Sabrina Fitze Senior Staff Attorney Habitat for Humanity International sfitze@habitat.org

1. Mortgage Procedures and Regulations (MPAR): Keeping up with changes in federal laws and regulations Sabrina Fitze Senior Staff Attorney Habitat for Humanity International sfitze@habitat.org HFH-NYSCFPB Symposium

2. Overview of CFPB Regulations & Its Impact on Habitat for Humanity Housing Crisis  Legal and Regulatory Reform

3. Overview of CFPB Regulations & Its Impact on Habitat for Humanity The Dodd-Frank Wall Street Reform Act of 2010 = The most comprehensive financial regulatory reform since the Great Depression (1) Introduced new rules to existing regulations (2) Created the CFPB to enforce rules & regs

4. Why you SHOULD be paying attention • Increased government regulation • Increased scrutiny • Harsh penalties for non-compliance • Impact beyond regulators: • Donors • Media • Families & general public • Community partners (banks, governments, etc.)

5. Why you really SHOULD be paying attention CFPB COMPLAINT PORTAL

6. Why you really, really, SHOULD be paying attention

7. Overview of CFPB Regulations & Its Impact on Habitat for Humanity

8. Agenda (9:30-10:15) • Before you begin, consider: • Loan Originator Character & Fitness Qualifications (TILA) • Federal Anti-Money Laundering (AML) • Marketing & Outreach • Application for Family Partnership • Application • Assessment • Notifications • Family Partnership Phase

9. Loan Originator Character & Fitness Qualifications (TILA) • Does not affect SAFE Act Exemption! • All Loan Originators hired after January 1, 2014 = • National Criminal background check • National Credit check • Information related to any administrative, civil, or criminal determination by any government jurisdiction • Loan Originators hired before January 1, 2014 = • Run checks IF no statutory or regulatory standards in place at time of hire, or if Affiliate did not use the applicable standards. • Board approved policies & procedures • Determine how you will evaluate this information. • Per law: Originatormust not have been convicted of, or pleaded guilty to felony in a domestic or military court during the preceding 7-yr period; in the case of felony involving an act of fraud, dishonest, breach of trust, or money laundering at any time

10. Loan Originator Character & Fitness Qualifications (TILA) • Affiliates must provide periodic training to all Loan Originators. • Periodic = at least once every 12 months • 11 ABA trainings will meet the federal training req • Loan Originator = Individuals who are compensated to perform activities such as: • Taking an application for purchase money mortgage or repair loan • Arranging a credit transaction • Assisting a consumer in applying for credit • Offering or negotiating credit terms • Making an extension of credit • Referring a consumer to a loan originator or creditor • Advertising or communicating to the public that you can or will perform any loan origination services  Those who interface with consumer • Not Loan Originator: • Solely clerical or administrative tasks. • Front desk just accepts application without discussion. • Board member only reviews docs. • Solely number crunching. Best practice (STRONGLY encouraged) = volunteers too!

11. Federal Anti-Money Laundering (AML) All Affiliates must comply with this regulation Bank Secrecy Act (BSA) • Issued by the Treasury Department’s Financial Crimes Enforcement Network, effective as of August 13, 2012 • Does not exempt any affiliate, regardless of size or capacity • Non-compliance carries severe criminal and civil penalties • Requires adoption and implementation of affiliate-level policies & procedures (see next slide). USA PATRIOT Act – requires: • All Affiliates are required to search all applicants against the Specially Designated Nationals (SDN) List, initially and ongoing • IRS/FinCEN form 8300 to report cash transactions over $10,000 • Federal Regulator - IRS

12. Federal AML cont’d • Conduct Risk Analysis according to template • Customers = Low • Products = Low • Services = Low • Geographic Locations = ?? • High Intensity Drug Trafficking Areas (“HIDTA”)= 17 in NY • High Intensity Financial Crimes Areas (“HIFCA”) = All counties • Board review and adoption of AML Policy and Procedures (template on AML Home Page) See AML page on my.habitat for templates, FAQs and resources AML Home Page

13. Federal AML cont’d • Designate a Compliance Officer • Be prepared to file Suspicious Activity Reports (SARs) in accordance with your policy and procedure • >$5,000 and reason to believe funds derived from illegal activity. • Example: $350/month for 5 years, then $1,000. Must investigate! • Keep confidential. • Be prepared to train all necessary staff and volunteers • ABA AML course satisfies training • Independent audit of AML program See AML page on my.habitat for templates, FAQs and resources AML Home Page

14. Marketing & Outreach • Family Outreach - Family Services AOM Chapter 2 - Reach Out to Families • Assess community needs for housing • Board approved written policy that ensures no discrimination – establish selection criteria and selection process • Focus on creating the right kinds of messages and using the right media to reach target audience within the geographic service area • Fair Housing Act requires: • Ensure marketing graphics, words, phrases are inclusive and non-discriminatory (all medium – print, electronic, radio etc. should not indicate any preference, limitation or discrimination) • Fair Housing Equal Opportunity logo must be on all client facing marketing including application • Any place an application is taken must display the Equal Housing Opportunity / Lender sign and or poster • Truth in Lending Act requires no misleading advertisements/materials: • Actually available terms • Clear and conspicuous standard • Advertisement of rate of finance charge • Advertisement of terms that require additional disclosures (triggering terms)

15. Application for Family Partnership: Application • Applications must be available in multiple venues. • Follow board-approved policies consistently to collect application information. • Do not take family information over the phone. • This may constitute an “application” and trigger certain Equal Credit Opportunity Act (ECOA) deadlines. • Explain program requirements to potential partner families.

