes Enforcement Network (‘‘FinCEN’’), Treasury.
ACTION: Final rule.
Federal Register / Vol. 77, No. 30 / Tuesday, February 14, 2012 / Rules and
Regulations Page 8159
Subpart C—Reports Required To Be Made by Loan or Finance Companies
http://www.gpo.gov/fdsys/pkg/FR-2012-02-14/pdf/2012-3074.pdf

Jillayne Schlicke
Section 14
Reflect on everything learned today.
…any final questions?
Preview of tomorrow.
102

Jillayne Schlicke
DAY 3

Jillayne Schlicke
CFPB =
Consumer Financial Protection Bureau
All federal laws governing mortgage lending
are now regulated by the CFPB with one
exception:
Fair Housing stays with HUD
Each state also regulates it’s own state laws
governing mortgage lending. State laws can
be tougher than federal law.
104

Jillayne Schlicke
The Main Fed Law Acronyms
TILA
Truth in Lending Act
MDIA
Mortgage Disclosure Improvement Act
RESPA
Real Estate Settlement
And Procedures Act
TRID
TILA/RESPA Integrated Disclosure
ECOA
Equal Credit Opportunity Act
SAFE
Secure and Fair Enforcement Act 105

Jillayne Schlicke
Federal
Laws
The laws shown in
blue were passed
during the late
1960s/early 1970s and
notice that we are
currently living
through another wave
of consumer
protection laws
directed at the
mortgage lending
industry.
2009 Changes to TILA = MDIA
2011 FRB Rule on LO Comp
R.E. Settlement and Proc. Act
2010 Dodd Frank Act
2015 TRID
Fair Credit Reporting Act
Fair Housing
Other Fed Laws
2008 SAFE Act
2010 Dodd Frank Act
2015 TILA/RESPA Integrated Discl.
106

Jillayne Schlicke
107
Purpose: To promote informed use of credit.
Gives consumers the right to cancel some transactions
(owner occupied refi)
Imposes cost limits on home equity loans
Regulates variable rate loans
CHARM Booklet required on ARM loans
Early disclosures:
3 days from date of application, final disclosure at
settlement
Section 16 Truth in Lending Act
http://www.fdic.gov/regulations/laws/rules/6500-200.html

Jillayne Schlicke
108
Annual Percentage Rate/APR
the cost of the loan expressed in the form of a
rate annualized over one year.
Loan amount, closing costs, note rate, loan term.
APR was designed as a shopping tool for consumers.
APR is always quoted when we quote a note rate.
We are allowed to use a sample APR for
advertising.
Tolerances

Jillayne Schlicke
109
APR Tolerances…Can we make a mistake
and still be in compliance? Yes:
 Example:
|________|_______ APR 7.75_______|________|
.25 .125 .125 .25
ARM FRM FRM ARM
ARM = Adjustable Rate Mortgage
FRM = Fixed Rate MortgageTruth in Lending Act

Jillayne Schlicke
Common consumer question:
What costs are included when calculating APR?
At a typical mortgage company, software systems
are already programmed to do this for LOs.
However, customers ask questions about the TILA
disclosure forms and regulators expect licensees to
know how to answer basic questions about the
information contained in the TILA disclosure form.
110
A closer look at APR (Annual Percentage Rate)

Jillayne Schlicke
Included
Prepaid interest
Mortgage insurance
premiums
Wire transfer fees
Recording fees
Loan origination fee
UW, proc, admin
Mortgage broker fee
Escrow (closing fee)
Discount points
Pest inspection (VA only when prop
is located in mod to high probability of
area of pest infestation and lender is
paying for it.
Flood Ins. premiums 111
Hazard Insurance
(IF obtained from a
neutral company)
Seller paid discount points
Document prep fee
Title insurance (lender
policy)
Notary fee
Appraisal
Credit report
Impounds for taxes & ins
Flood Hazard Check
Excluded

Jillayne Schlicke
112
A closer look at APR (Annual Percentage Rate)
Tip: How to remember which costs are included/excluded
when calculating APR:
Costs included
These are costs
that benefit the
lender or costs
that the lender
requires in order
to obtain a loan.
Costs excluded
These are costs
that are paid to
and benefit third
parties other than
the lender.

