What Is a Preliminary Title Report and Why Does It Matter?
A preliminary title report is one of the first things to hit the desk when a potential sale is on the horizon. Think of it
January 29, 2024
Contents
Your organization, XYZ enterprise, takes their health and safety compliance policy very seriously. It specifies the health and safety protocols that employees should follow at work. Let’s say there’s been a sudden accident—an employee fails to clean up a spillage leading to an on-the-job injury. In this case non-compliance with the health and safety policy leads to repercussions.
Here’s another hypothetical situation: your shift starts at 9.30 am and you email your supervisor at 9.25 am informing them you need a sick day. However, your employment contract explicitly mentions that all leave requests must be made at least 2 hours prior to the start of your shift. This leads to a full day’s salary deduction.
Hopefully these examples offer some perspective about the repercussions of non-compliance. The truth is, it’s extremely important for mortgage companies to comply with federal and state regulations. The first step in successful compliance management as a mortgage lender is to educate yourself.
Understanding TILA & RESPA Considerations
One of the most significant mortgage compliances is the TILA-RESPA Integrated Disclosure (TRID) Audits. TRID compliance is a part of the Dodd-Frank Wallstreet reforms and the Consumer Protection Act. It substitutes the Good Faith Estimate and HUD 1 regulations with loan estimate disclosure and closing amount disclosure.
But first, let’s understand TILA and RESPA.
Truth in Lending Act or TILA
TILA protects consumers from deceptive and inaccurate credit card practices and credit billing. According to this federal law, lenders must provide loan cost information to their customers so they can compare prices.
TILA states the facts borrowers need to disclose before any credit is granted. These could include factors like loan term, total costs and the annual percentage rate (APR).
Typically, TILA is applicable to the extension of consumer credit meant for family, household or personal use.
Business-purpose lenders should bear in mind that:
- TILA does not apply on loans granted to a non-individual entity
- There may be some exemptions if the loan is granted for commercial or business use. However, the exemption can be complex
In certain scenarios, a loan could be exempt from TILA. To be able to determine this, you must assess
- Transaction size
- Borrower’s role in managing the acquisition and their statement regarding the loan’s purpose
- Relevance of the acquisition to the borrower’s primary occupation
- Ratio of their total income to the income generated from the acquisition
Lenders’ TILA Compliance Checklist
| Be Upfront | Provide borrowers with a clear breakdown of their loan terms within three days of them applying. No surprises! |
| Calculate Costs Right | Make sure you’re including everything—interest, fees, and charges—in the Annual Percentage Rate (APR). Keep it accurate |
| Show the Money | Tell borrowers exactly how much money they’re getting from you (Total Amount Financed). No hidden stuff |
| Total Payment Transparency | Lay out the total payments they need to make, covering both the principal and interest. No guesswork |
| Rescission Rights | Explain that if it’s a certain type of loan, they have three business days to change their minds without penalties. Keep it fair |
| Truthful Ads | Ensure your ads are straight to the point. No tricks, no confusion. Let them know what they’re getting into |
| Timing is Key | Give borrowers all the info on time. No last-minute surprises. Let them digest the details |
| High-Cost Check | If it’s a high-cost mortgage, follow the extra rules. Know the limits on terms and fees. Play by the book |
| Paper Trail | Keep good records. You never know when you might need to prove you did everything right |
| Know the Rules | Train your team to understand TILA. Regular updates keep everyone on the same page |
| Follow the Rule Book (Regulation Z) | Stick to what Regulation Z says. It’s like the playbook for TILA. Do what it says |
| Stay Updated | Keep an eye out for any changes to TILA. Stay in the loop, so you’re always on the money |
Real Estate Settlement Procedures Act or RESPA
Real Estate Settlement Procedures Act (RESPA) came into action in 1975. It aims to curtail unfair practices that may take place when a property is bought or sold.
It operates in the favor of homebuyers and ensures that they are aware of all settlement costs. It prohibits kickbacks which means one cannot be paid a commission for recommending a borrower to a specific lender.
RESPA applies to most home, refinancing or purchase loans and ensures that borrowers are aware of all the key processes involved. It even makes sure that they are aware of the laws that protect them.
Most commercial or business-purpose loans are exempt from RESPA and Regulation Z is used to determine the factors which decide the exemption.
Lenders’ RESPA Compliance Checklist
| Provide a Loan Estimate (LE) |
|
| Clear Communication |
|
| Closing Costs Transparency |
|
| Escrow Management |
|
| Title Insurance Disclosure |
|
| Good Faith Estimate (GFE) Accuracy |
|
| Prepayment Penalty Information |
|
| Servicing Details |
|
| Complaint Resolution Process |
|
| Compliance with RESPA |
|
Lenders’ Guide to Federal Law Considerations
Here is a comprehensive list of mortgage compliance rules to bookmark and use as a handy guide.
#1. Home Ownership and Equity Protection Act or HOEPA
The Home Ownership and Equity Protection Act (HOEPA) protects the rights of applicants looking to purchase high-value homes with the help of detailed information. Mortgages covered under HOEPA include closed-end home equity loans, refinance and purchase money. Various states have different regulations with regards to the purchase of high-value homes. Check out the HOEPA best practices for mortgage professionals.
#2. Home Mortgage Disclosure Act or HMDA
The Home Mortgage Disclosure Act (HMDA) is a regulation which verifies whether lenders are providing credits to borrowers at their office location—the data generated through this regulation helps government make informed decisions with regards to geographies where investments should be directed for growth.
As a lender you must compile and share all information related to loan applications, origination and purchased covered loans with your mortgage regulatory body. The information must contain loan application number, universal number, date, type, purpose, amount, owner occupancy status, applicant information, etc. You must also share the difference between the annual percentage rate (APR) and benchmark rate if they exceed the stipulated threshold.