16. Application for Family Partnership: Assessment • Need; Willingness to Partner; Ability to Pay/Financial Readiness • Do not discriminate based on protected class [FHA/ECOA] • Apply board-approved policies consistently • Immigration Status – tied to ability to pay • Sex offender registry check • Background check (optional but strongly recommended) • Comply with all Federal, State and Local laws • Fair Housing Act • Equal Credit Opportunity Act (ECOA) • Americans with Disability (ADA) • Truth in Lending (TILA) – Ability to Repay • Fair Credit Report Act (FCRA) • Bank Secrecy Act (BSA) - Anti-Money Laundering (BSA / AML), including USA PATRIOT Act • Gramm Leach Bliley Act (GLBA) – Privacy Legal Advisory – Immigration Status Consider HFH-NYS Credit Review Service

17. Application for Family Partnership: Notification Equal Credit Opportunity Act/Regulation B  Applies to all Affiliates. • Goals = Prevent discrimination; Keep applicant informed. • Communicate credit decisions within 3 required timelines. 1. Affiliate must send an applicant a Notice of Action within 30 days after receipt of first piece of financial information (orally or written): • f Incompleteness

18. Application for Family Partnership: Notification 2. If first Notice of Action is an Notice of Incompleteness, then within 30 days of “completed application”, affiliate must send either: • f Incompleteness 3.At any point in partnership or mortgage application process, within 30 days of making a decision to deny credit: Withdrawal: If applicant withdraws, affiliate should send a Withdrawal Form within a reasonable time period. Provide copy to family and place copy in folder. Notify all parties within the affiliate.

19. Application for Family Partnership: Notification Fair Credit Reporting Act/Reg V  Applies to all Affiliates. • Goal = Accuracy & Privacy of Reported Credit Info • Consumer Report: includes credit report & background check • Use “consumer reports” only for permissible purposes • Notify applicant when denial of application is based in whole or in part on any info from a “consumer report” (including credit score or criminal background check). • Send within 30 days of making decision to deny. • Template Adverse Action Notice on My.Habitat is ECOA and FCRA compliant. • Two notifications when denial of employment is based on consumer report (think background checks for loan originators!). • Pre-Adverse Action Letter. See FCRA Legal Advisory Exhibit D. • Template Adverse Action Notice on My.Habitat is ECOA and FCRA compliant.

20. Family Partnership • Initial evaluation reveals family meet partnership criteria • Board approval is obtained • Provide Partnership Agreement and include expectations and conditions • Next steps in the process • Sweat equity requirements • Attendance of financial literacy workshops • Maintain or improve creditworthiness • Down payment requirement • If family fails to meet conditions: • Extend deadline to meet requirements; OR • De-Select/Denial • Send Adverse Action Notice. • Must be ECOA and FCRA compliant! • Within 30 days of making decision to deselect

21. Agenda (12:45-1:15) HFH as a Lender Mortgage Loan Application • Initial Disclosures • RESPA • TILA • ECOA (including appraisal requirements) • GLBA • FDPA • Underwriting • De-select/Denial

22. Initial Disclosures What?Initial Disclosures When? Within 3 business days of “completed mortgage application” and at least 7 days prior to closing (includes Saturdays) [per RESPA]. *Completed Mortgage Application per RESPA = • Borrower’s name; • Borrower’s monthly income; • Borrower’s SSN; • Property Address; • Estimate of value of property; • Loan amount; and • Other information needed by lender Why? The law says so! (RESPA; TILA; ECOA; FDPA; GLBA) Consider providing Initial Disclosures upon returned Mortgage Application Packet.

23. Initial Disclosures cont’d Template Initial Disclosures can be found on MPAR U, Initial Disclosures Collection

24. Initial Disclosures: ECOA • Property Valuation: Obtain appraisal or other property valuation • No conflicts of interest: Do not use staff or board member. • Donated appraisals are allowed (CFPB written approval pending) • Cannot charge for appraisal copies but can charge a reasonable fee to reimburse the cost of appraisal if not prohibited by state law. • Required Disclosures: Equal Credit Opportunity Act • Valuation Disclosure Notice • With TILA/RESPA Initial Disclosures • Copy of property valuation(s) associated with transaction • “Promptly” upon completion (interpretation: 7 days)

25. Initial Disclosures: GLBA Gramm-Leach-Bliley Act • Regulation governs the sharing of consumer and customer non-public personal information • Must provide Privacy notices disclosing the affiliate’s privacy policies and practices,what information is collected, with whom it is shared, how affiliates safeguard it, and the opportunity to “opt-out”. • Template Privacy Notice, see Legal Advisory - GLBA Requirements

26. Initial Disclosures: GLBA When to provide Privacy Notice? • Depends on relationship: • Consumer = applicant • Customer = continuing relationship / Partner Family • Initial Privacy Notice: • When consumer becomes customer. • With RESPA/TILA initial disclosures. • Annual Notice: • Each year so long as customer relationship remains.