Jillayne Schlicke
Sample APR question
If seller contributes 1% to buy down the interest rate
and the buyer also contributes 1% to buy down the
interest rate, what is included in the APR calculation?
A. buyer’s 1%
B. seller’s 1%
C. neither
D. both the buyer and seller’s 1% for a total of 2%
discount points included in the APR Calc.
113

Jillayne Schlicke
Section 16
a closer look at APR
 Prepaids
 Prepaid finance charges = CLOSING COSTS
 Impounds = a few months payments of real estate
taxes, hazard insurance
114

Jillayne Schlicke
Section 16
What items are included when
calculating APR?
a)loan amount, closing costs
b)term, note rate, loan amount, appraisal
c)prepaids, term, note rate, loan amount
d)term, note rate, loan amount
115

Jillayne Schlicke
Section 16 Sample Question:
What is the APR for the following loan?
Closing costs: $2,000
Loan term: 360 months
Note rate: 5.0%
Loan amount: $200,000
a) 5.0
b) 4.9
c) 5.08
d) 6.98
116

Jillayne Schlicke
117
Rescission: on an o.o. refinance, the
borrower has 3 days after signing the final
loan documents to cancel and receive a
full refund from the lender. LOs must
refund any money collected for third
party services, even if spent.
For TILA RESCISSION purposes, business
days include Saturday (full 24 hours.)
Can the 3 day right of rescission ever be
waived?
Modules 16.4

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

1st
bus. day: Fri, May 3
2nd
bus. day: Sat, May 4
Sun, May 5
3rd
bus. day: Mon, May 6
The loan can fund on Tuesday May 7th
118

Jillayne Schlicke
 How many copies of the rescission notice are
printed?
 3
 1---stays in the escrow closer’s file
 2 are provided (not mailed) to the borrower
 If the borrower rescinds, one is signed and mailed to
escrow, and the other the borrower keeps
119
Section 16 TILA Module 16.4

Jillayne Schlicke
HOEPA =
Home Ownership and Equity Protection Act
Revised HOEPA Coverage Tests:
APR exceeds APOR by more than 6.5% for first lien
mortgages, or;
APR exceeds APOR by 8.5% for first lien mortgages
under $50,000. or;
APR exceeds APOR by more than 8.5% for junior or
subordinate liens.
120

Jillayne Schlicke
Sample HOEPA question
What is the APR trigger on a first lien mortgage under
HOEPA?
a) APR exceeds APOR by 6.5%
b) APR exceeds APOR by 8.5%
c) APOR is not a factor
d) APR trigger rules are irrelevant on a first lien
mortgage under the special provisional “APR Sucks”
amendment to the HOEPA section of the Dodd Frank
Act.
121

Jillayne Schlicke
Section 16
Module 16.6
Truth In Lending Act Quiz
122

Jillayne Schlicke
Federal
Laws
The laws shown in
blue were passed
during the late
notice that we are
currently living
of consumer
protection laws
directed at the
mortgage lending
industry.
2010 Dodd Frank Act
2015 TRID
Fair Housing
Other Fed Laws
2008 SAFE Act
2010 Dodd Frank Act
123

Jillayne Schlicke
124
Section 17
Mortgage Disclosure Improvement Act
MDIA
Module 17.1
Module 17.2
Module 17.3
Module 17.4
Module 17.5
Module 17.6 --take the TILA/MDIA Quiz
Truth in Lending Amendments
Regulation Z, Subpart C, Closed End Credit, Section 226.17,
General Disclosure Requirements Effective July 30, 2009

Jillayne Schlicke
Section 17 Module 17.6 MDIA Quiz
125

Jillayne Schlicke
Section 18
Federal Reserve Board (FRB) rule
on Loan Originator Compensation
126
Module 18.1
Background
FTC v. Golden Empire Mortgage
Federal Reserve
Regulation Z: Loan Originator Compensation and Steering 12 CFR 226
http://edocket.access.gpo.gov/2010/pdf/2010-22161.pdf

Jillayne Schlicke
Section 18
Federal Reserve Board Rule on
Loan Originator Compensation
127
Module 18.2 Three main prohibitions:
P1: Compensation based on a transaction’s term
or conditions.
P2: Compensation by lender OR consumer but not
both.
P3: Prohibitions against steering.
Federal Reserve

Jillayne Schlicke
Section 18
128
P1: Compensation based on a transaction’s term
or conditions:
> Payment based on transaction terms or conditions.
> Compensation cannot go up or down based on the
loan’s terms or conditions.
> Minimum or max dollar amount of compensation
may not vary with each loan.
Federal Reserve

Jillayne Schlicke
Section 18
129
P2: Compensation by someone other than the
consumer.
If an LO will be compensated by the
consumer, the LO may not also receive
compensation from the lender funding the
loan, or any other person connected with
that transaction.
Federal Reserve

Jillayne Schlicke
Section 18
130
P3: Prohibitions against steering.
LOs may not steer a consumer to a loan only
because the LO will be compensated at a
higher rate by selling that product, unless the
loan is in the best interest of the consumer.
Federal Reserve

Jillayne Schlicke
Section 18
131
Module 18.3
Review the Section 18 Handout:
RESPA Roundup
RESPA Roundup: Compliance Guide for REPA as it applies to the Federal
Reserve Board’s MLO Compensation Rules Published on Sept 24, 2010