#3. Flood Insurance Reform Act 1994
The Flood Insurance Reform Act 1994 disincentivizes building properties in flood sensitive areas through high home insurance rates. The act makes it mandatory for homebuyers to buy flood insurance.
#4. Regulation Z
Regulation Z under the Truth in Lending Act mandates transparent written disclosures, encompassing interest rates, fees and finance charges. Additionally, it sets the bar for lenders to furnish monthly billing statements, promptly address billing concerns, and notify borrowers promptly of changes in variable loan rates. Leveraging a tech-savvy Loan Origination System (LOS) not only enhances efficiency but also automates vital lender-client communications, reinforcing adherence to Regulation Z.
#5. Anti-Money Laundering
Financial institutions, including those involved in mortgage banking, must adhere to the Bank Secrecy Act (BSA) and its Anti-Money Laundering regulations. They help the Financial Industry Regulatory Authority (FINRA) establish guidelines to monitor and prevent potential instances of money laundering and other dubious activities. The AML programs for lenders are specified in FINRA Rule 3310, which states the minimum requirements according to its directives.
#6. The Fair Housing Act or FHA
The Fair Housing Act (FHA) applies to any individual or entity who is part of residential real estate transactions. It consists of the provision of loans or financial assistance for the purchase, construction, repair or maintenance of a dwelling. The FHA also applies to those involved in the selling, brokering or appraising of residential property.
#7. The Equal Credit Opportunity Act or ECOA
The Equal Credit Opportunity Act (ECOA) prohibits discrimination in any aspect of a credit transaction based on sex, age, religion, race or color, marital status, or nationality. The ECOA applies to all types of credit and requires creditors to provide copies of appraisals and valuations to applicants for any credit application secured by a first lien.
#8. The Fair Credit Reporting Act or FCRA
The Fair Credit Reporting Act (FCRA) imposes adverse action and permissible purpose requirements on users of consumer reports. Although it does not govern commercial or business credit reports, the FCRA may still apply if a consumer report is used with a commercial or business transaction.
#9. The Service members Civil Relief Act or SCRA
The Service members Civil Relief Act (SCRA) protects defense personnel who are entering active duty. The SCRA covers many financial issues like evictions, prepaid rent, life and health insurance, security deposits, rental agreements, automobile leases, income and installment contracts, mortgage foreclosures, mortgage and credit card interest rates, and civil judicial proceedings. The Attorney General has the right to file a federal lawsuit under the SCRA against entities or individuals who violate this law.
#10. The Electronic Fund Transfer Act or EFTA
The Electronic Fund Transfer Act (EFTA) protects consumers during electronic fund transfers that are carried out via ATMs, point-of-sale terminals, and debit cards. The EFTA enables consumers to correct transaction errors and limits liability resulting from lost or stolen cards.
#11. The Secure and Fair Enforcement Act or SAFE
The SAFE Act came into being on July 30, 2008. Under this act, residential mortgage loan originators (MLOs) have to register and renew an annual unique identifier, also known as an NMLS number. This federal act was introduced to improve accountability and safeguard consumers in the mortgage industry. It is regulated by the Consumer Financial Protection Bureau (CFPB).
The MLOs should obtain state licenses for each state where they process mortgage applications. The SAFE Act also states that MLOs should list their identifiers in a certain way on marketing materials and advertisements.
#12. The False Claims Act
The False Claims Act protects the taxpayer and the federal government from paying agency money for false or fraudulent claims. This act applies to mortgages backed by the federal government through agencies like FHA or Housing and Urban Development (HUD) programs. Mortgage lenders need to make sure that the loans originating under these programs adhere to the specific guidelines set for each loan type.
If a lender attempts to get a loan covered by federal insurance that does not meet these guidelines, the Department of Justice (DOJ) can initiate an investigation that could result in a financial penalty.
State Government Compliance Laws
Besides federal laws you also need to take into account state laws. Depending on the state, you may have to obtain licensure for loans secured by residential real property, irrespective of whether they’re commercial or for consumer purposes.
Additionally, state laws that govern predatory lending and high-cost loans could even extend to business purpose loans and so you must meticulously document and verify transaction purposes. Though laws typically apply to consumer-purpose loans or owner-occupied properties, it’s wise to be vigilant and stay up to date on regulatory changes that could affect your business.
How Mortgage Processing Experts Can Help
We understand that keeping up with all compliance and regulations on your own can be overwhelming. This is where an outsourcing partner can come to your rescue by providing loan processing services but also by helping you with risk assessment, compliance management and policy reviews.
Aritas Mortgage Solutions has spent over 15 years helping lenders, brokers and small bankers with their mortgage processing. Our experts conduct regular pre- and post-closing audits to help your business stay compliant. We safeguard your interest as a lender and ensure that you provide the best services to your clients. Get in touch today.
Lenders’ Guide to Federal Law Considerations – Infographics
Share this on
LinkedIn
Facebook
Twitter
Email
Subscribe now for weekly updates
Related Posts
HOEPA Best Practices for Mortgage Professionals
We understand that as loan originators, ensuring compliance with HOEPA regulations is important for your business. And, if you regularly deal with high-cost loans, it
December 28, 2023
Best Practices for Impactful Mortgage Quality Control
As loan originators, you’re not just navigating the market; you’re steering your ship through potential storms. A misstep can be costly and we’re sure that
December 11, 2023
Ready to Save on Processing Costs & Scale Your Mortgage Business?
Mortgage Processing: The Efficient, Effective, & Economical Way