27. Initial Disclosures: FDPA • Flood Disaster Protection Act • Flood Determination: certified vendor or FEMA website • Flood Insurance required when: • Lender originates or renews any loan(s) secured by improved property; • Property is located in a “special flood hazard area” as identified by FEMA; & • The community participates in the National Flood Insurance Program (NFIP).

28. Underwriting • Partner family second evaluation: • Re-verify all ability to pay factors based on Affiliate’s policy • Credit Check • Income • Employment status • Background/Sex Offender check • Debts, including alimony and child support payments • Monthly DTI ratio for all mortgage and non-mortgage obligations as a ratio to gross monthly income

29. Underwriting Remember TILA: Ability-to-Repay (ATR)/ Qualified Mortgage (QM) Requires a good faith determination of borrower’s ability to repay loan • ATRExemption - for nonprofit organization that: • Provides credit only to low- or moderate-income consumers • Extends credit less than 200 times annually*; and • Follows its own written policy and procedures to determine ability to repay (consider using HFH-NY templates). *Per calendar year, including 1st mortgages, subordinate mortgages, and repair pricing loans secured by property. • Affiliates must follow their own written procedures to determine that consumers have a reasonable ability to repay loans. This is the reason we were able to obtain the exemption! • A loan that is ATR exempt is not subject to the QM provisions. • Exemption follows the loan, even if sold, or otherwise transferred to a creditor that does not qualify for the ATR exemption.

30. Underwriting • If no ATR exemption, then 8 underwriting factors must be considered & verified by a third-party source: • Expected income or assets to repay the loan • Employment status –if wages is relied on for repaying loan • Monthly mortgage payment for loan • Monthly payments on simultaneous loans secured by the same property • Monthly payments for property taxes and insurance, and other related costs for the property such as HOAs • Debts, including alimony and child support payments • Monthly DTI ratio for all mortgage and non-mortgage obligations as a ration to gross monthly income • Credit history

31. De-Selection or Denial • De-selection/Denial: If you deselect/deny a partner family at any time during this process: • Send Adverse Action Notice. • Must be ECOA and FCRA compliant! • Within 30 days of making decision to deselect/deny • Withdrawal: If a partner family withdraws at any time during this process: • Ensure loan file is properly documented. • Send confirmation of withdrawal to partner family. • Notify all parties within affiliate. • Partner family will need to start process from beginning.

32. Agenda (1:30-1:50) HFH as a Lender Closing Requirements • Updates to Initial Disclosures • Closing Disclosures • Post-Closing Requirements

33. Updates to Initial Disclosures • Prepare documentation • Standard Mortgage Documents (Judy to discuss) • Updates to Initial Disclosures • Only certain changes allowed: • “changed circumstance” or borrower-requested change • If not “changed circumstance” or borrower-requested, then changes subject to tolerance levels: • 0% tolerance: origination fees & transfer tax • 10% tolerance: the sum of • Lender-required settlement services, title services, and required title insurance; • Owner’s title insurance; and • Government recording charges • All other terms may be revised regardless of tolerance limits. • Provide revised GFE and TIL Disclosure Statement if: • Change caused APR + or – 1/8 of one percentage point. • Timing: • within 3 business days of change; and • at least 3 business days prior to loan closing.

34. Closing Disclosures • Closing Disclosures • HUD-1 settlement statement (RESPA) • At least one day prior to closing • Initial escrow statement (RESPA) • At closing or no later than 45 days post closing • Confirm escrow account is separate from affiliate operating account • Right of Rescission (RESPA) • Only for repair products when lien is placed on house • Borrower has until midnight of third business day to rescind loan.

35. Post Closing Requirements • Document verification – Independent party: • HUD-1 to all docs; ensure amounts are correct • Note and deed of trust/mortgage match names, dates, loan amounts etc. • the promissory note correctly account for loan term and amount, payment date, maturity date, where payments are to be made, and correct monthly principal and escrow requirements • Documents are signed by all parties and notarized accordingly • Copies of all initial and closing disclosures are in file • Record mortgage liens to ensure priority. • Follow record retention policy • Retain original promissory note and all documents showing bases for credit decision.

37. MPAR University Resources MPAR University Homepage HFHI Legal Advisory - Mortgage Rules and Regulations MPAR Frequently Asked Questions Mortgage Rules and Regulations (MPAR) - Tool Kit American Bankers Association Trainings on Mortgage Regulations Guide to MPAR University Sabrina Fitze Senior Staff Attorney SFitze@habitat.org (404) 733-3160