Jillayne Schlicke
Federal
Laws
The laws shown in
blue were passed
during the late
notice that we are
currently living
of consumer
protection laws
directed at the
mortgage lending
industry.
2010 Dodd Frank Act
2015 TRID
Fair Housing
Other Fed Laws
2008 SAFE Act
2010 Dodd Frank Act
132

Jillayne Schlicke
Section 19 RESPA
Early Disclosure Package
Within 3 days of the date on the loan application, we
send the early disclosures to our borrowers.
The Loan Estimate
If Adjustable Rate Mortgage, the CHARM Booklet
If HOEPA, the extra required HOEPA disclosures
If purchase-money loan, Your Home Loan Toolkit.
Any other disclosures required by state and federal law.
133

Jillayne Schlicke
134
Section 19 RESPA Modules 19.1-19.2
Purpose
Timely disclosure of settlement costs
Limits on loan servicing reserve accounts* see
next slide
Prohibits seller-directed title insurance
Forbids kickbacks (Section 8. See next slide)
Disclosure of Affiliated Business Arrangements
Disclosure of potential loan servicing charges
Your Home Loan Toolkit
Lender required use agreements
Real Estate Settlement and Procedures Act
http://www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm

Jillayne Schlicke
135
Section 19
RESPA
Modules 19.2
Applies to all federally related loans; sale or
refi, primary market loans only.
Exemptions: 25 acres or more, temporary
financing, assumptions with lender
approval, conversions (contract to deed),
secondary market transactions, vacant
property.
Which entities must comply?

Jillayne Schlicke
136
Which entities must comply?
Lenders (banks, brokers, etc.)
Real estate agents/Realtors
Title and XO
Appraisers
Home inspectors
Mortgage insurance companies
Credit reporting agencies
Flood hazard check companies
Attorneys
Hazard insurance companies
Home warranty companies
Builders Real Estate Settlement and Procedures Act

Jillayne Schlicke
137
Section 8 Referral Fees
Prohibits the giving or taking of a fee or other
thing of value for a referral involving a federally
related loan
Un-earned fee (also called a kickback)
A fee we receive but we have performed no
work in exchange for receiving the fee.

Jillayne Schlicke
Violations of Section 8's anti-kickback, referral fees
and unearned fees provisions of RESPA are subject to
criminal and civil penalties.
In a criminal case a person who violates Section 8 may
be fined up to $10,000 and imprisoned up to one year.
In a private law suit a person who violates Section 8
may be liable to the person charged for the
settlement service an amount equal to three times
the amount of the charge paid for the service.
138

Jillayne Schlicke
TILA/RESPA Definition of “an Application”
139

Jillayne Schlicke
Sample RESPA question
During a phone interview, borrower provides the loan
originator with her name, social security number, income,
estimated value of the home that she will be purchasing,
and the loan amount she needs, and the property address.
The loan originator has:
a)Taken a loan application.
b)Prequalified the borrower.
c)Prequalified the borrower and early disclosures will not
be sent out until the loan originator receives a fully
executed purchase and sales agreement signed by all
parties.
d)Taken a loan application and early disclosures are due to
be sent to the borrower within three days.
140

Jillayne Schlicke
 RESPA QUIZ
141

Jillayne Schlicke
Federal
Laws
The laws shown in
blue were passed
during the late
notice that we are
currently living
of consumer
protection laws
directed at the
mortgage lending
industry.
2010 Dodd Frank Act
2015 TRID
Fair Housing
Other Fed Laws
2008 SAFE Act
2010 Dodd Frank Act
142

Jillayne Schlicke
143
LE --- (loan estimate)------Ellie
CD ---- (closing disclosure)-------Seedy
“CD” means something different to Realtors:
Commission Disbursement
Part of the Dodd Frank Act
Went into effect Oct 3, 2015
TRID
TILA RESPA Integrated Disclosure Rule

Jillayne Schlicke
144
Section 20
Intent To Proceed
Real Estate Settlement and Procedures Act (2009 Changes)
http://www.federalreserve.gov/boarddocs/supmanual/cch/respa.pdf
Imposing fees on a consumer before the consumer has
received the Loan Estimate and indicated an “intent to
proceed” with the transaction.
A consumer may indicate intent to proceed in any manner
the consumer chooses, unless a particular manner of
communication is required by the creditor.
A consumer’s silence is not indicative of intent to
proceed. A creditor must document this communication to
satisfy the record retention requirements.

Jillayne Schlicke
Section 20
Rule regarding “worksheets”
There are other restrictions on the form of this
statement to assure it is not confused with the Loan
Estimate:
Must be in font size no smaller than 12-point font.
May not have headings, content, and format
substantially similar to the Loan Estimate or the Closing
Disclosure.

Jillayne Schlicke
146
For these other purposes, business day means all
calendar days except Sundays and the legal public
holidays
…such as New Year’s Day, the Birthday of Martin Luther
King, Jr., Washington’s Birthday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans
Day, Thanksgiving Day, and Christmas Day.
Section 20
Business Day Definition

Jillayne Schlicke
147
Section 20
What is “an application”

Jillayne Schlicke
TILA RESPA Integrated Disclosure
 Review The Loan Estimate
148

Jillayne Schlicke
761.78 x 360 = 274,240.80
P & I x the loan term = 274,240.80
-162,000 minus the loan amount
=112,240.80 all the interest
Interest div by loan amount =
112,240.80 div by 162,000 = 69.28%
Interest plus interim (daily) interest =
112,240.80 + 262 = 112,502.80
112,502.80 div by 162,000 = 69.45%
149

Jillayne Schlicke
150
Good Faith Requirement and Tolerances
Delivery of the Closing Disclosure
Take the TRID quiz
Section 20

Jillayne Schlicke
151
Equal Credit Opportunity Act ECOA 1974
ECOA points us toward the evaluation based on
creditworthiness only.
Nine categories; the prohibited bases:
Race
Color
Religion
Sex
Marital Status
National Origin
Income from Public Assistance
(Age)
Whether an applicant has exercised his or her
rights under this act.

Jillayne Schlicke
ECOA comparison to
Race
Color
Religion
Sex
National Origin
Marital Status
Income from Public
Assistance
Age
Whether an applicant
has exercised his or
Her rights under this
Act.
152
Fair Housing
Race
Color
Religion (Creed)
Sex
National Origin
Familial Status
Sexual orientation
added in 2012 as a
protected class in all
50 states to Fair
Lending rules
Disability

Jillayne Schlicke
153
Section 21 ECOA Module.21.2
It is a violation to discourage an applicant from
making an application for credit on a
prohibited basis.
Cannot ask an applicant if he or she receives
alimony, child support. The applicant may
volunteer such information.
You must ask if he or she PAYS (or is obligated to
pay) alimony or child support.
Unmarried…
ECOA requires the lender to provide a copy of the
appraisal report.
Application need not be in writing for this act to
apply.
Can we ask questions NOT related to
creditworthiness?
Adverse Action Form

Jillayne Schlicke
154
Section21
Module 21.2
Equal Credit Opportunity Act ECOA
Marital Status
1. Unmarried =
Single
Divorced
Widowed
2. Married
3. Separated

Jillayne Schlicke
155
Dodd Frank Changes to ECOA
(1) Creditors are required to notify applicants within three business
days of receiving an application of their right to receive a copy
of appraisals developed.
(2) Creditors are required to provide applicants a copy of each
appraisal and other written valuation promptly upon its
completion or three business days before consummation or
account opening.
(3) Creditors are prohibited from charging for the copy of appraisals
and other written
valuations, but are permitted to charge applicants reasonable
fees for the costs of appraisals or other written valuations unless
applicable law provides otherwise.

Jillayne Schlicke
156
Section 21
Module 21.3
Equal Credit Opportunity Act ECOA
Quiz

Jillayne Schlicke
157
HMDA Home Mortgage Disclosure Act
Do-Not-Call Act
Dodd Frank Act
Bank Secrecy Act
Gramm Leach Bliley (Privacy Act)
GLB FTC Safeguard Rules
Unfair, Deceptive Acts and Practices
E-Sign Act
U.S. Patriot Act
PMI Act
Additional Federal Laws Quiz
Section 22 Additional Federal Laws

Jillayne Schlicke
158
Passed to ensure consumers have access to
credit information used by lenders and
others so that remedial steps could be taken
when incorrect or outdated information
remained in their file.
Purpose of a credit report:
Insurance, licensing, instruction from
consumer, extension of credit, employment,
response to a court order, potential investor
risk, other legitimate business needs.
Credit reports are deemed privileged info.
A CRA has 30 days to respond to a disputed item
Adverse Action: Name, address and phone
number of the CRA, reason, and info on how
to obtain a free copy of their report.
Fair Credit Reporting Act FCRAFair Credit Reporting Act

Jillayne Schlicke
159
Section 26 Final Exam, Recap and Close
Review all remaining unanswered questions.
FINAL EXAM
Students complete end-of-course evaluation form.
Instructor provides end-of-course completion
certificates.

Jillayne Schlicke
160
Jillayne Schlicke
CE Forward, Inc.
National Assoc of Mortgage Fiduciaries
206-931-2241
jillayne@ceforward.com
mortgagefiduciaries.com

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